Looking at the facts and figures above, avoiding the tariffs by moving some facilities overseas might seem like a logical business decision. However, Harley-Davidson’s stock dropped 2.6% after they announced the move. When stocks drop, it’s a telltale sign that something went wrong, that either the decision itself or the execution of the decision went awry.
While I wasn’t in Harley Davison’s board room, experience tells me there’s a large chance the company didn’t identify and assess the reputational risks of moving their manufacturing facilities by administering a risk assessment out to their front lines.
For many companies, certainly those as large as Harley-Davidson, supply chains are vast and complicated webs. It’s understandable that no one person can foresee every consequence a trade war or a response to a trade war could have throughout a company’s supply chain. The human mind can only think one or two steps ahead, aside from great chess players. Risk assessments transform companies into the greatest chess players by anticipating risk before it manifests.
Up until this year, all bikes had been manufactured in the US with domestically sourced materials. Recently however, Harley-Davidson decided to import a few of the materials for one of their new bikes. Announcements of freshly furnished tariffs on these materials, therefore, did not bode well for this new facet of their business model. It seems to me that Harley rushed into the decision to adopt international manufacturing processes, which not only introduced new quality control risks, but severe reputational risks, as well.
After the move was announced, a common sentiment was disseminated via Twitter and other social media: Harley-Davidson is an iconic American brand. For many, it logically follows that a move outside of the US greatly contradicts and disrupts the company’s brand.
Historically, consumers and investors are intensely perturbed when iconic brands disrupt what they’ve come to know and love. Take Coke for example. In 1985, Coca-Cola was losing market share to other soft drinks like Pepsi. In an attempt to compete, the company introduced New Coke. Despite acceptance by some Coke drinkers, many more resented the change in formula and branding. As it happened, many of the dissatisfied drinkers were Southerners, who considered Coca-Cola a fundamental part of their regional identity and were not shy about making their dissatisfaction known.
Of course, companies will always keep evolving, as any company who does not innovate will get left behind. However, it’s imperative for companies to ask themselves what they risk by innovating. No one was upset by the introduction of Cherry Coke, or the advent of Harley’s Softail Cruisers. It’s when companies contradict, as opposed to build upon, their brand that they find themselves in hot water.
The beauty of enterprise risk management is it’s foundationally built on risk assessments that reach across departments and levels to account for all types of risks. In Harley-Davidson’s case, and in all those cases that land in the news, they failed to identify and address the root cause risk: the reputational risk of moving beyond the US.
Risk assessments could have helped Harley-Davidson anticipate this kind of backlash and resulting loss in market value. Risk assessments help companies ask the right kinds of questions: Who is our customer base? What do they believe in? What will this move mean to them? How will it affect their opinion of us? How large will the impact be?
The last question is key. In a complex supply chain, risk is abundant. On the one hand there’s reputational and quality control risks from sudden shifts in suppliers, facilities, and employee base. On the other hand there’s the risks of incurring too many losses from rising tariffs. All of these risks exist, but none of them are equal because they stand to impact the company differently. Risk assessments uncover the potential impact of each risk and assist the company in making the best decision for their unique situation.
From an outside perspective, I can’t say what a risk assessment would have revealed for them in terms of to move or not to move. However, I can say with confidence that had Harley-Davidson administered a comprehensive, enterprise-wide risk assessment out to and including their suppliers, they would have considered the reputational risk of their actions. They could have mitigated this risk accordingly and avoided a 2.6% drop in their market value.