Reference no: EM131065034

Caterpillar was founded in 1925 when two California based tractor companies merged. The name "Caterpillar," however, dates back to the early 1900s when Benjamin Holt, one of the company's founders, designed a tractor crawler with wide, thick tracks instead of wheels. These tracks prevented the machine from sinking into California's deep, rich soil, which was impassable when wet. The new farm tractor crept along the farmland in such a way that one observer said it "crawled like a caterpillar." Holt sold the tractor under the Caterpillar brand, and once the merger occurred, the newly formed company became Caterpillar Tractor Company. Since then, Caterpillar Inc., or CAT, has grown into the largest manufacturer of earth-moving equipment and engines in the world. With over 300 different machines for sale, Caterpillar offers product solutions for eight industries: residential, nonresidential, industrial, infrastructure, mining and quarrying, energy, waste, and forestry. Its distinctive yellow machines are found all over the globe and have helped make the brand a U.S. icon. So how did a small tractor company grow to become one of the biggest companies in the world? The company grew steadily at first, hitting a few critical milestones including the use of Caterpillar's trademark farm treads on Army tanks in WWI and WWII. Huge postwar construction and strong overseas demand kept sales strong through the mid-21st century, as did innovations like the diesel tractor and rubber-tired tractors. Things changed, however, when the recession of the early 1980s hit Caterpillar hard and international competitors gained market share, including Japan's Komatsu. Caterpillar's high prices and inflexible bureaucracy nearly sent the company into bankruptcy. In 1982 alone, the firm lost $6.5 billion, laid off thousands of employees, closed several factories, and suffered a long United Auto Workers strike. In the 1990s, Caterpillar recognized that it desperately needed to change, and under new leadership it successfully pulled off one of the biggest turnarounds in corporate history. Several factors played a role. • Caterpillar boldly fought the United Auto Workers and outlasted two strikes and seven years of disagreements.

• It decentralized and restructured into several business units, each responsible for its own P&L.

• It invested a significant amount of money (ultimately $1.8 billion) in a factory-modernizing program that automated and streamlined its manufacturing process with a combination of just-in-time inventory and flexible manufacturing. By automating its manufacturing system, the company became more efficient and competitive, although it also was forced to lay off more of its workforce.

• It made research and development one of its biggest priorities, investing hundreds of millions of dollars in new technologies, products, and machines. As a result, CAT construction trucks became more high tech, competitive, and environmentally friendly. Today, Caterpillar ranks number one or number two in every industry it serves. Its products are unmatched in quality and reliability and the company has maintained its strong focus on innovation. With a $2 billion annual research and development budget, new products are launched every year. Recent innovations include hybrid diesel-electric tractors-the first of their kind-and lower emission engines with ACERT technology, a clean-diesel technology that also improves fuel efficiency. Caterpillar's product range is immense. From a small 47 horsepower skid steer to an 850 horsepower tractor to a massive 3,370 horsepower mining truck, the firm develops products that serve each market and region's specific needs. In China, for example, a critical market to the future of Caterpillar, the company has divided its product strategy into three segments: World Class, Mid-Tier, and Low-End. Caterpillar is focused on innovating high-tech machinery for the growing World Class segment and leaving the Low-End segment to local competitors that will eventually be consolidated. Another reason for Caterpillar's dominance in the market is its business model.

Caterpillar sells it all: machines, services, and support for a wide range of industries. Fifty three percent of its sales come from products and the rest from integrated services. Caterpillar accomplishes this feat through its extensive Global Dealer Network-specially trained independent CAT dealers who can provide services on a local basis, giving the global company a personal feel. Feeling local is important considering that 56 percent of Caterpillar's business comes from overseas, making it one of the United States' biggest exporters. Caterpillar has been a leader in building roads, bridges, highways, and airports all over the world. In developing cities like Antamin, Peru, for example, which is abundant in copper, large mining companies spend hundreds of millions of dollars on CAT machinery and services each year. Up to 50 different kinds of CAT bulldozers, front loaders, excavators, and special mining trucks help clear roads, clean up spills, and dig for copper. These massive trucks are all manufactured in Decatur, Illinois, shipped in pieces, and assembled at the job site. Caterpillar's sales hit $51 billion in 2008 and dropped to $32 billion in 2009 due to the recession. Japan's Komatsu remains a distant number two, with less than half the sales of Caterpillar. Caterpillar maintains 50 production facilities in the United States and 60 overseas, selling products in over 200 countries. What's next for Caterpillar? As the company moves forward, it remains focused on reducing greenhouse gas emissions in its machinery, innovating more green technologies, maintaining its strong brand, and investing in the future of emerging countries like India and China. The company believes that in order to grow, it must be successful in emerging markets.

1. What were some of the key steps that led to Caterpillar's becoming the industry leader in earthmoving machinery?

2. Discuss Caterpillar's future. What should it do next with its product line? Where is the future growth for this company?