Harley let quality rot — the cure was on Honda's factory floor

The fix for a struggling operation is often sitting on a competitor's factory floor — the hard part is swallowing the pride to go and look.

Under the conglomerate parent AMF, which bought Harley-Davidson in 1969, the company had grown complacent. Having had the heavyweight market largely to itself for years, it let quality slip; responsibility for quality control was, as one account put it, 'lost in AMF's bureaucratic maze.' It got so bad that the company set up 'hospitals' — way stations where bikes that had come off the line incomplete were patched up before shipping.

The shop-floor number everyone repeats is the gap: by 1980 more than half of Harley's bikes failed inspection and needed repairs, against only 5 percent of Japanese bikes. Sales collapsed, and in 1982 Harley-Davidson lost $25 million; the workforce was cut by about 40 percent. That year the company's executives and union leaders toured Honda's motorcycle plant in Marysville, Ohio, and were, by their own account, shocked: a neat assembly line, good labour relations, and only thirty supervisors among 500 employees.

Harley copied the method, not the product. It adopted just-in-time production (which it called Materials as Needed), employee involvement and statistical process control, cutting inventory by 75 percent. Between 1981 and 1987 revenue per employee doubled and the share of bikes ready to ride off the line rose to 99 percent; by 1989 Harley had regained its lead, with 59 percent of the heavyweight market. In 1987 it voluntarily asked the government to rescind the tariff that had shielded it.

The decision cost near-bankruptcy, a $25M loss in 1982, and about 40% of staff cut.

Monopoly comfort: with the heavyweight market to itself for so long, Harley had no competitor forcing quality, and complacency set in

Cost-cutting without quality ownership under a conglomerate parent — managers were given responsibility for producing quantity, not for monitoring quality

The fix was visible the whole time on a rival's floor; pride and a flawed internal production system kept Harley from seeing it until its people physically walked Honda's plant

The fix for a struggling operation is often sitting on a competitor's floor. The hard part is swallowing the pride to go and look, and admitting the workers were not the problem — the system was.

By 1989 Harley-Davidson held 59 percent of the US heavyweight market, ahead of Honda. Having promised the protective tariff was a crutch and not a prosthetic, the company formally asked the government to rescind it in March 1987. The Marysville tour became a management legend.