Professional strategic management of Caterpillar

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Table of Contents

Introduction
Strategic Audit
Conclusion
Reference List

Introduction

Caterpillar was formed in 1925 after the merger of Holt and Best Tractor Company. After this, the company moved its headquarters to Illinois. It is credited as the first company to introduce a diesel engine on a moving vehicle. From 1930s later on, the company directed its efforts to the production of construction, road building and logging equipment.

The Second World War would later on redefine the company as it supplied bulldozers to the US army. The company was able to increase its production line to include diesel engines, motor graders and electric generators. This saw its sales increasing considerably (between 1941 and 1994). Later on after the world war, the company saw an increase in demand for its products because of vibrant reconstruction in Europe.

In addition to these, there was need to construct large dams in third world countries and lay out major airports in other parts of the world. To stay ahead and remain more competitive in the market, the company ensured that it manufactured durable, reliable and high quality equipments. On the other hand, it ensured that there was speedy delivery of replacement parts. Because of this, the company was able to emerge as a market leader in the heavy construction equipment industry.

As from 1960, the company had energized itself by establishing subsidiaries in other countries that it had set businesses into (these were manufacturing subsidiaries). More success has been brought about by the company’s distribution and dealership network that has given it a wide market presence. The company’s marketing organization has always relied on a dense network of independent dealers. Its rising profitability was affected by a crisis in the early 1980s.

It came about as a result of the global economic crisis, unfavorable exchange rates between currencies and a strike (that was brought about by misunderstandings). After these problems, the company embarked on a turnaround program that was headed by George Schaefer’s. This was for a period of 5 years (from 1985 to 1990). He embarked on ensuring that the company utilized global outsourcing, broader product line, employee involvement, plant with a future and labor relations.

Schaefer’s was succeeded by Donald Fites who was at the helm from 1990 to 1999. He really focused on leadership, reorganization, marketing and dealerships, diversification and information technology. These together with proper labor relations helped to turn around the company towards success and profitability.

Glen Barton has been charged with driving the company towards a more profitable future. He took over in1999 and embarked on four growth strategies. These include diversification, new markets, a new distribution channel and joint ventures. All withstanding the company has had considerable success with a wide market presence. This has made it to compete with other players in the market. As economies continue to grow and expand the company has a good opportunity of expanding to new emerging markets around the globe.

Strategic Audit

Resource Audit

Caterpillar has managed a come back in business due to the vast resources that the company has at its disposal (Arnold, 1997, p.4). Hence, under its three CEOs (from 1985 onwards) it has seen considerable growth. In some occasions these growth has been interrupted by unforeseen circumstances. Resources are vital for growth in all perspectives. The company has self produced two thirds of its parts and components at its plants instead of outsourcing.

To further reduce on costs, the company has ensured that it assembles its finished products on its own. In addition to these, the company has a superior marketing organization. It has used it to its advantage in advancing into new markets for growth. The company has been involved in a $1.8 billion plant modernization program. This was combined with a network of computerized machine tools.

In ensuring that this is effective, there was a flexible manufacturing system. The company’s plant seems to be its main resource as it has enhanced the quality of products and reduced the time taken to manufacture. For example under cellular manufacturing three operations were carried out single handedly. On the other hand, there was reduced material handling (through the use of automated electrical monorail) that delivered parts to the assembly and storage area.

The company has many plants in other parts of the world which enhances its production capacity. Notwithstanding the company has advanced its technology for efficiency. The organizational structure has been made more functional to enhance the decision making process. There has been an upgraded global computer network for a faster deliver system to the customers.

The developed system has the capacity to monitor machines from remote locations. Through these it was easy to tell which parts are failing and be able to correct them in advance. To enhance these achievements, the company was able to expand its rental business equipment.

To continue being in a good competitive position, the company needs to ensure that it improves its resources. This is important because most companies are investing a fortune in resources for increased productivity and efficiency in operations. More so, the manufacturing plants need to be up to date for the best quality. It should not be forgotten that technology enhances operations and needs to be at par with current trends.

Value chain analysis

The company has had good activities in place to enhance its competitive strength in the market. These are primary and support activities. Primary activities have ensured that the products are well created and delivered. It has self produced its parts and components for quality (Legge, 2004, p. 14).

