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Born to Be Mild

The Mild One - How did Harley-Davidson buff Jeff Bluestein turn a foundering outlaw icon into a chrome-plated corporate success story?
Created: 1/15/2003 10:59:46 AM


By Brad Herzog / Cornell Alumni Magazine

Just south of downtown Milwaukee, along a bustling avenue in the town of Greenfield, a stark white two story building rises into the Wisconsin sky. It is a temple of sorts, in the sense that it is a place of worship: the House of Harley-Davidson.

Inside the motorcycle dealership, new and used bikes are lined up in shiny, neat rows--a Baditude 240 with painted flames licking the blue chrome, a Fat Boy as black as oil, a Heritage with studded leather saddlebags. And there, too, are the custom cylinder covers and fender trim that let the rider turn a cycle into performance art. But it's the assorted Harley accoutrements-- the coasters and coffee, mints and mouse pads, designer headwraps and die-cast collectibles-- that reveal the depth and breadth of Harley Nation devotion.

The brand name itself is an icon, consistently ranking among the ten best-known in America, according to Fortune magazine. The town of Harleyville in South Carolina had its sign stolen so often that it started selling them for $20. In the summer of 2003, when a quarter of a million enthusiasts converged in Milwaukee to celebrate the company's centennial, six couples got married on the steps of Harley headquarters. Indeed, for many, a Harley-Davidson motorcycle is such a means of individual expression that the bar-and-shield logo becomes part of their permanent selves. You don't see many folks with Rolex or Levi's tattooed on their biceps.

A Harley is a product with such cultural cachet that the slogans devised to explain the passion--mantras like "Live to Ride, Ride to Live"--convey a sense of knees-in-the-breeze enlightenment. To run a company that seems to sell a means of transcendence as much as transport is to be both guardian of a corporate legacy and spiritual figurehead of a devoted cult. To be top dog in the world of Hogs, one would think you would need not only a business degree on your wall but leather in your closet and a bit of the rebel in your soul.

Or you can be a nice Jewish boy from Scarsdale whose mom really wanted him to be a doctor.

When you buy a Harley, you are immediately enrolled in a company-sponsored motorcycle gang of sorts--the Harley Owners Group, of which there are more than one thousand chapters and nearly 800,000 members worldwide. These H.O.G. chapters are both a means of product promotion and a statement of common purpose. The days of the rebel biker have given way to the era of the joiner.You are officially part of the Harley family, with the sixty-five-year-old CEO Jeff Bleustein '60, BME '61, as its unlikely patriarch.

A century ago, Bleustein's family made very different machines: his Polish grandfather, father, and two uncles ran Atlas Baby Carriage in the Bronx. "These were fabulous things," Bleustein recalls, "with handpainted striping and beautiful leather finishes and chrome wheels." He grew up in the suburbs, graduated from high school in three years, and entered Cornell with plans for a career in medicine. But natural disinclinations got in the way of his pre-med path. "I didn't like memorizing things, I was a little woozy around blood, and I didn't like the smell of formaldehyde," says Bleustein. "Plus, I found chemistry a little difficult to understand."

He opted instead for a five-year engineering degree and then earned a master's and a PhD from Columbia. (After getting his doctorate, he overheard his mother tell a family friend, "Well, thank you, but he's not the kind of doctor who can help anybody.") After a year in England on a postdoctoral fellowship from NATO, he spent five years teaching engineering and applied sciences at Yale--until he had an epiphany. "It was my first midlife crisis, at age thirty," says Bleustein. "I just looked around and asked: Is this what I want to do for the next thirty-five years? Maybe I had been in academia too long. I wanted to get back from the frontier of research and closer to where more day-to-day action was taking place in engineering."

American Machine & Foundry (AMF), a large sporting-goods manufacturer, was looking for technology consultants, and in 1971 Bleustein began working for the company's nearly sixty business units, one of which was Harley- Davidson. In early 1975, however, AMF asked him to commute weekly from New York to Milwaukee to help reorganize Harley's struggling engineering division. When the vice president of engineering was fired, Bleustein, to his surprise, was tapped to replace him.

Until then, he had never run a business or ridden a Harley. But a fellow Cornellian, Seth Siegel '74, JD '78--who has known Bleustein for more than two decades while serving as licensing division chairman of the Beanstalk Group, which oversees the remarkably successful extension of the Harley-Davidson brand-- describes him as "a person of almost limitless capacity to master new worlds."

