Caterpillar to a Butterfly What happened to the company over the last 3-4 years seems to be a case study in just how one's business can change (even the most successful ones). The company now is trying to diversify, but how it does so seems a bit at odds with the company's core culture. This year, Caterpillar reported $23.9B in profit, but the majority of the revenue is due to its construction equipment business which has been in a tailspin for some time. In December, the company said: Profit plunged by 64% from a year earlier to $2.12bn (1.99bn euros), partly as a result of falling demand for excavators and other heavy machinery and its impact on after-tax profit. This is from a company that has been pretty aggressive about cutting costs, both by eliminating jobs and other costs. We can expect to see them go on another rampage in 2015-2016. While we're not in a position to know what was going on behind the scenes, it does raise a lot of questions about how a company, and its leadership, can undergo such a dramatic shift in philosophy. The company just keeps marching forward despite the setbacks it's faced in recent years. Perhaps it's part of a "growth is not optional" mind-set (perhaps a result of the management team's own upbringing). The company's management team has a very conservative view of the world (a world that is now in a very different place from where it was 10-20 years ago). The best example of this is the company's view on the US as the place to be in the new business world. This year, the company announced that it would not seek the extension of the U.S. government's "Bilaterals account," meaning that a big chunk of the $12B in income that Caterpillar receives each year from government-funded research and development projects will be terminated. Caterpillar was one of the largest recipients of these research grants in the US. To the company's credit, it says the money will be invested in the emerging markets of Africa, the Middle East and China. But this is a strange response, given that the company's leadership has always stressed its global outlook: "Wherever there's a construction project, there's a chance that a Caterpillar machine is needed." The U.S. is a big and important market. Why would they walk away? The real answer lies in the company's lack of faith in the country, and perhaps even the current state of the US economy. Caterpillar should take a lesson from Daimler, a German automotive company that decided in 1994 to no longer invest in the US because the country's economic policies were not conducive to investment in its factories (read: unions, government-run health care). The company is now making a $1B investment in the US. They did the math and came to the conclusion that it was better to put their money elsewhere. It's not a situation they're afraid to see the numbers, because they really do believe in the value of their product (in this case, making heavy equipment). So what lessons can Caterpillar take away from all this? Not really anything specific, but it's important to recognize that we all need to keep an open mind when making decisions in the face of ever-shifting, and at times challenging, markets. It's not easy, but with an appropriate mindset, we can overcome any obstacle. This means having the mindset that is open to new ideas. It's about being fluid enough to consider new strategies. We need to embrace change, even if it seems uncomfortable (for a time), to create new things. That's just how markets and companies work (at least according to conventional wisdom). There's nothing "wrong" with being conservative. We just need to remember that the market can change at any time. That's why we have to think and act in a way that allows us to be flexible and not lose our competitive edge. This is just as true for companies that have been around for over 100 years as it is for one that's only 10 years old. About Me I've been doing statistical analysis for over 25 years now. I like to post daily updates on Twitter, so it's an easy way to keep track of my efforts and their results. I started this blog to (mostly) keep track of my current projects. I've written 2 books on statistics - "Visualizing Data" (a short course I teach at MatStat Toronto each fall on visualization of data) and "Statistics Done Wrong" (a more serious book that I never finished). You can buy both on Amazon.com I'm also part of a book called "The Math Book" (Wiley - 2013), which I haven't seen yet, but it looks really good. I can't wait for it to come out. I'll have to find a copy.