Caterpillar Inc.: George Schaefer Takes Charge

The position of Catepillar Inc. at the end of 1989 seemed challenging in many ways. The challenges included among others:

• Lack of well-articulated strategy and clear course of development
• Need for restructuring and cost-cutting initiatives aggravated by previous negative experience with PWAF plan
• Risk aversion and conservatism among employees

In the first place, Caterpillar Inc. needs to come up with a definite strategy. Functioning in a highly competitive environment with rivals like Komatsu stepping on its toes, the leading company does not have much time to deliberate over its course. The strategy can come from the top or be elaborated in discussions with employees at all levels. In any case, it makes sense to follow the advice given by other CEOs: “Once you’ve decided on a strategy, it takes guts to reject ideas that do not fit with it” (Harvard Business School, 1991, p.19). Therefore, the CEO needs to make a clear decision and if it is in favor of reorganization along business unit lines, the strategy should be pursued further.

Strategy has to reach many areas, including the distribution of outsourcing products. To protect its brand image, Caterpillar needs to pay special attention to quality control of outsourced products. Merely re-branding the arriving stuff with a Caterpillar label will not do as consumers can take it as a trick to make them pay more for products more cheaply available elsewhere.

Quality control seems the greatest value the company can add to the process. In fact, asking questions on each specific product as to why it is more expensive to produce at Caterpillar than elsewhere is also a good point to consider in strategy reformulation. Caterpillar can, for instance, consider some outsourcing initiatives building its own plants in nations where labor costs are lower.

Concerning the cost cutting initiative, it seems advisable to do more internal marketing to make the change appealing to employees and managers at various levels. A detailed organizational analysis is necessary to ascertain that PWAFII will not suffer the dismal fate of its predecessors. It may be wise to re-brand the plan, changing the name from PWAF that brings with it associations of failure. Alternatively, the company can altogether give up the cost cutting plan; however, in this case it may turn into a simple distributor of someone else’s products and lose its competitive edge as manufacturer because of inability to control costs.

When it comes to culture, it is obvious that the change can take a lot of time and be painful. The need to improve risk-taking capabilities among management is long overdue. Shaefer’s own participative management style can be a starting point for interaction and imitation by lower-level managers. Since the company lacks managers with general management skills, more can be brought in with adequate risk-taking skills and initiative to trigger change in the organization.

However, the core of the cultural shift should be efforts made to change the mentality of employees. Introduction of rewards for new proposals or independent ideas can be a good starting point to encourage employees to voice their opinion. On the other hand, the company management needs to make it apparent that failures stemming from independent initiative will not be penalised. This can maintain the atmosphere in which someone with a proposal will have the courage to make it to the very top of the organization.

Thus, large-scale organizational change is pending at Caterpillar Inc. In order to keep a competitive edge in the rapidly evolving market, Caterpillar needs to redefine its niche and competitive advantage. This would entail a strict formulation of the strategic course and elaboration of restructuring plan to fit new objectives. Changing the cultural paradigm of the company and triggering lasting changes in mentality can be another challenge that needs to complement strategic initiatives and fit with them.

Reference

Harvard Business School. (1991, July 31). Caterpillar Inc.: George Schaefer Takes Charge. Boston, MA, Harvard Business School Publishing.