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Strategic Audit Report of Caterpillar Inc.

Submitted to the Worldwide Campus

In Partial Fulfillment of the Requirements

For MGMT 436 Course

Jim Warnick

Embry-Riddle Aeronautical University

January – March Term 2018

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EXECUTIVE SUMMARY

My strategic Audit Firm was based around Caterpillar Incorporated and it derivative of what the

company exclusively states from its Mission and Vison Statements as well as what they are providing to the

customer globally. This audit provides quantifiable and assertive depiction of what the company’s business

perspective is. This audit will be broken out into several different categories in order to show the reader exactly

how the company is cresting profit all the while managing its personnel and products globally. The Audit

contains a descriptive history of the company as well as a difinitized review of its mission and vision

statements. It also captures what the companies Governance perspectives are and who the current Board of

Directors are and their background they have. There are matrices that depict the companies External

Environment Opportunities and Threats (EFAS) and an associated analysis, also an Internal Environment

Strengths and Weaknesses (IFAS) matrix and analysis, Analysis of Strategic Factors (SWOT) matrix and

analysis, Strategic Factor Analysis Summary (SFAS) matrix and analysis, and a Strategic Alternatives and

Recommended Strategy (TOWS) matrix and analysis. The final section is the recommendations summary to aid

the company in its future efforts to ensure that it is keeping with technology advances, personnel management,

and environmental impacts all the while being a profitable leader. From the first word in its mission statement it

shows that they are a dedicated company that is reaching out globally with their products. They are ensuring

that their brand name is trustworthy and is meet with the highest quality of product available. They are ensuring

that they are continuously making quality market decision to ensure that the company is prosperous and

continuously growing. They are dedicated to ensuring that they keep up with the latest technologies and that

they are manageable in any area of the world. The company’s leadership i.e. board of directors and product line

managers are dedicated to ensure that all their employees receive fair and unbiased treatment and receive the

best training and resources possible in their working environments. The Strategic Audit Report will also show

that even though they are a global entity they are the leader in heavy construction equipment and are the

innovated leaders in technology and sales in the construction business.

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HISTORY OF THE STRATEGIC AUDIT FIRM

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MISSION AND VISION STATEMENTS ANLYSES

Caterpillar Inc.’s mission statement has four separate sections that correlate into all the functions that are

committing to. The company’s mission statement is “To provide the best value to customers, grow a profitable

business, develop and reward people, and encourage social responsibility.” (Caterpillar, 2018)

The four statement points are:

 Providing only the best value possible to their valued customer. The company in known for its high

quality and best value that can be found for its machines, engines and support services. The company is

devoted in ensuring that their customers only receive the best product available and they are doing it on

a global venue.

 Making sure that the company is continuously growing and is profitable. The company and their

employees are devoted to making sure that their stakeholders and shareholder are given the best value.

They do this by actively engaging in any growth or profit efforts where they utilize their companies

internal abilities such as; engineering, manufacturing, distribution, information management, and

financial services expertise.

 Developing and rewarding their employees. The company ensures that they provide only the best

working environments they possibly. They are dedicated to ensure that all their employees receive the

best training, are encouraged to be innovative, collective work as teams in an ever demanding global

workforce. They ensure that employees that perform at the top levels are rewarded according to help in

keeping the work environment positive and fulfilling for all.

 Encourage social responsibility. The company is devoted to ensuring that the environment is preserved

as much as possible for future generations, as well as, ensuring that everything they do provides a better

quality of life for all and the earth.

In providing value to customers, Caterpillar must provide high quality products and services. The company

follows this point in the mission statement because its products are known for high durability and quality. In

growing a profitable business, the company must continue generating profits. Caterpillar follows this
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component of the mission statement because the business continues to grow internationally while keeping

financial soundness. In developing and rewarding people, the business must benefit employees and business

partners. Caterpillar follows this point of the mission statement through various programs for employee

development and programs that support business partners. In encouraging social responsibility, the firm must

ensure sustainability and address the needs of the community and environment. Caterpillar follows this

component of the mission statement through sustainability programs. (Warnick, 2018)

Caterpillars Vision Statement

“Our vision is a world in which all people’s basic needs – such as shelter, clean water, sanitation, food

and reliable power – are fulfilled in an environmentally sustainable way and a company that improves the

quality of the environment and the communities where we live and work.” (Caterpillar, 2018)

Caterpillar’s vision statement ensures that they see what the needs of human life is all around the world.

