2. What were the sources of Caterpillar's spectacular success up to the early 1980s?
The major reason of the spectacular success of Caterpillar up to the early 1980's was the post-war years. Those were the times to reconstruct the countries that were destroyed in the wars. As a result Caterpillar products exploded during those times to rebuild Europe, build the US interstate highway system, erect the giant dams of the third world, and layout the major airports. Also Caterpillar Company followed some strategies during those times to differentiate itself from its competitors by producing reliable, high quality products and providing a fast delivery of replacement parts. As a result Caterpillar became the leader of the heavy construction equipment industry.
On the other and Caterpillar's distribution and relationship with their dealers contributed to the company's world wide success. The vision of Caterpillar for their deal network was very unique. Those dealers were self sustaining businesses who invest their own capital. They generally earn 100 percent of their revenues by selling and supporting Cat equipment. By doing those Caterpillar dealers remained in the hands of the same family and helped the company to make huge success.
3. What were the strategies introduced by Schaefer, Fites, and Barton to reduce the impact of cyclical downturns on Caterpillar's results?
George Schaefer
? Global Outsourcing; Caterpillar sought to purchase parts and components from low cost suppliers, who maintained high quality standards. Under their new policy "shopping around the world," they moved to outsource 80 percent of its parts and components.
? With the help of its branding program Caterpillar sold outsourced machines under its own name. Branding program helped the company to keep production costs down while taking a superior marketing organization advantage.
? As the demand for heavy equipment decreased Caterpillar needed to reevaluate its product mix and create a broader product line. Caterpillar started to sale light construction equipment. "Between 1984 and 1987, accordingly, Caterpillar doubled its product line from 150 to 300 models of equipment introducing many small machines that ranged from farm tractors to backhoe loaders." They also started to market light weight vehicles to small scale owner operations and new contractors.
? Schaefer promoted open communication strategy, which resulted the free flow of ideas between officers, managers, and production workers.
? Also Schaefer launched the Employee Satisfaction Process (ESP), which helped the company to organize in work teams, met weekly with management and offered suggestions that helped to solve many critical aspects of the manufacturing process. The program resulted in productivity gains, quality improvements, and increased employee satisfaction.
? Schaefer also launched a plant modernization program with just in time inventory method. This led the company to have computerized tools, and flexible manufacturing systems. They also changed the traditional manufacturing process system called "batch". Unlike in batch systems assembly lines provided complete model production and helped the company to achieve high level of work in progress.
? Correcting the assembly mistakes Caterpillar reconfigured the layout of its manufacturing system into flexible work cells. Workers used computerized machine tools to perform several manufacturing steps.
? As general Schaefer reemerged the company as a lean, technological, flexible, and competitive global company. He increased the company shares up to 7 percent, while increased the revenues by 66 percent,
Donald Fites
-
Fites turned the company into a utilizing integrated approach based, Japanese style company. He also wanted to bring Caterpillar's labor relations to the Japanese model, because Japanese unions are company based organizations.
-
He also looked deeply into the customer needs, because global pricing decisions center didn't have a broad knowledge about the local market conditions around the world. He delegated district offices authority to set prices which helped him to push responsibility down the chain of command to the lowest possible level.
-
He applied the same principle to Caterpillar's entire structure, developing a company wide reorganization plan under Schaefer's direction. Caterpillar's old organization structure was only suitable in US, but as the company expanded globally the limitations of such structure become apparent.
-
Fites broke the company into 17 semi-autonomous divisions in order to operate necessarily and to gain the company flexibility. He then required each division to have 15 percent rate of return, on the other hand he threatened to penalize any division that fell behind. This helped the company to increase their profits and give them maximum flexibility.
-
In addition to all those, Fites developed a new plan, which based all of its incentive compensation schemes on return on assets. As traditionally Caterpillar managers were paid in proportion to the size of the budget they controlled, or the number of employees they supervised. Also all funding, and R&D activities that controlled by each division helped the company to be more customer driven than at any other period in past.
-
New organization plan affected the company's distribution network as well. With the help of new divisions, dealers seeking help could contact them easily. The importance of this structure was the interaction between Caterpillar's managers and dealers increased. It also enabled the company and dealers to have closer relationships to each other. According to Fites Caterpillar's distribution system was the company's single greatest advantage over it's competitors.
-
Another strategy for Caterpillar was to protect its dealers against failure. Caterpillar assisted individual dealers who were subject to intense price competition. To help those dealers Caterpillar reduced prices even sometimes reduced the dealer's costs, and sometimes they launched a promotion campaign. All those helped the company to sell more vehicles and create sustainability when other dealers went out of business during the recession.
-
Not only they helped their dealers but also they introduced "Partners in Quality" program to have quality discussions, which links personnel at Caterpillar plants and dealerships. This helped the company to have strong personal business ties with the dealers.
-
Fites invested to upgrade the Caterpillar's worldwide computer network. It helped Caterpillar to link together all factories, suppliers, sealers, distribution channels and customers. With the help of this system Caterpillar guaranteed 48 hours delivery of parts anywhere in the world. Caterpillar provided the most comprehensive and fastest part delivery system in the industry. Also electronic alert system developed under Fites. This system designed to monitor machines remotely identify parts, which needed to be replaced, and replace them before they failed. This helped the company to repair the machines before they broke down. They saved repair costs, it also provided to Caterpillar reduce their inventory costs.
- Fites expanded the products of the company. Caterpillar entered a total of 38 mergers and joint venture agreements. Caterpillar sold engines separately and accounted for 35 percent of Caterpillar's revenues. This is a very big market and Caterpillar engines powered one third of the big trucks in the United States.
-
Fites wanted to reject the collective bargaining agreement, because the labor costs are very high and they were cutting the company's global competitiveness. The labor prices were very high and Caterpillar was heavily depended on the export of domestically manufactured products. After he rejected the agreement union went to strike. But Fites forecasted the strike and he built up enough inventory to supply customers for about six months.
-
Fites was a very successful CEO; he trained managers and office workers to operate factory machinery, when the strike happened again he was prepared again. His ability to see the answer before the question earned company lots of money.
- At last he got what he wanted. He signed a contract with the union allowing Caterpillar to introduce two tier wage system and pay new employees 70 percent of the starting union scale. The contract also provided more flexible schedule format allowing management to keep employees on the job longer than eight hours. The contract also enabled company to hire temporary employees without the approval of the union.
- Fites wanted to have good relationship with the union because incase of an economic downturn and an recession he wanted to have a smooth workforce.
Glen Barton
-
He believed that the downturn of the US market could be eliminated by an upturn in the international market.
-
He increased sales of Caterpillars equipment to the developing nations such as Asia, Latin America, and Eastern Europe. By doing this he created new markets for the company.
-
He made non truck engines incase of a decline in the truck engines. Such diversification enabled the company to produce engines even the truck engine part offset.
-
Under the leadership of Barton, Caterpillar started to sell mobile power modules.
-
Caterpillar started to rent business equipment. Barton made efforts to make dealers diversify into rentals. As successful as it is the rental distribution segment of the fastest growing segment.
