An Overview of Corporate Strategy and Performance

Team Belinda Spring 2008

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

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

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

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

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)

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

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

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

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

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

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

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

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

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