They are ensuring that they are able to replenish what they have removed or changed and that the environment

is not impacted in any way.

Recommend new Mission and Vision Statements

I believe that the Mission and Vision Statements that caterpillar has developed are fully sufficient for

their company to ensure that everyone that reads them, has a complete understanding of what the future holds

not only for its business, but also for the concern of human life as how they impact the earth. (Warnick, 2018)
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CORPORATE GOVERNANCE

Caterpillar’s Board of Directors currently has 12 members. The number is established so that it is

diversified enough in order to not interfere with its ability to effectively provide open discussion and provide

individual experience throughout the management and leadership.

Caterpillar’s corporate governance program is established to make sure that they are serving in the best

interest of their shareholders and stakeholders and that they are doing so with the highest standards of

responsibility, integrity and remaining compliant with all laws and regulations. The standards are led by the

board of directors and global management team, they provide continuous oversight of the company’s actions,

performance and governance policies. They are responsible for overseeing effective policy and decision making

at the board and management levels. They are also equally involved in ensuring that the stockholders values are

kept at its utmost importance. The Board ensures that the set guidelines are open enough that they can make

change, all the while keeping its corporate governance principles under review and make changes as they are

required.

The Board members are elected by company’s stockholders and they are responsible for ensuring they

have full oversight of management and company business. The Board is responsible for selecting its senior

management team. The senior management team is responsible for the company’s day to day business efforts

and oversight of its assigned department managers.

Primary responsibilities of the Board include but are not limited to:

• Evaluating the performance of the Chief Executive Officer

• Succession planning for Chief Executive Officer and other senior executives

• Reviewing and overseeing the implementation of the Company’s strategic plans and its objectives

• Ensuring the company is compliant with all legal and ethical policies and regulations

• Ensuring the company is following all policies of financial statement reporting

• Oversight of the company’s Operational Risk Management (ORM ) processes

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• Responsible for nominating its directors and committee members to ensure they are effectively

instilling its corporate governance

• Responsible for informing, advising, counseling, and guiding management of incoming directives and

approving any new policies and or corporate directives that have been established.

Caterpillars Current List of Board of Directors:

KELLY A. AYOTTE

A former U.S. Senator representing New Hampshire.

She was Attorney General of New Hampshire.

She also has a current directorships in News Corporation.

She has had no other directorships over the past five years

Senator Ayotte has been a director with the Company since 2017.

DAVID L. CALHOUN

Is currently the Senior Managing Director and Head of Private Equity Portfolio Operations of The Blackstone

Group L.P. (private equity firm).

He was previously Executive Chair of Nielsen Holdings N.V. (marketing and media information) (2014-2015).

Prior to his position at Blackstone, Mr. Calhoun served as Chairman of the Executive Board and Chief

Executive Officer of The Nielsen Company B.V. (2006-2013).

Other current directorships: Gates Industrial Corporation plc, The Boeing Company and Nielsen Holdings

PLC.

Other directorships within the last five years: Medtronic, Inc.

Mr. Calhoun has been a director since 2011 and became the independent Chairman of the Board of Caterpillar

Inc. on March 31, 2017.

DANIEL M. DICKINSON Currently Managing Partner of HCI Equity Partners (private equity firm).
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Other current directorships: none.

Other directorships within the last five years: Mistras Group, Inc.

Mr. Dickinson has been a director of the Company since 2006.

DENNIS A. MUILENBURG

Chairman, President and Chief Executive Officer of the Boeing Company (aerospace/defense products).

Prior to his current position, Mr. Muilenburg was Vice Chairman, President and Chief Operating Officer of The

Boeing Company (2013-2015).

Prior to that, he was Executive Vice President of The Boeing Company and President and Chief Executive

Officer of Boeing Defense, Space & Security (2009-2013).

Other current directorships: The Boeing Company.

Other directorships within the last five years: none.

