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The Comeback of Caterpillar

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Caterpillar Corporation was founded in 1925 as Caterpillar Tractor Company by Benjamin Holt and Daniel Best. It specializes in the manufacturing of heavy vehicles, mining, and agriculture and stands as the largest manufacturer of construction and mining equipment, industrial gas turbines, diesel and natural gas engines in the world.

 After realization of its crashes and losses, the company had begun to implement new strategies from 1982. The crisis of 1982-1984 and competition with Komatsu forced to retrace the past activities of Caterpillar. Over a period of the following years, Caterpillar had transformed itself.

George Schaefer, CEO in 1985-1990, openly admitted the company’s past mistakes. Under Schaefer’s direction, the corporation invented and implemented leadership strategies that affected every function, including manufacturing, purchasing, personnel, labor relations, and marketing. Comparing to the autocratic style of his precursors, Schaefer’s leadership style was consensual. He let free flow of ideas between production workers, managers, and officers. Thus, open communication was promoted at all levels of the company that showed quality manager skills of Schaefer.

The leadership style of Donald Fites, CEO in 1990-1999, differed from Schaefer’s direction. He was a forceful and strong-minded executive, respected by peers and subordinates. Fites commanded rather than persuaded and used monitoring of union opposition. Operating effectively through strikes, the company kept up production, avoided massive customer defection, expanded sales, and increased its profits. Thus, strategic leadership was effective.

One of the strengthsof this corporation was the strong market position that this company had especially in the U.S. This position enhanced the image of the brand to the company. Through this position, the company was able to penetrate into the markets more efficiently and effectively. Through it, the company was able to serve a broad range of customers.

Caterpillar holds large portion of the market share. The company grew through production, not acquisition. It had the distribution system and could develop in the renewable, biogas market. A service network and widespread distribution have been essential for competing in the heavy construction and equipment industry. The company’s dealership network and distribution contributed to its worldwide success. Globally distribution system was the company’s greatest advantage over its competitors.

Brand recognition of Caterpillar was viewed as one of the factors that could raise the financial value of the company. Though its branding program, Caterpillar took advantage of keeping production costs down and its marketing organization. Successful marketing played an important role in gaining competitive advantage. 

There were also weaknesses that the company encountered in its operations. There was miscommunication between domestic and foreign managers. Moreover, there were many workers’ strikes. Caterpillar Corporation also needed to pay more attention to consumers’ preferences.

Caterpillar also had a set of opportunities. The major ones included brands, promotional strategies, and innovations. These involved its possibility to broaden its amount of products by introducing improvements and innovations, and, thus, attract more market share. Caterpillar had global market opportunities and potential of market sales overseas. The company made an expansion in countries with growing economics.

The company was faced by various threats. One of these threats was strong competition. The leading competitors were CNH, Komatsu, Cummins, and John Deere. The formidable Japanese company Komatsu has been the biggest opponent of Caterpillar since 1982. Economic recession, low investment in development and research formed other possible threats for the company. The economic conditions are essential for every company, because these conditions direct the future of the company.

Under the new business strategy of “shopping around the world”, Caterpillar required to buy components and parts from low-cost suppliers, who upheld high quality standards. By checking its outsourced products, it managed to ensure quality control and retain in-house design capability. Caterpillar also broadened its product line, introducing new models of equipment.

Electronic alert information system was developed under technological strategy of Fites, but it was a critical moment as the system was not fully operated. Fites expanded sales, especially of engines, and introduced new lines of products. Hence, Caterpillar applied a new strategy of sailing engines to other companies.

Schaefer outsourced components, parts, and machines, introduced employee improvement programs and cost-cutting measures, and began renovating the plants. His social skills improved Cat’s relations with the union that added to the success of employee involvement program. This program was launched by Schaefer in 1986. According to it, members of the program were organized in work teams and offered suggestions to the manufacturing process, containing workplace layout, production management, and quality enhancement. The program resulted in quality improvements, increased employee satisfaction, and productivity gains.

Schaefer also launched plant modernization program “Plant with a Future” that combined a set of innovations: factory automation scheme, a network of computerized machine tools, just-in-time inventory techniques, and a flexible manufacturing system. This program led to quality gains and productivity, and changes were remarkable.

