Essay by atesbernaUniversity, Master's June 2004

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The case is about the strategies applied by George Schaefer, CEO of Caterpillar, after 1985. In 1982, Caterpillar faced with its greatest crisis because of demand fall. Its sales dropped by almost 50% between 1982 and 1984. Komatsu, the Japanese competitor, fully exploited the situation by adding new lines in U.S.A and announcing the establishment of new manufacturing operations in the U.S.A. and England. On the other hand, Caterpillar closed six plants, laid off approximately 24,000 people between 1981 and 1984. Therefore, Schaefer was taking over a very challenging task by becoming the CEO of Caterpillar in 1985.

Till the time of Schaefer, Caterpillar's organization structure was hierarchy dominated and the managers were not customer-oriented enough to stay strong in a competitive environment. Hence, immediately after taking the charge, Schaefer set in motion a series of strategic and organizational changes that he hoped would firmly reestablish Cat's strong competitive position and rebuild its sound financial condition.

The rest of this essay highlights those strategic decisions and actions under separate headings.

Business Strategy Conference

The purpose was to force managers to step back from the frenetic cost cutting and focus on plans to ensure long-term viability. A debate was whether to diversify or focus on core business. The result was because of slow growth opportunities on the core business market, they decided to develop additional, related products and services. The outcome of BSC was the "Ten Initiatives" list. This list provided a blueprint for the new directions and activities Schaefer would implement over the next few years.

From Manufacturing to Outsourcing

One big move was the transition from manufacturing to outsourcing. Manufacturing was once a competitive advantage for Cat but after the 1982 crisis it has been seen that it has now became a liability, because the plants were simply...