By self producing their products, the main aim has been to ensure that they are made to suit the market. This has also enabled them to know where the weaknesses are and improve on them for effectiveness. In addition, it has been at the forefront in assembling its products to ensure that they give the best to the market. With a proper analysis they have given the market the best products and thereby defended their market share.

The company has had a branding program where it has sold its outsourced machines under its brand name. This has helped to maintain the company’s image and create a strong brand name in the market. In the process of outsourcing, the company has kept control of its product designs. This has been necessary to defend their originality. In addition, it has helped to ensure quality control and take charge of their in house designs.

Caterpillar has also doubled its product line to have more models (of equipment). This has been necessary to respond to various tastes and preferences in the market due to their diversity. In the long run the company has been able to diversify its product range.

As a matter of fact, customers have ended up being satisfied and remained loyal to the company. As a way of expanding its product line, the company has diversified into the engine business. Initially, they had not given it a thought but it seems to be a noble move as it has contributed significantly to the company’s success.

The company has come up with good support activities in place (because they are not directly involved in production). But on the other hand, they have increased effectiveness and efficiency. Under Fites the company had more attention being laid on labor relations. This is because labor plays an important role in the production process. In cases where this had been neglected, the company experienced problems like strikes (an example is the 1982 crisis).

Fites put in place the right measures to deal with any frosty labor issues. When a strike erupted in 1991 the company had enough inventories that were able to sustain it for six months thereby avoiding any loss. These inventories were able to cater for all customer demands (in both foreign and domestic markets). Its marketing and dealership programs have been effective as they have ensured that the company’s products are available in the market conveniently.

The network of dealerships has been extensive covering a wide area. In extreme cases, the company has always protected its dealers against any failure. Caterpillar has had considerable success in business because of quality which has made its products distinct. Value chain is important in ensuring that the company sustains its market. Since new products are innovated every now and then, the company needs to be very active in ensuring that the products they offer are suitable for the market.

Core competence analysis

The market has been highly competitive and this has called for the company to be very strategic. It has also had key capabilities that have enabled it to achieve a competitive advantage over its competitors (Morgen, 2003, p. 15). The company has been competent enough in global outsourcing. It sold outsourced machines under its own brand name. This was done by taking advantage of its well laid out marketing organization by keeping its production costs low.

Another key competency that the company has had is its outsourcing of product manufacturing. This has enabled it to save on costs that it would have uncured (were it to manufacture the products on its own). In the long run they have been able to focus more energy in enhancing product designs.

The company has had an employee involvement program. It has been called the employee satisfaction process. This program was necessitated after the company had frosty relations with trade unions (Arnold, 1997, p. 10). Though a voluntary program, it was aimed at meeting with the management to give suggestions in relation to critical manufacturing processes. In the end a good workplace layout was put in place thereby enhancing the quality of manufactured products.

This competence has guaranteed the company productivity gains and thereby increased employee satisfaction in the long run. The company has a plant that supports its production activities thereby enhancing quality. This has been achieved through a flexible manufacturing system. The plant has been upgraded in various occasions depending on the level of technology so as not to compromise quality.

Although the company has proved to be competent in most areas that are critical in the business, it’s lagging behind in labor issues. It needs to review its labor relations with employees and trade unions so that operations can not be interrupted in any occasion.

Performance analysis

The company has had a good performance over recent years. To explain the company’s improved performance it can be said that they have utilized resources at their disposal efficiently. Because the manufacturing plant is their major resource they have ensured that it is up to date (Lynch, 2009, p.7). All the CEOs that the company has employed have understood the importance played by the plant in ensuring that the company delivers.

As a matter of fact, the plant has always been upgraded every now and then to enhance its efficiency in ensuring that the company manufactures good products. The plant has always been used to assemble parts and reduce on costs that would have been incurred in the process of outsourcing. As technology has continued to evolve, the company has ensured that it keeps its plant up to date with the current trends (in technology).

The company’s marketing organization has assisted it to stay ahead and avoid competition that can lock it out of business. Because marketing plays an important role in the success of a business, the company has always reviewed its strategies to ensure that they are more efficient (Lynch, 2009, p.17). The marketing organization approach has changed with every CEO. This is because every one (CEO) has their own way of ensuring that they achieve results.

