Thursday, July 1, 2010

Vaughan Beal's IQ

In order for great company comebacks to take place many factors are necessary. The list would include: getting back to the basics of producing a quality product that people truly wanted, reviving a mystique, recognizing the stage of growth the company was in, understanding how to diversify, defending a core market niche, and modernizing technology and logistics. These are all important ingredients in the recipe but the key in every case appears to me to be a leader with distinctive characteristics.

Every time I review what I have learned, it distils to something that I was surprised to see in spite of my training in psychology. Every leader in had the qualities that add up to emotional intelligence. They did not just have the pedigree or the education to understand the events, the components and the business. They had the ability to understand people in a profoundly productive manner.

Beals was hired by AMF Harley-Davidson in 1975. He had a Masters degree in aeronautical engineering from MIT and he had several years of experience before he led a leveraged buyout of the company and became CEO. Thus he had both education and experience that could partially account for his success with the company.

By the late 1960s Harley-Davidson was producing only 16,000 motorcycles a year and their quality was poor. In a move to gain capital to build new manufacturing facilities they sold the company to AMF in 1969. While production increased relationships with dealers and customers declined further and the Japanese manufacturers were stealing market share without much effort. By the late 1970s it seems like only the company’s management and employees still believed in the brand. In June of 1981, a group of 13 managers led by Beals purchased the company from AMF and Beals became CEO. Together they resurrected Harley-Davidson.

But why do I think EQ was the magic ingredient when he had all of the other ingredients already in his mix? Let’s observe his pattern of actions.

The first indicator was that he was able to lead and inspire a group of people to follow him and put their own money, reputations and futures on the line to follow his vision of a gloriously different future for the company. People believed in him and somehow he also made them believe in themselves to attempt this daring manoeuvre when market share in North America was only 3%. He was able to identify people within the company like Jeff Bleustein who was expert in engineering and knew what needed to change and Willie G. Davidson who was a creative genius who would design the Harleys of the future.

In his first major coup, Harley-Davidson’s lobbying convinced congress to impose a huge tariff on Japanese motorcycles in 1983. This was a brilliant move to limit competition to ensure survival. The next move was to restore the faithful core to belief in the company. This was done with the grandson of the founder. His name was Willie G. Davidson and his role in the company focused on design. Talk about EQ! To bring in the founder’s grandson, give him a role in design at a time when design was not front and center in American business ideology and then to get him into contact with the customers themselves! It was a brilliant humane move. People love a story where the company’s founder is still at least partially at the helm. Beals wisely never tried to change Willie either. His appearance as a middle aged hippie was just right for the task at hand. The faithful love to hob knob with the ‘real McCoy’. Getting the designer and the CEO in contact with the common people at rallies where they were not just on display but actually listening to the customers who wanted to believe in the product and who loved the mystique was exceptionally insightful. Restoring confidence in the product and its quality was crucial. They drove Harley-Davidsons to rallies and met Harley owners and evangelists. They learned about concerns and complaints and even their ideas and promised to implement what they learned. Part of what they learned was what people were willing to buy. Slowly they rebuilt their base and encouraged their employees to contact the base as often as possible.

In order to make quality a reality, Beals showed EQ in another way. He and his executives went to the competition and found out how they did it. They did not alienate the competition, they were humble enough to go and learn in Japan and in Ohio. From what they learned they reduced inventory by 67%, reduced scrap and reworking by 2/3, reduced defects by 70% and increased production by 50% between 1981 and 1988. They also made product innovations to reduce vibration and improve the quality of the riding experience.

At a time when the big three auto companies were struggling with the same labour issues, Harley-Davidson again used EQ to change its relationship with its employees. They improved incentive plans, they added better employee assistance programs and benefits, they also increased the amount of autonomy that employees had over their own tasks and the quality. It worked well. When others were outsourcing, laying off and selling out, Harley-Davidson’s actions stabilized the security of their work force and reaped amazing rewards from it. This is clearly EQ when you swim against a current of accepted business practice to humanize the relationship you have with employees.

Business people who are high in EQ understand the need for savvy marketing. Beal seems to have understood this as well. Beyond the initial reference to his collaboration with Willie G., he led Harley-Davidson to branding the company logo on all sorts of products. Noting that the faithful even tattooed the logo on their bodies and realizing what an endorsement that represented, an entire line of licensed and logoed products emerged.

“One big hurdle was convincing potential buyers that Harley had truly solved its quality problems. To bring home the message, the company in 1984 committed $3 million to an unprecedented demonstration program it called SuperRide. A series of TV commercials invited bikers to come to any of the company's 600- plus dealers for a ride on a new Harley. Over three weekends, the company gave 90,000 rides to 40,000 people, half of whom owned other brands. The venture didn't sell enough bikes to cover its cost, but it made the point nonetheless. Many who rode the demonstrators came back to buy a year or two later when they were ready for new motorcyles. Today SuperRide is the only such consistent program in the industry, and so successful as a sales generator that Harley has a fleet of demo bikes that it takes to motorcycle rallies.” (Reid, 1989)

This led to an understanding of the “Rubbies” market of middle aged dreamers who wanted to be included in the Harley mythology. They came to buy one in three Harleys by the end of the 1980s when Beal stepped down. In that time he took the company from a deficit when he took over to over $39 million in profit when he stepped down.

So I have pointed out Beal’s EQ with government, competitors, customers, employees, marketing and peers. While EQ is controversial, it appears to me to be the key ingredient in the Harley-Davidson comeback and I can see it in the turn around of McDonalds, Continental and Proctor and Gamble. Not bad for a concept that has been considered a pseudo science! One person with the ability to understand the business and truly understand the people involved in the business can make a comeback happen. As demonstrated by all of the less successful leaders that came before them, no amount of technical expertise without the true understanding of the people quotient can make a great comeback happen.

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