Harley Shifts Gears

The company and its customers travel together: they're tough and independent, with a taste for freedom and independence. Now CEO Rich Teerlink aims to triple production without veering off course.

For Harley-Davidson inc., the last 25 years have been a long, strange trip -- and now the company is gearing up to ride again.

Most people know the harrowing tale of the $1.35 billion motorcycle maker's journey to the edge of death and back to the pinnacle of American business iconography. Less well known are the unexpected turns that Harley's saga has taken in the past few years as unbridled success has created new problems. In 1996 Harley shipped 118,771 motorcycles, up from 105,000 in 1995. But even with increased output, supply has lagged demand, leaving disappointed customers who can't get their hands on a Harley. The imbalance between supply and demand has created a flourishing black market, with bikes selling for more than the suggested retail price and customers high on waiting lists selling their places to impatient buyers lower down. At the same time, supply constraints have prevented Harley from going after new growth opportunities in international markets.

The upshot: Plan 2003 -- Harley's ambitious vision to more than double its production for the company's 100th anniversary. "We did a bunch of soul searching and said that by the year 2003 we want to be able to make at least 200,000 to 300,000 motorcycles a year," says Jeff Bleustein, president and COO of Harley-Davidson Motor Co. "And we want to do that without losing any of the quality or family feeling we have right now. Even if we went up to 300,000 motorcycles a year, we'll still be a little special, a little mysterious, a little bad. All the things that represent individuality and freedom of adventure."

Here's the behind-the-scenes story of Harley's next ride: beneath the image of a hard-riding, tough-as-nails Harley-Davidson bike is a company that thrives on the "soft" side of management, emphasizing participation, inclusion, learning, and cooperation.

Fast Company recently traveled to Harley's Daytona Bike Week in Florida and its York, Pennsylvania Manufacturing and Finishing Plant to see what makes Harley-Davidson "a little special, a little mysterious, a little bad" -- and very successful.

Harley Reinvents the Wheel

The standard organization chart for an old-line manufacturing operation is a pyramid, with rigid boundaries keeping functions strictly separate. At Harley, the organization chart is a circle -- three overlapping circles, to be more accurate: a Create Demand Circle, a Produce Products Circle, a Support Circle, and in the center where the three circles intersect, a Leadership and Strategy Council.

The idea, says Bleustein, is simple and democratic. "We're applying the concept of self-directed work teams used in the factories to the executive level. Most management concepts get tried out as far away from the executive offices as possible," Bleustein says. "At Harley we said, Let's try this right up at the senior management level."

Harley's circle organization did away with the executive vice president level and substituted the three circles, which include eight to nine senior managers in each. The Create Demand Circle is responsible for sales and marketing issues; the Produce Products Circle handles engineering and manufacturing; and the Support Circle takes care of legal, financial, human resources, and communications concerns. The Leadership and Strategy Council consists of seven Harley executives: Bleustein plus six managers elected by their peers from the three circles. Each circle nominates three people from any circle; the top six vote-getters win a two-year term.

The circle organization emphasizes participation and collaboration. "We draw the organization chart as three interlocking circles," says Bleustein, "because there's so much interdependence among them. At the same time, the Leadership and Strategy Council looks at issues that go across all the circles -- strategic plans, operating budgets, policies affecting all employees."

It Takes a Smart Company to Build a Tough Hog

Behind all the chrome and leather, behind the brawny bikers and burly bikes, is a company that competes on...brains. Harley is one smart operation -- and its top managers see to it that learning is the engine that continues to drive the business. In addition to providing workers with 80 hours of training each year, Harley uses four specific approaches to building its corporate intelligence.

First, the Harley Leadership Institute focuses on three competencies the company believes all employees should have: interaction competencies including communication, conflict resolution, and team skills; execution competencies such as planning, problem solving, decision making, and performance management; and technical competencies including functional skills in specific tasks and a commitment to continuous improvement.

Second, Harley-Davidson University is the company's annual learning link to its dealer group. As Harley has expanded its goods and services to include collectibles, clothing, financing, and other components of the business, the demands on its dealers have increased. To support its dealers Harley now runs a three-day training program with courses as diverse as how to provide top-notch service, how to do a business simulation, and how to plan for ownership succession.

Third, Harley extends its learning to its family of owners: the Harley Owners Group, or HOG. A 15-year-old initiative to build a life-long relationship between the company and its customers, HOG is the world's largest factory-sponsored motorcycle club, with 325,000 members and 940 chapters. Harley offers HOG Seminars, sessions for the club's 7,000 chapter officers to help answer questions on whether and how to incorporate, how to draw new members, or how to organize an event.

Fourth, the company's most important intelligence gathering comes at Harley-sponsored events such as the Daytona Bike Week, where dozens of company volunteers -- ranging from Rich Teerlink, chairman, president, and CEO of Harley-Davidson Inc. to factory and office workers -- interact with customers.

"This is real-time market research," Teerlink says. "Our engineers see what our customers are doing with their motorcycles, and they come back with things we could improve on or new ideas we could try."

Individuality and Teamwork!

Freedom and Cooperation! Check out the Harley Web site http://www.harley-davidson.com. The combination of words and pictures is a rhapsody to the freedom of the open road -- which Harley manages to couple with a feeling of community. At Harley's York Manufacturing and Finishing Plant the same sense of individuality and teamwork comes across.

"A major issue for us," says Bleustein, "is to get all 5,000 of our people participating. We want all our employees to be able to make decisions within certain guidelines." Inside Harley, the concept goes by the name of Freedom with Fences and takes the form of ongoing conversations and training around the company's core values and business processes.

To make it clear to employees how they fit into Harley's larger business plan, the company created its Performance Effectiveness Process: a contract written by each employee that defines annual measurable goals, which are reviewed quarterly with a supervisor. But the centerpiece of Harley's blend of individuality and teamwork is the company's partnership with its two unions, the International Association of Machinists and Aerospace Workers and the United Paperworkers International.

Based on a negotiated Modern Operating Agreement, both sides share a commitment to making Harley a high-performance work organization, where the people closest to a job have the authority and responsibility to do it the best way they can. Teerlink says part of the company's management approach is freedom and teamwork -- it encourages each plant to solve its problems in its own way.

"The issues are always the same," Teerlink says. "Quality, productivity, participation, flexibility, and cash flow. But each plant deals with them in a different way. We don't have cookbooks because there isn't a cookbook. We're on a journey that never ends. And the day we think we've got it made, that's the day we'd better start worrying about going out of business."

Gina Imperato (gimperato@fastcompany.com) is a member of Fast Company's editorial staff.

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