Douglas R. Oberhelman

Douglas R. Oberhelman
Chairman and CEO

Caterpillar Inc.

Doug Oberhelman has been the Chairman and Chief Executive Officer of Caterpillar Inc since 2010. Prior to his current position, he served as Vice Chairman and Chief Executive Officer – Elect (2010) and as a Group President (2001-2010) of Caterpillar Inc. Other current directorships include Eli Lilly and Company.

 

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A view from the top

In this short video, Douglas R. Oberhelman shares his view on today's key business issues: risk, volatility, innovation, talent, and growth

Quotes

Douglas R. Oberhelman

Douglas R. Oberhelman

Chairman and CEO, Caterpillar Inc.

What we’re seeing today in Europe – and throughout the US and many other countries – are the ill effects of nearly 30 years of low interest rates coupled with high government borrowing and deficit spending. Right now we all need to keep an eye on sovereign debt, particularly countries with high debt to GDP ratios. As business leaders, we need to make sure that is top of mind among political leaders.

Douglas R. Oberhelman

Douglas R. Oberhelman

Chairman and CEO, Caterpillar Inc.

So many countries’ backs are against the wall, fiscal stability will happen and countries will survive over time. I’m less optimistic about global trade agreements right now, particularly with depressed economies as they are.

Douglas R. Oberhelman

Douglas R. Oberhelman

Chairman and CEO, Caterpillar Inc.

We made some very deep and profound changes to our corporate strategy over the past two years, aimed for our 2011-2015 time period. We are now in execution stage, and I see tweaking some of our strategic goals next year, but no significant changes.

Douglas R. Oberhelman

Douglas R. Oberhelman

Chairman and CEO, Caterpillar Inc.

I am absolutely convinced of several things about China. Number one, we will see a Chinese construction equity player emerge over time to compete with us. Therefore we deeply believe we have to be in China to know that market and those competitors, in order to take them on at their own game. We learned that in the early 1960s when our predecessors went to Japan and successfully took on Komatsu, a very strong emerging competitor. That’s exactly what we’re going to do in China, where we’ve already established 15 plants with 9,000 employees. Our dealers there are strong. We’re building the same Caterpillar business model in China as we have everywhere else in the world, and I believe Chinese customers will respond to that over time.

Douglas R. Oberhelman

Douglas R. Oberhelman

Chairman and CEO, Caterpillar Inc.

We have stepped up our global investment program over the last 18 months, particularly in emerging markets, including Thailand, China, India, Indonesia, and Brazil. We’re putting in new brick-and-mortar facilities and adding capacity in order to expand our ability to manufacture and assemble products in those markets. I firmly believe that with seven billion people on the planet wanting to live as we do in the US, they’re going to want infrastructure. Caterpillar makes infrastructure, so we have to be there.

Douglas R. Oberhelman

Douglas R. Oberhelman

Chairman and CEO, Caterpillar Inc.

I talk with customers around the world, and without fail, within a few minutes they bring up the issue of environment sustainability, including issues such as managing fuel consumption, CO2 emissions, and oil footprint. We have a number of good ideas and initiatives in the sustainability arena.

Douglas R. Oberhelman

Douglas R. Oberhelman

Chairman and CEO, Caterpillar Inc.

I have identified that as just about my number-one priority in the next few years. How do we attract and develop talent around the world?

Douglas R Oberhelman

Douglas R. Oberhelman

Chairman and CEO, Caterpillar Inc.

With our global footprint, and the very regional and country specific differences, one size does not fit all, and we’ve had a challenge with this over the years. As our growth has been rapid, so has our hiring, and we’re challenged to teach senior people around the world what we want Caterpillar leaders to be.

Douglas R. Oberhelman

Douglas R. Oberhelman

Chairman and CEO, Caterpillar Inc.

We have more than 30 technical college training programs around the world for production workers, diesel mechanics, and other technical employees. Today’s Caterpillar vehicles are very sophisticated, and people have to know how to service them in order to get the best out of them.

Douglas R. Oberhelman

Douglas R. Oberhelman

Chairman and CEO, Caterpillar Inc.

I find my time increasingly aimed at government policymakers and policy itself, which is a sign of the times. I hear this from my peer CEOs all over the world. Today, government policy seems to be wrapped so much more around business than it’s ever been, and we all need to stand up and be heard. We have to make sure everybody understands what we need to do to add jobs, to grow, and to be internationally competitive.