At the time, one of those new worlds was a land called Wisconsin. "We were New Yorkers, born and raised," Bleustein says. "To go significantly west of the Hudson was really getting out beyond charted civilization." He promised his wife, Brenda, it would be a temporary move--two years, maybe three. But there was a lot of work to be done. Back then, the storied Harley-Davidson company appeared to be running out of gas.

The Harley story began along with the twentieth century when twenty-one-year-old Bill Harley and his neighbor, twenty-year-old Arthur Davidson, began experiments on "taking the work out of bicycling," as they called it. They were soon joined by two other Davidson brothers, toiling in a shed behind the Davidson home. In 1903, the same year Henry Ford started his company and the Wright brothers took flight, the four friends founded Harley-Davidson and constructed their first motorcycle, using a tomato can for a carburetor.

They sold three bikes the first year, five the second year, eight the following year. Then Bill Harley decided to enlarge the engine to two cylinders, simply grafting an additional cylinder onto the original unit to create the famous V-Twin engine that produces the guttural roar so synonymous with the brand. Years later, the company would try (unsuccessfully) to trademark that sound.

Soon the company began finding buyers-- police departments, the postal service, and, particularly during World War I, the U.S. military. By 1920, Harley-Davidson was the largest motorcycle manufacturer in the world, with production of nearly 30,000 units and dealers in sixtyseven countries. It was in these early days that the "Hog" nickname arrived, apparently via Harley racer Leslie Parkhurst and his penchant for giving his pet pig a ride around the track after a victory.

Why They Ride

Harley-Davidson is a very embracing culture," says CEO Jeff Bleustein. "It's one of those few places where you find people from all walks of life who are drawn together by some common bonds--a sense of adventure, freedom, and individual expression."

In 1993, a decade out of college, Monica Daniel '83 wanted some of that adventure. She was living in Florida at the time, and she decided to sell most of her possessions, including her car, so she could purchase a Low Rider. "I figured if I was going to go for broke and really have a great adventure," she says, "I wanted to be able to tell my grandchildren someday, ‘Yeah, when I got that Harley and rode across the country . . . ' It just didn't sound right to say Yamaha or Honda."

She had never ridden a motorcycle in her life, and as a rather petite woman she wasn't necessarily built to pilot a heavy touring bike. But she learned to ride, and she hit the road. She broke down a few times, wiped out once or twice, and cracked several windshields, but she made her way all the way up to Michigan before hopping on a plane (along with her Harley) and rumbling around Europe for four months.

Now married with two kids and working as an independent nurse midwife in Ithaca, she no longer rides (she sold her bike in Germany so she could afford to come home), but she treasures the memory. "I always loved everything about Harleys," she says. "They're beautiful bikes, and there's just something about the sound of the engine. There's something about a Harley in fifth gear."

That same sound called to John Eckerson '46. A retired schoolteacher who is now the village historian in Akron, New York, Eckerson purchased his first Harley, a used military bike, back in his high school days. "I came home with it, and my mother had a fit," he recalls. "I rode it around for two or three days until she made me get rid of it."

It was several decades before Eckerson bought his next bike, a blue-and-white Electra Glide purchased secondhand from the Miami police department in 1974. He rode that one for twenty-eight years, until he turned eighty. "I liked to drive up into the middle of the village and listen to it," he says. "Isn't that wild? I liked the sound of 'em."

Around the time Eckerson bought his second Harley, Bill Talmage '78 was dreaming of his first. He rode a Honda 750 in his days on the Hill, but yearned for a Hog. "A lot of us always wanted one and just never got around to it, because of business and kids and all the other things," he says. "But eventually you get a little more successful and have a little more time, and the kids get a little older, and you're able to do it."

On his fortieth birthday, Talmage's wife presented him with a Harley Heritage Classic. These days, the forty-eight-year-old real estate developer pilots a Heritage Springer around eastern Long Island. "I come home from work and if it's a nice night, I jump on the bike and ride around the vineyards or the coast," says Talmage, whose son Kyle is a freshman on the Hill and a fifth-generation Cornellian. "It really clears my head."

While Talmage takes to the open roads of rural Long Island, nutrition consultant Abby Stolper Bloch '64 and her husband, Stanley, maneuver a bright red Fat Boy around Manhattan. "Everybody in New York looks at us like, ‘What are those old fogies doing on that hot bike?' " says Bloch.
 

