The business model of Caterpillar

Ever since 1925, Caterpillar is helping their customers to build a better world. It started with mining equipment, but quickly grew into the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. By offering excellent services throughout the whole life cycle, as well as by providing cutting-edge technology, Caterpillar was able to differentiate itself from its competitors, and help their customers to get the job done. Now this is the industry standard. However, not so long ago the business of Caterpillar functioned a little different.

Business model of Caterpillar — old

Like many of the other players, Caterpillar was focussed on selling heavy-duty machines to construction companies. Besides the product sales, Caterpillar was generating some additional revenue by delivering services such as maintenance. Although Caterpillar was always working on innovating their heavy-duty machines, they realized they could do more to support its customers to get their job done.

When Caterpillar started looking into what the customer was trying to achieve, they found out that it was not about operating its heavy-duty machines, but actually using those machines to build something or move stuff around. By observing its customers and the jobs they were trying to get done, Caterpillar discovered new customer problems that led to the development of new value propositions.

Most of the construction companies didn’t have the experience nor the expertise on how the machines could be deployed in the most productive, safe, and efficient way. When machines are broken, the business was standing still, and the workers did not know how to solve it. By taking a customer-centric approach, Caterpillar decided to commit itself to support customers to increase efficiency and productivity. Caterpillar shifted from offering products to offering solutions that improves their customer’s operations and business.

Caterpillar’s new strategy was focussed on understanding the evolving needs of their customers and come up with solutions and services to solve customer problems. This also includes services such as financing, insurances, and other value-adding activities.

Caterpillar is continually focussing on its customers job to be done. By doing this, Caterpillar is able to provide new services focussing on minimizing downtime of machines, improving operational efficiency and helping its customer achieve their business goals.

Business model of Caterpillar — new (on top off old)

In 2016, Caterpillar invested heavily in technology to provide even better services to their customers. Caterpillar switched its main focus from mining, to data mining and is now collecting data from its 500,000 connected assets to provide better products and services. By analysing the data, Caterpillar is able to do predictive maintenance, making sure the downtime of their machines is further minimized. By doing this, Caterpillar is able to provide even greater customer value, continuously.

What can we learn from this?

Instead of focussing on selling products, it is important to focus on what the customer is trying to achieve with your product or service. By taking a customer-centric approach, Caterpillar was able to discover the real problems of their customers and solve this with new products and services. Since customer needs are always evolving, it is important to continually step into the shoes of your customers and find out their pains, gains, and jobs to be done.

This case is part of the research for our upcoming book Business Model Shifts. Please keep me informed about the new book

Originally published at https://www.businessmodelsinc.com on May 6, 2020.