 

Read interview transcript

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Let’s start with the global economy. The sovereign debt problems in Europe are the focus of concern for CEOs worldwide. How much does the fiscal position of domestic and foreign governments worry you?

What we’re seeing today in Europe—and throughout the US and many other countries—are the ill effects of nearly 30 years of low interest rates coupled with high government borrowing and deficit spending. Right now we all need to keep an eye on sovereign debt, particularly countries with high debt‑to‑GDP ratios. As business leaders, we need to make sure that is top of mind among political leaders. I lived in South America during the 1980s, and I remember very well country after country essentially becoming insolvent, and it took them a generation to bail out of that. 

What actions taken by governments or multilateral organisations, such as the IMF or the World Bank, have had a positive impact on economic conditions?

I go back to my experience in Latin America. The IMF would come in and prescribe some tough remedies for bad economic ailments. Over time, those countries got their spending and borrowing in order. Today Latin American countries, for the most part, are very strong. That’s the net worth of the International Monetary Fund and the World Bank, to provide leadership.

A recent government action was the passage of the free trade agreements in Colombia and Panama and South Korea. What other actions do you think governments should take to improve world trade?

For governments worldwide, it’s fiscal stability first and foremost. Those of us in business, no matter where we operate around the world, need strong economies and fiscal soundness. Second, it would be nice to begin a global dialogue on expanding free trade for all of us. That may be “pie in the sky” at the moment, but fiscal stability across the board and working towards an open, level playing field among all countries are key.

Are you optimistic about the prospects of an open, level playing field, given what you’ve seen recently?

I’m optimistic on some things surrounding a level playing field. So many countries’ backs are against the wall, fiscal stability will happen and countries will survive over time. I’m less optimistic about global trade agreements right now, particularly with depressed economies as they are. When economies are slow, unemployment is high, and countries turn inward. We’re seeing that around the world now, but I’m not giving up hope.

What one single action could governments initiate to support Caterpillar?

Caterpillar would benefit from a global round of trade agreements of some kind. With previous trade agreements—NAFTA, South Korea, Colombia—our employees, our company, our shareholders, and our customers have benefited greatly.

 How will your strategy drive growth in the future?

We looked deeply into the company nearly two years ago right now, what we liked, what we didn’t like. We picked a team of 16 broad and diverse thinkers, and asked them, “What do we want Caterpillar to be in five years? What should we do?” We concentrated on a few simple metrics, around employee inclusion and safety, as well as factors that drive our business model: lowest owning and operating cost for our machines; best‑quality equipment; high market shares in our global markets. We built a strategy around that initiative.

Do you anticipate any further changes to your strategy for next year?

We made some very deep and profound changes to our corporate strategy over the past two years, aimed for our 2011-2015 time period. We are now in execution stage, and I see tweaking some of our strategic goals next year, but no significant changes

One of your so-called “Big 8 Imperatives” of the Enterprise Strategy is winning in China and growing the leadership in India, the ASEAN countries, and the Commonwealth of Independent States that comprise the former Soviet Union. Can you provide examples of the opportunities that make those regions especially attractive for Caterpillar?

I am absolutely convinced of several things about China. Number one, we will see a Chinese construction equipment player emerge over time to compete with us. Therefore we deeply believe we have to be in China to know that market and those competitors, in order to take them on at their own game. We learned that in the early 1960s when our predecessors went to Japan and successfully took on Komatsu, a very strong emerging competitor. That’s exactly what we’re going to do in China, where we’ve already established 15 plants with 9,000 employees. Our dealers there are strong. We’re building the same Caterpillar business model in China as we have everywhere else in the world, and I believe Chinese customers will respond to that over time.

Emerging markets have become a major focus for most CEOs. What progress have you made in targeting those markets, and what difficulties have you encountered there?

We have stepped up our global investment program over the last 18 months, particularly in emerging markets, including Thailand, China, India, Indonesia, and Brazil. We’re putting in new brick-and-mortar facilities and adding capacity in order to expand our ability to manufacture and assemble products in those markets. I firmly believe that with seven billion people on the planet wanting to live as we do in the US, they’re going to want infrastructure. Caterpillar makes infrastructure, so we have to be there.