The company struggled through the Depression and prospered during World War II (supplying nearly 90,000 motorcycles to the military). In 1953, Harley's fiercest U.S. competitor, the Indian Motorcycle Manufacturing Company, stopped production. (A succession of bike buffs has tried to revive the Indian brand over the years, the latest being Frank O'Connell '65, MBA '66, who was named CEO of the New Indian Motorcycle Corporation in 2000. Several thousand bikes were sold through about 200 U.S. dealers, but the company was forced to close its doors again in September 2003 when an eightfigure investment deal fell through.)

For Harley-Davidson, international competition quickly filled the void left by Indian, and the company had to compete with cheaper, lighter cycles from the U.K. and Japan. In an attempt to raise capital, the company sold shares publicly for the first time in 1965, but it still foundered, finally offering itself up for merger or takeover. On January 7, 1969, AMF acquired Harley-Davidson.

That year, the film Easy Rider would firmly cement the Harley-Davidson motorcycle as a rebel icon, a transformation that had begun in the late 1940s, when returning servicemen joined motorcycle clubs, donning thick black leathers and courting notoriety. A 1947 biker rally in Northern California inspired 1953's The Wild One, in which Marlon Brando was the star but rival Lee Marvin and his stripped-down Harley were more menacing. Harley riders were the closest thing to modern-day cowboys, swapping their horses for 800 pounds of chrome and steel. The company began promoting its product as the "great American freedom machine." But the problem wasn't the freedom; it was the machines.

AMF was a massive conglomerate, and its indifferent management philosophy quickly sparked resentment among Harley employees.While production rose during the early 1970s, quality control suffered. More than half of the motorcycles on production lines failed inspections (as compared to 5 percent of Japanese bikes). The joke went that customers had to buy two Harleys at a time--one to ride and one for spare parts. By the end of the decade, Harley-Davidson's market share had collapsed, and the company experienced its first operating loss in fifty years. Harley management finally convinced AMF to sell the business to a buyer who would invest in it. In 1981, that buyer turned out to be the Harley managers themselves.With an $81.5 million leveraged buyout, Bleustein and a posse of twelve other executives rode in on their Hogs to save the day, literally, leading a convoy from the company's York, Pennsylvania, plant to Milwaukee, stopping at every Harley dealership along the way.

Having been hired by AMF in the first place, Bleustein was forced to prioritize his loyalties."The opportunity to do something entrepreneurial, to have an equity stake in a company and in fact to be on the side of the underdog . . . all of those things were pretty compelling," he says. "And by that time I'd been at Harley-Davidson for six years, and it doesn't take that long to get some of that oil in your blood."

But the buy-back was ill-timed; a recession and high interest rates sent general motorcycle sales plummeting, and the company was forced to lay off nearly 40 percent of its workforce over two years. When Japanese manufacturers began flooding the market with their products, Harley-Davidson appealed to the International Trade Commission for relief in the form of higher import tariffs on large (700cc engine displacement) touring motorcycles. The company came very close to filing for bankruptcy at the end of 1985, rounding up new lenders in the eleventh hour.

At the same time, however, something else was happening at Harley-Davidson: the company was remaking itself from within. Line workers and middle managers were given a greater voice in decisionmaking, including a redesign of the production process. Creation of the Harley Owners Group fed brand loyalty. And the motorcycles themselves improved: quality control became a priority, and soon 99 percent of the bikes produced were ready to ride. As vice president of engineering, Bleustein had overseen a significant expansion and revitalization of much of the product line, notably a total redesign of the venerable V-Twin Shovelhead engine, dubbed the Evolution, that made believers out of the hardcore enthusiasts who had lost faith in the product. "If they hadn't come up with that, it might have been the end of Harley," says Albert George, the Carr professor of mechanical engineering on the Hill, who served, at Bleustein's request, as a "scholar-in-residence" at Harley-Davidson during his 1996–97 sabbatical year. "Harley had such a poor reputation for reliability and oil leaking, which the Japanese had already fixed, that they had to get some modern quality standards."

The Evolution helped spark a revolution of sorts for Harley-Davidson. For the first time, riders didn't have to be expert mechanics. The Harley became a yuppie status symbol, and the affluent weekend rider became the company's core customer. By 1987, the firm was beginning to thrive again.Harley-Davidson raised cash with a listing on the New York Stock Exchange (once again Bleustein and his fellow executives headed a mass Hog parade, this time down Wall Street) and boosted productivity by 50 percent. The company asked the federal government to remove the import tariff a year before it was scheduled to be lifted, a masterful PR move that drew Ronald Reagan to Milwaukee to praise Harley as a shining example of the quality and competitiveness of American industry. Soon they were selling every motorcycle they could make, and Bleustein, who had helped engineer the turnaround, rose through the ranks to become CEO in 1997.

