The Cat That Came Back

Resilence Report - s+b :: Gary L. Neilson and Bruce A. Pasternack: "How the world’s largest heavy equipment manufacturer rebuilt its organizational DNA.

How do you build a better organization? How do you reverse entropy and restore an organization to robust health and profitability? The ongoing research project that we call “organizational DNA” suggests an answer. To change an organization effectively, concentrate on the deliberate design of four key organizational building blocks:

Decision Rights: the rules and mechanics that govern who makes which decisions — and how.

Information: the metrics that measure performance, and the practices that transfer knowledge.

Motivators: the incentives, objectives, career alternatives, and other elements that drive people’s behavior.

Structure: the overall organizational model, including the “lines and boxes” of reporting relationships and job descriptions.

Top 10 Traits of Resilient Organizations

1. They entertain the inconceivable, benchmarking themselves not against competitors, but against industries or categories that may not yet exist.

2. They build a culture of commitment and accountability, expecting and rewarding no less than the best from their people.

3. They move the goalposts, typically every three years, embarking on ambitious new objectives whether or not they feel the hot breath of competitors on their necks.

4. They show the courage of their convictions, charting a course based not on business fads or Wall Street fancy, but on their best instincts and judgment.

5. They bounce back from adversity, detecting setbacks early and mobilizing responses quickly.

6. They think horizontal, flattening their organizations, breaking down silos, transferring best practices, collaborating cross-functionally, and promoting laterally.

7. They self-correct, developing and institutionalizing internal mechanisms for correcting problems before they reach profit-warning proportions.

8. They listen to the complainers, using mechanisms and processes for surfacing and addressing dissatisfaction among customers and employees.

9. They put their motivators where their mouths are, designing financial incentives (raises, bonuses, benefits) and nonfinancial incentives (promotions, transfers, exposure) to pull in the same direction and clearly point toward what is valued.

10. They refuse to rest on their laurels, resisting or even shunning media praise and hype while pursuing tangible results.

These traits are distinctive because they’re difficult to master, and resilient organizations do not necessarily pursue them directly. Rather, the traits are a natural consequence for any organization that aligns its “DNA” building blocks effectively to strategic goals.

Inside the Transformation

Caterpillar Inc. is one of the few companies anywhere that has successfully completed a revolutionary transformation. We believe that Caterpillar achieved this success because of its deliberate focus on a set of organizational guiding principles. Those principles enabled Cat’s dramatic, wholesale transformation in the early 1990s, and they continue to guide Cat’s response to changes in its competitive environment today.

Former CEO George Schaefer could easily have lapsed into complacency once Caterpillar returned to profitability in the late 1980s. But instead, he forced the question of a more robust organizational solution, and with his team searched for other companies whose examples they might follow. But there were no obvious models for Caterpillar to copy. Most high-performance companies at the time, such as General Electric Company and Hewlett-Packard Company, were made up of relatively independent businesses. Caterpillar, by contrast, was a monolithic business, making most of the components for its highly integrated product lines, all of which went to customers in partnership with its territorially exclusive dealers. So Caterpillar developed its own “first principles” of the organization, interweaving the rationale for change and the design:

• Decentralize all strategic, operational, and financial decisions as far as possible, and give managers enough authority to solve their own business problems.

• Make businesses accountable for their bottom line. Cat’s stronger product lines no longer subsidize weak ones; business unit managers are held personally accountable for results.

• Use market-based transfer prices for the (many) transactions among business units. Transfer prices based on external markets are negotiated between businesses, so that performance issues show up in the business units that are uncompetitive, rather than farther downstream.

• Establish a “single-counted” bottom line. Accrue full costs to each business unit and give business unit managers access to the metrics needed to boost productivity and manage performance. Such cost accounting combined with transfer prices provides each business unit with a P&L for which its managers can be held accountable. The sum of all business unit P&Ls adds up to the P&L for Caterpillar as a whole.

• Expect business unit managers to maintain an enterprise-wide view of Cat as well as see to the strategic, operational, and financial performance of their particular business.

• Hold no business sacred. Product lines that persistently fail to deliver are sold.


Author Profiles:


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Gary L. Neilson (neilson_gary@bah.com) is a senior vice president with Booz Allen Hamilton in Chicago. He leads the global Booz Allen team that developed the organizational DNA concept and that deploys the related “Organizing for Results” service offering, helping companies diagnose and solve problems associated with ineffective organization and strategy implementation.
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Bruce A. Pasternack (pasternack_bruce@bah.com) is president and CEO of Special Olympics. Before joining Special Olympics, he was a senior vice president and managing partner of Booz Allen Hamilton in San Francisco, where he specialized in building strategic agendas, developing organizations, and transforming business models.

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This article is adapted with permission from Results: Keep What’s Good, Fix What’s Wrong, and Unlock Great Performance, by Gary L. Neilson and Bruce A. Pasternack, copyright © 2005 by Booz Allen Hamilton Inc. Published by Crown Business, a division of Random House Inc. Click here.

The authors wish to thank Booz Allen Hamilton Senior Vice President Paul Branstad and Vice President Jan Miecznikowski for their assistance with the research on Caterpillar, and Booz Allen Principal Karen Van Nuys for her assistance with the development of this article.