Harley Davidson Executive Summary

TABLE OF CONTENTS
I. CURRENT SITUATION 4
A. CURRENT PERFORMANCE 4
B. STRATEGIC POSTURE 4
1. Mission 4
2. Objectives 5
3. Strategies 5
4. Policies 5
5. Summary 6
II. CORPORATE GOVERNANCE 6
A. BOARD OF DIRECTORS 6
B. OVERVIEW 6
III. EXTERNAL ENVIRONMENT: OPPORTUNITIES AND THREATS (SWOT) 7
A: SOCIETAL ENVIRONMENT 7
1. Economic 7
a. Economic Challenges 7
b. Economic Opportunities 7
2. Technological 7
3. Political - Legal 8
4. Socio-cultural 8
B. TASK ENVIRONMENT 8
1. Threat of new entrants 8
2. Bargaining power of buyers 8
3. Threat of substitute products or services 9
4. Bargaining power of suppliers 9
5. Rivalry among competing firms 9
6. Relative power of unions, governments & special interest groups 9
C. SUMMARY
OF EXTERNAL FACTORS (EFAS TABLE) 10
IV. INTERNAL ENVIRONMENT: STRENGTHS & WEAKNESSES (SWOT) 10
A. CORPORATE STRUCTURE 10
B. CORPORATE CULTURE 10
1. Management Values 10
2. Recruiting and Training 11
C. CORPORATE RESOURCES 11
1. Marketing 11
2. Finance 11
3. Research & Development 12
4. Operations and Logistics 13
5. Human Resources Management 13
6. Information Systems 14
D. SUMMARY OF INTERNAL FACTORS (IFAS TABLE) 14
V. ANALYSIS OF STRATEGIC FACTORS 15
A. SITUATIONAL ANALYSIS 15
1. Strengths 15
2. Weaknesses 15
3. Opportunities 15
4. Threats 15
5. Detailed Overview 15
B. REVIEW OF MISSION AND OBJECTIVES 16
1. Appropriate Objectives 16
2. Change to the Mission and Objectives 16
3. Effects on Paccar 16
VI. STRATEGIC ALTERNATIVES & RECOMMENDED STRATEGY 16
A. STRATEGIC ALTERNATIVE BRIEF 16
B. RECOMMENDED STRATEGY OVERALL 16
1. Alternatives for Each Level of the Organization 16
a. Corporate 16
b. Business 17
c. Functional 17
2. Justification of Alternatives 17
a. Long-Term Problem Solving 17
b. Shot-Term Problem Solving 17
c. Policies to Guide Implementation 17
d. Impact on Paccar’s Core & Distinctive Competencies 17
VII. IMPLEMENTATION 17
A. PROGRAMS TO IMPLEMENT RECOMMENDED STRATEGY 17
1. Developers (Using the Board of Directors to Full Potential) 18
B. FINANCE, BUDGETS, PRIORITIES, & TIME TABLES FOR GUIDANCE 18
C. STANDARD OPERATING PROCEDURES 18
VII. EVALUATION & CONTROL 18
A. INFORMATION SYSTEM CAPABILITY 18
1.Feedback on Activities and Performance 18
2. Pinpointing Information 19
3. Speed of the Information throughout Paccar 19
4. Benchmarking for Success 19
B. CONTROL MEASURES FOR CONFORMANCE 19
1. Current Standards 19
2. Reward Systems for Achievement 19
BIBLIOGRAPHY 20 I. Current Situation
A. Current Performance
PACCAR Inc saw global sales fall due to emission changes in 2007 that caused fleets to stock up on 2006 orders. They had revenues of $14 billion US compared to $15.5 billion in 2006. PACCAR had record truck deliveries in Europe, Mexico, and Australia which offset slower truck sales in the US and Canada. PACCAR had a sales market share of 26.4% in 2007 and their 3 major competitors in the US are Freightliner, International, and Navistar. PACCAR Financial Services generated $3.9 billion of new loan and lease volume. PACCAR Parts had their 15th consecutive year of record profits with sales of $2.3 billion; they are the primary source for aftermarket parts for PACCAR products and supplies parts worldwide. They are adding new distribution centers to enhance logistics performance for dealers and customers. They also installed a system at over 1,000 dealer networks called the Managed Dealer Inventory (MDI) that will coordinate what parts are needed for a customers PACCAR product before they bring it in for repairs. Worldwide profits contributed to over 60% of PACCAR’s revenue (Paccar Annual Report pg 4). DAF Trucks had record production, sales and profits. Leyland Trucks is the United Kingdom’s leading truck manufacturer. They expanded the innovative body building program the delivers custom-bodied vehicles to customers. PACCAR Mexico (KENMEX) had a record profit as the Mexican economy grew and truck fleets raised orders. PACCAR Australia also achieved record profits and sales in 2007 partly through introducing new Kenworth models and expanded the DAF product range in Australia and combine for a 22.7% heavy-duty market share. PACCAR’s net income of $1.23 billion was their second highest ever. Due to perpetually rising fuel costs, with oil prices exceeding $115/barrel, and companies wanting to reduce emissions and save fuel costs at the same time, there has been an industry wide push for fuel savings (Cassidy). Companies that are not attempting to “reduce their carbon footprint” risk losing bids from other companies who are now including that on proposal requests (Brown, Trucking’s Green Horizon). PACCAR has developed trucks that get an 8% increase in fuel from using alternative idling technology and their hybrid drive-train trucks achieve a 30% increase in fuel and are scheduled to begin production mid 2008 (Kilcarr). PACCAR earned the prestigious EPA Smartway designation for its designs of environmentally friendly products. PACCAR’s higher research and development expenses are going to cause a draw on short term earnings but will generate superior results in the long term.