Mr. Muilenburg has been a director since 2011.

WILLIAM A. OSBORN was formerly Chairman and CEO of Northern Trust Corporation and The Northern

Trust Company (financial services). Other current directorships: Abbott Laboratories and General Dynamics

Corporation. Other directorships within the last five years: Tribune Company. Mr. Osborn has been a director of

the Company since 2000.

DEBRA L. REED

Previous Chairman of the Board of Directors of Sempra Energy (energy infrastructure and utilities) since 2012

and its and Chief Executive Officer and a director since 2011.

Other current directorships: Halliburton Company and Sempra Energy.

Directorships within the last five years: none.

Ms. Reed has been a director of the Company since 2015.

EDWARD B. RUST, JR.

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Formerly Chairman and Chief Executive Officer of State Farm Mutual Automobile Insurance Company

(insurance).

Previously he served as Chairman, President and Chief Executive Officer of State Farm Fire and Casualty

Company, State Farm Life Insurance Company and other principal State Farm affiliates.

Other current directorships: Helmerich & Payne, Inc. and S&P Global, Inc.

Other directorships within the last five years: none.

Mr. Rust has been a director of the Company since 2003.

SUSAN C. SCHWAB

Currently a Professor at the University of Maryland, School of Public Policy and a Strategic Advisor for Mayer

Brown LLP (global law firm).

Prior to her current positions, Ambassador Schwab held various positions including United States Trade

Representative (member of the President’s cabinet) and Deputy United States Trade Representative.

Other current directorships: FedEx Corporation, Marriott International, Inc. and the Boeing Company.

Other directorships within the last five years: none.

Ambassador Schwab has been a director of the Company since 2009

D. JAMES UMPLEBY III

Currently Chief Executive Officer of Caterpillar Inc.

Prior to his current position, Mr. Umpleby served as a Group President of Caterpillar Inc. from 2013 to 2016

and before that served as a Vice President of Caterpillar Inc. from 2010 to 2013.

Other current directorships: Chevron Corporation.

Other directorships within the last five years: none.

Mr. Umpleby has been a director of the Company since January 2017

MILES D. WHITE

Currently Chairman and Chief Executive Officer of Abbott Laboratories (pharmaceuticals and biotechnology).
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Other current directorships: Abbott Laboratories and McDonald's Corporation.

Other directorships within the last five years: none.

Mr. White has been a director of the Company since 2011.

RAYFORD WILKINS, JR.

Former CEO of Diversified Businesses of AT&T Inc.,

He was responsible for international investments, AT&T Interactive, AT&T Advertising Solutions, customer

information services, and the consumer wireless initiative in India.

He retired from AT&T at the end of March 2012.

Other current directorships: Morgan Stanley and Valero Energy Corporation.

Other directorships within the last five years: América Móvil, S.A.B. de C.V.

Mr. Wilkins has been a director of the Company since 2017.

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EXTERNAL ENVIRONMENT: OPPORTUNITIES AND THREATS

CATERPILLARS INC. EXTERNAL FACTOR ANALYSIS SUMMARY (EFAS)

FACTORS WEIGHT RATING WGTD COMMENTS
SCORE

OPPORTUNITIES
O1 North American .15 5 .75 Do to the rising economic growth since 2016 there has been an
Market Growth uptick in demand for heavy equipment and general equipment.
There has been an increase in infrastructure requirements both
in the housing and commercial sectors.
O2 Brand Loyalty .08 4 .32 Even with other Heavy and Light duty equipment companies
entering the US with products that are under the cost of
Caterpillars. Caterpillar customers have been loyal to the
product and name brand and have introduce new clients to the
products offered
O3 Going Green .08 4 .32 The company is leading the way in new technologies that help
to reduce emissions and environmental impacts by heavy
equipment. They are researching into biofuel usage as well as
emission filters that help trap pollutants before escaping into the
air.
O4 Lower Failure Rates .08 2 .16 They have been performing analysis on high failure items and
parts and have been working with their research team and have
been developing better parts from stronger material.
O5 New Technologies .06 3 .18 Caterpillar has been working with human factors teams in
development of console and controls that provide the operators
ease of operations. They have developed new joy stick controls
and switch technologies that alleviate the users from having to
use the older style levers, twist knobs and foot pedals.