-
He also used joint ventures to expand into new markets, and he was very successful. He formed joint ventures with Daimler Chrysler and started to produce medium duty engines. He also started to manufacture fuel systems. Those fuel systems were designed to increase efficiency of diesel engines and thereby reduce diesel emissions.
Case Study: Caterpillar Inc.: George Schaefer Takes Charge History of Caterpillar, SWOT Analysis, Competitive Environment, Proposed Options, and Recommendations for Growth
History
Nothing is more familiar on a construction site than the bright yellow heavy equipment manufactured by Caterpillar, Inc. Caterpillar Inc., headquartered in Peoria, Illinois, has dominated the world in earth moving, construction, and materials machinery for more than 50 years. Their global dominance; however, created a stagnant and risk averse environment. Komatsu, a leading Japanese competitor, had gained market share by offering low cost, high quality options in a variety of product lines while Caterpillar was busy raising prices in their existing product lines at an average of 10% per year. Caterpillar executives ignored the threat and continued to support its historical management values; some of which included statements such as: "we maintain a strong corporate culture via 'internal staffing'", and "we maintain sufficient international manufacturing presence to avoid being shut out ." Poor economic conditions and overly aggressive expansion and modernization plans hit Caterpillar hard in the 80's. Profits were down and Caterpillar lost $1 billion in a period of three years. This necessitated the closing of several plants, and a complete revitalization of the expansion plan. To jumpstart Caterpillar's sluggish reactions to these factors, George Schafer took the reigns as the new CEO in 1985.
Schafer continued the cost cutting measures his predecessor implemented; conversely he began to focus on new initiatives to bring Caterpillar out of its downward spiral. Schafer focused on Caterpillar's core businesses, introduced new product lines, and launched a new manufacturing strategy. In addition to the new operational direction, Schafer also began to revamp the organization by changing the corporate culture, creating employee involvement programs and leveraging the power of many individuals versus a select few as done in the past.
Management of the Company
Historically, the management of the company was founded on a strict, hierarchical organization dominated by the executive office. Prior CEO's set the vision and strategy for Caterpillar and typically went unchallenged. In addition, Caterpillar was managed in functional product silos and adamantly believed in the "promote from within" policy. This created an environment of knowledgeable and loyal employees; however, it also fashioned an environment lacking genetic diversity, creativity, and imagination.
Schafer sought to change Caterpillar's management foundation. Schafer stated that "We need movers, shakers, decision makers...Above all, we need leaders who set high standard for themselves and their people ." Schafer appointed unlikely candidates to top posts to help turn Caterpillar into an agile and flexible organization. Employees were empowered and decision making moved down the chain of command. Schafer also realized the importance of building close relationships with those on the front line and that a happy employee was the cornerstone of Caterpillar's success. Although not particularly well received, employee involvement programs were initiated and Caterpillar began to provide employees with "the tools they need to contribute to advantage-building efforts ." Due to Schafer's reign and the changes he implemented, Caterpillar began reaping the rewards. Nonetheless, Schafer knew that many challenges lay ahead and without a mature and defined strategy, Caterpillar would falter.
Competitive Situation
Rivalry among competitors in the construction machinery industry was inconsequential until the 1960's after which, competitors began to enter the market. Komatsu created similar products at lower costs and approached smaller markets with new product lines. Caterpillar made several strategic moves to ensure that they would continue to operate in what has become a highly competitive pricing environment. Caterpillar made an unprecedented move to "shopping the world " for parts and suppliers. Caterpillar leveraged: (1) technological advancements, (2) distribution practices, and (3) partial vertical integration in order to lower product costs. The combinations of these moves enable Caterpillar to reduce its overall costs, debt to equity ratios, and increase sales and revenue.
Caterpillar's has leveraged its strengths and built on its competitor's weaknesses. Cat's main strengths include: employees, modernized manufacturing facilities due to the PWAF initiative, brand awareness, and its worldwide distribution network. Another strength Cat capitalized on was its decision to diversify its product line to include items such as backhoe loaders, hydraulic excavators, and its service offering from Caterpillar Service Technology Group. The diversification allowed Caterpillar to be less reliant on machine sales and could more quickly adapt to changing conditions in the market.
One key weakness Caterpillar displays are its higher priced goods and its employees. The higher priced equipment is partially due to the research, development, and quality Cat puts into its product lines. However, Cat's biggest weakness is also one of its biggest strengths: employees. Cat's policy of promote from within has created a smaller range of managerial beliefs and practices. Consequently, this practice has thwarted many of the necessary cultural and organizational changes at Cat.
External Environment
The economy during the late 1980's was on an upswing; however, the heavy equipment industry as a whole was experiencing a slight slowdown due to global developments and over abundance of commodities. This over abundance has lowered demand for new purchases of expensive agricultural equipment. International trade and fiscal policies implemented in the late 1980's also impacted Caterpillar as they were one of the largest U.S. exporters. However, technological advancements, which included adjustments or new parts for equipment,
lowered production costs. In addition, Caterpillar leveraged the technology available to devise a more efficient method of distribution. In addition, the 1980's saw major demographic developments, including population growth and movement, income dynamics, and minority population developments.
Identification of the Problem
Caterpillar emerged from the 1980's as a successful company; but much of Caterpillar's strife was their inability to distinguish between strategy and operations. Although George Schafer instigated several programs that helped Caterpillar become more competitive, the longevity of these programs were at stake. These programs included PWAF, "shop the world", redesign of their distributor network, and employee satisfaction programs that focus on "improving the work environment, quality, costs, and job satisfaction ." Caterpillar was in a state of constant flux; they had recently diversified their product line into smaller machines and outsourced products. However successful these techniques were, they were designed to make Caterpillar more efficient at how it developed products, not where it wanted to be in five or ten years. In fact, many of these programs produced negative outcomes such as closing plants and downsizing the organization. As evidenced in Exhibit 1, Caterpillar had a surge in revenues and profits, but not in employment. Few employees and downsizing, by itself, did not address the strategic problem that was at the root of Caterpillar's difficulties.
It was not until late in Schafer's career that he began to realize that strategy and vision had an equal priority to profits and revenue. In 1987, he brought in a group of outside CEO's to provide insight to help determine what Caterpillar wanted to become in the future. Schafer instructed his staff to "discuss Caterpillar's strategic options and develop a vision for taking it into the next century ." The lateness of this move is by far the most prevalent issue in the case. The incoming CEO, Don Fites, was forced into a bad situation and needed to ensure he addressed the strategic issues facing the business when he took the reigns of the company; the strategic plan put forward would have to be revolutionary and the "Vision 2000 " would have to be instilled in all employees and progress monitored.
Proposed Options
Don Fife needs to convince the board to undertake several difficult projects. The first project is to inculcate all Caterpillar employee's with "Vision 2000" and how it affects them. The corporate culture at Cat needs to change in order to remain a competitive force in the industry and guarantee that it can still attract the best and brightest employees. Secondly, Caterpillar desperately needs to align along its business units and focus on their core businesses. This includes undermining efforts such as ATS and CSTG. By thinking strategically and implementing these strategic options will help ensure Caterpillar's survival and prosperity in the next century.