B. Strategic Posture
1. Mission
PACCAR’s mission statement is clearly outlined and fits with their objectives and strategies. They are narrowly focused on the trucking industry with only one outside operation, and that is their winch business. According to the PACCAR 2007 Annual Report, “PACCAR is a global technology company that manufactures Class 8 commercial vehicles sold around the world under the Kenworth, Peterbilt and DAF nameplates. The company competes in the North American Class 5-7 market with its medium duty models assembled in North America and sold under the Peterbilt and Kenworth nameplates. The company also manufactures Class 4-7 trucks in the United Kingdom for sale throughout Europe, the Middle East, Australia and Africa under the DAF nameplate. PACCAR distributes aftermarket truck parts to its dealers through a worldwide network of Parts Distribution Centers. Finance and leasing subsidiaries facilitate the sale of PACCAR products in many countries worldwide. Significant company assets are employed in financial services activities. PACCAR manufactures and markets industrial winches under the Braden, Gearmatic and Carco nameplates. PACCAR maintains exceptionally high standards of quality for all of its products: they are well engineered, are highly customized for specific applications and sell in the premium segments of their markets, where they have a reputation for superior performance and pride of ownership.” (PACCAR Annual Report pg 2). PACCAR devotes a lot of company resources to its financial services division. This is essential for PACCAR because it is the best method for them to make sure that customers are financed for their new trucks. It allows them to internalize their financing and reduce the issues for customers of having to get bank loans.
2. Objectives
• To provide the world’s best transportation solutions.
• To be first in technology and best in class.
• To produce high quality customized products and services, on schedule, that exceed the expectations of both internal and external customers.
• To build strategic partnerships with customers, dealers, suppliers and communities.
• To grow the Aftermarket Services business.
• To be an environmental leader from manufacturing to finished product
• To grow market share
3. Strategies
• Investing for the future- Over $427 in investment in 2007 including the start of a new engine manufacturing facility in Mississippi, and a $70 million engine research and development facility in the Netherlands.
• DAF expansion with fuel friendly engines will allow for further international growth.
• Information Technology division continues to improve manufacturing software and dealer network communication through training, new PC installation and RFID usage.
• Internal training and development for management
• Employee education on the latest and best manufacturing and quality control methods
4. Policies
• Over 11,000 Employees are trained on Six Sigma practices
• ISO14001 Environmental Certification
• First truck manufacturer to be ISO/TS 16949 certified
• Require strong financial reporting
• PACCAR conducts business so as to reflect the highest ethical standards, fulfill our legal obligations, and meet our social responsibilities. We strive to gain the favorable regard of customers, shareholders, employees, governments, and the general public through superior performance and effective communications. (PACCAR Code of Conduct)
5. Summary
PACCAR is a global leader in commercial trucks class 5-8, engines, leasing, and manufacturing. They are investing considerable resources, $427 million in 2007 into capital investments to continue to drive growth for the company. Their development of highly efficient hybrid class 8 trucks and zero idle systems that provide idle reduction and cab comfort will continue to drive sales. PACCAR is environmentally focused, earning ISO 14001 environmental certification at all their facilities in Europe and North America. PACCAR is the first truck manufacturer to comply with the stringent global standard for quality management in the Automotive Industry- ISO/TS 16949. DAF is releasing a hybrid truck for urban pickup and delivery operations through an alliance with Eaton Corp. The new world class engine test facility in Eindhoven, Netherlands will generate up to 20% of the total energy required through the engine testing, energy that normally would have been lost. PACCAR is poised to capitalize on new fleet purchases due to new emissions laws as well as its recent emergence as a fuel conservation leader.

