Measures to Verify Strategic Effectiveness
A company’s strategy may be considered effective if it aligns with organizational goals and offers a plan to achieve them using available resources. Since resources are limited, the effectiveness of the strategy is determined by the extent to which managers’ strategic choices lead to the company’s competitive advantage (Rothaermel, 2016). In this regard, Caterpillar Inc. seems to use appropriate measures to verify its strategic effectiveness.
The company applies the Operating & Execution Model, according to which it allocates resources to those business areas that bring the company more growth and profits (Caterpillar, 2017). Caterpillar also has strategic goals of winning customers’ loyalty and providing customers with solutions better than those of competitors. To achieve these goals, the company’s strategy includes improving customer service, product quality and expanded offerings (Caterpillar, 2017). Since Caterpillar’s strategy aligns with its goals, it may be considered effective.
Caterpillar’s Organizational Structure
Caterpillar Inc.’s organizational structure ensures that the company is able to design and manufacture its products, such as mining equipment and construction machines, and deliver them to customers. The company is led by the Chief Executive Officer of Caterpillar, who is also the Chairman of the Board of Directors. The Board is comprised of 11-14 independent directors; this range allows for diversity and does not prevent from effectively discussing management issues (“Caterpillar Inc. guidelines,” 2018).
The Board includes several group presidents who oversee the work of over 20 vice presidents responsible for Caterpillar’s operations in different business areas and geographic locations. In 2015, Caterpillar simplified its organizational structure by reorganizing its dealer and customer support divisions (Caterpillar, 2015). The reorganization resulted in a bottom-up management approach, allowing employees to be involved in the development of strategic initiatives and improving customer service.
Caterpillar’s organizational structure can be considered a holacracy, especially after the reorganization. According to Rothaermel (2016), holacracy is the opposite of traditional top-down hierarchical management since it “attempts to achieve control and coordination by distributing power and authority to self-organizing groups … of employees” (p. 365). Since Caterpillar is divided into many divisions operating in different locations, it allows them to self-organize and perform specific tasks relevant to their specialization. Due to this decentralized nature of Caterpillar’s organizational structure, it may be regarded as a holacracy.
Internal and External Environments
Caterpillar Inc.’s leadership should study and understand the company’s internal and external environments because the company does not operate in a vacuum. Any changes in these environments may lead to the need for change in the company’s strategy to preserve its competitive advantage. According to Rothaermel (2016), the firm’s internal environment consists of its core competencies, resources, and capabilities, and organizations should be aware of them to be able to survive and succeed.
Caterpillar’s leadership team should understand the company’s strengths to be able to use them to respond to challenges and sustain competitive advantage. The external environment is the industry in which the company conducts its business and competitive forces existing in this industry (Rothaermel, 2016). Caterpillar’s leadership team has to be aware of industry trends and competitors to predict threats and notice opportunities that will ensure future business growth.
Caterpillar’s Competitive Position
Caterpillar operates in a highly competitive environment, and the competition is especially tough in foreign markets because regulations and exchange rates may make Caterpillar’s products less competitive in terms of price. However, Caterpillar successfully responds to these external environmental challenges by focusing on the high quality of its products and improving customer service. As for the internal environment, the company uses its resources and core competencies to enhance the quality of its products and invests in R&D to design new products to meet emerging consumer needs.
Recommended Operational Changes
Caterpillar may consider focusing on developing new products to extend its product line and offer new solutions to its customers’ problems, which would exceed the solutions of competitors in terms of quality and convenience. It would support its strategic goal of future growth and market expansion. It would also guide its future business decisions and improve the company’s business performance by sustaining its competitive advantage.
References
Caterpillar. (2015). Caterpillar announces new organizational structure for mining and customer and dealer-facing divisions; focus on innovation and data analytics remains a key priority. Web.
Caterpillar. (2017). Caterpillar is built to win. Web.
Caterpillar Inc. guidelines on corporate governance issues. (2018).
Rothaermel, F. (2016). Strategic management: Concepts (3rd ed.). McGraw-Hill Education.