Due to there being no sole way to successfully spread the core beliefs, values, and vision of Cat, there must be effective balance between determination of managers to promote these ideals, and employee commitment to support them. A method of fundamental importance to the communication of the vision and corporate culture is having manager's at all levels advocate their vision in realistic terms. Development of employee support of ideals and vision depends upon management's ability to convince workers of priorities and challenge them to institute change in their own job environment. Direction and vision of strong corporate culture originates with the dedication of upper management.
The development and maintenance of a strong corporate culture can result in many benefits for an organization and for its employees. In fact, "corporate success and, ultimately survival, depends on proper understanding of what dominant culture is, where strengths and weakness lie, and how much it diverges from corporate strategic objectives ." Moreover, Cat needs to realize the importance of genetic diversity and begin to value and acknowledge the assortment of opinions, insights, and frames of reference of various people. By introducing more genetic diversity to Cat, they can become more agile and flexible as challenges occur.
Caterpillar needs to make a move to continue to diversify their product lines without straying too far from their core competencies. If CVCC is still believed to be a viable business option, Caterpillar should spin the company off into its own private company. Caterpillar, Inc. will not be held accountable for its P/L statements nor there any affiliation with CAT. Additionally, Cat should look to other types of compact construction equipment while focusing on remaining the technological leader in its product lines. The mature product lines should be improved and the infant product lines should still demonstrate Cat's commitment to quality, durability, performance, and value.
Recommendation
There are some global changes currently occurring that will have significant effects on companies in the next two decades. These changes include the ousting of dictators, the democratization of Eastern Europe and Latin America, the spread of free markets all around the world including China and Russia, the aging population in the United States, Europe, and Japan and the reverse trend in Asia, Mexico, and South America. These types of macro changes can bring major opportunities or major threats to companies. Caterpillar needs to stretch their management and organization to "to enhance(s) people's expectation of themselves and of the company. It is the boldness to strive for ambitious goals rather than selling for the safety of achievable targets ." Caterpillar has recognized the effect the changes many bring and have moved to outthink their competitors strategically. However, Cat must swiftly implement the above-mentioned options, as the move will give Cat a distinctive advantage.
Corporate Culture acts as a tool for achieving organizational goals and helping Caterpillar adapt to challenging external forces. Caterpillar needs to engage HR and create a separate group to focus on corporate culture and inform the employees of the benefits of the changes. Corporate culture and instilling vision in employees is no easy task, small steps will be necessary. First, Caterpillar should begin by creating cross-functional work teams and offer incentives based on company-wide performance versus individual performance. Cross-functional work teams will also help to eradicate some of the silo product teams. Cat should also implement a program that rewards managers and employee alike for what they produce rather than for seniority or specialized knowledge. These will kick-start the move to align Caterpillar along business unit versus product lines. Caterpillar also needs to make an effort to share information and support inadvertent changes in the culture. Additional training will help managers and employees fit into the changing culture and support the organizational vision. Caterpillar needs to make the corporate change successful but also needs to recognize that all employees need to be involved in the change process.
Second, Caterpillar needs to embrace genetic diversity and in response, its organizational culture must be sensitive and make provisions to manage it. If Caterpillar continues to promote from within on an ongoing basis, they will have little, if any, genetic variety in upper management. All of the managers will have the same or similar traits and possibly the same or similar backgrounds, education, management practices, leadership, and many other similar management practices. Although this may be a competitive advantage in some circumstances, it is actually quite the opposite. Cat is under pressure to increase productivity and overall growth. It is this pressure and the ever-changing competitive environment that should force Caterpillar to throw aside their standard management practices and increase the genetic variety of the management ranks. New managerial beliefs and practices will become a breeding ground for long-term success.
Caterpillar recognized that global competition was increasing and that in order for it to maintain its role as the industry leader; it must diversify and expand its product line and services into other areas without straying from its core competencies. Caterpillar's manufacturing facilities are models of efficiency, leaner organizational structures, more efficient factories, and a much-improved management of supply and distribution, but its product lines are too dependent on large-scale construction. Caterpillar needs to concentrate on diversifying and growing the company by focusing on the most attractive opportunities that make use of the company's key strengths, such as its commitment to product innovation and its large distribution base. The changing social and economic conditions of the world will force Cat into offering a lower-cost alternative to many of its products. Developing countries are building highways, bridges, and waterways necessary to sustain economic growth. Caterpillar will need to ensure its product line can meet the growing demands of these countries. All the while, Caterpillar also needs to look to the United States market and identify pockets of opportunities. Small residential contractors or individuals may need heavy equipment for a shorter period of time to accomplish landscaping, moving earth, or digging a foundation. Cat should look to their distributors to build a rental facility or a contracting service for those smaller projects. Lastly, "Creating a future doesn't require a company to abandon all of its past. Indeed, a critical question is: What part of our past can we use as a 'pivot' to get to the future, and what part of our past represents excess baggage? "
REFERENCES
BOOKS
Hamel, Gary. C.K. Prahahlad. Competing for the Future, (Harvard Business School, 1994). ISBN 0-87584-716-1.
INTERNET
http://www.briefing.ft.com/ftsurveys/sp5d7e.html
CASE STUDY
Harvard Business Schoool, July 1991. Caterpillar Inc.: George Schaefer Takes Charge
The Comeback of Caterpillar
Caterpillar Inc., which is headquartered in Peoria, Illinois, has dominated the world in earth moving, construction, and materials machinery for more than 75 years. Their global dominance created a dormant and risky environment. Komatsu, who is a leading Japanese competitor, gained market share by offering low cost, high quality options in a variety of product lines while Caterpillar was busy raising prices in their existing product lines at an average of 10% per year. Caterpillar executives disregarded the threat and continued to maintain it's historical management values; some of which included statements such as: "we maintain a strong corporate culture via 'internal staffing'", and "we maintain sufficient international manufacturing presence to avoid being shut out." Caterpillar, Inc. who has been building the world's road and rail network for more than 75 years, as well as in partnership with Caterpillar dealers, is driving positive and sustainable change on every continent. A Fortune 100 company, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines as well as industrial gas turbines. The company is a technology leader in construction, transportation, mining, forestry, energy, logistics, electronics, financing and electric power generation.
Poor economic conditions and overly aggressive expansion and modernization plans hit Caterpillar hard in the 80's. Profits were down and Caterpillar lost $1 billion in a period of three years. This necessitated the closing of several plants, and a complete revitalization of the expansion plan. After a three consecutive years (1982-1984) of tremendous loss, Caterpillar managed to come back as a high-tech globally competitive, growth company. To jumpstart Caterpillar's sluggish reactions to these factors, George Schaefer took the reigns as the new CEO in 1985.
Throughout the term of two successful CEO's, George Schaefer and Donald Fites, which lasted over a period of 15 years, the company reinvented itself. George Schaefer introduced cost-cutting measures and employee involvement programs, outsourced machines, parts, and components, and began modernizing Caterpillar's plants. Donald Fites diversified the company's product line and reorganized the company structurally. He also completed Caterpillar's modernization program, revitalized its dealership network, and altered the company's approach to labor relations.
Traditionally, the management of Caterpillar was founded on a firm, hierarchical organization dominated by the executive office. Former CEO's set the vision and strategy for Caterpillar and typically went unchallenged. In addition, Caterpillar adamantly believed in the "promote from within" policy. This created an environment of educated and devoted employees; however, it also created an environment lacking diversity, creativity, and imagination.
