Caterpillar Inc
Structure: the overall organizational model, including the “lines and boxes” of reporting relationships and job descriptions.
Just as an individual’s physical and intellectual qualities depend on his or her genetic code, the building blocks of organizational DNA determine how a firm looks and behaves, both internally and externally. These building blocks matter because they deeply influence everyone’s decisions — not just decisions made by people at the top of the hierarchy.
For example, if you work in middle management, which e-mails do you leave unanswered? What determines whether you offer a customer a discount to increase volume or hold the line to protect margins? How do you share information with someone in another business unit or region? These daily decisions, taken together, determine an organization’s ultimate success or failure. And they in turn are deeply affected by the decision rights people hold, the information they receive, the incentives and other motivators that reward them, and the organizational structure of formal positions and reporting relationships.
Fortunately, unlike human DNA, organizational DNA can be modified. The key to improving performance is not to blame individual performers, but to realign those building blocks to support decision making that’s more consistent with the overall strategy and performance objectives of the company.
That is exactly what happened during the late 1980s and early 1990s at Caterpillar Inc., a $30 billion global manufacturer of large construction and earth-moving equipment, engines, and power systems. “Cat,” as people call it, is a company that had enjoyed a long-standing record of profitability and market leadership until 1982, when it was almost put out of business by an unanticipated surge of competition. Caterpillar rebounded reasonably quickly and successfully at that time; it returned from near-bankruptcy to profitability in a few short years. But many companies can do that once. What
Just as an individual’s physical and intellectual qualities depend on his or her genetic code, the building blocks of organizational DNA determine how a firm looks and behaves, both internally and externally. These building blocks matter because they deeply influence everyone’s decisions — not just decisions made by people at the top of the hierarchy.
For example, if you work in middle management, which e-mails do you leave unanswered? What determines whether you offer a customer a discount to increase volume or hold the line to protect margins? How do you share information with someone in another business unit or region? These daily decisions, taken together, determine an organization’s ultimate success or failure. And they in turn are deeply affected by the decision rights people hold, the information they receive, the incentives and other motivators that reward them, and the organizational structure of formal positions and reporting relationships.
Fortunately, unlike human DNA, organizational DNA can be modified. The key to improving performance is not to blame individual performers, but to realign those building blocks to support decision making that’s more consistent with the overall strategy and performance objectives of the company.
That is exactly what happened during the late 1980s and early 1990s at Caterpillar Inc., a $30 billion global manufacturer of large construction and earth-moving equipment, engines, and power systems. “Cat,” as people call it, is a company that had enjoyed a long-standing record of profitability and market leadership until 1982, when it was almost put out of business by an unanticipated surge of competition. Caterpillar rebounded reasonably quickly and successfully at that time; it returned from near-bankruptcy to profitability in a few short years. But many companies can do that once. What