II. Corporate Governance
A. Board of Directors

B. Overview The majority of the board of directors have experience in finance, investments, management and engineering. PACCAR could use some strategic managers with more international experience, marketing, and environmentally friendly backgrounds. This would help improve their alliance with green engineering and development. III. External Environment: Opportunities and Threats (SWOT)
A: Societal Environment
1. Economic
a. Economic Challenges
Due to the current slowing economy in the United States and Canada, Paccar is facing hard times in these countries. There has been a large drop in the automotive industry as a whole. For example, some companies outside of the large truck market are seeing all time lows in sales and revenues. This is a large factor when a company such as Paccar is looking to expand into a new innovative market with the new emissions standards. Another economic struggle Paccar is facing is the fall of the housing market in the United States. When the housing market is struggling, the entire economy historically seems to follow. With housing growing less expensive, raw materials and fuel is moving in the opposite direction. In the last year some raw materials have doubled in price and crude oil has doubled in price in the last 13 months. Finally, one of the last large challenges for Paccar is the large decline in the North American CV (commercial vehicle) market. In 2007 there was a significant decrease in this market. According to Datamonitor’s publication on the US’s Heavy and Medium Truck Industry the market shrank 13.1 percent in 2007. This accounted for 117.1 billion dollars for the US market as a whole. This is significant when considering that half of Paccar’s revenue is supplied by the North American Market.
b. Economic Opportunities
Some might see the tightening emissions standard worldwide is going to be a challenge for a company such as Paccar. In truth, this is an economic strength and opportunity for Paccar due to the fact that they are an industry leader in this field of innovation. This relates to their economic opportunities because by making their product more efficient Paccar can capitalize on rising fuel cost by lowering operating cost of their large trucks while becoming environmentally friendly at the same time.

Asia, China and India show promising growth in their large truck market. With a stronger economy, these countries can support new truck sales and therefore offer Paccar an opportunity to enter their markets.
2. Technological
Paccar is jumping into the hybrid large truck market head first. Already Paccar is showing to be a leader in this new advancement in the large truck market. This will allow Paccar to gain more advancement on their technological knowledge in the hybrid field.

Another area Paccar is gaining ground on is their ability to use technological advancements in communications to improve operator ease in their trucks. By incorporating these tools into their trucks, Paccar is becoming a leader in incorporating GPS and other communication means in their trucks.

3. Political - Legal
The government has given Paccar millions of dollars in the past on multiple occasions to drive production, encourage environmentally friendly advances, and to create employment.

The government has been subsidizing the production of environmentally friendly large trucks for quite some time. Paccar has been taking full advantage of this in recent years to drive their innovation and overall production in hybrid technology.

Another area Paccar has had some complications in dealing with are new idle laws. Paccar tackled this problem with new idle technology which allows trucks to use an alternative method of running accessories while stopped.

New emissions laws that will be taking effect in 2010 are also effecting Paccar’s production. These laws are the second main driver behind their push for hybrid advances.

4. Socio-cultural
There is a growing trend in the concern around the environment and the availability of fossil fuels. With theses growing concerns, Paccar has been forced to modify their business model in order to meet the public’s desires.

In regard to the environment, Paccar has developed ways to meet the growing trend in having an ELV directive. This end of life directive has forced Paccar to use materials which can be recycled. The entire vehicle must be able to be 95 percent recyclable.

Another area which has always been an issue in the large truck industry is weight. There are many reasons for total vehicle weight but in a socio-cultural aspect it is poor road conditions caused by overloaded trucks and overall efficiency in terms of Paccar’s ability to load more cargo with a lighter truck.
B. Task Environment
1. Threat of new entrants
It is not easy for new competitors to enter into the heavy truck industry due to the large initial investment. In order to enter into this market a company would need to be well established in a related market or related field in the existing market.

Another factor which limits new entrants is the high amount of safety regulations in this market. It takes a significant amount of research and development in order to meet all safety regulations in this market.
2. Bargaining power of buyers
There is some bargaining power when it comes to the purchase of large trucks. This is a competitive market but at the same time customers are being forced to start investing into environmentally friendly trucks. This causes the urge to start investing into these trucks due to the coming regulations in the future.