For six and a half years (1992-1998), labor relation issues were a problem for Caterpillar's Peoria plant. During this time, the company experienced two nationwide strikes. An agreement was finally reached in 1998.
Schafer wanted to change Caterpillar's management foundation. He stated that "we need movers, shakers, decision makers...above all; we need leaders who set high standards for themselves and their people."(Hamel) Schafer appointed unlikely candidates to top posts to help turn Caterpillar into a lively and flexible organization. Employees were empowered and decision making moved down the chain of command. Schafer also realized the importance of building close relationships with those on the front line and that a happy employee was the cornerstone of Caterpillar's success.
Schaefer continued the cost cutting measures his predecessor implemented as well as, focusing on new ideas to bring Caterpillar out of its downward spiral. Schaefer focused on Caterpillar's core businesses, introduced new product lines, and launched a new manufacturing strategy. In addition to the new operational direction, Schaefer also began to revamp the organization by changing the corporate culture, creating employee involvement programs and leveraging the power of many individuals versus a select few as done in the past.
George Schefer and Donald Fites faced and overcame many obstacles during their terms. During George Schefer's term 1985 - 1990 he to face 1). a global recession, 2). a costly strike, 3). lower mark-ups on light construction equipment, 4). high production costs, 5). outdated plants and equipment, 6). low demand for heavy equipment for highway construction, and 7). the value of the dollar rose steeply. Throughout Donald Fites term 1990 - 1999 he faced costly labor strikes as well, but also had to overcome 1). a decrease in the company's earnings as well as 2). lower industry-wide demands in both the domestic and international markets, and 3). Fite's management style.
In February of 1999 Donald Fites retired, leaving newly elected CEO, Glen Barton, to face many challenges.
<Tab/>1). Barton could not count on Caterpillar's continual success due to the downturn <Tab/> of the North American construction industry.
<Tab/>2). During Barton's first year (2000), the company's sales declined by 6 percent <Tab/><Tab/> and earnings by 37 percent. Also, Caterpillar's share price traded close to its <Tab/> <Tab/> 52 week low in March.
<Tab/>3). An accelerated change over from diesel generators manufacturing to natural <Tab/> <Tab/> gas generators for manufacturing.
Caterpillar needed a strategy implemented that would allow it to withstand the forecasted grind of our economy and the construction industry as a whole. Barton needed to decide whether the strategies of the previous CEOs needed to be refined, reversed, or totally restructured.
Caterpillar needs to recognize that global competition is increasing and that in order for it to maintain its role as the industry leader; it must diversify and expand its product line of parts and components as well at its' services, into other areas without straying from its high quality of standards.
Goals of global outsourcing:
* To have flexibility in manufacturing of parts and machines for Caterpillar.
* Give Caterpillar ability to match capacity of manufacturing with that of demand.
* To ship replacement parts directly from suppliers to the Dealerships for the purpose
of speeding the delivery of replacement parts and lower cost of the handling parts.
* To lower over all cost of manufacturing parts and machines for Caterpillar.
* To be able to better meet the needs of the customers.
* To fully utilize the ability of Joint Venture partners to add value to Caterpillar products.
Caterpillar's manufacturing facilities are models of efficiency, leaner organizational structures, more efficient factories, and a much-improved management of supply and distribution, but its product lines are too dependent on large-scale construction. Caterpillar needs to concentrate on diversifying and growing the company by focusing on consumers such as farmers, small residential contractors or individuals who may need heavy equipment for a shorter period of time to accomplish landscaping, moving earth, or digging a foundation, which would allow them to expand into the rental equipment area. In addition a contracting service could accommodate those smaller projects. The most attractive opportunities that make use of the company's key strengths, such as its commitment to product innovation and its large distribution base. The changing social and economic conditions of the world will force Caterpillar into offering a lower-cost alternative to many of its products. Developing countries are building highways, bridges, and waterways necessary to sustain economic growth. Caterpillar will need to ensure its product line can meet the growing demands of these countries and at the same time, Caterpillar will also need to look at the United States market and identify pockets of opportunities. Lastly, "creating a future doesn't require a company to abandon all of its past. Indeed, a critical question is: What part of our past can we use as a 'pivot' to get to the future, and what part of our past represents excess baggage?" (Hamel)
The corporate culture at Caterpillar needs to change in order to remain a competitive force in the industry and guarantee that it can still attract the best and brightest employees. Secondly, Caterpillar desperately needs to side with its business units and focus on their core businesses. Due to there being no sole way to successfully spread the core beliefs, values, and vision of Caterpillar, there must be effective balance between determination of managers to promote these ideas, and employee commitment to support them. A method of fundamental importance to the communication of the vision and corporate culture is having managers at all levels advocate their vision in realistic terms. Development of employee support of ideas and vision depends upon management's ability to convince workers of priorities and challenge them to institute change in their own job environment. By giving employees a voice in the organization, Caterpillar increases job satisfaction, which in turn yields higher productivity and a higher quality of products. Direction and vision of a strong corporate culture originates with the dedication of upper management.
We intend, as always, to grow the Caterpillar sales opportunities and have identified several new areas of growth in support of Caterpillar sales. We will also be pursuing growth opportunities outside of the Caterpillar product line as we seek to build on our strengths, while minimizing risk. We began this strategic shift in 2002 with the acquisition of FCC Equipment Financing, enhancing our ability to offer direct lending services to existing customers and develop relationships with new customers. We have utilized the rigor of Six Sigma to help us understand the opportunities as well as the risks of these new endeavors. Our investment in technology and process improvements should minimize the need for additional staff, even as we supplement our organization with individuals having the industry knowledge and skills required to succeed in the new areas of opportunity. Finally, we acknowledge the addition of Greece as a country where we offer local currency financing.
We continue to look for ways to diversify our business as evidenced by the newly reached agreement between Caterpillar Logistics Services Inc. and Bombardier Aerospace (which will take effect 2004 & 2005). Through this joint venture, Caterpillar Logistics will provide warehouse services, information systems and inventory management services to Bombardier Aerospace. We will also manage the distribution of aerospace parts. Caterpillar Logistics will also assist Bombardier in the restructuring of its parts logistic network.
Caterpillar's devotion to finding new ways to remain competitive can also be seen in the initiative it formed with IBM Corporation and IT Technologies. Through this program Caterpillar integrates with its suppliers' business systems. The Value Chain Accelerator Program was formed in 2001 with the goal of reducing process costs for Caterpillar's suppliers. This decrease in cost is seen in the areas of new product development and schedule execution. It allows Caterpillar to coordinate material flow to improve their ability to meet customer demands.
In May of 2004, Caterpillar will open an engine plant in Georgia. This plant is the result of a joint venture between Japan's Ishikawajima Shibaura Machinery Co. Ltd. and Caterpillar's Perkins Engines Company. The plant will produce the Perkins 400 Series engines, which are in high demand in the United States.
The achievements of 2003 are the result of years of dedication by many people who have always focused on delivering customer satisfaction. Their planning, hard work and process improvements over previous years have helped position us for success.