The free flow of ideas is a centerpiece of Bleustein's management philosophy. Make every voice count, he says. Don't be complacent, but before making changes try to understand why something has become, as he puts it, "part of our collective wisdom." Be sure that Harley-Davidson's 9,000 employees understand what the company is trying to achieve, and then turn them loose. "We long ago realized that the only sustainable competitive advantage that any company can have is what's embedded in its people," says Bleustein. "Our company is stronger if we have 9,000 people thinking each day when they come through the doors of how they can improve things, rather than a dozen or so at the top thinking about it and everyone else waiting to hear from the mountain."

According to George, who worked on product development during his Harley- Davidson sabbatical, the Harley Way helped him steer Cornell's Formula SAE race-car team to four world championships in the past five years. "I've used many ideas from Harley, almost all positive, to help improve how I run the team, because Harley does a lot of things really right," he says. George Barton '02, MEng '03, who spent three years on George's racing team and now works as a mechanical engineer at Harley, has learned that the styling and marketability of a Harley are at least as important as the mechanics. "We're given something to shoot for aesthetically," he says. "It's important to our customers that it's like a piece of jewelry or a work of art."

The formula has worked. In 2001 Harley-Davidson passed Honda in U.S. sales for the first time since the 1960s and was named Forbes Company of the Year. The following year, Industry Week magazine named Bleustein and Harley- Davidson as its Technology Leader of the Year. In 2003, when the company announced its eighteenth consecutive year of record revenue, Bleustein was elected to the World Trade Hall of Fame. Today Harley-Davidson, which has sold some three million motorcycles since 1903, again dominates the global market for heavy cruising bikes.

Harley still faces challenges, to be sure, the most obvious being an aging customer base. For a large portion of the company's customers, this erstwhile icon of youthful defiance is a means of staving off middle age. The average Harley owner is forty-six, nearly a decade older than the industry standard, and earns more than $75,000 a year. Bleustein says that management is well aware of the graying ridership. "We don't take our core customers for granted. We don't ever want to alienate them, but at the same time we want to reach out to new groups of customers--people who aren't yet in the family. There are a lot more years in those baby boomers, but we're also looking to the next several generations and making sure we're relevant to them."

The children of baby boomers prefer trimmer Hogs, and the company has responded during Bleustein's tenure, acquiring sport-bike manufacturer Buell Motorcycles in 1998 and introducing a sporty model of its own--the sleek V-Rod, with the liquid-cooled Revolution engine--in 2001. Also catering to new converts is the Harley-Davidson Academy of Motorcycling, which annually teaches more than 11,000 novices--nearly half of them women--the basics of riding.

And, of course, the Harley-Davidson licensing and merchandising phenomenon has become a key ingredient in creating and maintaining company loyalty. As cofounder of the Beanstalk Group, which has served as the licensing agent for both Ford Motor Company and the Olsen twins, Seth Siegel has spent more than two decades studying the power of a strong name, and he's never seen anything quite like Harley-Davidson. "Their core audience," he says, "is more devoted to their brand than any other company I've ever worked with."

Under Bleustein, the company has turned that loyalty into a windfall. In 1998, his first full year as CEO, sales of Harley-Davidson's non-cycle merchandise totaled $115 million. Over the next five years, that number more than doubled. And nearly $1 billion is now generated annually by Harley-Davidson's licensing program, which boasts some eighty licensees across eighteen product categories. According to Siegel,Harley-Davidson's licensing philosophy evolved over the past two decades, from a focus on trademark protection to revenue generation and finally to brand building, furthering the company's goal of providing a sense of exclusivity. "If someone comes along and simply wants to take the Harley logo, slap it on a product and not design it uniquely, they would turn it down," says Siegel, who is also a partner in the Harley-Davidson Café theme restaurant in Las Vegas. "They could make two to three times as much money every year on licensing."

Traditionalists scoff at the "Disneyfication" of the storied name, but Bleustein says the overarching theory of brand extension is two-fold--to meet the needs of existing customers who want to identify with Harley-Davidson even when they're not riding one and to reach out to new customers. So, yes, you can buy Harley-Davidson leather jackets and riding gloves, but you can also find Harley kid's bicycles and baby clothes that shout "Born to Ride."

"We want to get into their psyches at an early age and keep that dream alive," says Bleustein, "until they're ready to buy a motorcycle."
 

Published in Cornell Alumni Magazine. Used by permission.

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