Caterpillar Corporation, also referred to as CAT, is a renowned and world leader in the manufacturing and selling of mining and construction equipment. The company specializes in earthmoving machinery, agricultural/construction/mining equipment, and heavy equipment machinery. It further deals with industrial gas turbines, logging/oil equipment, and manufacturing of natural gas and diesel engines. Caterpillar has been ranked favorably in numerous company classifications such as the Fortune 500, where it has been ranked at number 65 in 2019. Since its inception in 1925, Caterpillar has exhibited a successful transformation in response to the ever-changing business and market environment. Headquartered in Illinois, the company employs approximately 130,000 employees, while its current market cap surpasses $ 82.5 billion. It conducts its operation across several segments such as financial products, construction industry, energy & transportation, and resource industries (Company, 2019).
Despite the five-decade success, the caterpillar was under a threat of collapse and bankruptcy in 1990 to 1999. Its existence was threatened due to the aspects such as hierarchical central bureaucracy (highly centralized decision-making process), which led to a gradual loss of the market share ((Pasternack, 2019). It was the first time for CAT to report a loss in revenue (Company, 2019). However, the company responded quickly and reclaimed its market share. It is regarded as one of the most successful companies in the world, as per the statistics provided by Forbes. However, this essay to apply the Cycle of Change Model to the Caterpillar case study by examining how the change was directed, driven, delivered, prepared, propagated, and its benefits/values.
Application of the cycle of change model to the caterpillar case study
Direct The Change
According to Gary and Bruce (2005), caterpillar, Inc. applied four major building blocks for an organization. They include; decision rights, information, motivation, and structure. To establish an effective change, caterpillar decided to reshape its DNA in a bid to change its capabilities and culture as an enterprise (Wolpert, 2010). The company first reviewed its structure and mode of conducting business. The actual picture provided a greater view of the scope and the nature of the change needed to rejuvenate the company. It was established that the functional General Officers (G.O.s) contributed significantly to the company’s woes. They were liable for critical decisions regarding the company. However, there was a lack of inclusivity in decision making since the communication among them was particularly ineffective ((Pasternack, 2019). A lack of an effective communication system meant that the information flow was very poor.
To direct the intended change, caterpillar’s management stated the expected outcome (s) explicitly after the transformation. The initial realization was that the distribution system is an essential competitive asset that ought to be protected. The company launched the Plant with A Future (PWAF), a $1.8 billion manufacturing modernization program, whose objective was to minimize production costs (Pasternack, 2019). The company further sought to upset the applecart. The then CEO, George Schaefer, conducted an extensive discussion with the CAT’s senior management, which was a threshold to the inherent change. A strategic planning committee (SPC) was formed whose responsibilities included upsetting the applecart and charting the caterpillar’s future. With the help of this committee, there was an extensive restructuring of the company, which foresaw the abolishment of the G.O.s and established a new organizational change that was driven by results. The new organizational culture established accountability and an effective reward & incentive program which guaranteed employee motivation and adherence to the company’s objectives and vision (Miller & O’Leary, 2002). Such changes illustrate how well the change was articulated.
Drive The Change
The company’s new vision was first relayed to the managerial personnel. They were individually called via a phone call and informed of the changes as well as the new corporation positions they were required to assume within the shortest time possible. For instance, Jim Owens was on vacation at Squaw Valley, during which he received a phone call and instructed to relocate Peoria. However, he was under strict instructions that he was not supposed to discuss any details of the call to anyone (Pasternack, 2019). A complete reorganization was effective in communicating the intended change. The change was effected on Friday, January 26, 1990, during which positions such as G.O.s and ceased to exist. An organizational structure of ‘accountable’ business units was established immediately. The old flowcharts and metrics were replaced with profit and loss (P&L) statements, while several demotions were conducted in terms of delegating duties and responsibilities (Wolpert, 2010). The abrupt changes awakened the employees and communicated effectively concerning the organization’s new vision, goals, and objectives.
Deliver The Change
The change was delivered through two models; business units and return on assets (ROA). The business unit model ascertained the business units have exclusive rights to designing and developing their manufacturing processes/schedules as well as setting prices. The unit model ensured that the new organizational structure had achieved accountability at the bottom of the organization. The performance and continuation of a business unit were determined by measuring its profitability and return on assets. A division or unit would face elimination in a situation where it fails to achieve a 15% ROA (Pasternack, 2019).
Some of the senior management could not manage the transition as well as the new autonomy, which accompanied the change, and hence they were relocated to different positions that demanded less authority. It was clear that many business unit leaders were thrilled with the new structure, which allowed them to make critical decisions. The idea that the headquarters exercised less control over their daily decisions and other important rights made the unit leaders readily accept the change and performed exemplary (Wolpert, 2010). However, their informed decisions received extensive support from the headquarters.
