Caterpillar’s Five Proven Steps to Digital Excellence

Digital strategy

Everyone will agree by now that digital transformation cannot be treated as just another project or corporate initiative – a mere adjunct to the everyday business that can somehow be bolted on to what the company already does. Rather, it must be baked into the very DNA of the organization, driving a deep and transformational change – often to the core business itself – before the company’s existing business model becomes obsolete.

This helps explain how, over the last five years, the world's largest construction equipment manufacturer, Caterpillar, has managed to make the strategic shift from “selling iron” to “selling smart iron”.

It was back in 2013 that Caterpillar began to seriously gear up for digital transformation. Results from the company’s traditional businesses were on a downward curve, while companies in similar industries (such as automotive and industrial goods) were waking up to the digital challenge and embracing the Internet of Things. That was when Caterpillar’s leadership team galvanized the company’s efforts around digital-centricity as a principal way to drive future growth.

Rather than “moving full speed ahead in all directions”, the company developed a focused, long-term digital strategy, based on building a common technology platform and data architecture for connecting all of its equipment, as well as a series of applications aimed at making its products smarter and helping customers improve productivity and safety.

By 2016, the company had already connected around 400,000 assets, and every one of its new machines was coming off the assembly line ready to connect to the cloud and feed data on operational productivity back to its owner, to the dealer, and to Caterpillar. Just two years later, the number of Cat machines connected to the company’s cloud services had risen to 700,000. Today’s new machines are laden with an array of cloud-enabled sensors that provide valuable data to customers on the health and productivity of each piece of equipment – from trucks to drones – making asset and fleet management simple via an easy-to-use platform and related apps.

One important benefit to customers, dealers, and the company alike is predictive maintenance. Digital sensors – like a smart engine-oil cap that alerts operators when more fluid is needed – now send back a constant stream of data to all three parties, signaling exactly when a piece of equipment needs a service or when a part will require replacement. Thus, customers can get the best out of their expensive capital assets, dealers can troubleshoot a range of equipment problems remotely instead of sending a technician out to a job site, and Caterpillar can generate a steadier revenue stream from increased sales of parts and repairs in a notoriously cyclical business.

Five proven steps to Digital Excellence

This kind of transformation doesn’t happen overnight. It’s a protracted journey that requires time, commitment, and perseverance. However, so were the learning journeys that organizations went through to institutionalize things like Total Quality Management, lean manufacturing, or Six Sigma. There is no quick fix for digital transformation. But it can be achieved.

For most organizations, digital transformation is so urgent and all-encompassing that it’s difficult to know where to start, how to clearly define the destination, and how to make sure you have a coherent plan for actually getting there over time.

Here are five fundamental steps to consider for your company’s own digital journey:

Step One: Drive it from the top

Caterpillar’s digital journey began, as stated earlier, when the top leadership team became fully aware and convinced of the digital imperative and began to catalyze and endorse the whole issue, driving it from the top of the organization. This is a critical prerequisite for success that cannot be emphasized. Dough Oberhelman, Caterpillar’s CEO at the time, succinctly expressed why the company was now so urgently dedicated to digital, saying “We have to lead digital. It will be the only way our customers act in a few years.”

Step Two: Define your digital vision

Too often, companies get lost and confused because people can’t agree on what exactly digital means to the organization. Caterpillar’s customer-centric digital vision was (and still is) that “digital is the process of transforming data and information into recommended actions or insights, which help customers make better, more informed decisions. All of this saves customers time, money and resources and provides them an opportunity to make more money and be more efficient with Caterpillar than they could with our competitors.” Once the company’s digital vision was clear, the destination for the journey became highly visible and compelling for everyone involved, pointing the organization in a particular, customer-focused direction and making strategic decision-making easier.