How is enterprise-level risk management related to your strategy?

In 2003, Jim Owens, one of my predecessors, initiated our “trough strategy.” Nobody wanted to hear about a trough, or a downturn then or the years leading up to 2008. But that strategy allowed us to do something that really helped us in 2009. It forced every one of our businesses to model and to plan for the worst recession that they’d ever seen in the history of their business. So if they saw a 30 percent drop in topline value, they told us exactly how they were going to respond, line item by line item. We drilled that over and over, so when that recession did hit in late 2008, our business leaders pulled the “trough triggers,” as we called them, and sure enough, we were in trough mode much faster than we’d ever reacted before. As a result, we maintained our dividend, we held our credit rating, and we made money through the worst recession in all of our lifetimes. We’re pretty proud of that.

Was that difficult to do, because you very seldom hear about taking such a negative‑looking strategic approach?

The planning of it was tough, because during the last decade, our growth was between 30 and 40 percent a year, and nobody wanted to think about a downturn. The execution was brutal, and it weighed on our team, because we did things that companies have to do to survive but are painful while doing them. We went from $51 billion in sales in 2008 to $32 billion one year later. We rapidly shrank our cost structure to make money and preserve our credit rating, which was painful on our management team. But a couple of good things came out of that. One, we got through it, and, two, we trained an entire generation of new leaders how to manage in a trough. That will serve them for their entire careers, just as some of the earlier troughs I’d been through in the early 1980s served me.

What risk factors are of greatest concern to you?

Certainly I’m concerned about the debt bubble around the world. How we all manage that is something to watch. That’s essentially what we’re seeing in Europe today, how they manage their heavy debt load. The United States has been going through it, and many other countries are up against the wall on debt, as well. How that manifests itself with other actions on the banking system and financial system is something we watch every single day.

You did scenario planning with your trough strategy. Are you doing more of that type of planning now?

We’re doing as much of it today and just as deeply as we did before. We know that the world economy, and any individual country’s economy, will go up and it will go down. We do business in so many countries, we have to be ready for anything. We cannot take our eye off that ball, just as we can’t take our eye off the ball in growth, and we’re in a growth mode right now. We have to juggle both of those very closely at this moment.

How have your risk management processes dealt with environmental or social costs and benefits?

This area has changed immensely in the last decade. In our business, I talk with customers around the world, and without fail, within a few minutes they bring up the issue of environment sustainability, including issues such as managing fuel consumption, CO2 emissions, and oil footprint. We have a number of good ideas and initiatives in the sustainability arena. For example, our remanufacturing business takes a worn‑out diesel engine, a water pump, or a fuel pump and restores like new, down to a new box with a new warranty and a lower price. Think about the impact that has on the environment. Think about the emissions technologies we’re bringing to bear to clean diesel exhaust. We have many such initiatives that our people are proud of, and there are more to come as we go forward.

Has your focus on environmental and social issues impacted your cost-reduction programs in any way?

It’s helped cost reduction, frankly, because what I’ve found with environmental and sustainability issues—and I’m included in this area—is that our employees will work on them for free. All of us want to help the planet, to do good things towards sustainability for our grandkids and future generations. We get great suggestions from employees, and I find it difficult to see costs go up from things like turning lights off or becoming more fuel efficient with our vehicles. Right now I’m very optimistic about alternative-fuel efforts underway. We just acquired a company that makes engines that only burn on natural gas. That’s going to help us long‑term.

How does Caterpillar innovate?

It starts with listening to our customers, pure and simple. They will tell us what we need to do. We also spend a great deal of time with our product-development teams and our product businesses to get into our customers’ minds. Today we have a diesel engine in the developed world, called Tier 4, which produces very clean emissions.  That has helped not only our image, but our customers’, too.

As a worldwide corporation, do you find innovations coming from one geographic area as opposed to another?

Innovation at Caterpillar can come from everywhere. Regionally, you’ll see differences in demand for products and services. For example, the developed countries today are pushing for GPS technology that in emerging countries is not yet known. So if we were to offer that product in emerging countries, we’d be missing the market. We have to listen to local markets and customers, and we have talented engineers from many countries who help us innovate. That makes us a stronger and a better product innovator.

