Does America Still Work?

Interview with Richard Teerlink, CEO of Harley-Davidson.

His company was spotlighted at the first White House 'Corporate Citizenship Conference' (May 1996) for investing in its work force.

photo of Richard Teerlink

Q: I read recently, and I think it's outdated, that Harley-Davidson's goal for 1996 or 1998 was to sell 100,000 motorcycles. Have you reached that goal?

Teerlink: Our goal in 1997 was to reach 100,000, and we accomplished that last year with 105,000 motorcycles.

Q: Well, what's going on out there?

Teerlink: What's going on out there are two things. We've got customers who want products and we're not doing a very good job of satisfying them.

Q: Because you mean you can't meet their demands?

Teerlink: Excess demand, yes. The other thing that's going on is that when we lay something in front of people as to what we've got to do to improve, they step up to the bar and make it happen. We actually got the 100,000 units, as I said, eighteen months in advance.

Q: So what do you mean? Your in-house people stepped up and met the challenge? What did they have to do to meet it? Overtime?

Teerlink: Some was overtime, but it was looking at the way we work and the way we work together. Changing those things that we can do more efficiently and more effectively, rather than just keeping business as usual. Too much of business today is business as usual. Even though we're in dynamic change, you don't find a lot of necessary change going on in the process.

Q: There's a cliche and I know you guys subscribe to it, and you see it everywhere, this idea of continuous improvement. Does it really work at Harley? Constantly improving the production process?

Teerlink: Our indicators say that it is alive and well. We don't beat it to death with 5,000 different ways of measuring it, but if you measure the units we produce per 1,000 hours, that's certainly been improving on an ongoing basis. Our costs have been improving. We believe you have to continuously improve.

Q: Way back, was there a decision that had to be made about staying in Milwaukee, or did you never really consider leaving?

Teerlink: To go back to 1981, which was the time we did the leverage buy-out, we didn't have a choice because we didn't have any funds to relocate, and if you also go back to that time, you find that was when we had to face a very tough decision in 1982, to lay off forty percent of our people. We also vowed at that time we'll never do that again. Our challenge was we had too many people. We weren't efficient. We weren't making product quality that the customers wanted. And we started the whole issue of getting people to understand what they want to do to satisfy customers.

Q: How much market share did you lose over those years?

Teerlink: Well, depending upon what market you look at, you can literally say that we owned the large displacement motorcycle market, because we basically invented that side.

Q: You mean the big motorcycle.

Teerlink: The big motorcycle market. And we went down to 23% in 1983.

Q: From?

Teerlink: From probably 70%. And if you look at that in another way, the name on the gas tank never changed. The only thing that changed was how we felt about our customers. We didn't give them quality and reliability or price value.

Q: Who spear-headed this idea or was it a management group?

Teerlink: Von Beals was our Chairman, and obviously he was the orchestra leader, but it was basically a set of people who decided that we had to do things differently. And then working through the total organization and not having heroes. I don't think we believe in super heroes at Harley. What we'd rather recognize is that we've got a bunch of people who are all trying to do great things. And we as leaders have to create the environment for that to happen.

Q: How does that specifically happen? You hear management consultants talk about this all the time and business philosophers. They use the language you're using and they say everybody should do it, but how did you make it work, because a lot of companies aren't making it work?

Teerlink: Well, we had an advantage. It was called survival back then. And so when you're surviving, it's easy to say if we don't do this we're not going to be here. But the real issue for a company comes when you have survived. And that is not to get complacent. What we have to do is continually renew. We have to have continuous improvement. So then you start to devise approaches that support the efforts of people. And you support the efforts of people by letting them know what's going on. And if they have a clear understanding of what's going on, they will do the right things in most cases.

Q: How many of your good ideas come from the work force itself?

Teerlink: I would guess all good ideas come from the work force because we're all part of the work force.

Q: How many of your ideas come from the production worker?

Teerlink: We don't quantify that, but I'd say most of the things we do today we do with great involvement of the production work force. We're going to teams. We have a partnering effort that we're involved in now. All of that says that we're going to do it together with the people on the shop floor and the leadership of that specific department. And, where possible, try to go to self-directed teams, so that you don't have a supervisor there. You have the group that knows what's got to be done determining things for themselves.

Q: Did this work for Harley only because you had such a good brand name, such a well-known brand?

