News

Retired CEO encourages people-focused plans

In print | March 19, 2009

This past Tuesday, the Phoenix’s Jeff Davidson interviewed Richard Teerlink. On Sunday March 29, Teerlink will be giving the keynote speech for the ninth annual Lax Conference in the Science Center. The conference focuses on entrepreneurship and the subject this year is “building a strong enterprise: critical skills for successful entrepreneurs.” Teerlink is a retired CEO of Harley Davidson. He served the motorcycle company for 18 years and led them from financial turmoil back to public ownership and success. His effort to revive Harley Davidson was people-focused and created a successful cultural transformation. He is currently on the board of directors of Johnson Controls Incorporated and Snap-On Incorporated. He was inducted into the National and Wisconsin Business Hall of Fame in 2002. He is the parent of a 1983 Swarthmore graduate

Jeff Davidson: Much of what you did for Harley Davidson can be applied to industries in today’s failing economy. Leaders must take control of a bad company and do something to turn things around. GM is asking for $30 billion in federal aid, but they need a clear cut plan, one I have yet to see, for revamping the way they do business. What do you recommend they do, in light of the great strides you made for Harley Davidson, to fix the dying Detroit automaker?

Richard Teerlink: One of the unfortunate things in today’s society is people attach what the leaders do to the company as a whole. We had to determine how we can give our customers something they value rather than what we think they value. You have to be customer-focused on what they want. There are many times customers would like the ultimate machine for 50 percent of what it costs, but that’s not something you can look at. But if you start with the basics, customers really want products that work, that are bulletproof. In order for us to ultimately be successful, we had to straighten our manufacturing and engineering and make sure we make products that work. We were quite successful at that. We got many accolades from various sources saying we did the right thing. We hadn’t done anything besides building reliability. While we love our final customer, I ride with them and such, without the dealer we cannot get at that final customer. We have to be sensitive to dealers and those requirements. Dealers who don’t make money don’t serve customers well. We helped customers that drive riders into dealerships. We had to give the final customer a reason to ride and have fun. If they don’t ride and have fun, they won’t buy new parts and accessories, they’re not going to enjoy the sport.

We started the Harley Owners Group, shortened to HOG, to focus on a cultural transformation. That group today has over one million members around the world. As we got through that, those three items [customers, dealers, and the transformation] took us about five years … We started to see something good happen. But Harley’s been successful before then gone down. We had to ask the question how do you sustain success? Where does it come from? Is it good luck? Or is it the opportunity to influence people and products and those things? We ultimately decided what really went on in all that time was that we had a very engaged workforce. We had engaged dealers, we had engaged riders, we really started to understand more completely that our competitive advantage was our people, which is a new way to look at it.

Our job as leaders was to create an operating environment to do new things. When you look at that, what is the operating environment? Is it one where they’re encouraged to do well? Or are they told how to do it, when to do it? We then set up a cultural transformation that started with four questions. The challenge is how do you get people to work for a purpose, not just for money. As we were discussing this, we came up with four questions that we thought would be the foundation of a business process that we put together. It’s how should we behave? What’s important? How do we give people a framework? What’s important with the job descriptions? … We needed to be clear on who we serve … You can’t just identify one group you need to do well by. If I have happy customers and engaged employees, I’ll probably do pretty well with making money.

JD: One of the things you talked about was cultural transformation — can you expand a little more upon that?

RT: The cultural transformation started with the four questions that I said — it’s the bedrock, the foundation of what the organization is about. Underneath that, then you start doing the conventional things that all organizations do. You’ve got the planning, you got to have a mission, you got to have objectives, and you’ve got to have strategies. All of that is very interesting and very important, except while that’s going on you haven’t sold one product and you haven’t made one product. What’s important is the execution of all of that. You get the execution by having people take responsibility for their job, and how their job has a positive impact on what their group is supposed to do, which filters into what the strategies of the company are. So you ultimately end up getting to a point where all the employees have the opportunity to influence what they do and how they do it. So the cultural transformation was how do you go from an expanding control, top-down type of environment, into a very different collaborative environment.

JD: What positions before coming to Harley Davidson do you feel truly prepared you to be ready for the job?