Are innovations at Caterpillar primarily incremental, in the sense that you’re taking a good product and making it one level better? Or are you shifting the whole scope and coming up with something brand new?

Innovation at Caterpillar is adding on to what we have and what we do. We have examples of brand-new, lightning-bolt innovations, such as our D7E electric drive tractor and our emissions technologies. But fundamentally, inside every one of our Caterpillar machines, from locomotives to generator sets, is a diesel engine or a natural gas engine. With the application of all the technology we can bring to bear, we are finding ways to increase productivity for our customers that we never dreamed of 15 years ago. It’s a fabulous time to be innovating at Caterpillar.

In what ways has talent become a strategic issue for you, and what are you planning to change in regard to your current talent strategy, if anything?

Considering Caterpillar’s global footprint, our rate of growth, our expansion into new markets, and our expansion of products, talent is absolutely critical and fundamental. We’ve been in some countries and in locations only for a decade or less, so people there don’t know the Caterpillar culture that we’ve cultivated in other places over almost 100 years. So we have to work on that. In my case, I have identified that as just about my number-one priority in the next few years. How do we attract and develop talent around the world? We have initiated a tremendous program, called Lead, which is a joint venture with Stanford University. Essentially, we use it to touch each of our nearly 13,000 leaders personally in some form once every three years. The higher up you go on the company’s corporate ladder, the more leadership development you receive. This is our first year working with Lead. Roughly 5,500 of our leaders participated in 2011, and I’m very happy with the outcome.

Are you finding as you focus more on emerging markets that you have to adopt your talent strategy to the local market, as opposed to having a one-size-fits-all approach?

As we expand around the globe, one-size-fits-all will not work. For example, Chinese leadership and needs are so different from those in India, Brazil, Canada, and Belgium. Talent has to be regionally directed, and that’s what we’re working on. Frankly, it’s a big challenge, because as we’re new to some of these places and our growth is strong, we’re having trouble teaching what we want our leaders to do and know.

Do you find that your approach to talent issues has to be different in each country, or can you use a one-size-fits-all approach?

With our global footprint, and the very regional and country‑specific differences, one size does not fit all, and we’ve had a challenge with this over the years. As our growth has been rapid, so has our hiring, and we’re challenged to teach senior people around the world what we want Caterpillar leaders to be. We’re heavily recruiting and bringing as many of our regional leaders together as we can. We’re also creating three regional learning centres—in the Western Hemisphere, in Asia, and in Europe—to teach the Caterpillar strategy. We want leaders at Caterpillar to know what our strategy is and what we expect of them as a leader. That’s going to pay great dividends down the road.

Are you moving more people across borders, say, from the United States or the developed countries into emerging nations, as well as from the emerging nations into the more developed countries?

With our continued growth around the world, and we have a high need for cross‑border transfers and fertilisation. It’s important that our high‑potential leaders, no matter where they are, learn about not only other parts of the world but also other parts of our business. I’m a great recipient of that, having lived and traveled all over the world. With our size and global footprint—nearly 70 percent of our sales are outside the US—we have a strong need for globalised leaders, so there are going to be great opportunities down the road for people. Nearly as important, though, is the need to develop local leaders, because leaders won’t necessarily be transferred around the world. We have a business to manage in that country or that location, so local leaders need to have the same tools everybody else does about our strategy.

Besides Stanford University, are you collaborating with other educational institutions or governments to keep Caterpillar’s talent pipeline flowing?

We collaborate with local governments where our plants are to provide training. We also collaborate with universities and technical colleges around the world. For example, we have more than 30 technical college training programs around the world for production workers, diesel mechanics, and other technical employees. Today’s Caterpillar vehicles are very sophisticated, and people have to know how to service them in order to get the best out of them.

As you look back on the last year and your responsibilities as CEO, have you allocated your time and efforts differently than in recent years? What are the hot buttons that you’re focusing on now that you weren’t 12 months ago?

I find my time increasingly aimed at government policymakers and policy itself, which is a sign of the times. I hear this from my peer CEOs all over the world. Today, government policy seems to be wrapped so much more around business than it’s ever been, and we all need to stand up and be heard. We have to make sure everybody understands what we need to do to add jobs, to grow, and to be internationally competitive.