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 ( ) 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