Richard Teerlink, turnaround artist of the Harley-Davidson miracle was the keynote speaker at the MAFSI (Manufacturers Agents Association for the Food Service Industry) in San Diego. It’s interesting to watch the auto industry laying off so many people when you have to wait months for a Harley-Davidson motorcycle that will set you back no less than $14,000. And the wait isn’t due to slow production or a lack of customer care. It’s slow because everybody wants one. Detroit still doesn’t get how Harley-Davidson pulled off their miracle just like the airline industry can’t figure out how Southwest Airlines is successful (hint: it’s NOT cost-cutting with employees and NOT being cheap with customers).

Teerlink started out his presentation with a very simple premise on what he used as his barometer on revenue and profit growth: Customers and employees. This wasn’t such grand news for a room full of salespeople, except for one thing: Richard Teerlink was the CFO at Harley- an executive bean-counter. While most CFO’s look at customers as cost-driven, employees as a cost center, and vendors as a virtual bank, Teerlink said that “Harley went up when we cared about our customers and employees. Harley went down when we stopped caring about employees and customers.” Most CFO’s can’t correlate people to financials other than a cost. Teerlink realized that productive people are what made the financials profitable.

Unfortunately, the Harley-Davidson story is not a new lesson. Even before the Harley- Davidson turnaround (in fact, during Harley’s decline) experts were trumpeting the call for better business practices focused on people. Here’s a quote from a book published in 1981, which coincidentally was during another round of massive layoffs in Detroit:

“Our findings were a pleasant surprise. The project showed that the excellent companies were above all brilliant on the basics. Tools didn’t substitute for thinking. Intellect didn’t overpower wisdom. Analysis didn’t impede action. Rather, these companies worked hard to keep things simple in a complex world. They insisted on top quality. They fawned on their customers. They listened to their employees and treated them like adults……

….. A simple summary of what our research uncovered on the customer attribute is this: the excellent companies really are close to their customers. That’s it. Other companies talk about it; the excellent companies do it.”

But Peters and Waterman were not just extolling the virtues of what made companies of Excellence in 1981: they were extolling the virtues of what companies who wanted to become excellent- like Harley-Davidson- had to do. This was something right out of Charles Dickens’ A Christmas Carol. In Dickens’ classic, Old Scrooge (a bean-counter, no less, who pinched every penny and treated his employees as a cost) had a forced revelation when he was visited by three spirits. A forced revelation creates focused, operational urgency: you have to change or you will die. Well, Scrooge changed his ways, his life was spared, and his business improved.

While Dickens novel was fiction, the Harley-Davidson story is not. Yet the parallels are hauntingly similar. What if a company acting like Scrooge doesn’t change its ways? Echoes of Detroit?

Continuing with his presentation, Teerlink remarked, “Your dealers (market channel) must be profitable- that is your face (window) to the customer.” For a room full of independent sales reps in the Food Service Industry that must have been music to their ears. Many industries that utilize channel partners for sales and distribution have an adversarial relationship, not a mutually profitable business relationship. Is it any wonder why they struggle with the same time-wasting, costly battles with their channel “partners” on a daily basis?

How tight is the relationship between Harley-Davidson and their dealers? In exchange for selling the Harley line, the dealers have some responsibilities: 

• Employees: Harley Dealerships must hire customer-focused people who are given a reason to stay (reduce turnover). It’s interesting what Teerlink considers a cost: Not the employee, but the employee who leaves. Customer-focused? Herb Kelleher of Southwest Airlines says, “Our paychecks say ‘From our customers’ because we want our people to remember that it’s not some addition in an office that produces the check, it’s our customers.” 
• Knowledge-learners. Dealers need to learn about Harley and their market. Three-time Indy 500 winner Bobby Unser said, “Every day I thought about what I could learn new that would make the car go faster.” For Harley Dealers, that goal is to sell more Harley-Davidson motorcycles and accessories. 
• Dealer Facilities: Up to date and user friendly. If someone is going to spend $15,000 or $20,000 on a motorcycle, the place better look as good as the motorcycle they are buying. User friendly means making it easy for the customer to get in: experience the product; and get out riding the product (or ordering it). 
• Operational Processes: Best in class. How does the dealer move the customer through the buying process so the sizzle of the product isn’t doused by the process to purchase it? 
• Dealer Activities: Bring the people in through riding clubs and store events. HOGs- Harley Owner Groups are formed by dealers to encourage and facilitate the Harley Experience.

