Applying the Cycle of Change Model to Caterpillar

Introduction

The process by which Caterpillar determined the nature and scope of the change it needed began with understanding a very simple principle: the building blocks of an organization must 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 pathways to information, its approach to motivation, 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 most important of these factors is systems thinking, as it is what allows for 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 addressed 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 information pathways functioned by giving pricing G.O. staff insight into profitability by product and country — whereas before, staff had no such insight and operated essentially blind, with only an indication of the company's overall profitability. To direct the change, leaders had to acknowledge the need to rethink the entire system, beginning with reorganizing how decisions were made and how information was supplied to enable 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 strengthen 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 people on the ground: they sought feedback about what the issues were and what middle managers 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 into a more layered and diffuse one. 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 identify where change was needed.

Drive the Change

The company's new vision was communicated by alerting stakeholders to an all-at-once makeover and reorganization. Leaders felt it would be better to initiate change immediately 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 future success. The first step, however, was to secure buy-in from the president and vice president. Once the vision was communicated to them and embraced, everything else fell into place.

The process for driving and energizing those responsible for the organizational change was decentralized 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, lower- and middle-level managers and teams were empowered to drive the envisioned change. Departments now had to prove their worth: "If a division could not achieve 15 percent ROA or higher, it could face elimination" (Neilson & Pasternack, 2005). By decentralizing everything, headquarters could focus exclusively on setting goals and measuring productivity and performance. Divisions and departments were now in charge of their own futures. As McNamara (n.d.) notes, incentivizing workers to perform is one of the most important aspects of managing change, and Caterpillar did exactly that by placing every division's future squarely within its own hands. If workers wanted a future in the company, they would have to demonstrate they deserved it.

Conclusion: Recommendations

Some things that Caterpillar might have done differently to improve the organizational change include the following. First, the company could have informed certain managers — who had no idea what was coming — that they would be placed in positions of responsibility for diagnosing why a 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). Giving managers like Despain advance notice of the changes ahead would have been considerate and would have helped prevent panic and anxiety within certain divisions.

Second, having performance metrics in place before the transition began would have been a valuable step. This would have allowed for a smoother transition and enabled every division to immediately understand how it was expected to operate. While the change succeeded overall and these were essentially minor details, small issues can compound quickly — and too many of them adding up can easily produce a net negative outcome.