"5 Disciplines" for Creating What Customers Want

The first discipline is to identify important customer needs.  Caterpillar, Inc. does this by talking with the users of the products.  This includes the retailers, distributors, as well as the farmer or construction worker.  By making interactions with these people, Caterpillar gets an understanding of the needs, wants, and demands of their consumers.  They also identify customer needs by looking at industry norms.  They can view the innovations that other companies in their industry are making and try to pick up on customers needs.  The second discipline is creating solutions that fill the needs of the customers.  Caterpillar does this through incremental innovation.  They enhance their existing practices or make small improvements to their products.  It allows Caterpillar to be more sustainable by extending or expanding their products lines without having to make radical innovations.  The third discipline is to build innovation teams.  Caterpillar operates under a matrix structure.  This allows regional managers to have control over the production and distribution centers within their geographic region.  Within the company there are many different product lines.  Each has their own research and development divisions that are in charge of making changes to existing products or coming up with new products for the company.  These R&D divisions are the innovation teams.  They are in charge of innovation for the products that are manufactured and distributed using the matrix structure.  The fourth discipline is empowering "innovation champions" who keep the effort on track.  At Caterpillar the innovation champions come in many forms.  It can be the CEO, dealers, regional salesmen, or world-wide regional managers that take the lead on being an innovation champion.  An innovation champions job is to bring entrepreneurial ideas forward, identify what kind of market exists for the product, find resources to support the venture, and promote the venture concept to upper-management.  At Caterpillar, this title can be given to anyone that has a great idea.  It may not follow the exact definition of what an innovation champion is, but ideas and innovation are a key part of the success of Caterpillar.  In the same respect, the company must have an exit champion.  Again, anyone can be an exit champion at Caterpillar.  Their main job is to voice concern about a product that is being brought to the public.  They must be willing to say that the company should dump the project.  It is a dirty job, but someone has to do it and it can save the company lots of money in the end.  The fifth discipline is aligning the entire enterprise around creating value for customers.  Caterpillar does this by manufacturing the best products in the world.  They are the worlds largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines.  CAT also has a worldwide presence, which allows them to meet the needs of customers around the world.  They have over 24 brands to offer their consumers.  These things allow them to accomplish the fifth discipline and create what customers want.
                           

Code of Ethics

Caterpillar, Inc. has a very comprehensive and detailed Code of Ethics.  It was first published in 1974 and defines what they stand for and believe in as a company.  The Code of Ethics documents the high ethical standards that Caterpillar has held since their founding in 1925.  It also acts as a guide for the employees of Caterpillar to put the values and principles, described in the Code of Ethics, in to action.  It goes into great detail about the core values of the company, which are: Integrity, Excellence, Teamwork, and Commitment.  The Code of Ethics is 35 pages long and includes topics such as interactions with distributors, laws in which the company complies with in their worldwide activities, and how each employee is personally responsible for enhancing the stockholder value.  It also goes into topics like conflicts of interest, whistle-blowing, and the responsibility of the leaders to set an example and "live by the code."  The Code of Ethics has played a large role in the ethical success that Caterpillar has had.  They have been able to be a socially responsible organization and will continue to do so in the future because of their detailed Code of Ethics.

                                                 

Organizational Structure

Caterpillar, Inc. utilizes a matrix structure within their corporation.  They implemented this strategy in the mid-1990s in an effort to organize their product groups and geographical units.  The product managers at Caterpillar are responsible for the development, manufacturing, and distribution of their respective product line.  The managers of the geographical regions are responsible for the profitability of the businesses in their region.  For example, Caterpillar has some manufacturing plants in Asia.  The product managers are responsible for the product being developed, manufactured, and distributed properly, while the manager of the geographical region is responsible for the manufacturing plants in Asia being profitable.  The matrix organizational structure is a combination of the functional and divisional structures that tries to overcome the inherent inadequacies that the other structures have.  It is a structure that has allowed Caterpillar to become a thriving multinational company.
                                  

Corporate Governance

Caterpillar, Inc. has a corporate governance program that ensures that they serve the interests of stockholders and other shareholders with the highest standards of responsibility, integrity and compliance with all laws.  At Caterpillar, they strive to make their governance standards and principles transparent.  The standards are guided by the Board of Directors and the Global Management Team.  It was first published in 1974 and has been amended many times over the years in an effort to set a high standard for honesty and ethical behavior by their employees.  They have also set a policy where the Board of Directors is fully independent, except for the Chairman, and they even have a compensation committee that is fully independent, as well.  In order to avoid certain unethical acts, Caterpillar has a fully independent Audit Committee that has a financial expert as its Chairman.  At Caterpillar, they are making great strides to do the right thing and that is evident in their corporate governance.
                        

Motivations for International Strategy

Caterpillar, Inc. has a presence on 7 continents throughout the world.  This enables them to reach a much larger consumer base then if they just operated in the United States.  There are two main motivations for Caterpillar, Inc. deciding to go international.  The first one is to increase their market size.  When Caterpillar, Inc. first started, they were operating in just the United States.  It was very costly to ship their products overseas.  Now they have production facilities throughout the world that allow them to reach a much larger consumer base.  They are able to send earth-moving machines and forestry products to the mining and logging operations in Asia.  They are able to more easily reach their consumers worldwide by have a global presence.  The second motivation for going international is the reduction of costs.  These costs include shipping the products, as well as producing them.  By using offshoring, Caterpillar has been able to reduce the costs associated with producing their various products.  There is cheaper labor in Asia and other world markets, and Caterpillar has been able to utilize that by offshoring their production facilities.  These two motivations go hand-in-hand because by offshoring to try and reduce costs associated with producing the products they have been able to increase their market size by having these production facilities close to the global markets that would utilize their products.  Going international has been a major source of growth and a key part of why Caterpillar is as successful as they are today.
                              

  

Corporate-Level Strategy

 

At Caterpillar, Inc., their corporate-level strategy is a diverse business model.  They are involved in many different areas, and each helps aid in the success of the other.  They are involved in construction and mining equipment, diesel and natural gas engines, as well as industrial gas turbines and diesel-electric locomotives.  They have been able to diversify their business model enough to please the many different consumers they have, but have their diversification close enough to be able to aid each industry they compete in.  They manufacture diesel and natural gas engines, and those engines are used in their heavy machinery and are sold on a separate basis.  By being a diversified company, Caterpillar has been able to expand throughout the world.  They are diversified enough to manufacture turbines for farmers on the prairie, and engines for locomotives that move the machines they manufacture around the United States.  Their diversified businesses have been able to be intermixed within each other.  Their locomotive engines power the trains that haul the machines across country, and the diesel engines are used to power the heavy machinery they manufacture.  They have created a business strategy that allows their various units  to complement each other and at the same time be a separate entity of the corporation.

                          

Business Strategy

Caterpillar, Inc. uses a differentiation strategy as their business strategy.  They differentiate themselves by having a large dealer network that spans the United States as well as the rest of the globe.  No one company in their industry has as strong of a dealer network as Caterpillar does.  To make that dealer network better another aspect of Caterpillar's differentiation strategy is the wide variety of products that they offer their customers.  They offer over 25 brands and 13 product lines that range from earth moving equipment to turbines.  Being able to have a wide variety of products and brands to offer consumers and a dealer network that spans the globe, has allowed Caterpillar, Inc. to use the differentiation strategy to their advantage.  They have effectively used this strategy and it has made them the number one company in their industry.