“I asked if I could talk to the guy I was replacing but was told not to talk to anybody. ‘You show up in Peoria, and don’t come early. The meeting is the morning of the 28th. You get here the night of the 27th.’ I showed up on the day of the meeting, and nobody knew who was going to be there from the executive office!”
With headquarters much leaner, its remaining executives focused almost exclusively on setting goals and measuring performance for the business units. Mr. Fites, as the new CEO, held regular meetings with each of his division vice presidents, keeping notes in a spiral-bound notebook on what the managers said they would achieve. At the next meeting, Mr. Fites would produce the notebook and review each manager’s performance against the commitments made in the previous meeting. “It worked very well,” recalls Mr. Fites. “Instead of having all this energy used internally, we focused on the end game: What are the results we want?”
For a business unit manager, the two models produced starkly different behaviors. Before the reorganization, a plant manager in, say, Grenoble, France, would be told by headquarters in Peoria to buy a particular fabrication machine from a certain supplier at a given price and to install it according to a predetermined layout in the factory. The plant manager would fabricate parts according to drawings developed in Peoria, using prescribed manufacturing processes. When the resulting parts were defective, he or she would call Peoria, complaining about the design, the machine, the supplier, or all three. Naturally, he or she would be inclined to assign blame elsewhere, because the onus was on headquarters to fix the problem that they had created with their design, their machine, their supplier.
But after the reorganization, when defective parts came off the line, there was no reason to call Peoria. Instead, the plant manager fixed the problem independently. If the supplier was the problem, the manager’s purchasing group found another. If the drawing was bad, his or her engineers redesigned it. The clear accountability of the new model forced people to focus their attention on finding a solution instead of pointing fingers.
Entrepreneurial Decision Rights
The reorganization — and particularly the shift to an accountable business unit model — dramatically decentralized decision rights. Although centralized, siloed organizations often contain very deep functional talent, they give very few managers the experience of dealing with a broad range of problems. Often, when such organizations move to a more decentralized model, long-hidden talent weaknesses are suddenly exposed.
Cat was no exception. At the time of the reorganization, very few people in the company had any previous experience in running a business. Almost everyone in senior management had grown up inside the old, functional Cat; they knew well how to operate within the silos that had just been obliterated. Now, several of them were being handed the keys to multibillion-dollar business units, with little or no formal training. Some couldn’t manage the transition and the new autonomy and had to be moved to positions with less authority. But many business unit leaders found the new decision rights invigorating and were thrilled to see their first divisional P&L.
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| The success of the 1995 D9 tractor prompted Komatsu to withdraw its rival machine. |
“The most spectacular part of the job was that we really didn’t know what they expected us to do,” says Dan Murphy, currently vice president of purchasing, who became global manager of the hydraulic excavator line in the reorganization. “There weren’t a whole lot of guidebooks. We could do what we thought was right. We could make informed decisions, and we got tremendous support. And we were kings.”