The outcomes of the Harley-Davidson Dealers upholding their part of the Harley turn-around experience were:

1. Customers were provided with an emotional lifestyle experience.
2. A community was built around the Harley-Davidson product.

The combination of these two outcomes at the dealer level resulted in the Harley-Davidson brand being built to the level of notoriety and success it enjoys today.

“There is no silver bullet” commented Teerlink. Many executives waste hours pondering the silver bullet theory. They think about the one thing that is either causing all the problems or will solve all the problems. Memo to executive: if there is one thing that could be done to solve your problems it is probably for you to stop day-dreaming about a silver bullet that doesn’t exist and get engaged with your customers, employees, and vendors; and treat them like people. That might be a silver bullet to consider. Every other problem has multiple causes, multiple solutions, and is evolving by the second so that the solution this moment will change for the next.

Teerlink then quoted Eric Koffer: “In times of change, the Learners will inherit the Earth, while the Knowers will find themselves beautifully equipped to deal with a world that no longer exists.” Learners adapt to a world that is constantly changing. Knowers become extinct by holding on to past facts as though time has stopped.

“We had world class marketing with third world manufacturing. That doesn’t cut it- ALL parts must work together” Teerlink said. Fundamentally, there is a deeper message here: nothing is a cost. Everything is an investment. This includes your people- investing in developing their skills and their teamwork; the tools they work with; the systems that are used to coordinate workflow; and the vendors brought in to partner in the success. Being profitable by investing in things that improve productivity is a far better model than those that only know to tread water by cutting costs.

As he continued, Teerlink went into another important aspect of any company’s success- or failure: communications. “You’ve got to have open and honest communications and you have to be willing to take risks.” Open and honest communications is taboo in most organizations because people either are afraid of hurting someone’s feelings or not allowed to speak up in a top-down dictatorship. At one extreme, businesses act as though the workplace is supposed to be some sort of “happy camp”. At the other, it is anything but a happy camp- it’s more like a prison. In either case, organizations like that won’t go near the second part of Teerlink’s message “…and you have to be willing to take risks”. No risk, no trouble. If it isn’t broken, don’t fix it. This is the exact mentality that plummeted Harley-Davidson into the abyss of dismal performance. Pulling out of it required a CFO willing to take risk and daring to think- and act- differently.

“How do you sustain success?” asked Teerlink. His next slides of his presentation he attributed to Michael Porter:

Growth Depends on Three Things 

1. Macro Economics (you can’t do anything about this) 
2. Your industry 
3. Your position in the industry

Then, establishing a competitive advantage in your industry requires you to look at one of two things: Cost structure or differentiation.

Regarding cost structure as an approach to a competitive advantage, Teerlink said, “Good luck here- this is what General Motors, United Airlines, etc are going through right now. Not what I advise as a good approach to being competitive. We focused Harley on differentiation, which is a competitive advantage that is a non-price value. Harley’s differentiation was relationships. It was people. The other thing that made us successful was the fact that back in 1983, we were in a crisis.” Harley is still successful because it still operates like it is in a crisis- there is a sense of operational urgency and focus to get things done, get them done right, and get them done better.

What was the result of differentiating a business through people who operate with urgency? Note the turnaround at Harley-Davidson started in 1983.

Let some data-crunching, cost-cutting CFO chew on those numbers for a while. The real bottom-line lesson is that Richard Teerlink and Harley-Davidson realized that numbers don’t drive people: people drive numbers.