Bleustein Gave Harley A Shine

• Scott S. Smith
• On 5:51 pm EDT, Thursday October 29, 2009

A week into his new job as the vice president of engineering at Harley-Davidson (NYSE:HOG - News), Jeffrey Bleustein rode home on his own hog.

Hog, as in the firm's legendary, heavy motorcycles.

It was September 1975. The next morning, he took his wife to the garage to show it off.

When they got there, a pool of oil was spread under the engine.

Embarrassed, he set out to design a new engine that wouldn't leak -- and would perform much better.

Drawing on the academic discipline he learned as a professor at Yale, Bleustein knew solving Harley's quality control problems would require a thorough look at the big picture and small details.

"When things go wrong, the answers are usually back upstream," Bleustein, 69, told IBD. "The theory behind how a machine works can often provide answers as to why it's breaking down."

His analytical and methodical approach to fixing things earned him the nickname Dr. Blue-sky.

Eight years later, the Evolution engine was revving up at Harley.

Bleustein's focus on innovation helped improve products and processes in every part of the company.

Harley-Davidson rewarded him with the CEO spot in 1997.

He rewarded the company with huge growth during his tenure. By the time he retired in April 2005, Harley's revenue had boomed from $1.6 billion to $5 billion, with net income rising from $143 million to $890 million. And HOG's stock from year-end 1996 to the end of 2004 had risen 417%.

Bleustein first wanted to be a doctor. But in pre-med at Cornell, he couldn't stomach the smell of formaldehyde or the sight of blood.

Yale And Beyond

Coming from a family in New York City that made wooden baby carriages, he still loved mechanics, so he switched to engineering.

After earning his doctorate at Yale, he became an associate professor.

But soon enough he grew bored with too much theory and not enough practice, so he got into consulting. One of his clients was American Machine & Foundry Inc., which had bought Harley in 1969 and now had him commuting weekly from New Haven, Conn., to Milwaukee. When the vice president of engineering resigned, Bleustein took his place.

In 1981, Bleustein and 12 other executives borrowed $82 million to buy out AMF.

It was hardly a smooth ride.

The next year, demand for Harleys dropped 20%. By 1985, the company was hours away from going bankrupt when Heller Financial rode to the rescue. Seven months later in a hot IPO market, Harley-Davidson went public for the second time.

Top Harley executives, including Bleustein, zeroed in on developing a new system of management. They eliminated the position of executive vice president and flattened the decision-making process, asking the unions to take a management role.

"We realized that management and the unions had many more things we agreed on than areas where we had differences and we should stop spending the majority of our time fighting," Bleustein said. "We learned to respect each other's views on the areas of difference and to work around those to achieve our mutual goals."

To make the theory of employee input work, Harley shifted to a design called circle management. So wrote Dantar Oosterwal, a former Harley-Davidson executive, in "The Lean Machine: How Harley-Davidson Drove Top-Line Growth and Profitability With Revolutionary Lean Product Development."

Essentially, a team of vice presidents would work with union representatives on projects.

Said Bleustein: "People throughout the company know more about the work they do in their area than the bosses do, so if you want to improve performance, increase quality, reduce cost, etc., the best people to figure out what needs to be done are the people closest to the work. Moreover, people will work smarter and harder on their own ideas."

Bleustein began an intensive program of communication so everyone could connect what they were doing with the company's goals.

Employees could take any of 100 courses on everything from literacy to motorcycle repair. Individual performance reviews became more candid and constructive to encourage the right behavior. "You can't overcommunicate," said Bleustein.

He also learned a way to reduce the change anxiety. "People fear making mistakes and/or they don't know how to get started," he said. "For innovation to flourish, leaders have to drive fear out of their organizations, and the first step is to acknowledge that it's there."

Leaders often don't want to admit that people may fear them, he says; they like to think of themselves as cuddly teddy bears. "I believe that the best way to talk about making changes is to call it experimentation rather than to encourage taking risks," he said. "Risk has a connotation of danger, and we're conditioned to avoid that from childhood.

"Experimentation implies a more thoughtful and controlled process, and I encouraged employees to try small experiments, to analyze the results and then try it again on a bigger scale or use what you've learned to try something different."

To stay in touch with customers, Bleustein and his wife would ride to many of the Harley owner rallies, which drew up to 300,000. He notes that a common mistake is to listen to customers too narrowly.

"Most don't think effectively beyond what they already know, and they seldom know about all the technology that can be brought to bear or what suppliers are capable of doing," he said. "You need to know your customers so well that you can anticipate what they'd like to have if you could get it to them."

The result under Bleustein's leadership was stunning product innovation, including the fast V-Rod motorcycle and the light Buell Blast.

A new training program brought in new fans, especially women, whose ownership shot up from 7% to 12% among Harley riders.

Inspiring

"It's relatively easy to get people motivated when a company is in trouble, because fear can be a very powerful driver," said Bleustein, who these days lives in Florida and Connecticut and still cycles with his wife. "But fear is not a healthy or sustainable motivator; a better one is aspiration, helping people develop a vision of a future state they would like to experience."

Oosterwal said: "Jeff ran engineering and product development and brought his ideas for new products and continuous improvement to his role as CEO. He had the view that if enough ideas went into the process and the right amount of pressure was applied through the process, good stuff would come out. His constant push for new products and improvements became affectionately known as the Bleustein Funnel."

When Harley-Davidson turned 100 in 2003, it saw that Bleustein's management had sparked the company from turning out 122,000 motorcycles in 1996 to making 291,000.

Without oil leaks.

Buzz up!