Teerlink: No. Let's say we survived because we had a brand name and we were allowed to get down to 23%. The comeback was because we had people who changed the level of quality and reliability that we had in our product, changed the product line to new and appropriate technologies and brought that to market. Then we could have the benefit of the Harley-Davidson name. But it allowed us to get to where we are, but there's only one thing that made it happen and that was the people in the company.

Q: Didn't it take some money, though? Didn't it take some capital investment?

Teerlink: We didn't have money then. In fact, in our first year we had quite a discussion about whether or not we could spend 8 million dollars on expansion. Now, we'll be going to our Board of Directors this week, asking them for 200 million dollars for a new plant. It's a whole different world, but that was a very good lesson. You can't buy your way out of your problems, so you have to use the intelligence of people again. And as we've looked at our new plant project, it's by working with people that the actual capital that we require has come down , because we're doing the right thing.

Q: Are you glad you had to stay in Milwaukee?

Teerlink: Well, we didn't have to stay in Milwaukee. I think we're here because this is our heritage, this is where the company was founded. This is Milwaukee Iron. And I think it's important for a company to have a heart and a soul. And when you start moving plants all over the world, you lose some of that. You just become another manufacturing plant in another town. So we would never move it all out.

Q: How does this heart and soul of Harley actually affect the work place, the quality of the product, and the success of the company?

Teerlink: Well, I think, we all want to stay employed, and the realities of the world say if you make bad product you don't stay employed. Remember 1982. Forty percent of the people left the employment of Harley-Davidson. Because we weren't doing the right thing. Now we have to be careful about being complacent because we are so successful, and some people think it's guaranteed.

Q: But how do you translate what you call heart and soul into business practices to motivate employees?

Teerlink: Well, motivating employees is something we can't do. That's inside the people, so it's what they take inside them with regard to Harley Davidson that says I want Harley Davidson to succeed. I am motivated to see Harley-Davidson succeed because I'm proud to be a motorcyclist. I'm proud to work for the company. And I want to guarantee my job in the future. There's too much going on in the world, I think, that says you're going to do this or that and you're going to motivate someone -- you know, all these motivational programs. Why don't we just create an environment where people can do great things? And we do that by trying to have systems within the organization that support the efforts of people. So we make it easier for people to do business.

Q: Do you reward them well? I mean is that part of the system?

Teerlink: Our employees are well compensated. Every employee at Harley-Davidson in some way is involved in the gain-sharing plan. We believe strongly in sharing economic benefit.

Q: Is it also a matter of simply treating these people as people, as individuals who count?

Teerlink: Yes. We have what we call a business umbrella and it's part of our business process that says this is the way we want to run our business. The first circle on that is a set of values: tell the truth, be fair, keep your promises, respect the individual and encourage intellectual curiosity. This sets the stage for how we treat people. Now, we don't do it right all the time, but by expressing it and by working through it, I think we start setting the context for how we treat people.

Q: A lot of corporate leaders these days -- perhaps they feel under the gun -- but a lot of them say business does not have a social responsibility.

Teerlink: They may not feel they have a social responsibility, but if they ignore the powers of society, they'll be out of business because society can complain to government and then government can regulate and government can do the one thing they do very well and that's over-regulate and that will hurt your business.

Q: Doesn't Harley have a sense of social responsibility?

Teerlink: We have a strong sense of social responsibility. We are in this building here today because we will not move our headquarters out of the edge of the inner city of Milwaukee because it's part of our heritage and that's very important. We support many, many activities here in the inner city of Milwaukee, as well as in the other locations where we have plants.

Q: But don't you pay a price for that? Couldn't you make more money if you moved to an area where labor was cheaper or didn't have a union shop.

Teerlink: If you view that the objective is only to make money, yes, but we view what we have to do is balance stake holder interest. We have six stake holders we have to serve. The investor is one. Very important one. We also have employees. And we have customers. And we have suppliers. And we have government and society, and we have to try and deal with all of those, not just one, because if all I worry about is the bottom line and abuse my employees, I'm not going to have quality product. By the same token, if I overpay my employees and can't get the price from my customer, I don't have a job. So the real test of the management is how do you balance all those things? And they're never in balance But you do your best.

Q: Do a lot of companies subscribe to this notion?

