Page 374 - Marketing Management

SETTING PRODUCT STRATEGY | CHAPTER 12 351

So how did a small tractor company grow to become Low-End. Caterpillar is focused on innovating high-tech
one of the biggest companies in the world? The company machinery for the growing World Class segment and leav-
grew steadily at first, hitting a few critical milestones in- ing the Low-End segment to local competitors that will
cluding the use of Caterpillar’s trademark farm treads on eventually be consolidated.
Army tanks in WWI and WWII. Huge postwar construction Another reason for Caterpillar’s dominance in the mar-
and strong overseas demand kept sales strong through ket is its business model. Caterpillar sells it all: machines,
the mid-21st century, as did innovations like the diesel services, and support for a wide range of industries. Fifty-
tractor and rubber-tired tractors. three percent of its sales come from products and the rest
Things changed, however, when the recession of the from integrated services. Caterpillar accomplishes this feat
early 1980s hit Caterpillar hard and international competi- through its extensive Global Dealer Network—specially
tors gained market share, including Japan’s Komatsu. trained independent CAT dealers who can provide services
Caterpillar’s high prices and inflexible bureaucracy nearly on a local basis, giving the global company a personal feel.
sent the company into bankruptcy. In 1982 alone, the Feeling local is important considering that 56 percent of
firm lost $6.5 billion, laid off thousands of employees, Caterpillar’s business comes from overseas, making it one
closed several factories, and suffered a long United Auto of the United States’ biggest exporters. Caterpillar has been
Workers strike. a leader in building roads, bridges, highways, and airports
In the 1990s, Caterpillar recognized that it desperately all over the world. In developing cities like Antamin, Peru, for
needed to change, and under new leadership it success- example, which is abundant in copper, large mining compa-
fully pulled off one of the biggest turnarounds in corporate nies spend hundreds of millions of dollars on CAT machin-
history. Several factors played a role. ery and services each year. Up to 50 different kinds of CAT
• Caterpillar boldly fought the United Auto Workers bulldozers, front loaders, excavators, and special mining
and outlasted two strikes and seven years of dis- trucks help clear roads, clean up spills, and dig for copper.
agreements. These massive trucks are all manufactured in Decatur,
Illinois, shipped in pieces, and assembled at the job site.
• It decentralized and restructured into several busi-
Caterpillar’s sales hit $51 billion in 2008 and dropped
ness units, each responsible for its own P&L.
to $32 billion in 2009 due to the recession. Japan’s
• It invested a significant amount of money (ultimately Komatsu remains a distant number two, with less than
$1.8 billion) in a factory-modernizing program that auto- half the sales of Caterpillar. Caterpillar maintains 50 pro-
mated and streamlined its manufacturing process with a duction facilities in the United States and 60 overseas,
combination of just-in-time inventory and flexible manu- selling products in over 200 countries.
facturing. By automating its manufacturing system, the What’s next for Caterpillar? As the company moves
company became more efficient and competitive, al- forward, it remains focused on reducing greenhouse gas
though it also was forced to lay off more of its workforce. emissions in its machinery, innovating more green tech-
• It made research and development one of its biggest nologies, maintaining its strong brand, and investing in the
priorities, investing hundreds of millions of dollars in future of emerging countries like India and China. The
new technologies, products, and machines. As a re- company believes that in order to grow, it must be suc-
sult, CAT construction trucks became more high- cessful in emerging markets.
tech, competitive, and environmentally friendly.
Today, Caterpillar ranks number one or number two in
Questions
every industry it serves. Its products are unmatched in
quality and reliability and the company has maintained its 1. What were some of the key steps that led to
strong focus on innovation. With a $2 billion annual re- Caterpillar’s becoming the industry leader in earth-
search and development budget, new products are moving machinery?
launched every year. Recent innovations include hybrid 2. Discuss Caterpillar’s future. What should it do next
diesel-electric tractors—the first of their kind—and lower- with its product line? Where is the future growth for
emission engines with ACERT technology, a clean-diesel this company?
technology that also improves fuel efficiency.
Caterpillar’s product range is immense. From a small Sources: Green Rankings, The 2009 List,” Newsweek, http://greenrankings.newsweek.com; Tim
47 horsepower skid steer to an 850 horsepower tractor to McKeough, “The Caterpillar Self-Driving Dump Truck,” Fast Company, December 1, 2008; Alex
Taylor III, “Caterpillar: Big Trucks, Big Sales, Big Attitude,” Fortune, August 13, 2007; Tudor Van
a massive 3,370 horsepower mining truck, the firm devel-
Hampton, “A New Heavyweight Among Hybrids,” New York Times, January 21, 2010; Steven
ops products that serve each market and region’s specific Pearlstein, “After Caterpillar’s Turnaround, A Chance to Reinvent Globalization,” Washington Post,
needs. In China, for example, a critical market to the April 19, 2006; Dale Buss, “CAT Is Back: An Icon That Once Seemed Headed for the Dustbin,
Caterpillar Has Made an Impressive Turnaround. Here’s How,” Chief Executive, July 2005; Jessie
future of Caterpillar, the company has divided its product
Scanlon, “Caterpillar Rolls Out Its Hybrid D7E Tractor,” BusinessWeek, July 20, 2009; Caterpillar,
strategy into three segments: World Class, Mid-Tier, and Inc. supporting materials at CLSA Asia USA Forum; www.cat.com.