Technology has been reviewed every now and then to ensure that operations run smoothly. Any company that wants to run smoothly and efficiently must embrace technology and that is why caterpillar has computerized most of its operations. Technology is a good resource that a company must have and should be reviewed to be in line with what the market is offering at that particular time.

Most competitors in the market have been outsourcing their operations to enhance efficiency and the company has not been left behind. This has mostly been done in far markets that might be otherwise expensive for the company to venture in. Global outsourcing has also been a trend with most manufactures. In this case, caterpillar has outsourced product manufacturing to other companies

The company has a marketing and dealership organization that enhances its distribution network (Martin, 1995, p. 4). Its network of dealerships is extensive and this gives it a strategic advantage over other competitors in the market. Caterpillar’s main strategic advantage lies in its world wide distribution system. This has turned out to be its single greatest advantage over competitors.

Caterpillars’ resources and capabilities compare well with the best in the market. This can be explained from the fact that the company has been performing well. It can only perform well if it has the best resources and capabilities compared to its competitors. For instance its plant has enhanced its manufacturing unit. Although there have been occasions where it has not been the best in the market, the management has recognized the need to always upgrade it. Its capabilities in technology have ensured that there is timely delivery of equipments to the market.

The company’s financial performance has been outstanding (in the market). This has been enhanced by flexible technological advancements. For the period 1985 to 1990 the company had a market share of 50%. This period saw revenues increase by 66% thereby making the company highly profitable (Martin, 1995, p. 28). Its sales were totaling over $ 11 billion (this was nearly twice of its competitor Komatsu).

Under Fites, the company continued operating profitably. From 1990 its sales have been increasing by more than 5% which has given it a good market position (Cokins, 2004, p. 11). The company’s profitability came to an end in 1998 when revenues and profits dwindled. Because of this, a new CEO was appointed to take over from Fites and ensure that the company continues operating profitably. Looking at performance analysis the company has continued to be successful because of good strategies.

Though this performance has not been consistent, it has propelled the company to be a market leader in the construction equipment industry. The owners have always been keen to ensure that the company is profitable and this explains why they have changed CEOs to bring in new leadership. To continue being profitable the company needs to evaluate its performance every now and then. This will enable them to know their weaknesses and come up with measures that can correct the situation without affecting operations.

Portfolio analysis

The company has a large business portfolio that is spread across various markets. This is supported by the fact that the company has operations in different geographical markets (Armstrong, 2006, p. 26). Caterpillar has diversified its products to cater for the needs of the market and ensure that customers are satisfied. This includes a broader product line with a good distribution network.

Although these are the main pillars of the business, the management needs to do something about their labor relations. This is because in many occasions they have ended up derailing progress. The company needs to invest in technology to enhance operations. This is because technology reduces the cost of running a business. In addition, it enhances the quality of products manufactured.

Strategic Choice

From the audit, the company has an issue with its labor relations. This has manifested itself from the two CEOs that have been at the helm of the company (Armstrong, 2006, p. 7). Using the SAF model there are major components that need to be looked at in relation to this issue. The main stakeholders involved in this issue are the management, employees and trade unions. From the company’s history, it is evident that labor related issues have in most occasions affected it negatively.

This has manifested itself with employees engaging in strikes that have ended up being costly. The development problem in this case is the frosty labor relationship between the company’s management and trade unions that represent employees. As a matter of fact, stakeholders need to look at an involving way that can be used to ensure that everybody’s interests are taken care of. Since this is a major problem it should be given a professional approach to achieve maximum results.

The main goal of looking at this problem is to ensure that the company doesn’t have any problems that relate to labor issues (Cokins, 2004, p. 19). This is because labor forms an integral part of the organization and needs to be taken care of for uninterrupted operations. Although every body needs to be blamed the problem lies squarely on the management for failing to ensure that this issue is given a consultative approach.

By looking at labor relations between the management and employees, the main emphasis should be laid on coming up with a lasting solution to this problem to prevent it from reoccurring and paralyzing the company like it did under Fites for 6 months. Although he had anticipated for it by putting in place the right measures like having enough inventories, this should not be presumed as the beast approach.