There are some global changes currently occurring that will have significant effects on companies in the next two decades. These changes include the removal of dictators, the democratization of Eastern Europe and Latin America, the spread of free markets all around the world including China and Russia, the aging population in the United States particularly the "baby boomer group", Europe, and Japan. (Hamel) These types of worldwide changes can bring major opportunities or major threats to companies. Caterpillar needs to stretch their management and organization "to enhance people's expectation of themselves and of the company. It is the boldness to strive for ambitious goals rather than selling for the safety of achievable targets." (Hamel) Caterpillar has recognized the effect that changes may bring and have moved to out think their competitors strategically. However, Caterpillar must quickly implement the above-mentioned options, as the move will give Caterpillar a distinct advantage.
The victory of the 1998 labor dispute was not an easy task. It was the result of the support of only 54% of the United Auto Workers. As a result of this victory, the company gained the right to limit overtime pay and make decisions on what can be outsourced. The contract also gave Caterpillar the right to pay new workers a lower starting pay. Union members received higher wages and pensions, a comprehensive health care program and incentive pay.
Corporate Culture acts as a tool for achieving organizational goals and helping Caterpillar adapt to challenging external forces. Caterpillar needs to employ Human Resources and create a separate group to focus on corporate culture and inform the employees of the benefits of the changes. Corporate culture and instilling vision in employees is no easy task, small steps will be necessary. First, Caterpillar should begin by creating cross-functional work teams and offer incentives based on company-wide performance versus individual performance. Cross-functional work teams will also help to eliminate some of the individual product teams.
Caterpillar should also implement a program that rewards managers and employee alike for what they produce rather than for seniority or specialized knowledge. These will jump-start the move to align Caterpillar with its' business unit versus product lines. Caterpillar also needs to make an effort to share information and support unintentional changes in the culture. Additional training will help managers and employees fit into the changing culture and support the organizational vision. Caterpillar needs to make the corporate change successful but also needs to recognize that all employees need to be involved in the change process.
Second, Caterpillar needs to embrace diversity and in response, its organizational culture must be sensitive and make provisions to manage it. If Caterpillar continues to promote from within on an ongoing basis, they will have little, if any, variety in upper management. All of the managers will have the same or similar traits and possibly the same or similar backgrounds, education, management practices, leadership, and many other similar management practices. Although this may be a competitive advantage in some circumstances, it is actually quite the opposite. Caterpillar is under pressure to increase productivity and overall growth. It is this pressure and the ever-changing competitive environment that should force Caterpillar to put aside their standard management practices and increase the variety of the management ranks. New managerial beliefs and practices will become a breeding ground for long-term success.
Caterpillar recognized that global competition was increasing and that in order for it to maintain its role as the industry leader; it must branch out and expand its product line and services into other areas without straying from its core competencies. Caterpillar's manufacturing facilities are models of efficiency, leaner organizational structures, more efficient factories, and a much-improved management of supply and distribution, but its product lines are too dependent on large-scale construction.
Caterpillar has gone a step above the role of manufacturer. It has stepped outside the box and coupled with other companies to provide services as well as products. Today it is redefining competition as it provides remanufacturing services to companies in industries it doesn't currently serve. It is this type of innovative thinking that will keep Caterpillar alive in a market where bankruptcy is becoming the norm.
Dancer, Mark. "Viewpoint -- Winning Through Services." Industry Week 29 Oct 2003. 14 Apr 2004 <http://www.industryweek.com/columns/text/878.asp> .
France-Presse, Agence. "Cat Logistics Teams With Bombardier." Industry Week 26 Jan. 2004. 14 Apr. 2004 http://www.industryweek.com/DailyPage/newsitem.asp?id=5671
France-Presse, Agence. "Caterpillar Contract Receives Lukewarm OK." Industry Week 1 Apr. 1998. 14 Apr. 2004 http://www.industryweek.com/DailyPage/newsitem.asp?id=431
France-Presse, Agence. "Caterpillar Plans Engine Plant In Georgia." Industry Week 2 Sep. 2003. 14 Apr. 2004 http://www.industryweek.com/DailyPage/newsitem.asp?id=5290
France-Presse, Agence. "Caterpillar Remanufacturing Services Available To Others." Industry Week 8 Mar. 2004. 14 Apr. 2004 http://www.industryweek.com/DailyPage/newsitem.asp?id=5780
Harvard Business School, July 1991. Caterpillar Inc.: George Schaefer Takes Charge
http://www.briefing.ft.com/ftsurveys/sp5d7e.html
http://www.cat.com/about_cat/company_information/03_mission/mission.html
Jusko, Jill. "Caterpillar Program Aims To Drive Down Costs, Improve Collaboration." Industry Week 24 Sep 2001. 14 Apr 2004 <http://www.industryweek.com/news/3438.asp>.
Hamel, Gary. C.K. Prahahlad. Competing for the Future, (Harvard Business School, 1994). ISBN 0-87584-716-1.
Caterpillar and Komatsu: A Mission Statement Evaluation
Caterpillar and Komatsu are two of the largest heavy equipment manufacturers in the world with total revenue of over $29.1 billion dollars for fiscal year 2001 between the two companies. Caterpillar was established in 1925 after Benjamin Holt and Daniel Best merged their two companies, both of which had been in business for over 35 years each. Komatsu was founded in 1921 when Komatsu Iron Works was spun off as an independent corporation from Takeuchi Mining Industry, Ltd. Both companies, Caterpillar and Komatsu, have since established themselves in the market as leaders of heavy equipment manufacturing.
A review of the websites and mission statements for each company speaks volumes about the company and their philosophy towards doing business. Each mission statement was evaluated for the following components as per the UniModule for the course: Customers, Products or services, Markets, Technology, Concern for survival, growth and profitability, Philosophy, Self-concept, Concern for public image and Concern for employees. Additionally, each mission statement, as well as the company web site and company reports, was reviewed to determine how the priorities of the stockholders were addressed.
Caterpillar
Caterpillar has both a vision and a mission to drive their company. The vision is basically stated, "Be the global leader in customer value" (Caterpillar). This basic statement drives the four different aspects of the mission and the company as a whole. The vision also shows a strong concern for survival and growth with a forward-looking vision to the future. In addition, a basic vision such as this also drives the philosophy of the company as they strive to be the best in their market.
The first section of the mission statement is as follows:
Caterpillar will be the leader in providing the best value in machines, engines and support services for customers dedicated to building the world's infrastructure and developing and transporting its resources. We provide the best value to customers. (italics as included in statement) (Caterpillar)
As this section states, Caterpillar believes in supporting the customer through all aspects of its operations. This section also addresses Caterpillar's philosophy in their products and services by providing the best value to their customers.
The second section of the mission statement states:
Caterpillar people will increase shareholder value by aggressively pursuing growth and profit opportunities that leverage our engineering, manufacturing, distribution, information management and financial services expertise. We grow profitably. (italics as included in statement) (Caterpillar)
This section addresses Caterpillar's concern for shareholder value by directly addressing their goals to increase value as part of the statement, and not as an afterthought. The simple line, "We grow profitably" shows a strong faith in their future as a company.