Preparation For The Change
To prepare for the incoming change, the caterpillar’s management started by informally inviting a group of middle managers, especially during breakfasts once a week. These were individuals deemed to have primary knowledge regarding caterpillar’s weaknesses, and they more than willing to express them. Mr. Schaefer then requested the senior managers to avail of a list of the brightest and best subordinates from which the CAT’S first SPC was formed (Pasternack, 2019). The role of the SPC was figuring out the company’s current position and its future direction. The formed committee was referred to as a team of breakthrough thinkers. The committee held an intensive and inclusive discussion regarding the current and the future of the company. It unveiled that the company needed an immediate reorganization. Based on the aspect of inclusivity achieved through ascertaining that every person understood the problems hailing the company, the company’s employees and stakeholders were adequately prepared for the massive incoming transformation and the intended company culture.
The change was propagated throughout the organization by ascertaining that everyone was assigned non-concluding responsibilities, duties, and rights. The general managers and business unit leaders were able to see the impact of the change, and they were more willingly making the new organizational structure successful (Pasternack, 2019). However, the process involved a complete change of the CAT’s organizational DNA. The initial phase involved a complete reorganization of the company to create new positions, information flow channels, and responsibilities. Information flow assisted in reviewing and closing loopholes through which losses were made. The company created an effective compensation plan. Employees were able to obtain additional (7%-45%) annual salary, especially if they had hit/surpassed business plan targets (Pasternack, 2019). Such incentives ascertained that the business units focused on meeting delivery commitments. They emphasized on tangible and measurable outcomes impacted by employees. The new compensation plan motivated the employees who accepted the new changes positively.
The Benefits/Values Realized By Caterpillar From The Organizational Transformation Process
Market-based transfer prices- the company’s business units were able to negotiate on transfer prices as the external markets determine them. It ensured that the performance issues such as in-competitive units; are raised at specific business units, rather than allowing them to trickle downstream.
Business openness- an effective communication system was established through those transformations, making it easy to sell or eliminate the persistently failing product lines.
Decentralization of all strategic, financial, and operational decisions- business unit managers were accorded with exclusive rights and authority to make decisions. They were also accountable for the decisions they made.
Redefining objectives- it became easy for the company to move the goalposts of even embark on new objectives in response to new competitive forces.
Self-rectification- the process entails institutionalizing and developing internal mechanisms to correct problems before they negatively impact the organization’s performance or reach profit-warning proportions.
The outcomes were consistent with the benefits that were contemplated at the onset of the planning process. The idea of initiating the change was to redefine the decision rights, establish motivators such as career alternatives/incentives/objectives, achieve an overall organizational restructuring, and delineate new measures of performance or knowledge transfer.
The radical change managed by CAT was based on the idea that geopolitical, changing consumer demands, new industrial platforms, and the global competition were extensively reshaping the world of business. It was impressive how the company managed to reorganize its DNA to achieve the contemplated results. Its radical transformation resulted in the seizure of new opportunities, the attraction of highly committed talent, dominating the industry, and achievement of the most profitable innovator on matters of construction, mining, and heavy equipment manufacturing (Pasternack, 2019). The convention response of caterpillar consisted of a top-down restructuring, a technological reboot, and across-the-board cost-cutting, as well as a subtle of reengineering.
Caterpillar, Inc. did particularly well in contemplating and taking action to achieve in the predicted outcomes. The management, as well as the employees and stakeholders, were ready to offer any relevant support to ascertain the success and achievement of the company’s new objectives. Ideally, the company performed well on matters of reorganizing its DNA to create a completely different organizational culture and behavior. The preparatory phase was conducted carefully and accorded sufficient time to ascertain inclusivity and proper understanding as to why the company was in dire need of a rapid transformation (Pasternack, 2019).
Sustainability- the company should have made sustainability a core value. Such a move would ascertain that sustainability is culturally integrated into business life and operations. The company should have created a special leadership development team and assign them the responsibility of investigating sustainability opportunities essential for the enterprise and hence provide recommendations for improving caterpillar’s performance and sustainability commitment.
Develop effective distribution services division- they will act as a primary interface as far as dealing with suppliers, and CAT dealers are concerned. Their sole responsibilities would be anchored on ascertaining dealer performance and development as well as continuity and succession in conjunction with operational excellence, across-the-table strategy execution, and portfolio management.
Company, A. (2019). Caterpillar | Company | About Us. Retrieved 26 December 2019, from https://www.caterpillar.com/en/company.html
Miller, P., & O’Leary, T. (2002). Rethinking the Factory: Caterpillar Inc. Cultural Values, 6(1-2), 91-117.
Pasternack, G. (2019). The Cat That Came Back. Retrieved 26 December 2019, from https://www.strategy-business.com/article/05304?gko=56862
Wolpert, C. (2010). The success of Caterpillar’s global approach to change management. Global Business and Organizational Excellence, 29(6), 17-24.
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