QUESTION (MANAGEMENT)
Demonstrate the application of the SPACE Matrix to the case study. (Harley Davidson)
Note that:
SPACE matrix is based on four areas of analysis.
- Internal strategic dimensions:
- Financial strength (FS)
- Competitive advantage (CA)
- External strategic dimensions:
- Environmental stability (ES)
- Industry strength (IS)
Analyse the following tables for information required for this question for additional information, refer to the HDI and related websites:
TABLE 1: FINANCIAL RATIO ANALYSIS (MARCH 2004) Company Sector S&P 500 Valuation Ratios P/E Ratio (TTM) P/E High - Last 5 Yrs PIE Low - Last 5 Yrs Beta Price to Sales (TTM) Price to Book (MRO) Price to Tangible Book (MRO) Price to Cash Flow (TTM) Price to Free Cash Flow (TTM) % Owned Institutions Industry 20.11 43.52 14.06 0.84 221 3.94 6.67 14.31 24.93 56.96 20.86 37.56 10.28 1.05 1.19 321 6.04 11.18 24.73 51.37 24.01 45.41 16.26 1.00 3.33 4.29 7.56 17.32 28.97 64.19 Dividends Dividend Yield Dividend Yield - 5 Yr Avg Dividend 5 Yr Growth Rate Payout Ratio (TTM) 0.62 0.30 20.27 7.74 1.32 0.96 7.13 16.59 2.30 2.38 -3.77 25.54 2.04 1.48 6.48 26.78 Growth Rates % Sales ( MRQ) vs Qtr 1 Yr Ago Sales (TTM) vs TTM 1 Yr Ago Sales - 5 Yr Growth Rate EPS (MRQ) vs Qtr 1 Yr Ago EPS (TTM) vs TTM 1 Yr Ago EPS-5 Yr Growth Rate Capital Spending - 5 Yr Growth Rate 12.98 13.98 18.90 21.01 31.39 29.36 12.91 10.99 12.18 30.16 29.80 21.20 1.04 10.85 7.63 6.94 26.58 18.81 13.40 11.90 9.30 28.69 21.92 12.15 4.06 5.91 152 Financial Strength 2.55 89 Quick Ratio (MRQ) Current Ratio (MRO) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM) 2.86 0.23 0.34 DOGO 1.26 1.76 0.68 0.85 11.86 NM Profitability Ratios % 33.60 28.55 28.17 11.46 47.32 47.01 20.79 10.32 Gross Margin (TTM) Gross Margin-5 Yr Avg EBITD Margin (TTM) EBITD - 5 Yr Avg Operating Margin (TTM) Operating Margin-5 Yr Avg Pre-Tax Margin (TTM) Pre-Tax Margin - 5 Yr Avg Net Profit Margin (TTM) Net Profit Margin - 5 Yr Avg Effective Tax Rate (TTM) Effective Tax Rate - 5 Yr Avg 723 6.72 7.38 6.20 11.51 11.53 7.41 32.48 34 25 31.31 34.20 TABLE 6: QSPM Strategic Alternatives Joint venture in Weight Joint venture in Europe AS 0.075 0.075 0.065 0.050 0.050 0.050 0.040 0.040 0.030 000 Key Internal Factors Strengths 1. Net income in 2003 was $760 million, which was 31 percent higher than in 2002 Strong relationships built on trust and respect with suppliers and dealers. The standard and performance segments of Harley Davidson make up 70% of the European heavy weight motorcycle market. Harley Davidson operates in two principal business segments: Motorcycles and Related Products and Financial Services 5. Harley Davidson is the only major American motorcycle manufacturer. Strong brand name. The company has continued to focus its capital expenditures on capacity expansion at its new and previously existing facilities The Harley Owners Group (HOG) is the industry's largest company sponsored motorcycle enthusiast organization, which currently has approximately 430,000 members worldwide. Harley Davidson offer's a custom segment that allows owners the opportunity to customize their bikes, this division makes up the highest number of Harley Davidson's sold. 10. Harley Davidson has a strong marketing department, which sponsors and participates in all major motorcycle consumer shows and rallies Weaknesses 1. Harley Davidson does not emphasize price in its product Harley Davidson has had difficulty gaining market share in some European countries Registrations for the Asia/Pacific market are decreasing Facing ongoing capacity constraints Only a small portion of the company's annual capital expenditures relate to