The third section read:
Caterpillar will provide its worldwide workforce with an environment that stimulates diversity, innovation, teamwork, continuous learning and improvement and rewards individual performance. We develop and reward people. (italics as included in statement) (Caterpillar)
A strong concern for the employees is shown in this section of the mission statement. According to the Caterpillar website, the company offers extensive training and employee development, as well as a multitude of benefits for their employees.
The final section of the mission statement is as follows:
Caterpillar is dedicated to improving the quality of life while sustaining the quality of our earth. We encourage social responsibility. (italics as included in statement) (Caterpillar)
Finally, Caterpillar addresses their concern for the public image of the company by addressing environmental and social issues in their mission statement. Caterpillar is involved in several environmental and social projects in the communities that they are a part of, whether in the United States or around the world.
Overall, the vision and mission statement for Caterpillar is strong and clear, providing a valuable direction for the company in all aspects of their operation.
Komatsu
Komatsu has established a basic mission statement as well as a Code of Worldwide Business Conduct (Code) booklet that helps to guide the company in its global business dealings. This Code is updated annually to reflect any new or changed information that may affect how the company performs on a global level. The mission statement, which is actually an opening statement by the president of the company, Masahiro Sakane, reads as follows:
Komatsu is committed to Quality and Reliability as the very cornerstones of its management to maximize its corporate value. Through business activities, we at Komatsu work to enhance the corporate value of Komatsu for shareholders and all other stakeholders by promoting activities to become a Strong Company, while simultaneously observing the "Rules of the Business Community (the Rules)" and fulfilling the responsibility of corporate citizenship to become a Good Company. In this manner, I believe that we can improve the Quality and Reliability of management and employees. (Komatsu)
By breaking down the opening statement, as well as the pertinent sections of the Code, we can evaluate the company's means for addressing the different requirements from the UniModule.
A driving force behind the Code is the strong commitment to quality and reliability for their products. This is addressed in the management direction section of the code, which provides five guidelines for enhancing quality and reliability. The first guideline directly addresses the customers' needs and concerns, as well as the product and/or services themselves, by "constantly providing safe and innovative products/service and systems from the viewpoint of our customers." (Komatsu)
Additionally, product safety is mentioned as one of the main aspects for quality and reliability. According to Komatsu, "all employees place the highest priority for assurance of safety when engaging in development, production, procurement, sales, service and all other stages." (Komatsu)
References
Caterpillar Company Information. Mission. Caterpillar. Retrieved on June 20, 2002 from the World Wide Web:
http://www.cat.com/about_cat/company_information/03_mission/mission.html
Komatsu Code of Business Conduct. Komatsu, Inc. Retrieved June 20, 2002 from the World Wide Web:
http://www.komatsu.com/profile/index.html
Analysis of sales, profits, and market share
Caterpillar sold over 50 percent of its product in overseas countries. Caterpillar realized that there is an opportunity and the company continued focus outside of the U.S., particularly the developing countries. Because of economic conditions in the developing countries customers are not able to pay hard currency for the product. Caterpillar projected that sales will increase in these areas in the future and came up with any possible way of gaining customers in the developing areas.
In 1988 Caterpillar Inc. made record sales of over $10 billion dollars and realizes a profit of $616 million. But although the company sales continue to increase steadily over the next two years (1989 & 1990), the company's profit, however, took a different turn. Profit for 1989 and 1990 fell to $497 million and $210 million respectively. It is not rare that a company sale has increased and its profit continued to drop. Needless to say, however, if things get worst in the industry and sales decline, then the company's net profit could turn into a net loss. In this case Caterpillar sale which was increasing steadily over a three year period from 1988 to 1990 went into a fallen slurp from over $11 billion in 1990 to under $10 billion in 199. As a result, the company saw a net loss of $404 million in 1991.
Analysis of marketing mix variables
Caterpillar's strategy is consistent with sound marketing principles. Caterpillar's marketing mix categories explained the selected strategy consist product, distribution/place, price, and promotion.
Product
Caterpillar is a strong producer of very large equipment. The company offers a tangible and a non-tangible product to its customers. The company's physical products are engines for a wide variety of electrical power systems, such as generation system, and industrial machinery and earth moving, construction, material handling, and agriculture machinery. Also, Caterpillar portfolio includes a non-tangible product by providing financial assistance to its customers. Customers are willing to pay a premium price for Caterpillar's product because they build the biggest and best equipment in the world.
They machinery was technology superior and can be easily identifies through its goal- and-black distinctive color feature which stood out from its competitors green and black.
Large heavy weight equipment has a very long lifecycle, which cause this particular product market to become saturated and curtail future growth. Therefore, Caterpillar introduced new products to its line tailored to fit lightweight users such as contractors who do not need the massive equipment. The company aimed to fill this segment by producing multipurpose product to the owner/operator or small contractors. As the company strives to serve all the niches in the different segments its product mix become broader and deeper. The product mix is obviously broad because Caterpillar has different product line to serve the different industry. There are also an adequate average number of products in each line for it to be considered as deep product mix.
Place/distribution
Caterpillar distribution system includes a global dealer network. The Caterpillar dealer network handled all sales and services worldwide except some direct sales. The 215 independent dealers network handle operating, sales, parts, and services in more that 170 countries around the world. This strong dealer network gave Caterpillar a competitive advantage and was the driving force for the company when it responded against Komatsu's entrance into the US market. Industrial equipment tend to breakdown often which cause the customers to spent up to three time the cost on the actual equipment on spare parts alone, over the long life of the product. Therefore, Caterpillars began to focused on provide quality service to its customers by providing after-sale service and customer responsiveness to equipment failure. This customer focus strategy was very profitable for Caterpillar because the customers feel a sense of purpose and become loyal to the company.
Caterpillar introduces a communication and inventory control system to support its dealers. These allow the company to make more accurate judgment and also improve communication to further meet the customer's seeds. This system was so effective in the moving of equipment between dealers that the 1991 strike did not interrupt its sale.
Caterpillar has a two folds distinctive competency; control the largest market share in the U.S. and having the most competent dealers in the industry. To sustain these advantages, the company invests heavily in training its dealers.
Price
Caterpillar was able to charge a premium price for its product until the early 1980s due to its quality product and lacking competition. At this time, however, competitor the Japanese competitor, Komatsu, began offering comparable product at a much cheaper rate. In order to compete, Caterpillar reduces its price, which protect its long-term survival. But the company realizes that it needs to look at other ways to generate income. Therefore, Caterpillar pursued other strategy such as strengthening its distribution of product and sold logistics to auto makers.
The distribution channels also determine the price for the product. The direct sale would cost less than those made through the middleman. But most of Caterpillar products are distributes through the independent dealer network.
Promotion
The promotion is consistent with Caterpillar's Product image. This is evident because the company trained its dealers to ensure that they know the product so that they can be responsive to the customers. By knowing the product the dealers are able to do advertise, sales promotion, and publicity to make potential buyers buy the product, tell them about the benefits associated with the product and, lure them to buy the product.
Caterpillar independent dealers decide on the best marketing and promoting strategy. They can elect to reach their customers through direct-mail campaigns, electronic media, and trade shows. This is a good strategy to have the dealers reach the customers because they are in the best position to reach the customers at the point of sale and can contact them through the customer information database. The company also implemented a Sales Team Development System focusing on utilizing available resources. The dealers who participated in the system improve their marketing and sales skills, which increase their net revenue by 102 percent.
