To what extent was market maturity the cause of Caterpillar’s restructuring? Critically examine the extent the new strategy transformed market, productive and financial performance.
The aim of this paper is to assess the extent to which market maturity influenced the restructuring phase that Caterpillar underwent after it was nearly put out of business in the 1980s. It will be argued that surely market maturity played a central role in the company’s restructuring, as the increase of competition and the need for product innovation brought up the need to develop an effective action plan. However, it was also the over-managed organization of the company itself that contributed to this degenerating stage and that therefore drove the restructuring process. Indeed it will be argued that because Caterpillar had enjoyed reliable profits, internal organizational issues had been ignored and the lack of information about the external environment decreased, causing Caterpillar to grew out of touch with the realities of the market. Therefore as the global recession grew along with the runaway inflation that kicked in in the 1980s, Caterpillar’s flawed structure was not able to successfully respond to the external environment and the company became an easy target for competitors. This argument will be developed throughout this essay according to the following structure: initially the implications of market maturity for Caterpillar will be assessed within the framework of the Product Life Cycle (PLC) theory; secondly the limits of Caterpillar’s original structure will be discussed in order to gain an insight into the internal problems that undermined the company’s opportunities; thirdly the restructuring process will be taken into consideration in order to assess how the company’s performance improved in terms of market, production, finance, and efficiency. Finally the conclusion will be drawn that both internal and external factors play a central role in a company’s restructuring process. It is indeed because of this two-fold dependence that a company’s long-term profitability cannot be ensured simply through a successful reorganization.
In order to successfully assess the role-played by market conditions in the interruption of the long-standing record of profitability and market leadership that Caterpillar enjoyed until 1982, it is firstly necessary to analyse the Product Life Cycle (PLC) theory and conceptualize the maturity stage that the markets undergo. There are several variants of the PLC theory. As figure 1 shows, the predominant version argues that throughout time all new products follow a S-shaped curve and they pass through four stages of sales growth. During the first stage, namely introduction, the product’s novelty will result in low sales volume and slow growth pace; in this stage the curve will remain relatively flat. If the product is successful in the market, the stage of growth will follow; as market penetration accelerates and the product is recognized among a broader range of customers, the sales curve slopes upward. As the market saturates, the product market commences a maturity stage. In this stage the sales curve tends to flatten, as the revenue is mainly a result of sales to existing customers rather than new ones. Eventually, the product is entered into a decline stage: technologically superior products substitute the product causing the sales curve to follow a downward trend (Cox 1967; Porter 2004; Vernon 1966).
For the purposes of this essay the most important transition to consider is the shift from the growth into the maturity phase of the PLC. In this stage intensive competition, which focuses on delivering more value to customers, replaces extensive competition, which aims at obtaining new customers. Therefore, in the mature market firms compete by improving quality, offering a broader range of products, and bundling their core product with other services....
In-person interview with George Schaefer, retired chairman and CEO of Caterpillar Inc., Peoria, Il., October 20, 2004
In-person interview with Glen Barton, retired chairman and CEO of Caterpillar Inc., Peoria, Il., October 20, 2004.
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