THREATS
T1 Competition .15 4 .60 Competition is still the largest threat to the company, with
companies such as Komatsu, Hitachi, John Deere making the
move into a more global market at a reduced cost has made
Caterpillar move into other areas to sustain its market values.
T2 Economy Regression .12 3 .36 Due to the global economies struggling with financial issues and
Overseas the lessening of demand for new infrastructure has put the
company on watch of its overseas marketing and sales
T3 Bargaining Power of .10 2 .20 Buyers now have more ability to influence the market and are
Buyers able to redirect other companies not as upscale as Caterpillar to
meet their requirements at a reduced cost.
T4 Rising Fuel Cost .10 4 .40 An increase and or fluctuation in the cost of crude oil by the
barrel can induce a cost fluctuation in diesel cost. This reduces
time on machine and reduced machine specific requirements.
I.e. A company may use a single piece of machinery to perform
multiple jobs.
T5 Materials Cost .08 2 .16 A large effort for the company is to ensure that its materials
costs remain low. With the rising cost of steel and other
materials that are required for manufacturing can have a
potential impact on sales prices as well as manufacturing cost?

TOTAL SCORES 1.00 3.74

The EFAS matrix above clearly shows the opportunities and threats that Caterpillar Inc. are dealing with

on a daily basis. This matrix aids the management teams and board of directors with a snapshot tool for

company direction and decision making as to external Factors that can and cannot be controlled.
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INTERNAL ENVIRONMENT: STRENGTHS AND WEAKNESSES

CATERPILLARS INC. INTERNAL FACTOR ANALYSIS SUMMARY (IFAS)

FACTORS WEIGHT RATING WGTD COMMENTS

SCORE
STRENGHTS
S1 Quality of Brand .15 5 .75 Quality is the key for success
S2 Experience of .05 4 .20 Knowledgeable of global
Management marketing
S3 Product Integration .10 4 .40 Ease of interoperability of
products
S4 Employee Relations .05 3 .15 Fully Staffed, trained and
working as teams
S5 CAT International .15 3 .45 Recognized by name world
wide

WEAKNESSES
W1 Research and .05 2 .10 High cost to keep up, Newly
Development trained employees with
knowledge base
W2 Distribution of Product .05 2 .10 Delivering of products due to
limited assembly plants
W3 Financial Uncertainties .15 2 .30 Weather conditions that have
due to Economics upset reduce economic finance but
with weather have construction demands
for rebuilding of
infrastructure
W4 Global Markets (Asia) .20 2 .40 Gaining footage in the Asian
market
W5 Manufacturing Facilities .05 4 .20 Currently investing in new
facilities

TOTAL SCORES 1.00 3.05

The IFAS Matrix clearly displays the company’s internal strengths and weaknesses. It compiles data that

can and cannot be controlled. It depicts the values of management entities as well as reflects how the employees

are involved as well. It provides a quick snapshot of what the company’s qualities are and what can be

addressed for improvement.

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ANALYSIS OF STRATEGIC FACTORS- SWOT Matrix

CATERPILLARS INC. STRATEGIC FACTOR ANALYSIS SUMMARY (SFAS)

SWOT FACTORS WEIGHT RATING WGTD COMMENTS

# SCORE
S1 Brand Name Strength .15 4.8 .72
Name known for quality

S2 Large Scale Assets .10 3.5 .18 Can support any type of
development or project
S3 Network .05 3.5 .35 Global network of
distributors
W1 Low Rate Innovation .10 2.5 .25 This makes Caterpillar
vulnerable to competitors
that are willing to
aggressively make market
investments
W2 Limited connections in .05 2.5 .13 This prevents the company
emerging market from being able to maximize
revenue
O1 Increasing Revenue .15 2 .30 By Growth and Expansion
O2 Company Growth .05 2 .10 Moving into foreign markets
T1 Aggressive .10 2.5 .25 Copycat markets that are
Competition utilizing Caterpillars
innovations
T2 Rapid Technology .10 3.5 .35 Competitors are capturing
advancements by the advancements in the
competitors market faster than
Caterpillar can such as
Robotics
T3 Weather .15 4 .60 Uncontrollable and causes
uncertainties in sales
TOTAL SCORES 1.0 3.23