Abstract
In this report, the company Lei Shing Hong Machinery (Kunshan) Co., Ltd (LSHM), where I worked before is analyzed with the related organizational behavior theories about management to see how an organization overcomes the resistance to change within itself, how a functional conflict effects the company and how management by objective (MBO) works in the company. Before we analyze the company, we should know some company background information and with the case analysis, I also appoint out my suggestions on the development of the company.
COMPANY BACKGROUND INTRODUTION
Lei Shing Hong Machinery (Kunshan) Co., Ltd., the dealer of Caterpillar in east China, was fund in Kunshan, Jiangsu Province in 1994 and the prime product is excavator. In the first years it paid more attention to brand building in the market of China, the sales volume was small and most of the customers were government and state-owned enterprises (SOE). According to the strategies of marketing development in P. R. China, from 1996 LSHM set up a few branches and recruited more salespersons to increase its sales force, and the customer also covered the private work firms. The payment term diversified from cash to defer payment, especially for those private work firms, most of the deals are installments due to the high machine price. However, it was found that the deferred payment could not be collected smoothly and some of them even became bad debts. With the increase of the sales the situation was getting worse and worse. A big part of installments became bad debts. After several times of conference and negotiation, it was decided that all deferred payment deal should be guaranteed by bank and before releasing the machine, all financial assessment reports of the buyers should be submitted to financial division to get approval. Thus, the conflict between salespersons and financial managers occurred: The financial managers need to check all the documents carefully before they made approval, the salespersons, however, wanted the machines to be released as soon as possible, or it would cause customer dissatisfaction. Salespersons began to complain and tried to resistant the new machine release procedure.
THE THEORY OF OVERCOMING RESISTANCE TO CHANGE
The three-step resistance beating process is offered by Kurt Lewin. In this theory, managers should recognize the developing initial awareness of a change need as unfreezing. The second,focusing on learning needed new behaviors is recognized as changing and the last step, refreezing, centers on reinforcing new behaviors, usually by positive results, feeling of accomplishment, and / or rewards from others.
According to Kurt Lewin's theory, any change is effected with two types of forces, the driving forces and restraining forces. The driving forces are the factors pressuring for a particular change and the restraining forces are the factors pressuring against a change. At a point in time, the two forces types push in opposite directions, giving an equilibrium defining current conditions, or the status quo. To change the status quo to a desired condition, it is necessary to increase driving forces, to decrease restraining forces, or do both.
Several methods are adopted to overcome change resistance and to facilitate unfreezing: Education + communication; Participation + involvement; Facilitation + support; Negotiation + agreement; Manipulation + co-optation and coercion. Different approach is used on different occasion, and usually, if the change initiators possess considerable power, it is coercion that is used.
CASE STUDY WITH THE THEORY OF OVERCOMING RESISTANCE TO CHANGE
In LSHM, the old machine release procedure resulted in a big deal of bad debts, which influenced the sales performance. This step can be recognized as the step of unfreezing, the management in LSHM realized the need of change. Basing on this, the senior management changed machine release procedure: getting approval from financial division before machine release. This is the step of changing. However, in the third step of refreezing, salespersons resisted the new procedure, as they feel the machine release delay caused customer dissatisfaction and the reduction of customer retention.
As the graph show, in this case, the driving forces for the change of machine release procedure were from senior management, financial division and sales division, because the bad debts reduced the whole company's profit and sales division's performance and brought trouble to financial division when the financial reports were made at the end of year. The restraining force came from salespersons because they worried that machine release delay would influence their individual sales performance. Obviously, the driving forces were much greater than the restraining force and the most considerable power was from senior management. To hasten the change, the senior management, the financial managers and sales managers conferred and negotiated with each other, however, the salespersons did not participate in the conference and negotiations, and when the new procedure was carried out, the salespersons were unsatisfied. Here, the method used to overcome resistance to change is coercion. Definitely, this was an efficient way, as the senior management possessed the greatest power, but there was something risky: it might leave salespersons angry with the senior management. On the other hand, the effectiveness of coercion is temporarily, if the coercion cannot be assimilated, some employees will leave the organization when they have opportunities. And coercion fosters negative sentiment (Hu Junchen & Yang Yongkang, 2002)
Drawing Forces Restraining Forces
Push from senior management  <Tab/><Tab/><Tab/><Tab/>Salespersons
Financial Division <Tab/><Tab/><Tab/><Tab/>
Sales Division 
THE DIFFERENCE BETWEEN THEORY AND PRACTISE
In the theory, the driving forces and restraining forces are not same, in this case, however, the sales division is both driving forces and restraining forces. At the beginning, bad debts reduced sales division's performance, so sales division became one of the change initiators. But when the new machine release procedure was carried out, the salespersons were unsatisfied with waiting for the approval from financial managers. At this time the sales division pressured against the change. These show us that the sales division realized the need for procedure change, but when the new procedure was carried out, the salespersons felt upset on the inefficiency of financial managers work. So the key factor is to make the new procedure effective and efficient or the machine release procedure reform is unsuccessful.
SUGGESTIONS WITH THE THEORY OF OVERCOMING RESISTANCE TO CHANGE
As stated above, salespersons did not participate the conference and negotiations on new machine release procedure making, however, they were the main roles when the procedure was carried out. So the senior management should also take the advice from salespersons on how to make machine release safe. Participation + involvement is approximately the most efficient strategy to overcome the resistance to change from employees. (Don Hellriegel, John W. Slocum & Richard W. Woodman, 2001) And the senior management should also let salespersons know that reducing the bad debts would benefit salespersons themselves too with making relevant commission and incentive system. On the other hand, the working efficiency of financial division should be improved. The following measures are suggested to take:
<Tab/>Salesperson should be responsible to assistant at defer payment pursuing
<Tab/>Sales commission will be paid to salespersons when all the machine payment is collected
<Tab/>Company encourage the salespersons without bad debts with certain amount of reward
<Tab/>Financial managers must respond within 1 day once they get the customer's financial assessment report
<Tab/>Encourage cash deal
<Tab/>Encourage the co-operation and communication between salespersons and financial managers
THE THEORY OF CONFLICT
Conflict is a perceived difference between two or more parties resulting in mutual opposition. The conflict can be within the individual, between individual and organization and between organizational groups. The causes of conflict can be classified into 3: differences in goals, the requirement of decision-making and behavioral expectation. (Andrew D. Szilagyi & Marc J. Wallace, 1992) When conflict is moderate, benefits occur, such as: productive task focus; cohesion and satisfaction; power and feedback; goal attainment. But when conflict is too strong, losses will appear, such as: energy diversion; distorted judgment; loser effects; poor co-ordination.
The conflict within an organization can be typed into: vertical conflict and horizontal conflict. The conflict between the employees at the different administrative level in one organization is called vertical conflict and the conflict between the employees at the same administrative level in one organization is called horizontal conflict. There are two types of intergroup conflicts: Functional conflict and Dysfunctional conflict. A functional conflict is a confrontation between groups, which enhances and benefits organizational performance. A dysfunctional conflict is confrontation or interaction between groups that is harmful to the organization or hindering goal achievement. Conflict is seen as inevitable and necessary to produce high organizational performance. (Don Hellriegel, John W. Slocum & Richard W. Woodman, 2001) Some forms of conflicts encourage development of new tactics and strategies, helping overcome stagnation and complacency.
