the comeback of caterpillar (cat), 1985-2001

1The Comeback of Caterpillar (CAT), 1985-2001

Caterpillar 1985-2001

The Comeback of Caterpillar, 1985-2001

Isaac Cohen, San Jose State University

Case Objective and Use

The case is written in a way that helps me to analyze Caterpillar’s spin approach. I realize that Caterpillar’s major problems were rooted in the complacency of its top management: following decades of an unconcealed international leadership, Caterpillar was not equipped for change. I also realize that Caterpillar’s victorious comeback was continual by quite a few dissimilar strategies, namely, structural restructuring, universal outsourcing, plant transformation and computerization, product diversification, and dealerships’ revitalization. An further purpose of the case is to have estimate seriously Cat’s current comeback to the industry’s recession, point out the strengths and weaknesses of such a reaction, and recommend substitute solutions.

TASK 1

1. Discuss The Background To Change Within An Organization Like Caterpillar In The Current Economic Climate From 1985-2001.what Factors/drivers Of Change Do You Think Will Be Of Importance To Caterpillar?

Caterpillar, the world's largest manufacturer in manufacture, mining apparatus formed in 1924 when the Holt Company, a joint venture who formed the Caterpillar tractor; multipart with the Best Tractor Company and shift headquarters in Peoria, IL. The only company to use a diesel engine in vehicle in 1931; discontinued joint business curtly after to focus on road-building, construction, logging, and pipe laying apparatus. Caterpillar distributed the U.S. Army with bulldozers in WWII, sales move 3 time in the early 1940's mid to end when incorporated motor graders, diesel engines, and electric generators in their product line. these were the new products .After WWII, order for Caterpillar products sprung forth and their equipment was used to construct throughway highways and airports as well as reconstruct Europe and construct dams during Third World countries. The production was high quality, reliable products with fast deliverance and service when replacements were needed which set apart from any competition. in 1960's they established foreign industrialized subsidiaries in countries and successful grouping with Mitsubishi in Japan.Caterpillar's network of self-sustaining dealerships, distribution centers contributed their success by developing relationships with good customers since they were deliberately situated throughout the universe. Competition in the U.S.A and Europe was weedy and with producing quality products they were proficient to premium prices, pay production workers union scale, and make available their shareholders high return rates on their equity.1981was the record year, the next 3 years showed evidence losses caused by worldwide depression, high cost union strike, and a rise in the dollar value which made exports more luxurious and imports cheaper.



Drivers also including the

1. Manufacturing processes Customers Distribution methods Selling methods Service requirements Design factors

2. Dealership system3. Colas of global market4. importance of exchange5. innovative tech6. Esp. associate of staff satisfaction program started7. EOS economics of scale8. Fuel Price Increases on Public Transport9. US Economy10. Flotation in exchange rate of dollar

There are many different organizations which are called Caterpillar and therefore you are not going to be able to find the right information which is going to help you as you are just going to get a list of different websites which are not going to have the organization in mind that you are hoping to research.

11. foodstuffs responsibility improved than others12. Demand for cheaper products by people13. Dynamic Market14. Sharp Workforces 15. organization's Expense 16. exertion tactics

The effects aren't always going to be bad and therefore once you know the organization that you are trying to find information on, the quicker you are going to be able to have all of the resources which you are going to need to ensure that you have the right answer and research for your question.

2. What Are Strengths And Weaknesses Of caterpillar Bureaucratic approaches in relation to organization structures?

The main strengths and weaknesses includes the 1. A Worst-Case Scenario2. International Deployment3. Labor Relations4. Foreign Competition

In 1982, business experts thought American corporate star have fallen. Caterpillar, the giant equipment manufacturer, saw its negative earnings first time in 48 years. losses sustained, with a single exemption, for 11 quarters. In three years, accumulated losses



totaled $1 billion, equity was reduced by 28 percent, and employment was cut by almost 40 percent (more than 30,000 jobs).

Half of the jobs lost were in U.S. employment related to exports. Caterpillar, one of the nation's leading exporters--it ranked third as recently as 1979--found its foreign sales cut in half. Ten plants eventually were closed, and the stock market had lowered its evaluation of the company by $3.7 billion--57 percent--by late 1984.

Slow recovery began in 1985. Losses in the second half of 1986 and early 1987 did not result in an annual deficit in either year. By late 1987, sales revenues and profits were approaching the pre-1982 levels. But it had been a long and traumatic ordeal.

