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SUSTAINABLE GROWTH MODELING: A
LONGITUDINAL ANALYSIS OF HARLEY-
DAVIDSON, INC.
Pickett, Michael C.
National University
mpickett@nu.edu
ABSTRACT
This paper presents an application of sustainable growth modeling presented by Van Horne. Van
Horne (1998) has defined sustainable growth rate (SGR) as “...the maximum annual percentage
increase in sales that can be achieved based on target operating, debt, and dividend-payout
ratios” (p. 744).
Harley-Davidson vice-president, Willie G. Davidson, in a Business Week magazine
(Melcher, 1996) stated that, given the significant and unexpected increases in sales over the last
few quarters, they plan to ship 200,000 motorcycles in the year 2003. However, this paper
presents a dichotomy based on the company’s financial performance prior to the article’s
publication and the articulated goals to provide a possible insight to the magic and mystique of a
competitive marketing advantage.
Historical financial date is analyzed to identify the subtle relationship between strategic
marketing and maximizing operating efficiencies.
INTRODUCTION
According to Van Horne (1998, p. 743), “[t]he management of growth requires careful balancing
of the sales objectives of the firm with its operating efficiency and financial resources”.
Additionally, Van Horne (1998) argues the “...trick is to determine what sales growth rate is
constant with the realities of the company and of the financial marketplace” (p. 743). The
“realities” Van Horne mentions, according to H. Igor Ansoff, from a strategic management
perspective can be calculated, in contrast, Henry Mintzberg argued that organizations are unable
to calculate turbulent cycles (Academy of Management, 1998). Regardless, financial managers
still need to identify opportunities to forecast growth potential of a company.
The purpose of this paper is comparative and longitudinal in nature. A financial analysis
technique known as sustainable growth modeling (Van Horne, 1998) will be applied to Harley-
Davidson, Inc. Initially this methodology was proposed as a “litmus test” to identify if the
specific target proposed by the company of an output goal of 200,000 motorcycles by 2003 was a
feasible endeavor; however, when applied over a period of 10 years, the sustainable growth rate
model provides greater insights into the mystique of the American-made motorcycle created by
four men in 1903.
BACKGROUND
Harley-Davidson, Inc, as the focus of this research, exists as an American producer in a
seemingly never-ending sea of imports. The focus on growth within a specific market espouses
concepts from two very distinct, yet related areas in literature; financial growth and marketing.
GROWTH MODELS
ASBBS E-Journal, Volume 4, No.1, 2008 171