Jeff Bleustein chairman and CEO HarleyDavidson

Jeff Bleustein, chairman and CEO, Harley-Davidson

Technology Leader Of The Year -- Fueled By Innovation

For 27 years, Jeff Bleustein has helped Harley-Davidson Inc. innovate its way to the top.

That's a problem many of today's executives would like to share with Jeff (Jeffrey L. Bleustein, chairman and CEO of Harley-Davidson Inc., Milwaukee, IW's Technology Leader of the Year.

First, consider the company's accomplishments -- the outstanding performance Bleustein wants to build on: This year's third quarter brought record revenue of $1.14 billion, an increase of 31.8% over the third quarter last year. The second quarter was almost as good with revenue of $1.0 billion, an increase of 16.1% over the same period last year. Worldwide, retail sales of Harley-Davidson motorcycles for the first half of the year grew 19% over the same time period last year. The company's 2001 results also were record breaking. That year the stock soared 40% in contrast to the S&P, which dropped 15%.

The other dimension of Bleustein's "problem" is that all of those gains follow an amazing history of annual double-digit revenue advances. Expectations are that the year 2002 will be the 17th consecutive year of spectacular growth, says analyst Tim Conder, A.G. Edwards & Sons Inc., St. Louis, Mo. He also expects the company to post another record year in 2003.

But it wasn't always that way, and Bleustein, having joined the company in 1975, endured near bankruptcy in the early 1980's after he and 12 other executives led a buyout from American Machine & Foundry (AMF). AMF had owned Harley-Davidson since 1969.

The new owners faced a declining market for heavyweight motorcycles -- 20% within a year. Like many U.S. manufacturers, Harley-Davidson was challenged by European and Asian firms with superior manufacturing methods. At one point the company had to lay off more than 40% of its workers.

"We had to do something," says Bleustein. "As new owners we felt compelled to innovate rather than abdicate." The resulting manufacturing strategy focused on remaking manufacturing processes into competitive strengths. Today, adds Bleustein, business is so good that the essential challenge is to overcome seeing continuing innovation as a risk to current success.

Focused On Progress

Process innovation powered the company's recovery from the dark days of the 1980s and is growing in strategic significance. Bleustein is careful to emphasize that technology is not "pushed" for its own sake, but is always "pulled" to fill a strategic need. One example is the use of a new software solution to strengthen collaboration with suppliers. Bleustein explains that the "pull" in this case is the need to not only collaborate with the supply chain, but to help both Harley and the supplier succeed in optimizing the cost of product designs. \

"As a result of being directly linked to Harley's financial objectives, senior management can evaluate projects against these goals," explains Wauwatosa, Wis-based Dan O'Callaghan, director of product cost.

The software, which is an IW Technology of the Year, brings a new level of cost management to the product design stage. What really differentiates the solution is how Harley is implementing it. Bleustein is careful to emphasize that the objective is product optimization, not whipsawing a supplier on price. (Some automakers could well take note.)

Another example of technology being "pulled" is solving a capacity problem at the company's Pilgrim Road Powertrain Operations in Milwaukee. The "pull" in this case is the rapidly growing demand for engines and transmissions. The company is in almost continual need for more production capacity for milling, drilling, tapping and boring.

For example, between 1995 and 2000 the company nearly doubled production capacity to meet rapidly growing customer demand, and the pace continues. In response to the recent record third quarter, Bleustein increased 2002's production target from 262,000 motorcycles to 263,000; and for 2003 he is targeting 289,000, 1 10% increase over 2002.

Harley-Davidson could have replicated existing production equipment -- linear transfer lines employing horizontal machining centers -- but a search was mounted for alternatives that could provide greater strategic advantage.

The results surprised even Harley-Davidson. The winning alternative, rotary transfer machines, was technology never before considered from a supplier that was not on the preferred supplier list. The vendor: Turmatic Systems Inc., St. Louis. Although requiring a higher initial investment, Turmatic's TriFlex machining cells demonstrated dramatically improved productivity, higher quality and lower overall cost.

A key factor is that a single TriFlex with four fixtures can produce the same number of parts as several horizontal machining centers with multiple sets of fixtures. "When you reduce handling and multiple fixturing, you eliminate variability significantly, reduce scrap and predictably produce parts of more consistent quality," says Harley's David Shoals, manager, manufacturing support services.

And what of the horizontal machining centers the TriFlexes replaced? They've been retooled and now produce other components. "We've not scrapped out anything," says Shoals. "What we've done is amended out machining strategy."

The technology itself is only one aspect of the continuing manufacturing innovation process at Harley-Davidson. For example, the company emphasizes fairness in dealing with vendors, internal consensus in reaching buying decisions and proper training to enable the technology's potential.

Vendor collaboration is key to Harley-Davidson's success with technology. Shoals talks in terms of companies learning together and being fluent in each other's processes. "That's the definition of being good partners."