What had gone wrong? In retrospect, several lessons loom clear for Caterpillar and for American manufacturers in general. The 35-year post-World War II expansion in the world market for construction machinery had ended by 1980. But Caterpillar was increasing its plant capacity at a rate of more than 5 percent annually as late as 1982, when its ordeal began--even though its physical sales volume had peaked in 1978. Expansion had been pursued too long, until less than half of existing capacity was needed to meet demand, before corrective action was undertaken.

Foreign Competition

Long before the crisis began, management warnings had identified Japan's Komatsu Ltd., Caterpillar's principal competitor, as deadly serious in its quest to become the new industry leader. It is doubtful that the full impact of this was understood by many executives, middle managers, union leaders, or others concerned. Komatsu had made steady progress as a competitor through product improvement and meticulous attention to costs, helped by Caterpillar's long strike in 1982-83 and the period of the high dollar-yen relationship in the early eighties.

International Deployment

Caterpillar was an extreme case of a company's dependence on its ability to export. In 1981, 57 percent of its sales were outside the U.S., and roughly two-thirds of those orders were filled by American exports. Among large companies, only Boeing has had a heavier dependence on exports. The portion of Caterpillar's output made abroad was not increased from the late 1960s until the 1980s crisis. In a period of increasing foreign competition and fluctuating foreign exchange rates, the wisdom of such heavy reliance on U.S. production was questionable.



Labor Relations

As Komatsu was creeping up on Caterpillar through its attention to product design and manufacturing costs, one key Caterpillar cost--wages and benefits--was clearly out of control. The company tried to remedy this problem in its 1982 contract negotiations with the UAW despite the mutual distrust and misunderstanding which existed. A costly (to both sides) 205-day strike followed. The resulting massive operating losses for the company accounted for a sizable part of the $1 billion loss during 1982-84.Since its inception over 80 years ago, Caterpillar has grown to be the largest maker of (1) construction and mining equipment, (2) diesel and natural gas engines, and (3) industrial gas turbines in the world. To understand how Caterpillar has achieved record sales and profits, several components of their business will be discussed: Financial Strength, Integrity, Product and Market Diversity, Cat Dealer Network, Quality Products, and International Focus

3. Alternative form of organizational development experienced at caterpillar and of its main campatitor komatsu?

Donald Fites Leadership style

Donald Fites was follower centred leader (1990-1999), before his leadership there

was no concept of power delegation at CAT, he was the first who broke the CAT into

seventeen divisions and delegate power of decision making, decision making was

done at divisional level. Under his leadership decision making was no longer limited

to the top management, it was decentralized.

Indirect Leadership & its impacts on performance determinants at CAT

• George Schaefer did outsourcing and branding, it was his indirect leadership,

which resulted in cost reduction and production efficiency.

• During 1984-87, innovation had been done by the CAT; they had doubled their

product line from 150 to 300, introduced light weight equipment for farming e.g.

tractors.

• Schaefer launched plant modernization program and JIT during 1986 and

completed these programs successfully by adopting new technologies and bringing

innovation, during 1990’s CAT’s plant was fully modernized and equipped with new

technologies.

Plant modernization caused improved productivity and efficiency, assembly process

at CAT plants reduced by four fold and customers order time was reduced to 4 days

from 16 days.



• Donald Fites invested in adaptation of new technologies and implemented

worldwide computer network at all divisions around the world. This technological

adaptation resulted in improved communication and flow of information.

Direct Leadership at CAT & its impacts on Performance determinants

Schaefer exhibited relationship oriented behaviour and introduced employee

satisfaction program (ESP) during 1986.ESP caused in an improvement in employee

satisfaction and consequently, resulted in improved productivity, quality and rduction

of product rejection by customers from 2.8% to 0.6%. With the introduction of ESP

cost saving of $10 was achieved.

Difficult and Courageous Decisions During that work session, Cat’s management team made a numberof what has proven to be historic decisions for the company. Through a recognition of their Driving Force and the related Areas of Excellence, concepts we will talk more about later, Cat’s senior management team had no trouble deciding on the following actions:• to divest themselves of Towmotor and take a loss of nearly three hundred million dollars• to remain a U.S.-based manufacturing company due to the fact that moving their fourteen Illinois plants abroad would have been a major blow to the economy of that state• to invest $2.5 billion dollars in a program named PWAF (Plant With A Future) which was intended to significantly

Task2

Market Globalization

Globalization refers to the economic, cultural, traditional communication between various

countries across the world Maps of India (n.d).In this turbulence environment, due to technology,

awareness, knowledge and economic factors business are no longer limited to geographical

boundaries of a country or a market, now for organizations the world has become a single

market, companies do not have their customers within limited access, they have customers

around the world and organizations are operating worldwide with customized products, this

expansion of business around the globe is called market globalization.