3. Threat of substitute products or services
Due to rising fuel prices there is always the threat of customers switching means of transportation. A considerable amount of customers who use trucks are considering transportation by rail. One train can move the equivalent of over 200 trucks and can ship a ton of cargo 417 miles on one gallon of diesel fuel. Heavy trucks can not even compete when it comes to efficiency and capacity.
4. Bargaining power of suppliers
Paccar is very self sufficient. Paccar has the ability to complete a large amount of their tasks in house and supply their own needs. There is not enough significant bargaining power of their suppliers which would make logical business sense.
5. Rivalry among competing firms
There is an extreme amount of rivalry in this industry. Not necessarily in large truck producers but the end users of Paccar’s product. Due to the increase in JIT delivery systems, trucks must be more efficient than ever. Freight companies are always looking to cut cost in order to increase profit margins or lower costs to their consumers to achieve a larger amount of market share.
In the direct industry there is also much competition in the ability to be cost efficient in hybrid technology, materials use, recyclability, and fuel efficiency. All direct competitors in the large truck manufacturing industry compete on a daily basis to gain a competitive advantage over each other in all of these fields and many others.
6. Relative power of unions, governments & special interest groups
This industry has always been at the mercy of many during its history. During driver shortages unions have high bargaining power due to the inability to replace drivers quickly. A nation wide large truck driver strike could essentially shut down the economy because the United States relies so heavily on the trucking industry every minute of every day.

Governments have recently shown their power in effecting the large truck market by implementing new idle regulations and emission standards. This started a panic in the market due to the complexity of this matter. However, as an industry leader should, PACCAR has tackled these issues effectively and efficiently.

Special interest groups have had a similar impact that the government has had on the trucking industry. They are the drivers that get the new initiatives moved through the legal system and placed into effect by local, state and federal governments.

C. Summary of External Factors (EFAS TABLE)

External Strategic Factors Weight Rating Weighted Explanation
Opportunities
Agreements with Cummins,purchase of Truck Center Hauser 0.2 5 1 Cummins engines installed exclusively
Increase in heavy-truck demand 0.15 3 0.45 Demand expected to increase
Growing markets in China and India 0.15 2 0.3 Large growing market for industrial products
Threats
Raw material prices 0.1 2 0.2 Aluminum and Steel prices increasing
Decline in North American CV Market 0.1 2 0.2 Expected to decline
Economic slowdown in US and Eurozone 0.15 2 0.3 Weak economic outlook,pressure on revenue
Tightened emissions standards 0.1 3.5 0.35 Required to rework vehicles at high cost
ELV directive 0.05 3 0.15 Additional costs, obligations adversely affect margins
Total Scores 1 2.95

IV. Internal Environment: Strengths & Weaknesses (SWOT)
A. Corporate Structure

PACCAR is overseen by Mark C. Pigott, chairman and CEO he holds 62,000 shares. James C. Pigott is the major holder in the family. He holds 10.8 million shares, or just under $1 billion worth, which is just under 3% of the company. William G. Reed, also on the board holds nearly 700,000 and is the second largest individual holder of PACCAR stock after James C. Pigott.
B. Corporate Culture
1. Management Values
Paccar values executives who hold their company stock as a long term hold during their management tenure. The CEO must hold five times his total pay in stock and executive managers need to hold an amount equal to one years pay. All directors are expected to hold at least $200,000 worth of company stock. All directors or employees have three years to attain this ownership. (Corporate Responsibility VIII).
PACCAR has an 18 page code of business conduct. Here they outline the behavior that is expected of a PACCAR employee. “PACCAR’s Standard Policy 10, Principles of Conduct, states: PACCAR conducts business so as to reflect the highest ethical standards, fulfill our legal obligations, and meet our social responsibilities. We strive to gain the favorable regard of customers, shareholders, employees, governments, and the general public through superior performance and effective communications.” (Code of Conduct 2)
2. Recruiting and Training
Paccar prefers to develop their middle management from a 12-18 month training program rather than bring in older, experienced candidates. They rotate through several key areas, similar to rotations at many large corporations where new recruits can get a feel for the business and what area they will want to specialize in. According to their career website “Upon successful completion, candidates are placed in mid-management positions in one of the following fields: accounting, engineering, finance, human resources, information technology, leasing, operations, production or sales/marketing” (Leadership).
C. Corporate Resources
1. Marketing
Environmental responsibility has become a core value for PACCAR. PACCAR is dedicated to creating products that will adhere to increasing emissions standards around the world and has a long history of being proactive in its environmental programs. The company has implemented policies which can be summed up as “It is more environmentally prudent and cost effective to identify a problem before it occurs, than to correct or clean it up afterwards.” (PACCAR Environmental Policy) Some of the principles include compliance with environmental laws, developing and implementing practices that go beyond regulatory compliance, and preventing pollution by continued evaluation of industrial procedures. PACCAR also offers its customers tips on how to be more efficient, Kenworth engineers and dealers work closely with customers on a continuing basis to strive for enhanced fuel economy.

