"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.  

                                                   

Market Value and Book Value

                                            

The market value for Caterpillar, Inc. is $74 billion and the book value is $13 billion.  The ratio of market to book value is 5.7.  These numbers indicate that there is a large amount of intellectual capital at CAT.  At Caterpillar there is $61 billion of intellectual capital present.  This is a huge part of the success of Caterpillar.  They invest large amounts of their time and effort into designing new products as well as redesigning existing products in order to keep their position as number one in their industry.  A large portion of this intellectual capital is provided by the human capital that is present at Caterpillar, Inc.  The employees of CAT bring lots of individual capabilities, knowledge, experience, and unique skills that are used on a daily basis, no matter where in the company these employees fall.  The HR department of Caterpillar plays a huge role in recruiting and hiring these star employees.  They integrate Team Caterpillar into each one of them and instill the virtues of engagement, leadership, and service excellence into each employee.  The employees are able to enhance their skill set by attending Caterpillar University.  Caterpillar University is a place where employees become experts in the area they work in.  If you are a mechanic, you learn how to work on excavators or combines.  If you are a sales representative, you learn better ways to interact with customers and a variety of sales pitches.  You also become an expert on the products you are trying to sell.  Another great aspect of Caterpillar University is the social capital that it provides to the company.  Employees are able to socialize and become good friends with the fellow employees that are attending Caterpillar University.  This creates a sense of belonging and strengthens Caterpillar as a whole.  It also builds an atmosphere where employees are proud of where they work and happy that a great company offers such a wonderful program.  The human capital and social capital at Caterpillar truly enhance and play a big part in the large amount of intellectual capital that the company has.

                                    

Value Chain & Resources

Caterpillar, Inc. has an extensive value chain that delivers quality products in every industry they compete in.  They offer the consumer over 24 brands to choose from and have a presence in every industry where heavy machinery is used.  The reputation of Caterpillar has allowed it to be a marketer of itself.  When people think about heavy machinery and diesel engines the first thing that comes to mind is CAT.  They have built a company that markets itself and will only get better as the years go on.  Their inbound logistics, operations, and outbound logistics have allowed them to get the end product to the consumer in an efficient way.  This has made Caterpillar the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.  The use of secondary activities like research and development have made Caterpillar the company that they are.  Their R&D team is powered by more than 8,000 engineers and is driven by four steps that go into creating a product at CAT.  These four steps are strategy definition, product development, manufacturing execution, and product support.  These steps really sum up the inbound logistics, operations, and the outbound logistics of Caterpillar.  They start with an idea and they turn that idea into a plan.  They then end with a product being given to the consumer and services being offered on the product as a guarantee of quality.  These four steps really sum up the primary activities of Caterpillar's value chain.  When you look at the secondary or support activities that are involved in Caterpillar's value chain you have to start with the HR management and the general administration of the company.  They have great leadership that is backed by great employees who really care about the company that they are working for.  This leadership has allowed them to create relationships with their suppliers that is second to none.  They have a relationship with their suppliers that has allowed them to have a global presence and enter into economies that were never enough heard of 30 years ago.  With the mix of leadership, relationships among their numerous suppliers, and technology that is advancing daily, Caterpillar, Inc. is on a track to keep growing and reaching new heights as a company.


Caterpillar, Inc. has many resources that makes it the company it is today.  A tangible resource at Caterpillar is their ability to make a profit.  They had sales and revenue of $60.138 billion in 2011.  Their value chain and all of their resources have added to this tangible resource.  Another tangible resource is the construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives that they produce.  Everything that Caterpillar manufactures is a tangible resource that plays a big part in their success.  The last tangible resource that I am going to talk about is the global presence that Caterpillar has.  They have distribution centers and manufacturing plants that span the globe.  It allows them to offer their products to every part of the world.  

Caterpillar, Inc. has some intangible resources that add to the overall value of the company.  The first one is their reputation.  They have created a brand name that is second to none.  Their name says it all.  CAT is a world recognized name and will continue to be because of Caterpillar's reputation.  A second intangible resource is the technical innovations that Caterpillar makes to their products.  These keep them ahead of their competitors and allows them to expand and better their products.  They are a company that keeps growing because of the innovations they make to their machinery.  The last intangible resource that I am going to talk about is their employees.  They are trained at Caterpillar University. It offers the best training for customers and employees about the machinery and products that CAT offers.  It allows the employees to be experts about every product that Caterpillar produces.  


The organizational capabilities at Caterpillar are the best in the industry.  They offer outstanding customer service that allows customers the opportunity to interact with trained employees that know the equipment inside and out.  Caterpillar has also had the ability to hire, train, and retain many employees throughout the years that have been able to innovate, sell, and make the products offered at Caterpillar the best in the industry.  Caterpillar has also been on the cutting edge of product development.  They are always going bigger and better.  They have the ability to take the wants and needs of their customers and apply them into an existing machine to make it better or to create a brand new machine that meets the needs of their consumer base.  The organizational capabilities at Caterpillar are limitless and add to the overall value of the company.

Caterpillar, Inc.

Caterpillar, Inc. is a corporation that designs, manufactures, markets and sells machinery and engines.  They also sell financial products and insurance to their customers.  They are the world's largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines.  Caterpillar is ranked number one in their industry and has over $70 billion in assets.  The origins of Caterpillar, Inc. trace back to the merger of Holt Manufacturing Company and C.L. Best Tractor Company in 1925.  The merger created the Caterpillar Tractor Company that was renamed Caterpillar, Inc. in 1986.  Caterpillar, Inc. is a global company that is headquartered in Peoria, Illinois.

Chapter 2 in the reading discusses how a firm plans and forecasts by analyzing the external environment.  There are three aspects to creating a forecast.  I feel that these three aspects are vital for the success of the forecast for the firm.  They are environmental scanning, environmental monitoring, and competitive intelligence.  Environmental scanning looks at the companies competitors and environmental monitoring looks at the industry in which the firm competes.  Competitive intelligence puts all of the findings together and is how the firm interprets them.  The next aspect of this chapter that is important are Porter's Five Forces Model.  The five forces are the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products, and the threat of competition.  These five forces need to be taken into consideration when a firm considers their competitive environment.  It provides a means for the company to better understand what they are up against in the industry.  It also is a good starting point for forecasting and planning the road ahead.  These two ideas were the most important things out of chapter 2.  They are vital for the success of a firms planning and forecasting.