1. Market Globalization for CAT

During 1980’s CAT business was in American and European markets but with the passage of

time the company had realized the importance of globalization, they expanded their business in

Asian markets during 1999, like diversification, the CAT’s policy of globalization prevented the

company in hard times.

As from the case study it can be seen that market globalization had significant importance for the

company in past, it’s still very important presently for the company, to sustain their competitive

advantage, survival and growth they must bring innovative products in accordance with demand

globally. Market globalization can enable them to sustain their competitive advantages and to

remain the number one in the market. Market globalization is their present as well as future

need.

Internet for CAT

These days internet has become very important source of communication, has connected the

whole world and enables the organizations to do their businesses across the globe. Organizations

have their branches worldwide and these are connected through internet in a single network and

sharing business processes and information with each other, besides these, organizations now

have knowhow of whole world market because of internet. Now instead of months, days or

minutes it took only a few seconds to share information from one end of the world to other end,

its only because of internet. It has enabled online banking concepts, online business concepts,

now organizations are not selling their products from physical existed markets but they can also

sell from internet market.

CAT had realized the importance of businesses being online, they established a worldwide

network (1996) and connected all branches across the globe.CAT must have to do online

business i.e. they must target their customers online and sell some of their products online, it’s

very important for the company to make their processes and communication faster so that their

performance should be improved.



Diversity

According to Ferrel & Hirt (2000), diversity is refers to the involvement of different ages,

genders, races, nationalities and abilities in the organizations, according to author more and more

organizations are occupying diversity of employees in order to serve their diverse customers,

organizations are improving their HR policies in order to recruit diverse employees.

Diversity for CAT

CAT adopted diversity during 1987-1999, because of industry wise downfall in demand of heavy

equipment products; CAT did diversification and introduced light weight equipment, power

generation engines, tractors etc.

Cat diversification strategy prevent the company throughout its life, but under the leadership of

Glen Barton during 1999, he faced new problems e.g. CAT’s sales decreased by 37% but these

losses have been covered by profits from their diversified engine markets.

It is very important for big companies like CAT that they must have to adopt diversification, it

was not only their need in past, it’s also their present need; they must diversify their products,

markets and employee diversification.

The CAT must diversify through hiring of mixture of new generation-X and Y in order to bring

new synergies and talent in the organization, because they are challenge accepters, have

technological knowhow and achievement oriented.

Mergers and acquisition for CAT

In order to cover up its losses and prevents the company from downfall, CAT’s leaders have

done mergers and acquisition in past, in 1996 Donald Fites purchased MaK(engine company)

and British Perkins (1998) engine manufacturers. Mergers and acquisition played very important

role in the success of CAT in past.



Under the leadership of Glen Barton, company had faced significant losses, so to be the number

one and for sustainability it is very important for CAT to expand its business by mergers and

acquisitions.

Future chuck

Psychological contracts

Psychological contracts are like relationship between employee and employer, these are

perceptions, beliefs of employees for the employer, employees took organizational

responsibilities informally Wikipedia (2010).

Psychological Contracts at CAT

For CAT, psychological contracts are one on the most important future as well as present need;

management must promote psychological contracts in order to prevent strikes and employees

dissatisfaction, the company had faced lots of problems during 1981-83 only due to employees

dissatisfaction. Top management at CAT had not recognized the importance of psychological

contracts this leads to long strikes by the employees and resulted heavy losses.

Promotion of psychological contracts at CAT will result to employee satisfaction, belongingness

for the organization, loyalty, retention and productivity. Psychological contracts at CAT might

leads to free flow of communication at all level of organizations and an open friendly culture.

situation development

According to RDI (2007), managers make judgments about future possibilities and develop plan

for those in order to overcome uncertainties and risks.

Scenario Planning at CAT

In case of CAT, it can be seen that the company have done scenario planning to some extent but

they have not done it properly and with concentration, e.g. rise in dollar values causes losses at

CAT, to cope against such situation e.g. financial marker risks, natural disasters etc in future the

company must have to develop proper scenario planning. Scenario planning will help the CAT to

minimize their future potential risks and enable them to maximize the possibilities of success.



Shared Organizational Learning

According to Collins lecture (2010), learning organizations are those, promotes and support

learning throughout at all levels of organization.

Shared organization learning at CAT

CAT should promote learning throughout the organization is such a way that their culture

become adaptive to learning, learning culture will help the CAT to sustain competitiveness and

growth in the future’s dynamic and complex environment and people at shared learning culture

of CAT should be adaptive to change quickly and effectively.

