A New Caterpillar Emerges

Caterpillar was a low-cost manufacturer in the construction equipment industry until the beginning of 1980’s, but in 1982, competition from the Japanese biggest construction equipment manufacture i.e Komatsu, Kubota, and Hitachi, threatened its position. Caterpillar’s functional approach was outdated, and structural changes were needed to remain globally competitive. To this end Caterpillar quickly moved to change its organizational structure. The prime mover of this restructuring was Donald V. Fites, who become chairman of caterpillar by 1990. The Chairman Donald V. Fites, noticed while at Japan that Japanese manufacture success resulted from the combination of updated manufacturing technology, empowered cross-functional teams (decentralized decision making) and decentralize control which had been the ultimate source of the competitive advantage. On the other side, Caterpillar had slow decision-making, high costs, and a long production time.

Once, Fites in control at Caterpillar, he quickly moved to introduce Japanese style of organizational practice in so far as he had spent much time in Japan and saw two major characteristic of Japanese companies organizational structures that did not exist in his company. Hence first, he adapted these characteristics and introduced, cross functional teams into Caterpillar’s product development process. Each product development team was given its own marketing staff, product designers, and manufacturing engineers, all whom worked together to integrate their functional specialties. Next, he decentralized control over marketing from corporate headquarters to the regional level. The company spent a billion dollar modernization program and plant modernized manufacturing systems was seen by 1990. Finally, Fites changed organizational structure from functional base to product divisions. As a result, 14 product divisions and 4 support divisions were created, making managers responsible for all activities and coordination with centralized support functions. This structure was more effective and enables the company to: This structural change cut product development time in half. Sped-up caterpillar’s response customer.

Introduced computer based faxable manufacturing systems. Help to boost productivity by 30 percents, etc…
Generally it regained its postion, continue and compete effectively in the global market. Discussion questions
What were the problems with Caterpillar’s old organizational structure? Decision-making process was highly centralized; each decision was made by various functional executives where they are far from the day to day activities of the company operation. And then Decisions were fed down throughout the organization structure which created poor functional managers coordination. The result was higher costs, slow product development and customer response time, and lower productivity. These problems weakened Caterpillar’s market share. How did Fites change Caterpillar’s structure to improve its effectiveness?

Fites created 4 centralized support divisions and 14 product divisions. Each was a profit center with responsibility for profits and losses, and return-on-investment goals of 15 percent. Each division had cross-functional product teams responsible for marketing, product design, and manufacturing to increase productivity. Requiring marketing, engineering, and manufacturing to work together reduced product development time by 50 percent. Marketing decisions were decentralized to the regional level for rapid response time. Manufacturing upgraded its facilities, used product teams, and increased productivity 30 percent. These changes made Caterpillar compete more effectively.