Caterpillar Cycle of Change Model

Cycle of Change Model to the Caterpillar Case Study
Introduction
The process by which Caterpillar determined the nature and scope of the change needed began with understanding a very simple principle: the building blocks of an organization have to be aligned with “the overall strategy and performance objectives of the company” and its decision-making (Neilson & Pasternack, 2005). After nearly going bankrupt in the 1980s, Caterpillar reshaped its decision making process, its pathway to information, its approach to motivating, and its organizational structure. To complete this transformation it engaged in a cycle of change, which this paper will describe.
Direct the Change
To effect a change, certain ingredients are needed. These include: trustworthy leadership, systems thinking, capable champions (supporters and facilitators), followers who trust their leaders, and involved and engaged middle management (Judge, n.d.). One of the biggest of these factors is systems thinking, as it is what allows for an organizational change in the first place: unless leaders are willing to engage in systems thinking and look at how the company could be arranged more effectively as a whole, no change will occur. Caterpillar did this by tying its General Offices together around the world using “metrics and motivators to keep them pulling in the same direction” (Neilson & Pasternack, 2005). It changed the way the company’s pathways to information were provided by giving pricing G.O. staff insight into profitability by product and country, whereas before it had no such insight and operated essentially blindly with only an indication of the company’s profitability as a whole. To direct the change, leaders had to acknowledge that it needed to rethink the whole system—and that started with reorganizing the way decisions were made and how information was supplied to allow for more effective decision making.
The way in which Caterpillar determined the nature and scope of the change needed was “by inviting a rotating group of middle managers to breakfast once a week” so that “the attendees [who] understood Caterpillar’s weaknesses and were willing to talk about them” could share ideas about how to firm up the company in the coming years (Neilson & Pasternack, 2005). Communication was key to this early stage of development. The company’s leaders wanted to hear from the guys on the ground: they wanted feedback about what the issues were and what the middlemanagers thought good solutions might be. It was a dynamic period of communication and exchange, of brainstorming and open sharing of ideas—and that is what set the stage for developing the vision of how the company wanted to reorganize itself from a centrally-operated company to a more layered and diffuse company. As Anderson and Anderson (2015) note, engagement is a key factor in any company’s strategy for success, and it was Caterpillar’s willingness to engage its own middle managers that allowed it to see where it could change.
Drive the Change
The company’s new vision was made known by alerting stakeholders of an all-at-once makeover and reorganization. The leaders felt it would be better to initiate change at once rather than gradually over a period of time because they wanted to send a message—a “wake up call”—to everyone that this change was needed, urgent, and absolutely essential to the company’s success in the future. The first step however was to get the president and vice president to buy into the change. Once the vision was communicated to them and they embraced it, everything else fell into place.
The process for driving and energizing people involved with and responsible for the organizational change was de-centralized and passed downward to the various departments so that they could actively manage the change on their own. They were accountable to upper management, but the change was not being done to them—they were the ones tasked with doing it. In this manner, the lower and middle level mangers and teams were empowered to drive the change that was envisioned. Departments now had to prove themselves worthy of their existence: “If a division could not achieve 15 percent ROA or higher, it could face elimination” (Neilson & Pasternack, 2005). By decentralizing everything, HQ could focus exclusively on setting goals and measuring productivity and performance. Divisions and departments were now in charge of their own futures. If they wanted to succeed, they would have to prove their worth and value in their performance. Thus, the company changed the way responsibility and accountability were shared. Instead of everything resting on the shoulders of HQ, everything was dispersed so that individual parts were now responsible for their role in the company. As McNamara (n.d.) notes, incentivizing workers to perform is one of the most important aspects of managing change, and Caterpillar did that by putting every division’s future squarely within its own hands. If the workers wanted to have a future in the company, they would have to show that they deserved it.
Deliver the Change
Change was delivered by giving more power to individual managers. For example, if a problem occurred in a plant on one side of the world, the plant manager had to solve the issue himself. There was now no longer to call HQ in Peoria to get instructions. The individual leaders and managers throughout the company were given more autonomy, more authority, and more empowerment. They were finally allowed to do the jobs they were hired to do. There was no more running everything through the central headquarters. Now, each manager and leader was his own personal headquarters. All he received from HQ was his marching orders—and the rest was up to him.
The change was a success: “Many business unit leaders found the new decision rights invigorating and were thrilled to see their first divisional P&L” (Neilson & Pasternack, 2005). They now had a way to measure their own performance, to see their own value and worth, to see how they were contributing, whether they were meeting their goals, whether they were coming up short. They now had access to information that could help them make decisions.
Thus, the change management process began by getting feedback from the same managers and leaders the company would ultimately end up empowering. With that feedback, the company’s top leaders determined a new vision for the company—a new structure of organization. It implemented the change overnight and totally transformed how decision-making was processed. It put more power into local and regional managers’ hands, empowered plant managers to make executive decisions regarding their plant, while HQ simply focused on the numbers, metrics and goal-setting. It streamlined and decentralized and by incentivizing via empowerment, it knocked down any resistance that might come the company’s way.
The company’s culture was prepared for the change by the leaders who began to stress to stakeholders early on that it was meeting with breakthrough thinkers to see how it could reorganize into a more efficient company. It met with stakeholders, obtained ideas, shared ideas, and then announced that change was occurring and that everyone better wake up and get on board. It was sudden, dramatic, but invigorating because it was a change that made sense, that everyone could get behind, and that stakeholders would support. The culture was ready and willing to embrace the change because it had already survived a scare that threatened everyone’s livelihood and everyone knew that the company needed to do something to ensure it would never happen again. Few expected such a stark change—but once realized it was welcomed.
Conclusion: Recommendations
Some things that Caterpillar might have done differently to improve the organizational change would have been to: 1) inform certain managers who had no idea about what was coming that they would be put in a position of responsibility of figuring out why a certain division was losing money. For instance, “When Jim Despain became vice president of the track-type tractor line — the product line on which Caterpillar was founded — he was shocked to learn that “we were losing a lot of money. We had no idea how to fix it” (Neilson & Pasternack, 2005). Allowing guys like this the opportunity to have a moment of heads-up about the change that was coming would have been considerate and would have helped to avoid panic and anxiety in some divisions. 2) Having the metrics in place to measure how well everyone was performing would have been a good step, too. This would have allowed for a very smooth transition and every division could have instantly understood how it was to operate. While the change worked out overall and these were essentially small details, small details can easily overwhelm if too many of them add up to a sum negative.
References
Anderson, L. A., & Anderson, D. A. (2015). Designing your engagement strategy.
Change Leaders Network. Retrieved from http://changeleadersnetwork.com/free-resources/designing-your-engagement-strategy
Judge, W. (n.d.). Focusing on organizational change. Retrieved from
http://www.oercommons.org/courses/focusing-on-organizational-change/view
McNamara, C. (n.d.). Approaches and methods for managing change. Free Management
Library. Retrieved from  http://managementhelp.org/organizationalchange/index.htm
Neilson, G. L., & Pasternack, B. A. (2005). The cat that came back. Strategy+Business.
Retrieved from https://www.strategy-business.com/article/05304?gko=56862