Teerlink: A lot of corporate leaders today say stake holders in corporations is a bunch of bunk. There's only one stake holder and that's the share holder. And they're entitled to their view. The question is do they feel any way responsible for the people who generate the money to pay the shareholder -- the employee and the customer. We could increase our prices fifteen percent today and every dollar of that would go down to the bottom line and we would sell every unit we manufacture. I told you about our values before. That's not fair to our customer. So we don't do it.

Q: Do you think the other attitude is just bad business?

Teerlink: Yes. We do. We're long term and we want to stay in business. We want to be here for our 100th anniversary in 2003 and our 200th anniversary in 3003. But we have to be very careful that we balance. It is very easy to get caught up into touchy-feely soft stuff and see how everyone feels good. We still have to make a very good return, and if you look at the returns that we've had, they've been excellent. By the same token, if you look at the compensation that we pay our employees, it's excellent. You know? It's balancing and it's fairness, and I would have great difficulty saying that all I care about is the bottom line, because I think I'd make some dumb decisions that way. Others might be smarter than I am. I can't handle it that way.

Q: Can most businesses do what Harley's done, adopt that attitude and succeed?

Teerlink: I think they can. I think that respecting employees will allow you to get better productivity out of those employees. There's always the cost of the manufacturing that you have to worry about, and if you can't do it and be competitive -- and a lot of companies can't -- then they have to move and they have to make that decision. We at this time are not in that position and we haven't had to do that.

Q: Do too few corporations in America think your way? Do too many of them think narrowly?

Teerlink: I don't have any idea. I know where we're coming from and I know what we believe in. For us, it's the right thing to do and for someone else it might not be the right thing to do because they have different kinds of pressures than we do. I would be silly to sit in judgment of those decision makers.

Q: But we come to a city like Milwaukee and people say, well, there's Harley, there's Master Lock, there are one or two others, but to return to the good old days they need a lot more than just this handful of companies that are doing it right.

Teerlink: Yes. But when we look at what happened to those other companies, who knows what the real cause was? We can say it was labor cost. We can say it was poor quality. We can say it was competition. There's a whole variety of things that we have to consider in that business equation. I think a lot of it starts with a lack of communication within the organization. So you have people who are polarized. And when they're polarized they can't reach a common, shared vision as to how we're going to exist. We're worried about winning and losing. We've got to move to winning and winning. And don't get me wrong, we have lots of challenges and we get into win-lose situations, but overall we're really trying to go down the road of mutually beneficial relationships.

Q: Some business men listen to what you have to say and think Harley can afford to talk this way because it's doing so well, but if times get tough, they're going to have to go down the same road.

Teerlink: Well, the question is what would cause times to get tough. Will it be that we haven't become cost competitive? Will it be that competitors came out with better products? Or will it be just pure labor cost? It's a whole variety of things. We work very hard to keep ourselves distinctive and differentiated. That's a competitive advantage. We've identified that as being very important. Other companies have identified low cost manufacturing as being their competitive advantage. That's wonderful and then that's what they have to go and focus on.

Q: Is that wonderful, really?

Teerlink: For them, if they are going to succeed and keep jobs in the work force, then they have to do that. If I'm making a commodity product, my customer's only buying a product, unless I can give him some special kind of service. And that's what we find companies doing. How do they differentiate themselves on service to get that little extra dollar.

Q: Don't American companies have to differentiate themselves or we're going to continue to see wages more or less stagnate in America?

Teerlink: I think we're all trying to differentiate ourselves. But, you know, this wage issue is a very interesting one. One of the ways to keep wages high is to keep high-paying jobs here. One way to keep high-paying jobs here is to have consumers pay higher prices. To the best of my knowledge, no one wants to give up the $300 television set to have it manufactured here. So we really have to look at this issue from two sides. If the consumer demands that they want a commodity price and quality, then I as a manufacturer have to go out and try and deliver that as best I can. And I hope in the Harley case that we can do it as best we can by planning ahead and by letting our employees know, starting with me, that at the end of the day we have to be cost-competitive. You know, we might have a little edge with price value and what we provide for the ultimate consumer, but the competitors are coming after us so we have to be right on our toes.

Q: Is there a role for government in this to encourage the companies who might hesitate to adopt some of the management practices you have, who might find it difficult to invest enough money? Is there a role for government to encourage them through tax breaks, incentives?