equipment, which has the sole purpose of meeting environmental compliance obligations The top Board of Directors for Harley- Davidson are all men. The leadership strategy council is comprised completely of vice presidents Difficult to attract and retain talented employee 9. Lack of opportunity for advancement 10. Loss of benefits Total 0.030 00 000 0.075 0.060 0.055 2 0.050 0.045 IOLO 0.040 0.035 0.030 OTO 0.030 0.075 0 0.620 0.535 Weight Joint venture in Joint venture in Europe Asia AS TASASTAS 4 0.150 0.150 0.100 0.100 0.025 0.050 0.025 0 0.025 0.025 0.100 Key External Factors Opportunities 1. The international heavy weight market is growing and is now larger than the U.S. heavyweight market The European demand for Harley Davidson is the highest in the international market and represents the single largest motorcycle market in the world Interest rates are at historicallows Women and younger riders are increasing becoming interested in bikes. Alliances with Ford Motor Company or other automobile manufacturers are possible. Industry registrations of domestic heavyweight motorcycles are increasing Market share increasing in Europe and Asia for the last two years. Increasing demand in US markets for bikes. Customers value quality parts. Threats Harleys ongoing capacity restraints caused a shortage supply and a loss in domestic market share in recent years. Harleys average buying age is 42 years old and increasing The European Union's motorcycles noise standards are more stringent than those of Environmental Protection Agencies in the US and increased environmental stand. Some competitors of Harley Davidson have larger financial and marketing resources and they are more diversified Environmental protection laws. Shifts in buyers needs and tastes. Customer loyalty in European and Asian Countries Costs could become expensive from international importing. 9. The Buell division needs to continue to produce a quality motorcycle under Harley's brand name. SUBTOTAL SUM TOTAL ATTRACTIVENESS SCORE 0.050 00250 0.025 No No 0.025 0.025 2.350 2.97 1.600 2.135 TABLE 1: FINANCIAL RATIO ANALYSIS (MARCH 2004) Company Sector S&P 500 Valuation Ratios P/E Ratio (TTM) P/E High - Last 5 Yrs PIE Low - Last 5 Yrs Beta Price to Sales (TTM) Price to Book (MRO) Price to Tangible Book (MRO) Price to Cash Flow (TTM) Price to Free Cash Flow (TTM) % Owned Institutions Industry 20.11 43.52 14.06 0.84 221 3.94 6.67 14.31 24.93 56.96 20.86 37.56 10.28 1.05 1.19 321 6.04 11.18 24.73 51.37 24.01 45.41 16.26 1.00 3.33 4.29 7.56 17.32 28.97 64.19 Dividends Dividend Yield Dividend Yield - 5 Yr Avg Dividend 5 Yr Growth Rate Payout Ratio (TTM) 0.62 0.30 20.27 7.74 1.32 0.96 7.13 16.59 2.30 2.38 -3.77 25.54 2.04 1.48 6.48 26.78 Growth Rates % Sales ( MRQ) vs Qtr 1 Yr Ago Sales (TTM) vs TTM 1 Yr Ago Sales - 5 Yr Growth Rate EPS (MRQ) vs Qtr 1 Yr Ago EPS (TTM) vs TTM 1 Yr Ago EPS-5 Yr Growth Rate Capital Spending - 5 Yr Growth Rate 12.98 13.98 18.90 21.01 31.39 29.36 12.91 10.99 12.18 30.16 29.80 21.20 1.04 10.85 7.63 6.94 26.58 18.81 13.40 11.90 9.30 28.69 21.92 12.15 4.06 5.91 152 Financial Strength 2.55 89 Quick Ratio (MRQ) Current Ratio (MRO) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM) 2.86 0.23 0.34 DOGO 1.26 1.76 0.68 0.85 11.86 NM Profitability Ratios % 33.60 28.55 28.17 11.46 47.32 47.01 20.79 10.32 Gross Margin (TTM) Gross Margin-5 Yr Avg EBITD Margin (TTM) EBITD - 5 Yr Avg Operating Margin (TTM) Operating Margin-5 Yr Avg Pre-Tax Margin (TTM) Pre-Tax Margin - 5 Yr Avg Net Profit Margin (TTM) Net Profit Margin - 5 Yr Avg Effective Tax Rate (TTM) Effective Tax Rate - 5 Yr Avg 723 6.72 7.38 6.20 11.51 11.53 7.41 32.48 34 25 31.31 34.20 