1. What type of diversification strategy does Polaris practice? The type of dive
ID: 391675 • Letter: 1
Question
1. What type of diversification strategy does Polaris practice?
The type of diversification strategy that Polaris practice is moderate constrained.
2. What type of diversification is the expansion of motorcycles and why?
3. Why did the company expand into motorcycles?
4. What steps to build a value chain did Polaris take? (name 4)
Polaris Case
We will continue to win…, of course, but to take our businesses
to a higher level we intend to change how the game
is played. Polaris has grown and changed significantly
from the little company that Edgar and Allan Hetteen
and David Johnson founded 60 years ago in Roseau,
Minnesota. But just as they relied on innovation and hard
work to satisfy customers, we will strive to do the same in
the decades ahead.
Scott Wine, Polaris Chairman and Chief
Executive Officer1
Steve Menneto, vice president in charge of the Motorcycle
Division at Polaris Industries, gazed up at company
headquarters in Medina, Minnesota as he pulled his
gleaming cruiser into the parking lot. Menneto had been
with the company since 1997 and was promoted to head
of motorcycles in 2011. He knew his company’s Victory
bikes had come pretty far since they were first introduced
to the riding public in 1998. With the development
of new luxury touring bikes and the steady release of
aggressively-styled cruisers, along with the acquisition
of historic Indian Motorcycles, the motorcycle group
had continually innovated throughout its first fifteen
years in business. Yet Menneto pondered the recurring
questions facing Victory Motorcycles and Polaris. He
wondered if the initial decision to diversify into heavyweight
motorcycles was the right road to take. He realized
Polaris took a big risk by moving into motorcycles
and going up against the recognized powerhouses in the
industry. Would the Indian brand live up to its tremendous
potential and capture market share at the high end
of the heavyweight segment? Would Victory continue
successfully competing against the Japanese giants, new
energetic and innovative motorcycle companies, and
their closest rival Harley-Davidson? Could the company
continue to produce state-of-the-art motorcycles while
maintaining the heritage of some of its iconic brands?
Victory began making motorcycles in 1998. From
1998 to 2006 Polaris had invested over $100 million in
motorcycle development and by 2006 the division was
profitable for the first time. Victory sales were $113
million, 7 percent of company sales for that year.2 In 2009
Victory Motorcycles celebrated its first decade in the
motorcycle business, but a global recession led to poor
sales, corporate restructuring, and company-wide layoffs.
In that year Polaris, Victory’s parent company, announced
a new ‘on-road’ vehicle division of which Victory would
be part. Mike Jonikas was appointed as vice president of
the new division and Mark Blackwell as vice president of
the motorcycle business.3 Blackwell, the first Victory Vice
President was an accomplished rider himself, winning
the national 500cc motocross championship and being
inducted into the American Motorcycle Association’s Hall
of Fame. Both Jonikas and Blackwell reported directly to
Polaris Chief Operating officer, Bennett Morgan.
Jonikas and Blackwell organized Victory with the
intent of maintaining a high level of quality engineering
throughout the production processes. Menneto knew
that if Victory was to be a successful brand it needed
to be able to meet customer expectations and not fall
behind in terms of innovation like its main heavyweight
competitor, Harley-Davidson.
Victory could still consider itself a new motorcycle
brand. Recent sales were strong but competition was
also getting stronger. The challenge now was how to continue
to innovate and grow in an increasingly crowded
and difficult market segment. The need to examine the
motorcycle division’s strategy seemed imperative.
Polaris Industries, Inc.
Polaris Industries, Inc., designed, engineered and manufactured
snowmobiles, all terrain recreational and utility
vehicles (ATVs), motorcycles and personal watercraft
(PWC), on and off-road vehicles, and low emission vehicles;
and marketed them, together with related replacement
parts, garments and accessories (PG&A) through dealers
and distributors principally located in the United States,
Canada and Europe under the brand names of Victory,
Indian, Ranger, Sportsman, RZR, Switchback, and others.4
The garment and accessory items included helmets, boots,
T-shirts, sweat pants, touring luggage and trailers. The company was widely known as the world’s largest
manufacturer of snowmobiles and one of the biggest
makers of all-terrain vehicles and personal watercrafts in
the United States.6 In 2013, Polaris Industries employed
seven thousand people at eleven manufacturing locations
and five research and development centers worldwide.
The company had over three thousand dealerships
and operated in more than one hundred countries.
Polaris produced its first snowmobile in 1954 under
co-founder and former CEO Alan Hetteen.7 Textron, Inc.
bought Polaris from its original Roseau, Minnesota ownership
group in 1968.7 Then in 1981, Textron, Inc. sold
the Polaris division to a group of private investors led by
W. Hall Wendel Jr., a Textron division head.8
The snowmobile business kept the Roseau, Minnesota
plant busy six months out of the year but company
managers wanted to figure out how to fill the other six
months, so they extensively surveyed their snowmobiler
customer base and decided in 1985 to diversify and produce
all terrain vehicles (ATVs).7 The company once
again diversified by manufacturing personal watercrafts
(PWC) in 1992, and eventually became a world leader
in both ATV and PWC production and sales. In 1987
Polaris became a publicly traded company.7
As a result of its diversification strategy, Polaris was
able to manufacture products all year. Snowmobile manufacturing
took place in the spring through late autumn
or early winter and personal watercraft were manufactured
during the fall, winter and spring months. Polaris
has had the ability to manufacture ATVs year round
since May 1993. ATV production starts in late autumn
and continues through early autumn of the following
year.5
Because of the seasonality of the Polaris products and
associated production cycles, total employment levels
varied throughout the year. Approximately 3,000 individuals
were employed by the company. Polaris’ employees
have not been represented by a union since July
1982. The company announced layoffs in their Osceola,
Wisconsin plant in early 2011 due to the recession.9
Expansion Into Motorcycles7,10
Matt Parks joined Polaris in 1987 as a district sales manager
for California, Nevada, and Arizona to develop the
dealer network. He was named ATV product manager
in 1992 and earned a spot at the company’s headquarters.