2. Finance
In 2007, PACCAR had its second highest revenue and net income in its 102-year history and has now made a profit for 69 straight years. Mark C. Pigott, chairman and chief executive officer said that "PACCAR 's excellent financial results vividly illustrate the benefits of the company 's geographic diversification, premium product and process strategy, applied technology integration and industry environmental leadership. Robust demand for PACCAR vehicles outside the U.S. and Canada and double-digit growth in the company 's finance and aftermarket parts businesses generated strong revenues." (“PACCAR Announces Excellent Annual Profit…”) Major investments in diesel engines, hybrid vehicles, new facilities and production efficiencies set the stage for further growth. It is a significant achievement to record such excellent results, especially considering that U.S. and Canadian Class 8 industry retail sales were 45 percent lower than the previous year.

For the full-year 2007, consolidated net sales and financial service revenues were $15.22 billion versus $16.45 billion in 2006. Net income earned in 2007 of $1.227 billion ($3.29 per diluted share) was 18 percent lower than the $1.496 billion ($3.97 per diluted share) earned during 2006. Cash dividends of $1.65 per share were declared during 2007, including a special dividend of $1.00. (“PACCAR Announces Excellent Annual Profit…”)

In October 2007, PACCAR 's Board of Directors approved the repurchase of an additional $300 million of the company 's common stock. Following the approval, the company repurchased 1.3 million of its common shares for an investment of $62 million in the fourth quarter. "The stock repurchase program reflects the Board 's confidence in PACCAR 's global business strategy and the company 's ability to consistently deliver outstanding earnings and cash flow," said Mike Tembreull, vice chairman. (“PACCAR Announces Excellent Annual Profit…”)

BusinessWeek magazine recognized PACCAR as one of the 50 best performing companies in the S&P 500. PACCAR was ranked 10th on the list of the top performing companies in the S&P 500, and earned the highest ranking in the Industrials sector, based on BusinessWeek’s comprehensive performance matrix. BusinessWeek evaluated average return on capital and sales growth for the past three years and then compared companies with others in their sector. ("PACCAR Inc News Release.")
3. Research & Development
PACCAR is an industry leader in the development of technologies to reduce emissions and increase fuel efficiency. Through the use of Computational Fluid Dynamics, wind tunnel testing, real world highway testing, and extensive testing at the PACCAR Technical Center, Kenworth’s T660 and T2000 and Peterbilt’s 386 and 387 models were recognized by the EPA SmartWay program for their application of aerodynamic packaging in their product designs, including sophisticated roof and fuel tank side fairings, bumpers and mirrors, as well as improved engine efficiency. ("Fuel Economy White Paper.")
"PACCAR significantly increased its investments in product development, plant capacity and global customer service during 2007 in order to meet future market demand," said Jim Cardillo, PACCAR executive vice president. "PACCAR invested a record $681 million in capital projects and product research and development in 2007. During 2008, PACCAR will concentrate investment on engine development, new product introductions and manufacturing efficiency improvements." (“PACCAR Announces Excellent Annual Profit…”) Major 2007 investments include:
-- Construction of PACCAR 's new $400 million engine production facility and technology center in Columbus, Mississippi began in July and is expected to be completed in late 2009. PACCAR 's premium 12.9-liter and 9.2-liter diesel engines manufactured in Columbus will be installed in Kenworth and Peterbilt vehicles and could be exported to meet DAF 's growing production requirements.
-- A world-class, 76,000-square-foot engine test and research facility was completed in Eindhoven, The Netherlands, in June 2007. The 20 world-class engine test cells are instrumental in the development of new PACCAR global engines.
-- Investments in hybrid diesel-electric technology, information technology initiatives and lean manufacturing platforms continued at record levels in all PACCAR global markets.
-- Peterbilt and Kenworth completed investments to increase facility capacity by 30 percent.
-- Capacity improvements were implemented at DAF 's production facilities in Eindhoven, The Netherlands and Westerlo, Belgium, in preparation for a five percent heavy truck production increase in the first quarter of 2008.
-- The first chassis paint robotics for commercial vehicles in North America were implemented in Peterbilt 's Denton, Texas, plant. PACCAR was the first commercial vehicle OEM to install chassis paint robotics at its Leyland U.K. facility in 2006.
-- A 260,000-square-foot parts distribution center (PDC) in Oklahoma was opened in April 2007 and groundbreaking for a 269,000-square-foot PDC in Budapest, Hungary, took place in September 2007. These new state-of-the-art facilities support continued robust global aftermarket parts sales growth. (“PACCAR Announces Excellent Annual Profit…”)
4. Operations and Logistics
PACCAR audits its facilities frequently using both internal and external auditors, often working in teams. All PACCAR manufacturing facilities earned the prestigious ISO 14001 environmental certification. This distinction recognizes that the facilities have implemented rigorous energy-saving measures and innovative design features to reduce thermal output. (“PACCAR Announces Excellent Annual Profit…”) In addition, Six Sigma is integrated into all business activities at PACCAR and has been adopted at 180 of the company’s suppliers and many of the company’s dealers. According to the 2007 PACCAR Annual Report:
“Its statistical methodology is critical in the development of new product designs, customer service and manufacturing processes. Since inception, Six Sigma has delivered over $1 billion in cumulative savings in all facets of the company. In addition, “High Impact Kaizen Events” (HIKE) leverage Six Sigma methods with production flow improvement concepts. The HIKE projects conducted in 2007 were instrumental in delivering improved performance across the company. More than 11,000 employees have been trained in Six Sigma and 7,000 projects have been implemented since its inception. Six Sigma, in conjunction with Supplier Quality and Development, has been vital to improving logistics performance and component quality by the company’s suppliers.”
5. Human Resources Management
As part of its initiative to be the leader in environmental responsibility, PACCAR requires that its employees be environmentally friendly. The company requires training of all employees in the environmental aspects of their roles at PACCAR and encourages each employee to contribute to ongoing improvement. Senior managers are part of the internal reporting structure for environmental performance. ("PACCAR Environmental Management System.”) PACCAR employees are environmentally conscious, 30 percent of business commuting is done by van pools, car pools, and taking the bus. (PACCAR 2007 Annual Report)