In analyzing this issue, the management needs to put in place a good communication strategy that will help it to achieve maximum benefits from employees. It seems that this problem/issue has come about as a result of a clear communication strategy in place. Every stakeholder has pulled in different directions thereby leading to a conflict.

The stakeholders in this issue are expected to come up with a proper modality that can make sure that such problems (like strikes) do not reoccur again. This should be done effectively as such a problem leaves everybody negatively affected. The only solution to this issue is to ensure that everybody is involved in coming up with the best labor practices that will bind all the stakeholders. This therefore calls for a process that will ensure that everybody’s interests are taken care of. These interests will only be known through a consultative process where nobody is left behind.

From 1999 (after the appointment of a new CEO) there has been talk of whether he should continue with the strategic approach of the previous predecessors. Although this is laudable it can not be extended to labor issues as the previous CEOs did very little in this area. This means that the issue has not been given the seriousness it deserves.

Strategic Implementation

The solution to labor relation issues can be well implemented for enhanced productivity (Haberberg & Rieple, 2001, P.6). To ensure that the implementation achieves the desired results it will be necessary to use Henry Mintzberg’s model. The company’s mission is to ensure that it becomes a global leader in construction equipments through quality manufacturing. This can only be achieved if its employees are effective and highly productive. So, to make employees be efficient in achieving this, there will be need to avoid any frosty labor relation issues.

In relation to this mission, the management will have to come up with a more involving way where employees can be allowed to have a say in whatever they want. When granted their wish they will be able to work efficiently and hence increase their productivity. Employees are part of an organization and should be involved in anything that has a bearing on their performance as a whole.

The organization should come up with a better rewarding system that will ensure that employees are motivated to work. Through this, they will concentrate more at work knowing well that they will be rewarded (Legge, 2004, p. 26. If the rewarding system is open and fair they will not have any problems with the company and hence increase productivity that will help it in achieving its goals. The company’s goal is to give the market quality products and this can be easily achieved with productive employees.

To resolve this conflict further, the company needs to have a system that will ensure that they interact with employees. This will enable them to know their grievances in advance. Through this, the management will be able to solve their problems before things get out of hand and lead to costly activities like strikes.

In addition, in implementing this solution by involving all stakeholders in labor issues, the company needs to be sincere while dealing with trade unions. Trade unions link employees to the management when it comes to their welfare and in cases where there is no sincerity it can lead to a bad working environment.

For proper implementation, stakeholders will have to come up with a plan on how this will be done. It is important to involve all the stakeholders in planning on how the solution will be implemented for maximum results. The objective of coming up with sound labor relations is to ensure that production activities are not affected (because of frosty relations).

Conclusion

Glen Barton has been charged with driving the company towards a successful future. He took over in1999 and embarked on four growth strategies. These include; diversification, new markets, a new distribution channel and joint ventures.

Caterpillar has managed a come back in business due to the vast resources that the company has at its disposal. Hence under its three CEOs from 1985 onwards it has seen considerable growth. In some occasions, this growth has been interrupted by unforeseen circumstances. The company has had good activities in place to enhance its competitive strength in the market. These are primary and support activities.

The company’s marketing organization has assisted it to stay ahead and avoid any competition that drives it out of business. Because marketing plays an important role in the success of a business the company has always reviewed its strategies to ensure that they are more efficient.

Reference List

Armstrong, M. 2006. A Handbook of Human Resource Management Practice. London: Kogan Page.

Arnold, J. 1997. Managing careers into the 21st Century. New York: Sega publications.

Cokins, G. 2004 Performance Management: Finding the Missing Pieces (to Close the Intelligence Gap). UK: Routledge.

Haberberg, A. & Rieple, A. 2001. The Strategic Management of Organizations. Harlow: Pearson Education Limited.

Legge, K. 2004. Human Resource Management: Rhetorics and Realities. Basingstoke: Palgrave Macmillan.

Lynch, R. 2009. Strategic Management. Harlow: Pearson Education Limited.

Martin, J. 1995. The Great Transition: Using the Seven Disciplines of Enterprise Engineering. USA: New York

Morgen, W. 2003. Fifty key figures in management‎. UK: Routledge

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