Step Three: Develop a digital strategy

Knowing where you want to go is one thing. Getting there is quite another. The next step in the journey is the development of a coherent digital strategy that will clarify exactly where to concentrate your efforts in order to reach the desired destination. Caterpillar worked as an organization to create a framework for digital transformation with a series of key dimensions that would actually need to be transformed, such as product automation, data analytics and data management, cloud services, manufacturing and supply chain, customer relationships, dealer integration, and digital marketing. From there, the company could measure its digital maturity along these dimensions, and compare its current score with its desired goals, identifying exactly where the performance gaps were and figuring out how to bridge them.

Step Four: Create a digital roadmap

Based on the strategy described above, your digital roadmap should represent a detailed execution plan for bridging the performance gaps between your current digital capability and your digital vision over time – the strategic blueprint for your digital transformation program. It should list the exact changes to the organization that will be required to drive and execute your digital transformation, and how these changes will be sequenced over the desired transformation time horizon. Caterpillar spaced out its digital roadmap over two-year timelines, defining all the individual steps they would take within these periods to raise their level of digital maturity along the agreed dimensions, and plotting every step against agreed execution deadlines.

Step Five: Build a digital organization structure

The digital transformation journey requires both leadership and structured management. Usually, this will necessitate the creation of new roles in the organization, as well as new internal business units or structures, along with a whole new ecosystem of external tech partnerships, strategic alliances, and perhaps even acquisitions. As Dough Oberhelman, Caterpillar’s former CEO, put it back in 2016: “Our digital strategy is an exciting investment for the long term. We’re hard at work, inside Caterpillar and with our digital partners.” Initially, various internal groups at the company were tasked with managing specific digital responsibilities, such as data analytics, equipment management tools, “Cat Connect” technologies, and customer experience portals, most involving some form of collaboration with external tech partners. Eventually, these responsibilities were combined in a new division inside Caterpillar called “Digital Enabled Solutions”. Its Vice President is Ogi Redzic, who was formerly an executive at automaker Renault Nissan, managing connected vehicles and digital mobility services.

In 2016, the company opened a Digital and Analytics Hub in Chicago, a new inspiring workspace focused on data analytics, digital marketing, and other digital innovation projects. Over the years, it has been a huge catalyst, not just in pushing digital transformation projects forward but in attracting young, tech-savvy talent to join the company. It has also helped Caterpillar establish connections to the startup community in Tech Hub 1871, Chicago's incubator and co-working center, which is situated in the same building, as well as to several local university campuses. To build on this success, Caterpillar expanded its digital tech presence in Chicago – and its digital team – by opening a new digital technology office a few months ago in the West Loop Gate neighborhood. This new space is likewise filled with young software developers, data analysts, telecommunication experts, and computer engineers, who work on the company’s data-driven digital services and develop new apps for its customers.

“The things we're building right now are foundational for the future of Caterpillar,” says VP Ogi Redzic. Echoing his words, Bob De Lange, Group President of Services, Distribution & Digital at Caterpillar, adds, “We see digital as an enabler for our three segments to help grow their business…That’s where we see a lot of new and a lot of competitive differentiations.” He also goes on to explain how Caterpillar balances external and internal competences in its efforts to achieve digital excellence. “Yes, we’re acquiring some talent, we have some partnerships with external companies, but a lot of that will be developed organically. If you have an external IT company, yes, they can do the connectivity or the analytics, [but] they will never have the main expertise, years of engineering on how to design an engine and predict failure.”

Is your company embracing its Digital Destiny?

Caterpillar is just one example of a rapidly growing number of major companies around the globe – many of them in old-line industrial industries – that are harnessing the power of new technology to embrace their digital destinies. What about your own organization?

Why not join me at our next exclusive 3-day Masterclass on “Leading Digital Transformation” in association with Alibaba Group? You’ll gain insights into exactly how Alibaba is pushing the frontiers of digital technology across their entire ecosystem, and you’ll learn how to apply these lessons in practical ways inside your own organization to drive digital innovation and transformation. Don’t miss this unique opportunity to network with other executives like yourself who are pushing the digital agenda forward inside some of the world’s top companies. Together, you’ll discover the secrets of success that can help you hone your skills as a digital leader and gain better traction in your efforts to make digital transformation happen across your company.

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