CATERPILLAR TRACTOR CO.
An Overview of Corporate Strategy and Performance
Team Belinda
Spring 2008
AGENDA
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Background
Environment
Corporate Strategy
Business Strategy
Strategic Management
Financial Performance
Success Factors
Challenges And Solutions
Current Problems
Recommendations
Update
INDUSTRY BACKGROUND
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WWI and WWII created a high demand for EME
(Earth-Moving Equipment)
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The demand for EME rose after the wars for
interstate highway construction, but waned after
their completion
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The demand for EMEs grew in under-developed
countries as they began to industrialize
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In the 1970’s, EMEs were a crucial part of the
booming coal and oil industries both domestically
and abroad
CATERPILLAR TRACTOR CO. BACKGROUND
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Caterpillar Tractor Co. (CAT) was formed from the
merger of Holt Manufacturing Co. and C.L. Best
Tractor Co. in 1925
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Began designing, manufacturing, and marketing:
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Earth-moving construction and material handling
machinery and equipment and related parts
Engines for EME
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Expansion of product line in 1940
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Grew to become the worlds largest manufacturer
of EME
COMPETITORS
 J.I.
Case (A Division of Tenneco)
 John
Deere
 Clark
Equipment
 Fiat-Allis
 International
 Komatsu
Harvester
(of Japan)
CORPORATE STRATEGY
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Highly Vertically Integrated
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Low-Level of Diversification
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Over 90% of revenue comes from parts, service, and sales of
EME
Expansion Development Strategy
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Nearly 90% of parts and components are manufactured in-house
Closely tied to all of the dealerships
6-7% Growth per year
Joint ventured with overseas companies to take
advantage of tax benefits and international regulations
(government funding)
BUSINESS STRATEGY
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Quality-Based (Upward) Focused
Differentiation
 Customer
Service Excellence
 Strong
relationship with EME owners
 Many dealerships for repairs
 Offered repairs instead of replacements
 Product
Quality
 Improvements
focused on existing products
 Premium Cost for Premium Products
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10-20% Higher sales price than nearest competitor
STRATEGIC MANAGEMENT
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Resource Based Model for Internal
Strategy
 Hire
employees on a long-term basis only
 Conduct in-house management training
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Sacrificed profit margins to prevent a loss
of customers due to poor quality or service
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Focused on globalization and expansion
SUCCESS FACTORS
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War-Time Opportunities
 The
Allied Forces used parts for tanks and
machinery
 US Army decided to standardize on CAT’s EME
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Post-War Opportunities
 Established
independent dealerships to
service machines left in Asia and Europe
 Reconstruction of war-torn countries created a
high demand for EME
FINANCIAL PERFORMANCE
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CAT has maintained over 50% of its industry’s
market share since the 1970’s
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Leading up to and through WWII (1941-44)
sales tripled
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In 1980, Sales reached a high of $8.6 Billion
and projected even higher for 1981
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57% of sales came from overseas
COMPETITIVE ADVANTAGE
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Having local plants gave a competitive advantage by
lower distribution costs
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Leveraged technological advancements to provide
innovative products, services, and solutions
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More international recognition than competitors
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Highly dedicated employees and management
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“Severally Responsible”
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Teamwork
Corporate Culture of Dedication
CHALLENGES AND SOLUTIONS
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Decline in business after the completion of interstate
highways
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Labor strike of 40,000 workers in 1979
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CAT shifted its focus for the coal and oil industries both
domestically and abroad
CAT focused on developing countries
CAT laid off 5,600 laborers and contended that the remaining
employees are paid an average of over 80% more than Komatsu
Overseas constructions were contracted out to local
companies
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CAT entered into joint ventures to compete more internationally
CURRENT PROBLEMS (AS OF CASE)
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Japanese steel costs 30% less than US
made steel, giving manufacturers like
Komatsu a manufacturing advantage
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CAT’s US based labor is a larger
percentage of manufacturing costs than its
foreign competitors
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Economic factors have caused a decline in
US construction activity
RECOMMENDATIONS
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Increase International Business
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Expand Into Other Industries
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Establish and expand partnerships with overseas suppliers
to gain an advantage in materials
Take advantage of low-cost foreign inputs, such as
materials and labor
Continue to expand EME sales and service to developing
countries
Analyze other possible uses for EME technology
Continue Long-term Planning and Current
Management Strategies
UPDATE
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CAT continues to be the world’s leading
manufacturing company of construction
equipment, diesel and natural gas engines, and
industrial gas turbines.
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CAT is also a leading service provider through its
financial, remanufacturing, logistics, and
progress rail services
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Today CAT has nearly 300 operations in 40
countries on every continent
QUESTIONS?