Teerlink: I think there are opportunities for that today at the state level as companies are moving about. Those should be looked at on an individual company basis. I think it would be a serious mistake if the federal government tried to get deeply involved in rewarding behaviors that they perceive as the right behaviors. Because they don't have to sell the product and guarantee me that the consumer will pay for the additional cost that I am going to incur. I welcome government in any day, but until you change that consumer and say buy it because it was made with a company that did the right things, as we perceive them, I think you've got a big problem.

Q: But business would always welcome, let's say, the investment tax credit, a government incentive for investing in plant and equipment.

Teerlink: Why not attach credit for investing in people? An investment tax credit is very specific and you can identify what it is. I invest $100,000. I know what my return is and I calculate my rate of return. It improves my rate of return. Investing in systems to support people are very, very difficult to measure, and I'd be afraid we couldn't come up with the right kind of measurement.

Q: So you just think it's impractical.

Teerlink: I think it's impractical and I don't like government telling us what to do. It's like banks telling us how to run our business. We went through that and we weren't very happy with that. They tried to put us in bankruptcy in December of 1985. And the reason we're a public company is we said we'll never have a bank run us again. And I guess I feel that way about government getting too involved. Let's let people do what's right.

Q: Now you have been hiring more workers at Harley in recent years.

Teerlink: Absolutely. We've grown from 1982 when we laid off the number of people we did -- 40% of the workforce. We went from about 2250 people up to 5000 people today. And in that year our production was 31,000 units and last year our production was over 105,000 units. So we have changed the ratio of people to units dramatically.

Q: And yet -- do I have this right? You did have a strike in 1991.

Teerlink: Oh sure, yeah.

Q: What was that over?

Teerlink: It was over the lack of communication between the bargaining unit and the factory. And that's what most strikes are. We didn't talk to one another. And as a consequence we had a strike, but it was resolved in two weeks, as we came together.

Q: Who was at fault?

Teerlink: No one's at fault in a strike. Both parties are always at fault in a strike. See -- this is a difficult thing. We always want to go and assign blame. Assigning blame gets us nowhere. Let's assign that we got it fixed. It only lasted two weeks. We had a misunderstanding. You know, there are times when it's important to have misunderstanding so people can get great clarity as to what's important as we go forward. So I don't like strikes and we try to avoid strikes, but there comes a time when we have to both go back and think about where we're at and then come back and talk about it. Our goal is to never have a strike. But if we have one, well, that's a failure on both parties.

Q: Now, you're going to build a new plant and it's not going to be in Milwaukee.

Teerlink: No.

Q: What's the basis of that decision?

Teerlink: The basis of that decision is we are up to the capacity within the four walls and the land that we currently have, and so we've looked at how we serve the market better with another location. We also want to do some different things. And with the lower cost product we will have an opportunity to have a higher profit margin as we're going forward. So in that case you find that we are doing something to be more competitive on a cost basis. Because we have to. But the people practices in that plant will be the same people practices as we have here, high level employee involvement.

Q: Will you pay lower wages?

Teerlink: They will be paid area level wages.

Q: So they'll be lower.

Teerlink: They'll be lower than what we have here but again, let's look at what are wages? They're subject to the standard that's in the community.

Q: But are you moving out of Milwaukee in order to have lower wages?

Teerlink: Absolutely not. We're moving out of Milwaukee to move into a different plant environment, a green fields, start from scratch. The fact is we are going to pay lower wages. That's not why we're moving. If that was the reason we were moving, we wouldn't be spending another 200 million dollars expanding our existing plants here. And we have been expanding our existing plants since 1984.

Q: What's the union reaction to the move?

Teerlink: The union reaction to the move -- they were part of it. Jeff Bluestein and I visited with the presidents of the international union before we embarked on this program and said we can do this a couple ways. We're going to build a new plant. We just go off and do it. Or we can go to a right to work state and say that's the only place we're going to go. Or we can try and work together and see where we're going to go and see how we're going to do it, and we worked together. We had representatives from the international unions and from management. And then they brought together teams to determine where we were going to go. They were part of the decision process as to where we were going to go, looked at all the data, and actively support the decision we've made.

Q: The unions do.

Teerlink: Absolutely. The international unions. Of course the local unions would like to have all the work here.

Q: And you don't think that's going to disrupt morale here?

Teerlink: Well, if you look at what we've done with the expansion of local facilities, there's no need for morale to be disrupted because we are expanding and there's good opportunities for people.


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