CASE STUDY WITH THE THEORY OF CONFLICT
The conflict in the given case was between salespersons and financial managers. This conflict can be considered as between organizational groups. The reason caused the conflict belonged to the behavioral expectation, as according to the conflict type of behavioral expectation, when one party's behavior cannot satisfied another, conflict occurs: the financial mangers' response affected the salespersons' performance. And the conflict is a horizontal conflict as it occurred in two divisions.
The conflict was not solved when I left the company, but let us suppose the result of the conflict.
1.<Tab/>Suppose the salespersons are still unsatisfied with the financial managers working efficiency and complain it more and more and even report to senior management that because of machine release delay customers are not willing to purchase machines from LSHM any more, which makes them lose some orders. If the senior management only scolds the financial managers, the financial managers will feel unfair because they think they work hard and cautiously to check the customer's financial assessment reports. So the financial managers become angry at salespersons and delay the machine release intentionally to make them lose business. Thus, the conflict influences the company's sales performance. If the situation develops like this, then this is a dysfunctional conflict because the conflict is harmful to the company goal achievement. Then the senior management must try to eliminate it.
2. Suppose the financial managers increase their working efficiency to respond within a short time, which makes customers satisfied and repurchase machines from LSHM. Salespersons can achieve high sales goals and they are very cooperative to financial managers. And the company is developing with a positive trend. If the situation develops like this, then it is a functional conflict because it enhances and benefits company's performance. This conflict should be encouraged to carry on.
SUGGESTIONS WITH THE THEORY OF CONFLICT
The conflict between salespersons and financial managers appears with the sales development of LSHM, solving the conflict successfully will be good to the company's business. As a senior manager, when he is going to solve the conflict, he should check whether there is any insufficiency during the machine release procedure. The following questions should be considered:
To salespersons:
<Tab/>What are the documents that salespersons must prepare and submit before they request machine release?
<Tab/>What should salespersons do to assist financial staffs in documents checking?
<Tab/>How long do salespersons usually wait until they get response from financial managers?
<Tab/>Ask salespersons to offer some instances that sales is influenced with the machine release delay.
To financial managers:
<Tab/>What are the documents they must check before the make decision?
<Tab/>How much time should they spend on those documents checking at average?
<Tab/>If the documents checking are delayed, what the reason will be?
Besides these questions, senior management should invite both salespersons and financial managers to discuss what they think can make the whole procedure effective and efficient. If I were the senior manager, I would have done the follows:
Set a position of sales administrator in the sales division, and whose responsibilities include the customer financial information collection. If there is no financial problem with the customer, the sales administrator releases the machine. Once any problem is found, the sales administrator should report to financial managers and let financial managers make decision, because most of the customers do not have financial problem.
Salespersons should prepare all the documents in time and give necessary time to sales administrator and financial managers to check. At the same time, salespersons have to explain the machine release procedure to customers and ask for their understanding. I would have encouraged the salespersons, sales administrator and financial managers to communicate more.
THEORY OF MANAGEMENT BY OBJECTIVE
Management by objective (MBO) is a process by which specific goals are set collaboratively for the whole organization and every unit and individual within it; the goals are then used as a basis for planning, managing organizational activities, and assessing and rewarding contributions. According to MBO, setting goals is a vital step to the organization, and as the graph shows the goals levels can be typed as: strategic goals, tactical goals and operational goals.
The goal setting starts from top management, and then specific goals (or objectives) for various departments, subunits and individuals are established to formulate action plans. A basic notion underlying MBO is once goals are set and action plans determined, individuals should be given latitude in carrying out their activities, which is called implement plans and maintain self-control. The periodic reviews are important to ensure plans are implemented as expected and goals will be met. And at the end of a goal-setting cycle, managers meet with each subordinate to appraise performance over the cycle. The feedback from each step may lead to revising prior goals or setting future ones.
CASE STUDY WITH THE THEORY OF MBO
The overall organizational goal for the company is to sell Caterpillar excavators in east China. To achieve this goal better, the company established specific goals for departments in different period: At the beginning, LSHM paid more attention to building the brand image, which was the first step in the whole plan. In this period, marketing division played the essential role and implemented the plan very well. After reviewed the progress and appraised the performance, the senior management decided the sequential step: Expand the customer group and increase sales volume. In this period, sales division played the essential role, and to implement this plan a few branches were set up and more salespersons were recruited. However, when the company reviewed the performance, the bad debts were found as an important factor to reduce the sales performance. With this feedback, the senior management revised the machine release procedure. All of these show the benefits of MBO: Senior management aided co-ordination of company's and divisions' goals and plans and all the divisions were very clear about their targets and plans in different period, and they communicated and c0o-operated with each other. But when the machine release procedure was revised, the communication and co-operation were inadequate between salespersons and financial managers, which caused the salespersons' complain. In this case, there is almost no difference between theory and practice.
SUGGESTIONS WITH THE THEORY OF MANAGEMENT BY OBJECTIVE
As we analyzed above, the development of LSHM implements the company's overall goals and strategic goals strictly. From my point of view, the essential work for the company in its different period should be like:
<Tab/><Tab/>Brand image building  Machine sales  Service after sales
To LSHM the final strategic goal is to sell more Caterpillar machine and occupy high market share. In order to enforce the strategic goal well, tactical goals are made in different period. At present, the company is experiencing the second period and I would like to separate this period into 3 different steps as presented with the following table.
<Tab/>Sales force<Tab/>Main customer<Tab/>Payment type<Tab/>Main task
Step 1<Tab/>Salesperson (headquarters)<Tab/>Government;
SOE<Tab/>Cash<Tab/>Brand image building
Step 2<Tab/>Salesperson (branch)<Tab/>Government;
SOE;<Tab/>Cash;
Defer payment<Tab/>Covering the main sales area
Step 3<Tab/>Salesperson (branch)
Sub-dealer<Tab/>Private work-firms<Tab/>Defer payment<Tab/>Reach high pins
In the second period of machine selling, sub-dealer should be great helpful as it has some advantages:
1.<Tab/>Knows the local market much better;
2.<Tab/>Has good local relationship with local government, local bank and other power institutions;
3.<Tab/>Knows the local customer well.
Then LSHM can accept cash deals only and leave the defer-payment deals to sub-dealer. This is the way to resolve the problem of bad debts and the conflict between the two divisions is solved thoroughly. Furthermore, this helps the company approaching its sales target.
Reference List:
1. Essentials of Organization Theory and Design Richard L. Daft, 2001
2. Organizational Behavior Yu Xianyang, 2001
3. Organizational Behavior Andrew d. Szilagyi & Marc J. Wallace, 1992
4. Essentials of Organizational Behavior (6th Edition) Stephen P. Robbins, 2002
5. Organizational Behavior Zhang De & Wu Zhiming, 2002
6. The principal of Organization and Management Cheng Gang, 2002
7. Organizational Behavior Don Hellriegel, John W. Slocum, Richard W. Woodman, 2001