Strategic Management Journal
Measures
Caterpillar is the leading manufacturer and distributor of heavy equipment, such as gas motors, mining hardware, and gas turbines (Williams, 2018). Caterpillar uses effective business strategies to compete effectively in the market. The methodology focuses on designing superior products to meet the needs of clients and generate benefits for investors. Therefore, Caterpillar is applying relevant and fitting measures to ensure the effectiveness of strategies. The measures implemented by Caterpillar include data-driven methodology and executing and operating models for purposes of controlling leadership processes and position the company. To build a favorable position, the company expands upon operational greatness through lean and aggressive cost discipline, high quality, and security. It attaches great attention to computerized arrangements to build client reliability. Caterpillar’s main competitive advantage is derived from economies of scale, quality items, and a strong network of inventory gained over many years of operations (Schilling, & Shankar, 2019). Caterpillar gains the upper hand through its inventory network and reality class conveyance system. The economies of scale have reduced the cost of making top-notch products, thus driving future development and client dependability.
Organizational structure
A simple organizational structure has ensured that Caterpillar can design, manufacture, and distribute its items. However, the company made considerable improvements in its structure using advancing technology over the years. Caterpillar has an utterly independent board of directors consisting of members from outside the company. There are five group presidents under this structure answerable to the Company CEOs. The responsibilities of Group presidents include the supervision of twenty-five vice-presidents charged with control of facilities and service centers spread across geographical locations as well as marketing diverse marketing regions. The firms do not rely wholly on the levels of management. Still, it also has a short chain of command for generating dynamic ideas and facilitate the flow of orders from the direction within the production line. Generally, Caterpillar has a simple decentralized organizational structure to satisfy the needs of clients and get closer to customers. There has been a restructuring of its support division and mining sales into the global mining division to combine operations, sales, marketing, and products. Divisions have been reorganized across the company into new structures to improve efficiency and minimize complexity (Williams, 2018). The structure has allowed Caterpillar to deliver in its goals quickly. Caterpillar structure can be termed as Holacracy due to decentralization management, where authority is distributed through self-organized groups rather than a traditional structure.
Importance of Understanding internal and external environments
Knowledge of internal and external business environments is vital in the decision making of the company. The management can apply a variety of models and theories to evaluate and understand the internal and external environment. These include SWOT and Pestel framework, VRIN, and resource-based model, among others (Hanson et al., 2016). Ideally, leadership knowledge of internal and external environments can identify the strengths and weaknesses of the firm. They can also identify opportunities and threats in the external environment. With this information, Caterpillar leaders can use their internal strengths to exploit opportunities in the external business environment. For example, leaders can use Caterpillar’s strong financial position to acquire a hardware company in China to increase its competitiveness in the global market. Also, knowledge of legal barriers as threats to enter into different countries enables managers to come up with effective strategies of entering a specific market either through exporting, franchising, or even setting up a wholly-owned plant in the target market.
Competitive Position of Caterpillar
Caterpillar has maintained a strong competitive position in the heavy equipment market over several decades (Williams, 2018). However, it faces fierce competition in the heavy equipment industry with significant competitors from the Netherlands and Japan. It enjoys low threats of substitutes and bargaining power of buyers and suppliers. The company has successfully managed to leverage the opportunities and mitigate threats using its key strengths. The intensive growth strategies have been used to maintain the competitiveness of Caterpillar in the market. These include a combination of market development and penetration strategies to expand into a variety of markets around the globe (Hanson et al., 2016). Depending on the characteristics of the market, the firm can either adopt market development of penetration strategies to exploit emerging opportunities in the market. Penetration strategy has enabled Caterpillar to gain a presence in major markets around the world. However, market development strategy is applied in developing economies of Africa, Latin America, and Asia. These strategies are supported by Caterpillar’s extensive distribution network, financial capabilities, a firm brand name, and advanced technology.
Conclusion
The strategic management analysis indicates that Caterpillar is applying relevant measures to ensure the effectiveness of its strategies. The measures implemented by the company include data-driven methodology and executing and operating model. It was further established that Caterpillar has a Holacracy organization due to decentralization management, where authority is distributed through self-organized groups rather than a traditional hierarchical structure. The company is using intensive growth strategies and, in particular, market penetration and market development strategies to maintain Caterpillar’s competitiveness in the market. Overall, the company has successfully managed to leverage the opportunities and mitigate threats using its key strengths.
References
Hanson, D., Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic management: Competitiveness and globalisation. Cengage AU.
Schilling, M. A., & Shankar, R. (2019). Strategic management of technological innovation. McGraw-Hill Education.
Williams, K. B. (2018). The Caterpillar Way: Lessons in Leadership, Growth and Shareholder Value and Demographics, and the Demand for Higher Education. College and University, 93(3), 55-58.