Under Schaefer’s management, Caterpillar Corporation had recurred as the flexible, technologically advanced, and internationally competitive company, but the company stock lagged far behind its earnings. Besides, Caterpillar was facing an industry fall in the domestic market as well as in the international one, because of an increased value of the dollar and the cyclical nature of the construction equipment industry. Hence, its revenues and profits cut down; the company significantly lost money.

Fites viewed these financial troubles as the opportunity to make changes. Labor relations had received the most attention form Fites. He appreciated Japanese labor relations that were company-based organizations, which devoted to the success of the firm. Thus, Fites wanted to make labor relations of Caterpillar similar to the Japanese model.

Fites was persuaded that Caterpillar did not pay the necessary attention to customer needs earlier, and he tried to change the situation. He reorganized the structure and diversified a product line, revitalized dealership network, completed plant modernization program, and changed the approach to labor relations. Fites broke Caterpillar into 17 divisions to be the fast and flexible company in the global economy. A transfer from a functional into a divisional structure changed the methods of management compensation and joined profit of the company. Decentralized research and development activities were more customers driven than ever. This reorganization plan also influenced the distribution network as well as developed relations between managers and dealers, which became more informal than in the past. It resulted in the open-ended nature of the agreements. Fites helped Cat dealers to survive and protected them during recessions. Hence, strong personal business ties were created.

The result of such transformations was extremely positive. Caterpillar gained the second best ever profit in 1998 that formed about $1.5 billion. That is why Glen Barton, who was elected CEO in 1999, was in a desirable position.

Glen Barton used four growth strategies: diversification, expansion into new markets, the buildup of alliances with global competitors, and the development of a new distribution channel. Under Barton’s management, increased sales of equipment to the developing countries were of the highest strategic importance. Caterpillar reached a new category of customers, expanding its rental equipment business. The corporation practiced joint ventures to diversify into new products and expand into new marketplaces.

Nevertheless, Caterpillar needed a new strategy to survive in the construction industry and predict worldwide economic changes. Barton had to decide whether the previous strategies should be reversed, refined, or totally reorganized.

In 2001, Caterpillar Company hurled the Six Sigma approach program; the main goal of it was to achieve the long-term strategic goals of raising revenue. Barton wanted to reform previous management technique, using the quality management strategy. The Six Sigma approach was designed to improve the performance of the company.

The first tactic was to select a team which was mandated to analyze the problems. The team used different analytical tools, such as the cause analysis, process mapping, and tree and Pareto diagrams. From the results of the analysis, the team made an evaluation of the possible solutions to the problem, and how these solutions had to be applied.

Moreover, the company had to adopt other two methodologies, which helped in making process map linear combat the defect. These methodologies were DMAIC (Define, Measure, Analyze, Improve, Control) and DMEDI (Define, Measure, Explore, Develop, Implement). DMAIC is a data driven strategy, which is applied for the purpose of products quality development. DMEDI is designed as an approach in scheming processes, products and services development. These approaches helped the company to retain high competitiveness in the global market and product qualities.

The company also embarked on the strategy of teaching its dealers and suppliers about the use of the sixth approach in refining the sales. This approach helped the company to realize its goals, since its products boomed in the global market. It also emphasized on the showing factual figures and data to the suppliers. This approach was well adopted by the suppliers within a short period of time.

The introduction of the Six Sigma approach by CEO Glen Barton helped the company achieve its goal of $30 billion revenue. Presently, the company uses this approach in the problem solving and in development of activities. The application of the approach normally involves integrating methodologies and principles in all business aspects, including the dealers and suppliers.

The reason, that Caterpillar has survived and succeeded, was using of the same organizational model as 15 years ago. The original principles of the reorganization are still the same: responsibility for their botton-line, market-based prices, decentralization, and profitability. Schaefer started them, Fites carried them out, and Barton have to continue their implementation. He must develop the best team of people providing inclusive and safe place to work as well as utilizing the Internet for the distribution, marketing, service of products. The factors of future success contain culture of sustainable development, consistence with sustainability principles and development goals, pursuance of business growth opportunities.

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