Running head: CATERPILLARS MISSION AND VISION STATEMENTS 1

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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I - EXECUTIVE SUMMARY (1 Page)

• This section should be a review of the Strategic Audit’s findings. It is not to be a history of the firm, or what the
firm does. It should be an overview of what is contained in the strategic audit report and the findings. The Executive
Summary is meant to sell your Strategic report to your reader.

II – HISTORY OF THE STRATEGIC AUDIT FIRM (1 Page)

My strategic Audit Firm was based around Caterpillars Mission and Vison Statements as well as what they are
providing to the customer globally.

III. MISSION AND VISION STATEMENTS ANLYSES

Caterpillar Inc.’s mission statement is broken into four separate mission statements that inform the reader of

their strategies and decisions. 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’s mission statement’s four points are:

 Provide the best value to customers. Caterpillar is a leader in providing the best value in machines,

engines and support services for customers that are dedicated to building the world’s infrastructure and

developing and transporting its resources. They are dedicated to providing the best value to their

customers.

 Grow a profitable business. Caterpillar employees and management are dedicated in ensuring that they

continue to increase shareholder value, aggressively pursuing growth and profit opportunities that

leverage on the company’s engineering, manufacturing, distribution, information management, and

financial services expertise.

 Develop and reward people. Caterpillar will provide its worldwide workforce with an environment that

stimulates diversity, innovation, teamwork, continuous learning and improvement and rewards

individual performance. We are dedicated to develop and reward our people.

 Encourage social responsibility. Caterpillar is dedicated to and innovator in improving quality of life

while sustaining the quality of our earth. They encourage social responsibility.

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
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growing a profitable business, the company must continue generating profits. Caterpillar follows this

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.

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 change 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.
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CORPORATE GOVERNANCE

Caterpillar’s Board of Directors currently has 12 members. The number is designed to permit diversity of

experience without hindering effective discussion or diminishing individual accountability.

KELLY A. AYOTTE

Is a former U.S. Senator representing New Hampshire.

Prior to that, she was Attorney General of New Hampshire.

Other current directorships: News Corporation.

Other directorships within the last five years: none.

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

DAVID L. CALHOUN

Is 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).

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.

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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.

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

(insurance).
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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).

Other current directorships: Abbott Laboratories and McDonald's Corporation.

Other directorships within the last five years: none.

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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.

Caterpillar’s corporate governance program ensures they serve the interests of all their shareholders and other

stakeholders with the highest standards of responsibility, integrity and compliance with all laws. The standards

are guided by the board of directors and global management team, they work to oversee the company’s actions,

performance and governance policies.

The Board is committed to overseeing the effectiveness of policy and decision-making both at

the Board and management level, and with their stockholder values over the long-term.

The Board believes the Guidelines should be an evolving set of corporate governance principles,

subject to review and change as circumstances warrant. The Board, whose members are elected by the

Company’s stockholders, oversees the management of the Company and its business. The Board selects the

senior management team, which is responsible for operating the Company’s business, and monitors the

performance of senior management.

The primary responsibilities of the Board include:

• 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
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objectives

• overseeing legal and ethical compliance

• overseeing the integrity of the Company’s financial statements and the Company’s

financial reporting processes

• overseeing the Company’s processes for assessing and managing risks

• nominating directors, appointing committee members and shaping effective corporate

governance

• advising and counseling management regarding significant issues facing the Company

• reviewing and approving significant corporate actions

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EXTERNAL ENVIRONMENT: OPPORTUNITIES AND THREATS

EXTERNAL FACTOR ANALYSIS SUMMARY (EFAS) – Microsoft Corporation

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

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VI. INTERNAL ENVIRONMENT: STRENGTHS AND WEAKNESSES (1 Page)

• IFAS Analysis – Create an IFAS Matrix.
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VII - ANALYSIS OF STRATEGIC FACTORS- SWOT Matrix (1 Page)

• SFAS Analysis- Create a SFAS Matrix.
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 Copy cat 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
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VIII. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY- TOWS Matrix (1 Page)

• TOWS Analysis – Create TOWS Matrix with four strategies.
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IX. IMPLEMENTATION OF RECOMMENDED STRATEGY (1 Page)

• From your TOWS Analysis and Matrix recommend the one strategy that you feel best meets the future needs of
your firm. Support your decision. This is the most important section in the strategic audit report, it should tell the
reader what you are going to do with all of the information presented in the audit, and the best future strategy for the
organization.

Recommendations for Caterpillar

In the next five years of operations, Caterpillar can improve performance through differentiation. The company

must increase its investment in research and development to create unique products. At present, the heavy

equipment, engines and financial services of Caterpillar are very similar to the ones available from competitors.

To increase competitiveness, the firm must invest more in developing novel products.

Caterpillar can also improve its financial performance by growing its distribution network in the next five years

of operation. The firm must focus on developing markets because these markets have high economic growth

rates. For example, the company can increase the number of Caterpillar distributors in China.
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References

Caterpillar Financial Services Form 10-K, 2014.

Caterpillar Inc. Form 10-K, 2014.

Caterpillar Inc. Company History.

Caterpillar Inc. Company Innovation.

Caterpillar Inc. Company Strategy

Caterpillar. (n.d.). Retrieved January 19, 2018, from https://www.caterpillar.com

Dausch, M., & Hsu, C. (2005). Engineering service products: the case of mass-customising service agreements
for heavy equipment industry. International Journal of Services Technology and Management, 7(1), 32-51.

Dupin, C. (2014). Caterpillar on the road: with US infrastructure headed south, heavy equipment shipper sends
40 percent of cargo north. American shipper (Jacksonville, Fla.: 1991), 56(2).

Gillet, J., Fink, R., & Bevington, N. (2010). How Caterpillar uses 6 Sigma to execute strategy. Strategic
Finance, 91, 25.

Shunko, M., Yunes, T., Fenu, G., Scheller-Wolf, A. A., Tardiff, V., & Tayur, S. R. (2014). Restructuring the
Backhoe Loader Product Line at Caterpillar: A New Lane Strategy. SSRN 2493453.

U.S. Department of Commerce (2015). Construction, Building, & Heavy Equipment.

U.S. Department of Commerce (2015). The Machinery & Equipment Industry in the United States. SelectUSA.

U.S. International Trade Administration (2009). Construction & Mining Equipment Industry Assessment.