Competing for the Future

Caterpillar Company Profile

Company's History

The company had had a tremendous evolution throughout a period of highest sales and profits, however, in 1982, it hit rock bottom and entered its most serious crisis in history. A strong dollar, a long- term strike and several internal problems meant that Caterpillar endured three years of continuous decreasing sales and heavy losses.

Things became to turn around as George Schaefer became CEO in February 1985. A long career with the company helped him use his huge experience to revive the company's activities.

Key Management

George Schaefer became CEO in February 1985 and led the company through a period of serious restructuring and organizational change. He had started out in accounting, but then moved in several positions throughout the company, including Vice President for Finance and Data Processing, EVP and board member.

Pierre Guerindon had played an essential role as the Belgian plant's manager and it was no surprise that he was brought to Peoria, where he started as a Vice President for Manufacturing in 1980. In this position, he introduced new technologies and a new plant management within the company.

3. Competitive Situation

The competitive situation of the company resembled that of many other large American companies during the 80s and beginning of the 90s. Indeed, during this period of time, competition from Japanese firms became a fact. These companies managed to operate at lower production costs and higher efficiency levels (somewhat related to the population's attitude towards work and the company, as well as the familial management style, where the company practically becomes a second family for the worker).

Even if the U.S. government imposed rather high import taxes on products made in Japan, in order to lower their competitiveness on the U.S. market, their solution was rather simple: direct foreign investments. This was also the case for Komatsu, the perfect example for everything I have mentioned here above.

Indeed, Komatsu was a most serious competitor in the United States. As we have seen from the case study, they added new operating lines during the 80s and increased their global presence as well, with 25% of the worldwide market.

4. External Environment

In my opinion, the external environment is fully represented by the competitive environment in which the company is currently operating. In addition to this, I should also mention the specific economic and political environment that characterized the 80s, period during which the company's problems and restructuring took place.

Indeed, starting with 1980, Ronald Reagan took over as President of the United States and with that came one of the most liberal economic periods in the history of the United States. This economic liberalism came close to chaos with the stock market crash of 1987. However, other than that, it was a fully prosperous period of economic development. The impact of such an environment on Caterpillar was, of course, the increased competitive environment in which the company needed to live in. Even more so, the company needed to adapt to newer times and different habits.

5. Problems Identification

In my opinion, the company is facing two serious problems at this time. The first one is an organizational problem. As the case study has mentioned, Caterpillar was a "hierarchically structured organization" and "risk aversive."

The problem with such an organization was that there were times when a decision needed to be made on the spot, the bets one if possible, but, anyhow, one adapted to the environment. The competitive 80s required that. The case with Caterpillar was exactly the opposite: decisions took an incredibly long period of time, they were strongly pondered on and we can even speak of a certain bureaucracy within the organization's system.

Risk aversion was also an issue with the current organizational structure. Because it was so cumbersome, it seems that everybody avoided to take the "fatal" decision or to take "calculated risks." This meant that good opportunities were sometimes lost because of excessive prudence.

The second problem the company faced related indirectly to the competitive market I have discussed and, more directly speaking, to the company's portfolio of products and to the company's setback in terms of technology and management, compared to European and Japanese firms in the branch.

6. 1) The manufacturing thrust involved several aspects, the most important being the internal development of smaller products (as well as their introduction the portfolio of products) and the heavier machineries, while on the other hand, some of the products were outsourced.

2) The new approach to markets implemented in 1987 meant that Caterpillar began using such things as licensing or outsourcing for penetrating external markets instead of classical direct foreign investments. This meant that some of the formerly inaccessible markets, such as the Chinese market, now became available for the company's products.

3) As I have mentioned, one of Caterpillar's problem referred to organizational management and the organizational environment. As such, Schaefer attempted to create a less hierarchical structure, much more flexible and able to make the appropriate decision in a short period of time, with a higher inclination towards calculated risk.

4) The backhoe loader is one of the examples of the new products introduced. The idea was that the company's specificity and inclination towards heavy and sophisticated machinery and equipment left a serious gap in the portfolio of products, gap that needed to be filled with such products as the backhoe loader.

5) As I have mentioned several times before, the competition in the industry was acerb, especially from Japanese companies such as Komatsu. The challenge that this competition provided was a primary cause for the changes that took place at Caterpillar and that were presented throughout the case study.

6. Alternative Solutions

In my opinion, the organizational challenge is the most serious. The end of the case study presents several additional concerns in this case, such as the fact that few employees and possible future managers had the general management skills or perceptions. This shows that the organizational challenges that the company is facing also requires human resources restructuring. In this sense, there are several solutions that may be adopted. You can hire new personnel and train them to become future managers, while letting go of the older ones, who still believe in the hierarchical system. Otherwise, you can keep the older management and train them in order to be adapted to the changes.