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Caterpillar Tractor Co.

An Overview of Corporate Strategy and Performance Team Belinda Spring 2008. Caterpillar Tractor Co. Agenda. Background Environment Corporate Strategy Business Strategy Strategic Management Financial Performance Success Factors Challenges And Solutions Current Problems

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Caterpillar Tractor Co.

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  1. An Overview of Corporate Strategy and Performance Team Belinda Spring 2008 Caterpillar Tractor Co.

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

  3. 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 1970’s, EMEs were a crucial part of the booming coal and oil industries both domestically and abroad

  4. 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

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

  6. 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)

  7. 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

  8. 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

  9. Success Factors • War-Time Opportunities • The Allied Forces used parts for tanks and machinery • US Army decided to standardize on CAT’s 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

  10. CAT has maintained over 50% of its industry’s market share since the 1970’s 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 Financial Performance

  11. 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

  12. 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

  13. Current Problems (As of Case) • Japanese steel costs 30% less than US made steel, giving manufacturers like Komatsu a manufacturing advantage • CAT’s US based labor is a larger percentage of manufacturing costs than its foreign competitors • Economic factors have caused a decline in US construction activity

  14. 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

  15. Update • CAT continues to be the world’s 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

  16. Questions?

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