RT: Every one I had. One of the things I’m a strong believer in is lifelong learning. One of the key elements of lifelong learning is experience. I had the good fortune of working with some very good companies and moving on when I felt that they weren’t fitting exactly what I was looking for in a company. It was never money — it was value systems … I was given an opportunity early in my career to be a plant manager, and my background is financial accounting. Three years as a plant manager opened my eyes to the importance of what goes on and everyone on the shop floor. I could go through each one of the jobs I had and say I learned something here.

JD: Where and how did you originally start formulating these ideas of employee commitment and leadership? Did that come out of a specific place, or person, or is that something that evolved over time.

RT: It’s something that evolved as a group. Remember what I said in the beginning, it’s based on the joint experience of the leadership team. I happen to be the guy with the title, but we had lots of people participating all the way through up and down the organization. You can’t impose a business process on anybody, you have to allow them in on the process. Harley is pretty unique in having a labor union but we try to partner with them. We try not to have an adverse relationship. We wanted to make sure we were all going in the same direction.

JD: Can you talk a little more about your opinion of leadership in general?

RT: Leadership in general — really, what is leadership? I really can’t give a definition, but I can say what I think the job of leaders is. As I said earlier is to see that everybody has the environment to do a great job. If you have a couple good ideas along the way, that’s great. But there’s so much power in every employee along the way that gets wasted because we have leaders who think they are the only ones who think. I don’t think that leadership is tough — the decisions you have to make are tough. At the beginning at Harley we had to lay off 40 percent of our people, that’s a tough leadership decision. It would have been easy to say well let’s do 15 percent and see what happens. We decided we had to make aggressive moves in order to survive. We as a company were effectively owned by banks, and banks wanted their money back. They don’t want you to carry a lot of costs. And the market was terrible, there was excess inventory out there. It made no sense at all to continue to have the workforce. We had to try to be as humane as we could.

JD: How does communication play a role in making a business successful?

RT: The business process that I described is a huge form of communication. It gives people an understanding of how they fit in the whole scheme of things. Max Depris says a great quote “leaders by their actions, not by their words, establish a sense of justice in the system.” Too many times we have leaders who can write wonderful memos, and they’re charismatic when they get up to speak, but the rubber meets the road in how they act. Sometimes leaders forget that in their actions. You communicate more by your actions then you do by anything else.

JD: The Lax conference you will be the keynote speaker at includes the subject “building a strong enterprise: critical skills for successful entrepreneurs.” In responding to this subject, what are the steps that should be taken for someone just starting out in the business world?

RT: The first major issue is you must have customers and you have to figure out what the customer values. You have to figure out how you can meet that need of the individual customer. The only way you’re going to get sales is be the lowest priced product in the marketplace might limit your existence because you may not have the advantage of scale and be able to produce it. You must have a product and you must serve a need.

JD: As a parent of a Swarthmore student, what is your take on the value of a liberal arts education? Do you see what students learn at a place like Swarthmore worthwhile in rebuilding today’s workplace?

RT: We have three children, each of them had a liberal arts education, one of them had a liberal arts education at Swarthmore. I had a very good vocational education. I went to college and learned how to be a very good accountant. I spent a number of years after that really trying to learn how to operate the world. Had I taken more liberal arts courses, I probably would have been in a better position to deal with a lot of things. I was an accountant, I learned accounting. Doing accounting doesn’t say anything about understanding what people were about. Liberal Arts provides you with that understanding. And it’s the understanding of what has happened before that helps you in some of the subtle issues.

JD: Do you have any comments on things in general [about the economy]?

RT: It’s obvious that our country is going through some very trying times and we’ve been there before — this is different, as they always say. I think throwing money at problem seldom solves problems. Getting past people who want to solve problems and get involved in it can usually solve it. It goes back to actions and work. You have to be able to explain actions to people in the workforce. To be able to explain actions creates results that are very important. That’s why I have major frustration, I don’t understand what’s gong on.

JD: With economic crisis, it’s more of a matter of the people and not the money?

RT: This is unique, in that it came very fast and without warning. Who would have thought we would go from 14 million automobiles a year to nine million. It’s almost impossible to plan for such a thing as that. There you are testing the metal of the whole company. How do you react best to what’s going on. Because credit plays such an important role, many companies don’t have a choice in how they react. All the people in those companies who had plans of retirement and investment in the stock, they are not, not necessarily because of the leaders but because of externalities, in a position to retire. That’s tough.