1

Caterpillar Inc. Core Competency

1.

Introduction. Caterpillar Inc., is an American corporation which designs, manufactures,

markets and sells machinery and engines and sells financial products and insurance to
customers via a worldwide dealer network. Caterpillar is the world's leading manufacturer of
construction and mining equipment, diesel and natural gas engines, industrial gas turbines and
diesel-electric locomotives. With more than US$89 billion in assets, Caterpillar was ranked
number one in its industry and number 44 overall in the 2009 Fortune 500.
Caterpillar is a global leader in helping countries worldwide build their infrastructure. As
world leaders of mining and construction equipment, diesel and natural gas engines, and
industrial gas turbines, they have continued to cultivate and advance our global societys
standard of living. Indirectly, their accomplishments have helped our country build a prominent
reputation in industrializing and capitalizing developing countries. This claim is supported by
their 80 years of dedication as a prominent U.S.A. company, with over 67% of its revenue being
generated from foreign countries (cat.com). The biggest reason behind their foreign dominance
is their rich history with the U.S. and British military, the most powerful military forces in the
world. Caterpillar machinery is recognizable by its trademark "Caterpillar Yellow" livery and the
"CAT" logo.
2.

History
a.

Origin . In 1864, sometime around the great Gold Rush, three brothers, Charles,

William, and Ames Holt left their hometown Concord, New Hampshire to embark on their
dreams in San Francisco. Coming from fairly strong entrepreneurial parents, who owned
sawmill that processed hardwoods for wagon construction, the three brothers found their
gold in their business, C.H. Holt and Co. C.H. Holt and Co., primarily dealt with
hardwood, lumber, and wagon materials, in creating structural applications. They
synergized with their parents business by getting hardwood shipped from their
hometown. As the business developed and specialized the Holt brothers renamed the
company Stockton Wheel Co.
b.

Once the Stockton Wheel Company, established, the baby of the family,

Benjamin Holt moved to California to manage their company. As more gold rushers
abandoned their gold pursuit to become farmers, predominantly wheat farmers, the Holt
brothers expanded into manufacturing farming equipment. Benjamin the most
meticulous and technical brother built a steam powered tractor, this was the first tractor

2
that did not rely on horses. The magnitude of the popularity was tremendous, due to the
tractors power to harvest an entire field for only one sixth of cost of horse-drawn
combines. Despite his tractors success Benjamin noticed that his tractors were

so heavy that they were getting stuck in soft fertile soil. To fix this problem Holt
tried to use larger wheels, about 7.5 inches in diameter and 6 inches wide, to
better spread out the tension. This solved the problem but made the tractor too
bulky to maneuver in the field. So after 100 miserably failed patents he found his
breakthrough by replacing the wheels of No. 77 with a set of wooden tracks
bolted to chains. Holt described the tractor as platform wheel engine. On 1904
when Holt tested his tractor, Charles Clemens, company photographer noticed
that his tractor crawled like a caterpillar. Benjamin replied, Caterpillar it is. Thats
the name for it!
c.

WWI and WWII.

In 1914 they sold the track patents to Holt

Manufacturing Company for only $8000. A couple of months later the British and
French military decided to use caterpillar to haul goods. A US Army engineer
Colonel Swinton was so amazed with the durability of these machines that he, as
well as, Winston Churchill, convinced the British government to use it as tanks.
The tractor-bulldozer was so useful that Admiral William F. "Bull" Halsey said,
"The four machines that won the war in the Pacific were the submarine, radar,
the airplane and the tractor-bulldozer. Later in WWII, 1950, Caterpillar Tractor
established itself in Great Britain, this marked the beginning of overseas
operations created to help manage foreign exchange shortages, tariffs, and
import controls. This initiation helped Caterpillar build a strong rapport with the
U.S.A.s and Britains military.
3.

Present. Caterpillar Inc is the largest maker of construction and mining

equipment, diesel and natural gas engines and industrial gas turbines in the world. It
was started in 1925, and is based in Peoria, Illinois. Its operations are divided into three
segments: machinery, engines, and financial business segments (Business week,
2010). With a global footprint, Caterpillar Inc.s product line boasts of more than 300
products, manufactured in twenty three countries.

4. Core competencies
Prahalad and Hamel (1990) define core competencies as those capabilities
which are central to an organizations achievement of a sustainable competitive
advantage. For the capability to be termed as a core competence, it has to meet four
criteria as spelled out by the VRIO framework.
a. The Question of Value: "Is the firm able to exploit an opportunity or
neutralize an external threat with the resource/capability?"
b. The Question of Rarity: "Is control of the resource/capability in the hands
of a relative few?"
c. The Question of Imitability: "Is it difficult to imitate, and will there be
significant cost disadvantage to a firm trying to obtain, develop, or
duplicate the resource/capability?"
d. The Question of Organization: "Is the firm organized, ready, and able to
exploit the resource/capability?"
It must be valuable, rare, inimitable, and the organization must be sufficiently
organized to exploit it. While Caterpillar Inc has a very broad product line and wide
geographical spread, this can be easily replicated by its rivals through a deliberate
strategy of market development and product diversification. Its supply chain capabilities
can also be easily replicated through undertaking demand and supply chain integration
activities such as maintaining low inventory levels and adopting flexible manufacturing
systems. Caterpillar Inc. attests that its main core competencies therefore are its
innovation capabilities, its superior financial position, and its superior customer
service.