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In short, the Caterpillar organizational structure was leading the company into a less competitive position from both an operating costs and time-to-market standpoint. This immediately affected the financial performance of the company, making it less profitable. The structure of organizations often follows a highly functional path, where manufacturing is centralized and each supporting functional area is integrated at the process level to production centers. For Caterpillar, their market had grown too diverse for a centralized manufacturing-based strategy to deal with. What Caterpillar decided to do was completely redefine its organizational structure with the concepts of lean manufacturing, time-to-market and demand-driven supply chains as the cornerstone of the new organization (Kee, 2003).
Chairman and CEO Fites chose to define a more market-driven structure for the organization, while also infusing each division with profit & loss responsibility...
Supporting the 14 product divisions are 4 centralized support divisions. This new approach, according to the text, reduced product development time 50% and increased productivity 30%. The infusion of responsibility for profit & loss performance by division, and the development of the cross-functional model for providing support to each of the 14 product divisions were highly effective in keeping Caterpillar competitive in the global markets they served.
References
Micah R. Kee. (2003, November). Corporate Culture Makes a Fiscal Difference. Industrial Management, 45(6), 16-20. ).
John A. Pearce II, & Jonathan P. Doh. (2005). The High Impact of Collaborative Social Initiatives. MIT Sloan Management Review, 46(3), 30-39.
Dramatic change at Home Depot: success to further success: How Nardelli sustained a culture change to keep the giant growing. (2006). Strategic Direction, 22(9), 8.
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