Shoals cites the role that Turmatic Systems played early on in the changeover from machining centers to flexible cells. "They looked at our fixtures and tooling and redesigned and improved them for use in a flexible cell. They didn't just come in and simply modify our existing process. They optimized our process."

Focused On Product

Harley-Davidson's toughest innovation challenge is the tension inherent in product development.

"As with any strong brand, Harley's strength lies in what the brand is, and that makes change more difficult," notes associate professor Susan M. Fournier, Harvard Business School, Boston. "If you change too much, you risk losing the reason why people buy the product."

Nonetheless, Bleustein cites Harley's early product development leadership with solid state ignition systems, fuel injection, hydraulic disk brakes and anti-dive suspension.

"Performance improvement is the important product goal," Bleustein stresses. "Our philosophy is never to flaunt the technology [in our product], but to emphasize the suitability of the motorcycle for the customer." He says the point is not that technology is used, but rather how cleverly the technology is applied to bring a benefit to the customer.

Where customers "own" a brand, Fournier says it's important to keep innovations subtle so the brand isn't endangered. Last year, some observers had doubts when Harley-Davidson introduced its first water-cooled V-Rod, a powerful sports performance model targeting a younger customer profile. The fears of diverging from the air-cooled tradition were unfounded; consumers accepted the V-Rod.

The lesson, says Fournier, is that strong brands do change, and the key is to know which changes the customers will celebrate.

Bleustein equates the Harley brand appeal to the same timelessness of classics in art and music. "What we try to do is use technology to capture, preserve and update the timeless qualities of the Harley-Davidson brand." Customers seeking the appeal of radical technological innovation are referred to Harley's Buell Motorcycle Co. subsidiary. For example, in July it introduced the race track-inspired Firebolt XB9R. To lower its center of gravity, the fuel tank is integrated into the frame. Its design goals: maximum frame rigidity, mass centralization and low unsprung weight. Maintaining a classic appearance was not a condition.

"We questioned everything from fuel location to the brake rotor," says Erik Buell, chairman and CTO. "The Firebolt was developed to dominate the back road corners while carrying on the Buell traditions of superior chassis design, aggressive riding position, naked styling, usable power and excellent flickability."

Organizing For Innovation

Bleustein emphasizes how organizational structure changes have contributed to the company's success. "What we try to do is organize the structure to achieve the big objective of spreading decision-making and making every voice count."

Teams speed decision-making -- even at executive levels. For example, Bleustein says those who formerly reported to executive vice presidents now make decisions on a team basis. "That eliminated a whole layer of management and gives those who implement decisions the opportunity for input.

Harley groups its senior management into three overlapping functional areas -- a Create Demand Circle, a Produce Products Group and a Provide Support Circle. A Leadership and Strategy Council representing the circles, operating managements and Bleustein provides oversight.

Clearly, Harley-Davidson has demonstrated a culture for innovation, but Bleustein admits to a couple of false starts in reinventing Harley-Davidson in the early 1980s.

"For example, we got caught up in computerizing our inventory, not realizing the effort should have gone into eliminating inventory. We mistakenly began to automate existing practices rather than question the need for them. Instead of getting involved with time-study, we should have gone quickly and eliminated that overhead.

Gradually a culture of innovation evolved starting with employee involvement, continuous improvement, quality programs, statistical quality control and JIT. A manufacturing flow initiative is now underway.

The company has not repeated any of its manufacturing missteps of the early 1980s -- nor can it afford any. With an enormously strong brand controlling product development, the company's major opportunity for innovation resides in the process.

"Harley-Davidson succeeded because they aligned all stakeholders -- from customers to shareholders to employees and suppliers," says consultant Stephen M. Shapiro, author of "24/7 Innovation" (2002 McGraw-Hill) and founder of the 24/7 Innovation Group, Brockton, Mass. "They created the Harley-Davidson family where everyone, including unions are united in common purposed."

Externally skillful brand management evolved a market consciousness as ubiquitous as Coca-Cola even though 99% of the public aren't bikers, adds Shapiro. "Forming the Harley Owners Group (HOG) helped consolidate the brand's influence."

Harley-Davidson's quality also is at an all-time high, with Bleustein jealously protecting every aspect of a customer's personal happiness with the product. That is in pleasant contrast to the quality levels Bleustein found when he first came on board with engineering responsibilities.

He made the discovery the morning after he rode a new Sportster home. Over night a puddle of engine oil accumulated on the garage floor!

As lead engineer Bleustein began building his reputation for innovation with an engine redesign that eliminated the leaks, the Evolution. \

Today Bleustein, an avid biker, owns two Electra Glides and a Buell Blast motorcycle, and none of them leaks. He estimates half of the company's 9,000 employees ride Harleys. All of them, including Bleustein, get them from dealers. Living the customer experiences is a priority, says Bleustein.

"It provides a basis for innovation."

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