6. Information Systems
According to the PACCAR Annual Report, “PACCAR’s Information Technology Division (ITD) and its 740 innovative employees are an important competitive asset for the company. PACCAR’s use of information technology is centered on developing and integrating software and hardware that will enhance the quality and efficiency of all products and operations throughout the company, including the seamless integration of suppliers, dealers and customers.” In 2007, ITD provided innovative advancements in GPS systems, new manufacturing software and infrastructure capacity upgrades and installed over 1,800 new personal computers. Over 16,000 dealers, customers, suppliers and employees have experienced the company’s technology center, which highlights automated finance applications, sales and service kiosks, tablet PCs and Radio Frequency Identification (RFID). New features include an electronic leasing and finance office and an electronic service analyst.

PACCAR’s ITD is critical to the development of supply chain management. It oversees the quality, productivity, and product development cycles. “Over the past decade, PACCAR has focused its investments toward projects that result in a 30 percent reduction in time to market for new products and annual 5-7 percent manufacturing productivity improvement.” (“PACCAR Inc. News Release”)

D. Summary of Internal Factors (IFAS TABLE)
Internal Strategic Factors Weight Rating Weighted Comment
Strengths
Strong Market Position 0.15 4.80 0.72 Second largest manufacturer of big rigs
Strong Financial Performance 0.10 4.00 0.40 Revenues and margins are up
Aftermarket Customer Services 0.10 4.20 0.42 Increased 15%
Technology advantage and strong brand recognition 0.15 5.00 0.75 Recognized for its technical excellence,innovation Weaknesses
Narrow Product Range 0.25 2.00 0.50 Narrow product range vs. competitors
Weak presence in Asia 0.25 1.50 0.38 Competitors rapidly expanding in Asia
Total Scores 1.00 3.17

