Seven or eight months into the initiative, Mr. Schaefer concluded it was time to get the SPC’s findings onto senior management’s agenda. But that would be no small feat, given that the findings were not particularly complimentary to senior management, and the recommendations would in large part dismantle the organization Cat’s leaders had spent their careers building. So Mr. Schaefer introduced the ideas gradually, first by inviting Don Fites and Jim Wogsland, who were then president and executive vice president, respectively, to join the SPC. Mr. Schaefer recalls that “the first couple of meetings were really tough, because when [Fites and Wogsland] heard what we were thinking about, they said, ‘You can’t do this!’ But as they got deeper into it, they quickly came aboard. Once I got those two aboard, I knew I had it made because I could bring the rest of them aboard. It was a tough road for a month there. I didn’t want to get them to just tell me they were buying in; they had to buy in.”
And buy in they did. In Mr. Fites’s words, “We just couldn’t live in this [G.O.–dominated] world. Even though we came up through operations, we knew that the frustration level of the company was very high and we had to make these changes.”
Structures for Accountability
Although all four building blocks of Cat’s organization would eventually be overhauled, Mr. Schaefer and Mr. Fites began with structure. They had initially planned to roll out a new organizational “blueprint” gradually, but they (and their fellow senior executives and board members) soon saw that reorganizing all at once, if it was handled well, would force people to wake up and realize that the future held different relationships, a different structure, and a different way of doing business. So they engineered a complete restructuring to take place virtually overnight.
On the day the restructuring was announced — Friday, January 26, 1990 — the functional General Offices were in charge of everything. The following Monday, they simply ceased to exist. Their talent and expertise, including engineering, pricing, and manufacturing, were parceled out to new “accountable” business units that would be judged on divisional profitability. Some of the leaders of the old G.O.s were demoted to division managers in the business units, expected to serve the product and marketing managers upon whom they formerly imposed rules. The old metrics and flowcharts were gone; in their place were profit and loss (P&L) statements through which the new business units reported their performance.
“And then,” laughs George Schaefer today, “I retired!” In 1990, he relinquished the corporate helm to Don Fites, who led the charge of implementing a new, reorganized Caterpillar.
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For the 1997 launch of the 345 excavator, Caterpillar retrained its entire sales force. Photographs courtesy of Caterpillar Inc. |
The new organizational structure moved accountability dramatically downward in the organization. Business units could now design their own products, develop their own manufacturing processes and schedules, and set their own prices. They could make their own pricing decisions, develop their own product designs, and create their own manufacturing and marketing plans. They did not need permission from anyone at headquarters.
But the business units were also accountable for how well they used those decision rights. They would be judged on the profitability and return on assets (ROA) in their divisions. If a division could not achieve 15 percent ROA or higher, it could face elimination.
This represented a profound change for nearly everyone at Caterpillar. And the speed and certainty with which it was announced was every bit as surprising as the change itself. Jim Owens, who was a managing director in Indonesia at the time, recalls: “I got a phone call on January 4th, my birthday, while I was on vacation at Squaw Valley. I was told there would be a reorganization, that I would be promoted to [corporate] vice president and president of the solar business unit, and that I should just be in Peoria on January 28th for my first council meeting. At that time everything would be explained to me.