The above SFAS matrix depicts the multitude of issues that the company deals with daily. This matrix

will aid in helping the senior and lower management make decisive decisions in order to provide quality

solutions to issues that can and cannot be controlled. This matrix can be established to follow all of the

company’s global entities to inform senior managers and the board of directors in order to make quality

decision in directing the company through its new phases of development and sales projects.
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STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY

Caterpillar TOWS ANALYSIS

Internal Factors Strengths (S) Weaknesses (W)

S1: Brand Name Strength W1: Low Rate Innovation

External Factors S2: Large Scale Assets W2: Limited Connections in Emerging
Opportunities (O) SO Strategies Market
WO Strategies

O1:Increasing revenue S1/O2-caterpillar has been able to use
O2: Company Growth their brand name due to its legendary
quality of products to increase its growth
in the global economy.
W2/O1- IF Caterpillar could establish a
firmer foot hold into the Asian Market it
would be able to increase its presence and
compete better with Asian Heavy Equipment
Manufacturers such as: Kamatsu and Hitachi.

Threats (T) ST Strategies WT Strategies

T1: Aggressive S2/T2- The company could increase its
Competition number of heavy equipment products if it
T2: Rapid Technology could gain footing in the ever changing
Advancements by technologies. It currently is struggling to
Competitors keep up with automation and electronic
advancements. It is however leading the
way for Green Fuel usage.
W1/T2- Caterpillar has several different
construction innovations that they are
involved in. However their competitors have
been aggressively developing their products
to accept Caterpillars equipment attachments
for use on their own product lines

This TOWS matrix depicts the comparison of what and how the company is dealing with its internal and

external factors that are and are not controllable. The product management teams as well as leadership can

utilize this matrix to develop product capabilities and designs to offset market competition and establish self-

footprint where it is needed for growth and profit. The can develop out-source planning to better allow them to

get engage in markets that they are struggling to gain product noticeability
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IMPLEMENTATION OF RECOMMENDED STRATEGY

Over the next few years it is imperative for Caterpillar to continue to press for innovative thinking and

design of their products. The company needs to be able to maintain step with new technologies that are

changing rapidly. Their workforce needs to have the training and knowledge to invent new products that are less

manpower and more interactive by remote control. The management needs to ensure that they are aggressively

pursuing stakeholders and keeping their older stakeholders and shareholders involved with company movement

and positioning. The Board needs to ensure that they are providing its managers with the flexibility to maintain

and innovate products in order to keep its employees motivated and inspired. The board and senior managers

need to ensure that they are managing their finances accordingly and aggressively supporting efforts that will

bring smart revenue to the company. They need to ensure that competitors cannot easily copycat their products

or be able to refine their products to work with Caterpillars.

The company needs to keep pressing to enter its product into the Asian heavy equipment market. They

are already established globally as a world leader in heavy construction equipment and are more sought after

than the Asian manufactures. It is imperative that they abide by all established laws and regulations not only in

the US but also on foreign lands as well.

Caterpillar has the ability to be the world’s largest leader of heavy construction equipment. If they

continue to produce quality products, reduce failure times, innovative green power usage, employee highly

skilled, motivated and innovate employees and be responsible with marketing efforts and financial control they

can be just that.

This Strategic Audit Report confirms that Caterpillar is a dominant heavy equipment company. It is

evident that they have established a quality team to peruse the company’s influence into the global market. This

Audit provides the most important keys for the company’s success that they strive to excel on. That is

empowerment of its employees. This is not just a top down but an all encompassed effort. Their Board of

directors has many highly established and successful leaders from Us Government representatives to multiple

global company managers. They ensure that there senior managers have departmental oversight and that there

their product line managers are well integrated with their product line employees. They are also in tune with
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product team work and development not just in product design but also in employee training and growth. This is

what makes Caterpillar Inc. such as successful company and the overall factor that I have been able to derive

from this Strategic Audit Report of its company.

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References

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