PACCAR’s core competencies are its strong market position and their technical excellence and innovation. Their mission has been to be the leader in creating environmentally friendly, state-of-the-art trucks which will not only comply with new emissions standards, but also be beneficial to its customers in saving them costs on fuel. PACCAR has earned numerous awards for their innovative product design and customer satisfaction. Being the voluntary leader in this movement, PACCAR is establishing itself not only as the current leader, but the leader for years to come that customers will turn to when faced with strict emissions standards and rising fuel costs. Since PACCAR currently has a weak presence in Asia and India, it would make sense for them to expand into that region by outsourcing and growing their product and brand names into those markets.
V. Analysis of Strategic Factors
A. Situational Analysis
1. Strengths
• Strong Market Position
• Strong Financial Performance
• Aftermarket Customer Services
• Technology advantage and strong brand recognition
2. Weaknesses
• Narrow Product Range
• Weak presence in Asia
3. Opportunities
• Agreements with Cummins and purchase of Truck Center Hauser
• Increase in heavy-truck demand
• Growing markets in China and India
4. Threats
• Raw material prices
• Decline in North American CV Market
• Economic slowdown in US and Eurozone
• Tightened emissions standards
• ELV directive
5. Detailed Overview
PACCAR is one of the largest truck manufacturers in the world, which includes the second largest in big rig manufacturing. The company has a strong position in the United States, Canada, Europe, and Australia. In 2007, the truck market in the United States and Canada was weak due to companies “pulling forward” vehicle purchases to avoid costly 2007 emission compliant engines and a slower economy resulting from the housing and automotive industry downturn. However, PACCAR had record truck deliveries in Europe, Mexico, and Australia. In 2007, PACCAR continued its strong financial performance, ROE was 27.5 percent and the company’s after-tax return on revenues was 8.1 percent. “Profits were driven by strong European truck sales, global parts sales and new finance contracts for 60,000 units. PACCAR’s outstanding financial performance has enabled the company to distribute over $3.0 billion in dividends and triple shareholder equity to $5.0 billion during the last ten years. PACCAR’s average annual total shareholder return was 22.7 percent over the last decade, versus 5.9 percent for the Standard & Poor’s 500 Index.” (PACCAR Annual Report)

While tightening emissions standards are going to require reworking vehicles at a considerable cost, PACCAR has always been known for its technological advances and innovation. Kenworth, Peterbilt, and DAF earned industry awards as the quality leaders in the Class 6, 7, and 8 markets. Kenworth earned three J.D. Power and Associates awards for Class 8 truck owners in the Over the Road, Pickup and Delivery, and Dealer Service Segments for the third straight year. According to the 2007 PACCAR Annual Report, the company plans to introduce medium-duty hybrid-electric vehicles in mid 2008, which can achieve up to a 30 percent fuel economy improvement. In addition, “Kenworth and Peterbilt launched proprietary technology that can increase fuel economy 8 percent by eliminating the need for customers’ engines idling at night. Kenworth and Peterbilt earned the prestigious EPA SmartWay designation for designing environmentally friendly products.” (PACCAR Annual Report)
B. Review of Mission and Objectives
1. Appropriate Objectives
PACCAR states on their website, under their core values section, “Protecting and preserving the environment is a core value at PACCAR.” When taking Paccar’s market as a whole into consideration, you must suit the needs of all the interest of Paccar which is covered in section III./ B / 6
2. Change to the Mission and Objectives
Currently Paccar’s mission and objectives are fit to their overall goals and match up with the tasks and outlook Paccar needs to embrace in order to achieve what is necessary to be successful in the future. Their current mission and objectives have been successful for a long period of time and slightly modified to recently fit their needs. Further change is not needed at this time.
3. Effects on Paccar
Paccar will continue to be successful if they continue to strive for perfection in every aspect of their company. Currently they are a leader in the Hybrid market. This is a great accomplishment due to the advancements made in recent times. It is difficult for a company to adapt as quickly as Paccar. Thus, Paccar has a strong enough mission and set of objectives that currently fit their goals for future advancement.

VI. Strategic Alternatives & Recommended Strategy
A. Strategic Alternative Brief
Currently Paccar is doing quite well in the effort to be a leader in the hybrid market. This goal can be focused on as an alternative strategy. Paccar needs to push harder for growth in the hybrid market
B. Recommended Strategy Overall
Paccar needs to focus on the hybrid market by investing everything they can into development, production, and marketing,
1. Alternatives for Each Level of the Organization
a. Corporate
Push for a corporate culture change which focuses on the grounds to become green without much change.
b. Business
Move forward with marketing, trade promotion, discounting, and operating savings to every aspect of the market in regard to hybrid endeavor. This will drive sales as seen with hybrid vehicles in the general consumer market.
c. Functional
Create more efficient, cost effective, and more importantly cross-functional production methods. This will create the ability for lower costs and eventually higher profit margins.
2. Justification of Alternatives
a. Long-Term Problem Solving
Culture change will build the mission and objectives into you employees. Changing the current marketing strategy will allow consumers to save money, which is a powerful marketing tool when trying to capture consumers facing rising costs of fuel. This in turn raises the cost of every other area of the dollar, therefore lowering its value making Paccar’s product more valuable.
b. Shot-Term Problem Solving
Changing the marketing strategy to this method will present a more effective aspect to the market in terms of trade promotion.
c. Policies to Guide Implementation
By changing the corporate culture, Paccar will not be faced with the need to change policies in order to guide the implementation of this strategy. This will create the motivation within their employees and prospects to take it upon them to achieve the mission and objectives in and out of the organization.
d. Impact on Paccar’s Core & Distinctive Competencies
Paccar’s core competencies, mentioned in section IV / D, will only improve and grow more prominent in their organizational structure. This is simply due to the fact that Paccar will tackle their mission and objectives more effectively and aggressively, which have been the foundation of their success.
VII. Implementation
A. Programs to Implement Recommended Strategy
Every individual will essentially be a part of the development process by implementing a 3M, Inc. model of open development. This will entail a small percentage of actual work time for each employee to participate in creative thinking in each area of Paccar’s recommended strategy.