TABLE 6: QSPM Strategic Alternatives Joint venture in Weight Joint venture in Europe AS 0.075 0.075 0.065 0.050 0.050 0.050 0.040 0.040 0.030 000 Key Internal Factors Strengths 1. Net income in 2003 was $760 million, which was 31 percent higher than in 2002 Strong relationships built on trust and respect with suppliers and dealers. The standard and performance segments of Harley Davidson make up 70% of the European heavy weight motorcycle market. Harley Davidson operates in two principal business segments: Motorcycles and Related Products and Financial Services 5. Harley Davidson is the only major American motorcycle manufacturer. Strong brand name. The company has continued to focus its capital expenditures on capacity expansion at its new and previously existing facilities The Harley Owners Group (HOG) is the industry's largest company sponsored motorcycle enthusiast organization, which currently has approximately 430,000 members worldwide. Harley Davidson offer's a custom segment that allows owners the opportunity to customize their bikes, this division makes up the highest number of Harley Davidson's sold. 10. Harley Davidson has a strong marketing department, which sponsors and participates in all major motorcycle consumer shows and rallies Weaknesses 1. Harley Davidson does not emphasize price in its product Harley Davidson has had difficulty gaining market share in some European countries Registrations for the Asia/Pacific market are decreasing Facing ongoing capacity constraints Only a small portion of the company's annual capital expenditures relate to equipment, which has the sole purpose of meeting environmental compliance obligations The top Board of Directors for Harley- Davidson are all men. The leadership strategy council is comprised completely of vice presidents Difficult to attract and retain talented employee 9. Lack of opportunity for advancement 10. Loss of benefits Total 0.030 00 000 0.075 0.060 0.055 2 0.050 0.045 IOLO 0.040 0.035 0.030 OTO 0.030 0.075 0 0.620 0.535 Weight Joint venture in Joint venture in Europe Asia AS TASASTAS 4 0.150 0.150 0.100 0.100 0.025 0.050 0.025 0 0.025 0.025 0.100 Key External Factors Opportunities 1. The international heavy weight market is growing and is now larger than the U.S. heavyweight market The European demand for Harley Davidson is the highest in the international market and represents the single largest motorcycle market in the world Interest rates are at historicallows Women and younger riders are increasing becoming interested in bikes. Alliances with Ford Motor Company or other automobile manufacturers are possible. Industry registrations of domestic heavyweight motorcycles are increasing Market share increasing in Europe and Asia for the last two years. Increasing demand in US markets for bikes. Customers value quality parts. Threats Harleys ongoing capacity restraints caused a shortage supply and a loss in domestic market share in recent years. Harleys average buying age is 42 years old and increasing The European Union's motorcycles noise standards are more stringent than those of Environmental Protection Agencies in the US and increased environmental stand. Some competitors of Harley Davidson have larger financial and marketing resources and they are more diversified Environmental protection laws. Shifts in buyers needs and tastes. Customer loyalty in European and Asian Countries Costs could become expensive from international importing. 9. The Buell division needs to continue to produce a quality motorcycle under Harley's brand name. SUBTOTAL SUM TOTAL ATTRACTIVENESS SCORE 0.050 00250 0.025 No No 0.025 0.025 2.350 2.97 1.600 2.135