W. Hall Wendel Jr. asked him to do research on prospective
acquisitions or expansions. Parks, with the additional
title of general manager of new products, considered
such things as go-karts, golf carts, lawn-and-garden
products, chain saws, and Hula-Hoops by investigating
the various industries in terms of competition, size, level
of service, and new trends. Parks and others studied the
off-road motorcycle market when two dirt bike companies
were put up for sale. Then a European motorcycle
company asked to distribute their bikes through Polaris.
“That sparked a study of the motorcycle business that
uncovered signs of a promising market. Along with the
dirt bike research, we did a quick study of the street bike
business at that time, and we were kind of interested.
We thought, ‘You know, this makes some sense,” recalls
Parks.11
In 1993, Polaris distributed over 300,000 surveys
through the company’s Spirit magazine for Polaris vehicle
owners to measure the readers’ interest in buying a
wide variety of products from Polaris. “Motorcycling did
really, really well [in the survey],” said Matt Parks.12 The
survey results were personally interesting to Parks since
he was a lifetime motorcycle rider and owned several
motorcycles, including a ’74 Norton, ’66 and ’91 BMWs,
a ’77 Harley XLCR and an ’81 Ducati. Motorcycles also
caught the interest of Wendel who at the time owned a
Harley-Davidson.
In pursuing the possibility of motorcycle production,
Victory became the project’s confidential codename.
Parks came up with the name because it was a nonsensical
name with positive connotations. “It’s ‘V’ for victory.
It’s nostalgic; it has World War II connotations.”13
Parks along with Bob Nygaard, Snowmobile Division
General Manager, proceeded with investigating the
motorcycle production possibility by hiring two outside
firms to assist them in conducting further confidential
research on motorcycles. They chose McKinsey and
Company, one of the largest and most prestigious consulting
firms in the world, and Jerry Stahl, an advertising
executive who was very familiar with recreational motorsports
and the motorcycle business. Stahl also had experience
with Harley-Davidson’s advertising campaigns.
From May through August of 1993, Parks & Nygaard
assessed the Polaris infrastructure, including the company’s
sales force, dealer network, service and warranty
operation, and parts and accessories division. They also
looked at Polaris’ current customers to see what types of
things they were interested in and whether they would
buy a motorcycle from Polaris. Polaris analysts and consultants
also analyzed statistics from the Motorcycle
Industry Council (MIC) in terms of the location, displacement,
and types of bikes sold in the industry.
The research showed there was industry capacity
for another manufacturer in the cruiser business. The
research also revealed that Polaris dealers would like to have on-road motorcycles to sell. Consultants believed
that a functionally superior cruiser built in America
could find competitive space between Harley-Davidson
and the Japanese producers. “We focused in on Harley
and the Japanese manufacturers and said to ourselves,
‘Is Harley vulnerable from any standpoint?’ We thought
that their costs were high,” Nygaard said. “We thought
that, based on re-engineering the Harley bike, we could
build it for less money. We felt that customers were
waiting too long to take delivery of their Harleys, and
they (Harley-Davidson) were vulnerable from that
standpoint. We could get to market with a bike that
we could make money, and the heavy cruiser end of
it was certainly what we wanted to target because that’s
where the (sales) numbers were, and that’s where the
(profit) margin was. It was the best fit for us, in that the
Japanese were vulnerable there. They really hadn’t been
able to tackle Harley, because it might look like a Harley,
Explanation / Answer
1. The type of diversification strategy that Polaris practice is moderate related constrained diversification strategy.
2. The type of diversification related to expansion of motorcycles is the moderate related link diversification. This is because there are only limited links between the firm’s businesses. The key business or the primary business of Polaris consists of sale of terrain recreational and utility vehicles, personal watercrafts, snowmobiles, and on and off-road vehicles. These products are all closely related and linked as all of them are recreational vehicles. However motorcycles cannot be classified as recreational vehicles. Polaris expanded into the motorcycle segment and this was a completely different market. The diversification was a related link diversification as although there are similarities between Polari’s recreational vehicles and motorcycles the majority of the aspects continue to be unrelated.
3. The company expanded into motorcycles to expand their business. The company was already making and selling off road vehicles and recreational vehicles and hence had expertise in the business of making vehicles. Secondly it got an exposure to the motorcycle industry when it distributed bikes for another company. All these gave the company’s management a confidence to foray in this business and establish their presence in the motorcycle segment as well.
4. The four steps that Polaris took to build its value chain are:
(i) Limiting the number of distributors of their motorcycles only To Polaris dealers
(ii) The motorcycles were branded as ‘Made in America’
(iii) Polaris examined the value chain of the existing motorcycle market and used the findings to build better bikes and better value chain
(iv) Focus was on quality of production and not quantity
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