Caterpillar Tractor Co.

1
(No Transcript)
2
Caterpillar Tractor Co.

• An Overview of Corporate Strategy and Performance
• Team Belinda
• Spring 2008

3
Agenda

• Background
• Environment
• Corporate Strategy
• Business Strategy
• Strategic Management
• Financial Performance
• Success Factors
• Challenges And Solutions
• Current Problems
• Recommendations
• Update

4
Industry Background

• WWI and WWII created a high demand for EME
  (Earth-Moving Equipment)
• The demand for EME rose after the wars for
  interstate highway construction, but waned after
  their completion
• The demand for EMEs grew in under-developed
  countries as they began to industrialize
• In the 1970s, EMEs were a crucial part of the
  booming coal and oil industries both domestically
  and abroad

5
Caterpillar tractor co. Background

• Caterpillar Tractor Co. (CAT) was formed from the
  merger of Holt Manufacturing Co. and C.L. Best
  Tractor Co. in 1925
• Began designing, manufacturing, and marketing
• Earth-moving construction and material handling
  machinery and equipment and related parts
• Engines for EME
• Expansion of product line in 1940
• Grew to become the worlds largest manufacturer of
  EME

6
Competitors

• J.I. Case (A Division of Tenneco)
• John Deere
• Clark Equipment
• Fiat-Allis
• International Harvester
• Komatsu (of Japan)

7
Corporate Strategy

• Highly Vertically Integrated
• Nearly 90 of parts and components are
  manufactured in-house
• Closely tied to all of the dealerships
• Low-Level of Diversification
• Over 90 of revenue comes from parts, service,
  and sales of EME
• Expansion Development Strategy
• 6-7 Growth per year
• Joint ventured with overseas companies to take
  advantage of tax benefits and international
  regulations (government funding)

8
Business Strategy

• 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
• 10-20 Higher sales price than nearest competitor

9
Strategic Management

• Resource Based Model for Internal Strategy
• Hire employees on a long-term basis only
• Conduct in-house management training
• Sacrificed profit margins to prevent a loss of
  customers due to poor quality or service
• Focused on globalization and expansion

10
Success Factors

• War-Time Opportunities
• The Allied Forces used parts for tanks and
  machinery
• US Army decided to standardize on CATs EME
• 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

11
Financial Performance

• CAT has maintained over 50 of its industrys
  market share since the 1970s
• Leading up to and through WWII (1941-44) sales
  tripled
• In 1980, Sales reached a high of 8.6 Billion and
  projected even higher for 1981
• 57 of sales came from overseas

12
Competitive Advantage

• Having local plants gave a competitive advantage
  by lower distribution costs
• Leveraged technological advancements to provide
  innovative products, services, and solutions
• More international recognition than competitors
• Highly dedicated employees and management
• Severally Responsible
• Teamwork
• Corporate Culture of Dedication

13
Challenges And Solutions

• Decline in business after the completion of
  interstate highways
• CAT shifted its focus for the coal and oil
  industries both domestically and abroad
• CAT focused on developing countries
• Labor strike of 40,000 workers in 1979
• 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
• CAT entered into joint ventures to compete more
  internationally

14
Current Problems (As of Case)

• Japanese steel costs 30 less than US made steel,
  giving manufacturers like Komatsu a manufacturing
  advantage
• CATs US based labor is a larger percentage of
  manufacturing costs than its foreign competitors
• Economic factors have caused a decline in US
  construction activity

15
Recommendations

• Increase International Business
• 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
• Expand Into Other Industries
• Analyze other possible uses for EME technology
• Continue Long-term Planning and Current
  Management Strategies

16
Update

• CAT continues to be the worlds leading
  manufacturing company of construction equipment,
  diesel and natural gas engines, and industrial
  gas turbines.
• CAT is also a leading service provider through
  its financial, remanufacturing, logistics, and
  progress rail services
• Today CAT has nearly 300 operations in 40
  countries on every continent

17
Questions?