THE COMEBACK OF CATERPILLAR, 1985-2001

The Comeback of Caterpillar, 1985-2001

The Comeback of Caterpillar, 1985-2001

Background To Change

The case is written in a way that helps students analyze Caterpillar's turnaround strategy. Students should realize that Caterpillar's major problems were rooted in the complacency of its top management: following decades of an unchallenged global leadership, Caterpillar was not prepared for change. Students should also realize that Caterpillar's successful comeback was sustained by several distinct strategies, namely, structural reorganization, global outsourcing, plant modernization and automation, product diversification, and dealerships' revitalization. An additional objective of the case is to have students evaluate critically Cat's current response to the industry's downturn, point out the strengths and weaknesses of such a response, and offer alternative solutions.

This is a broad case which is suitable for teaching Strategy and/or Business Policy at the undergraduate or graduate levels. Because Caterpillar's markets are truly global (Cat is the U.S.'s second largest exporter after Boeing), and because Caterpillar is heavily dependent on both global outsourcing and global alliances, the case could also be used effectively in teaching international business courses.

Case Synopsis

Facing a global challenge and the collapse of it international markets, Caterpillar managed to come back as a high-tech, globally competitive, growth company. Over a period of 15 years and during the tenure of two CEOs -- George Schaefer (1985-1989) and Donald Fites (1990-1999) -- Caterpillar had transformed itself. The case, first, shows how Schaefer and Fites turned Caterpillar around. It discusses organizational capabilities, managerial philosophies, and innovative strategies, and then proceeds to the present. Despite Cat's dramatic comeback, the company's new CEO, Glen Barton, could not count on the continual prosperity of Caterpillar because the U.S. construction industry was moving into a grinding downturn.

What should Barton do? The case describes four strategic initiatives undertaken by Barton: the expansion into new markets, diversification, the development of a new distribution channel, and the build up of alliances with global competitors. It ends with two future concerns: the state of labor relations at Cat, and the impact of E-Commerce on Cat's distribution system.

Caterpillar Tractor Company (the original name for Caterpillar Inc.) was formed in 1925 through the merger of companies founded by Daniel Best and Benjamin Holt. After arriving in California in 1859, Best observed that many farmers transported their grain to special cleaning stations to make it suitable for market (Bremner, 2000). Best thought there was a way to clean grain by machine at the same time as it was being harvested to avoid the costly step of transporting it to another site. By 1871 Best had patented his first grain cleaner, which he manufactured and sold with great success. By the 1880s Best owned manufacturing centers in Oregon and Oakland, California.

The Comeback of Caterpillar, 1985-2001

Holt arrived in California in 1863 and with his brothers operated the Stockton Wheel Company, which manufactured wooden wheels. It marked the firm's first experience with the vehicular products that would be the company's strength in the years to come. In the 1880s inventors were tinkering with the combined ...