management group, inside of a company. My feeling is, to evaluate great-managed companies, we have to focus not so much on
the CEO, but how the process of management is executed inside
of the company. How do they plan? How do they execute? Are
the systems good systems? Are they Lean?
IMPO: If you were looking for a takeaway as to how your business can better hone its leadership skills, what might be a few
key points for how to get started?
CB: The first thing to consider is how you scale as a company.
You scale by having a good market niche, low cost, and good
customers. Your management team needs to function as a collective group of people who can see forward, understand your
customer base, and guide the activities of the employees to grow
the company efficiently. If you don’t have a good strategic planning process, you’re going to fail. If you don’t have a continuous,
ongoing Lean, Six Sigma environment in manufacturing, you’re
not going to make it. You can exist as some state, but as you get
bigger, the competitive forces will chew you up.
In Caterpillar’s case, they do something that I found remarkable. A lot of people have trouble with really thinking through
strategy, but Caterpillar not only does a remarkable strategic
plan each year with total seriousness across the world, but they
do another exercise each year they call ‘Planning for the Trough.’
They do this better than any company I’ve ever experienced. They
make a plan every year that says: next year, if the economy goes
down in a way we’re not expecting, here are the steps we will
take to cut back, save our money, be efficient, and get through
the unexpected recessionary period. As a result, Caterpillar has
made its way through these tough business cycles better than
most big businesses. They continue to grow their dividend each
year in spite of the recession; their profits have gone down (in
some periods of economic decline), but they have recovered very
quickly. You have to plan efficiently – operationally and strategically – and you have to have a team of people that works together to pull it off. And they’ve got to be fully committed. It’s great to
have a great CEO, but you’ve got to start thinking about the value
of the company in, collectively, the much larger team of people
that’s guiding it.
IMPO: Did you get a feel for what’s in store for CAT in the
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CB: The two chapters before the last are creating a bit of a buzz
out there about the book. We took everything we learned from
inside this company over a year and a half – which is a lot – and
we predicted their revenue, their earnings, and their stock prices
through 2020. We have a base case, a downside, and an upside.
The base case basically has their stock growing to – if it’s in the
middle of our base case – about $350-$400 from today’s $84.
The reason is that CAT is so correlated to global GDP that they’re
really everywhere. If you did a 3. 5 percent GDP rate of growth in
the world over this next seven years, Caterpillar stock is like a pri-
vate equity investment — a 400 percent return. That’s a shocking
thing to think about for that big of a company. The takeaway here
is that, if the world recovers, Caterpillar is one of the best stocks
anybody can buy. I’ve had fund managers read the book and
write me letters to say they bought the stock.
Caterpillar not only does a
remarkable strategic plan
each year with total seriousness across the world,
but they do another exercise each year they call
‘Planning for the Trough.’