Virtual Organizations

According to Collins Lecture (2010) virtual organizations are ‘’organisation distributed

geographically and whose work is coordinated through electronic communication’’, virtual

organizations have shared vision and goals and combine their competencies.

CAT as Virtual Organization

In this fast moving world where technologies are changing in minutes instead of months or years

it has become very important for the businesses to operate in a unique way, through virtual

connection organization can operate differently, its very crucial for the success of CAT that they

must also be virtually operated in future, presence everywhere through wired network is a plus

point for CAT in this way they can provide immediate services to their customers, for their light

weight equipments they can take online orders and can do online selling it should enhances the

customer satisfaction on the other hand it should be cost effective for CAT.



Task3

Development of Leadership at CAT

For the development of leadership within CAT, first we should plan how will develop. After

planning next we practically do the actions then evaluation of its effectiveness Mullins (2010).

In order to develop the leadership program at CAT, first the organization should plan who will

be developed and how one should be developed. The organization should develop from its own

staff member i.e. managers and they should recruit some new and fresh talent in order to

compete, survive and adopt new technologies.

Recruitment & Selection of new staff for leadership development

Recruitment:

Recruitment refers to job announcement/advertising, attracting, and screening of candidates

FlippoE (1984). According to tutor2u (n.d), there are different methods of recruitment these can

be internal recruitment, external recruitment, jobcentres, job advertisement etc. Internal

recruitment have its advantages and limitations for organization e.g. internal recruitment is

cheaper and easy because the staff is already experienced. But one drawback of internal

recruitment is it limits the new ideas and talent within the organization. While external

recruitment is costly but it brings new ideas within the organization. Organization can recruit

through jobcentres, its also cost effective way of recruitment because job centres are paid by the

government and they are providing services to both employer and jobless people. It also saves

organizations time.

External Recruitment at CAT

CAT should recruit and select new staff from externally e.g. universities, by advertising in news

paper and through recruitment agencies and then go through a detail selection process and will

select new staff. Recruitment and selection of new staff will help CAT to add new talent in the

organization and it should enhance the future prospects for CAT.



Selection for leadership development from within CAT

CAT should select managers from within the organization and develop them as leaders, the

managers should be selected on the basis of past and present performance, qualification,

experience and potential they have got to become a leader.

After selection from outside and inside the CAT should do actual development of the staff,

different methods could be used, but according to my recommendation the organization should

select the following:

Mentoring

According to Robbins (2001), mentoring is like a relationship between a senior and his/her

subordinate and helping him/her in the development.

CAT should provide mentors for the staff, so that they should guide them in their career and

leadership development. Mentees will help develop and polish their personal skills and self

confidence. Staff mentoring , not only develop leadership skills but also promotes the friendly

and open environment within organization

Training courses

CAT must have to arrange different trainings and trainings on up to date technologies,

business process, tools and techniques, this will keep their staff in line with market needs and

upcoming technologies.

Empowerment

According to Mullins L (2010) People respond in best ways when they have greater

responsibilities.

Empowerment is a good way for staff development, by empowering staff they feel sense

of belongingness for organization and motivation for hard work and these leads to increase in

productivity.



Empowerment at CAT

After appropriate development of leadership skills within employees at CAT, the

organization should empower them in order to determine their performance. CAT had

empowered their staff in past by dividing organization into seventeen divisions and the result

was increased productivity.

Reference

Maps of India (n.d) Globalization of markets [online] available from

<http://business.mapsofindia.com/globalization/market.html> accessed on [13.07.10].

Wikipedia (2010) Psychological contracts [online] available

from<http://en.wikipedia.org/wiki/Psychological_contract>accessed on [20.07.10]

How Three Successive CEOs Used Strategic Thinking to Regain Supremacy

http://www.docshare.com/doc/161419/The-Comeback-of-Caterpillar-19852002Case

Balogan, J., Hailey, V.H. (1999): Exploring Strategic Change, London: Prentice-Hall.

Burnes, B. (1996): Managing Change: A Strategic Approach to Organizational Dynamics, London:

http://www.docshare.com/doc/161419/The-Comeback-of-Caterpillar-19852002Case

http://en.wikipedia.org/wiki/Psychological_contract

http://business.mapsofindia.com/globalization/market.html

the comeback of caterpillar (cat), 1985-2001

Documents

decision making

cost effective

psychological contracts

longer limited

collins lecture

glen barton

leadership development

external recruitment