Individually however, key players in upper level management will need to take charge in leading the organization to success.

Using the board of directors to its full potential is going to play a key roll in the recommended strategy. Paccar will offer incentives to the Board of Directors based on Paccar’s success.
1. Developers (Using the Board of Directors to Full Potential)
Stephen F. Page will meet with Paccar’s Human Resources department in order to develop a creativity program with incentives. He is a key player due to his knowledge in other similar industries. This will give us the insight needed to benchmark on other creative systems.

Michael A. Tembreull, who is the principal Financial Officer, will meet with Paccar’s Finance department in order to figure out how these steps are going to be funded and how they are going to benefit the company. Tembreull will also make changes to the programs as new data is made available in Paccar and the economy as a whole. He will also be in charge of creating the foundation of the incentive program in profit sharing for successful ideas that employees have created using the new program.

Charles R. Williamson, former CEO of Unocal Corp, will meet with Paccar’s team of top management once a month and determine what changes may need to take place with the new alternative strategy. Williamson is very qualified for this task due to his experience as a CEO and his ties to energy and engineering experience.
B. Finance, Budgets, Priorities, & Time Tables for Guidance
All of these aspects will be monitored every second of every day and analyzed on a daily basis. This is a very volatile market Paccar is about to enter into and in order to continue to be successful, changes to their everyday tasks and overall mission and objectives will need updating in the near future.
C. Standard Operating Procedures
Everyday tasks will stay the same during the development stage for most of the company. This needs to be a gradual change due to Paccar’s already successful track record. However, change needs to move at a rate of just bellow the problem development stage in order to stay ahead of this highly volatile market with a safety factor large enough to protect Paccar.
VII. Evaluation & Control
This is the most important aspect of any change made to an organization. When this amount of risk, time, and investment is made, the proper evaluation and control will determine Paccar’s future success.
A. Information System Capability
The abilities of Paccar’s information system will hold the key to evaluation and control.
1.Feedback on Activities and Performance
Feedback on activities and performance will happen at all levels of the organization. One area that will be utilizing the information systems is the board of directors. With Paccar’s highly advanced information system, the board of directors will have efficient and accurate access to all information, as will all levels of upper level management.
2. Pinpointing Information
Knowing what is actually important is a core competency Paccar has always possessed. Their ability to use all of their own and other information systems outside the company allows Paccar to know exactly what to do next.
3. Speed of the Information throughout Paccar
With technology today this should be an easy task. Paccar will need to develop an easy organization chart with contact information at the click of a button or even the ability to hold last minute video conferencing around the entire world. This will allow for quick decision making and complete thought processes.
4. Benchmarking for Success
Paccar should not only look at what is working for other companies, but also what is not working. In this process Paccar should look at other hybrid companies such as Honda or even someone as small as the Sacramento Bee. This will allow them to see the mistakes Honda has made in the past and how they have improved as a business because of these mistakes. They can also look at the organizational success of a fast pace company such as the Sacramento Bee and found out how their process control benefits them.
B. Control Measures for Conformance
Adequate control measures for conformance are very important when involved in a highly technical industry such as this. This is a very innovative and volatile market
1. Current Standards
Paccar has always had high performance standards. However these may not be enough when considering how fast the hybrid market is growing in technology. Paccar should always keep a watchful eye and raise or even lower their standards as needed
2. Reward Systems for Achievement
As stated in sections previously there are many reward systems which will be implemented to drive achievement. Upper level management and general management will gain higher bonus percentages, lower level employees will have the chance to gain profit share, and even the board of directors will benefit from the success of this path to victory.

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