Review the Strategic Management Project Background.
Familiarize yourself with the following terms and concepts discussed this week in preparation for completion of this assignment: organizational structure, organizational culture, inertia, Holacracy, PESTEL model. (note, use these terms and concepts to support your responses below.)
Create a 700 to 1,050-word entry in your strategic management research journal. You will use information from this entry in your presentation due in Week 5. Respond to the following prompts in your custom essay:
- Assess whether Caterpillar Inc. is using the appropriate measures to verify its strategic effectiveness.
- Summarize Caterpillar Inc.’s organizational structure.
- Determine whether Caterpillar Inc.’s organizational structure is considered a traditional organizational structure or a Holacracy.
- Detail why it is important for Caterpillar Inc. leadership to study and understand the company’s internal and external environments.
- Evaluate Caterpillar Inc.’s competitive position and how they have responded to shifts in the external and internal environments.
Strategic Management Journal
Competitive advantage encompasses building on company strengths, minimizing weaknesses while at the same time taking advantage of what the external environment brings along. This means that the strategic mission and vision statement should guide the strategies and goals set in place. This paper seeks to explain how Caterpillar Inc. has structured it organization and how both internal and external factors affect their competitive position and how they have remained firm in the industry in terms of shifting with the market trends.
Verifying Strategic Effectiveness
As a leading manufacturer of construction and mining equipment, CAT’s enterprise strategy focuses on three main success measures which include to help customers build a better world, achieving reinvestment profits and delivering profitable growth for its shareholders. For Caterpillar to verify the effectiveness of its strategies, the company has taken measures which include, setting up a technical center dedicated to research and development aimed at improving solutions for their customers (Hunter, 2015). Before, equipment and other products can be released into the market, the company takes measures using the 3D virtual reality center to test and stimulate the quality of these products.
Part of another measure that CAT uses to verify the efficacy of their strategies involves technology strategy, by giving much of their attention to global trends and assessing the capability of using those trends to help predict customers’ needs (Hunter, 2015). Using technology CAT has also developed a program to assist in fleet management, with the sole intention of mitigating equipment theft and maintenance issues. Ranging from the production of reliable and robust equipment, and deploying of a remote monitoring system solution, as well as a road analysis control, CAT helps their customers manage efficiency and maximize on productivity.
CAT Organizational Structure
Caterpillar Inc. is headed by a chairman or CEO, depicted as the voice and main image of the company. Following right below are offices of presidents, such as president for energy and transportation, the president of the resource industry, the president of construction industries segment, and the president of services, distribution and digital. The chief financial officer is also an essential figure of the company, together with others including but not limited to Chief Human Resource, Chief Accounting Officer, and Chief Legal Officer, General Counsel and Corporate Secretary. Additionally, the company is also headed by Vice Presidents distributed in the various departments. The Board of Directors and Advisors, similarly, constitute the governance and leadership of the company.
Type of Caterpillar Inc. Organizational Structure
Caterpillar Inc. organizational structure is considerably Holacratic granted that there are several divisions restructured to minimize complexity and improve efficiency; for that reason, forming a flat management system. For instance, Caterpillar have many divisions such as the distribution and service division, marketing and digital division, and the global aftermarket solution division. These divisions are headed separately and overseen by their CEO Jim Umpleby. They also have different heads in each geographical segments. A Holacratic organizational structure allows a company to distribute authority among self-organized groups, thereupon creating a vertical differentiation, and high horizontal differentiation. Holacracy increases agility, transparency, innovation, accountability, and efficiency granted that team members concerns or ideas are heard and can be addressed.
Internal and External Environment
The success of any organization largely depends on the nature of both the internal and external environments. Caterpillar Inc. uses the PESTLE analysis to study and understand the external environments and to improve its competitive advantage. There is need to understand the political, economic, social, technological, legal and environmental factors that affect the business and adjust to these factors in achieving their strategic goal of operational efficiency. For instance, political factors have numerously affected the profitability of the company. There have been great projections of increased profits in the company but these projections rely heavily on political stability of countries they operate in (Carataș, Spătariu & Trandafir, 2018). Undoubtedly, it is critically significant for CAT to analyze its business environment, considering that the market is highly dynamic and competition is growing each day. Study of these external factors will help project their profitability and operations with better accuracy and adjust to these factors since they cannot control them.
Caterpillar also uses SWOT analysis which stands for strengths, weaknesses, opportunities and threats to examine their internal environment. They focus mainly on the strengths so as to make maximum utilization of these strategic advantages to further their operation efficiency. For instance, they need to continue to offer training and development programs to their workforce which will motivate them to achieve more (Shunko et. Al., 2018). They concentrate on rectifying their weaknesses in order to ensure that they have less obstacles that would prevent them from achieving success. For instance, Caterpillar need to increase its research and development spending in order to ensure that they keep up with competition and come up with new and better technologies varieties for the wider market. Studying and understanding the organization’s environment would help Caterpillar build on their strengths, minimize their weaknesses as well as take advantage of some of the external factors such as tax incentives.
Maintaining a Competitive Position in Caterpillar Inc.
Analysis of the environment helps organizations to stay ahead and shift actions in line with achievement of their strategic objectives and set goals both short term and long-term. Caterpillar Inc. remains on top and ahead of most competitors in the farm and construction machinery industry, maintaining a superior position. For instance, Caterpillar has embraced strategic alliances with its dealers and suppliers which has led to better production process (Shunko et. Al., 2018). These strategic partners help to increase sales and profits. Despite the emerging market producing straightforward and convenient construction machinery and equipment, CAT still makes more productions owing to large volumes of sales. Notably, CAT invests highly on market penetration despite the shifts in the external and internal environments. Through, its effective marketing strategy, made possible by the strategic plan, Caterpillar devotes its resources and energy in research and development which helps them in identifying potential markets. CAT has also skillfully constructed a product portfolio that allows its customers to access the products of their choice. In a significant way, Caterpillar owns the legacy of the best-run company for the production of heavy equipment, at the same time differentiating its products in response to competitive threats.
Caterpillar can use the data developed from the environmental analysis to formulate strategic planning objectives resulting in sustainability and growth of its business by staying on top of trends, remain ahead of the competition, and implement decisions that can help the company move forward. Adhering to environmental forces will help guide their overall mission and ensure continuous profitability and sustainability in the future.
Carataș Maria Alina, Spătariu Elena Cerasela, & Trandafir Raluca-Andreea. (2018). Organizational Culture Impact on Strategic Management. Ovidius University Annals: Economic Sciences Series, XVIII (2), 405–408. Retrieved from https://doaj.org/article/b4ad63533f0743829a2a66f6347d2fac
Hunter, S. D. (2015). Combining theoretical perspectives on the organizational structure-performance relationship. Journal of Organization Design, 4(2), 24-37.
Shunko, M., Yunes, T., Fenu, G., Scheller‐Wolf, A., Tardif, V., & Tayur, S. (2018). Product portfolio restructuring: Methodology and application at Caterpillar. Production and Operations Management, 27(1), 100-120.