Human Resource Management –MGMT 607

Prof. Olgun Çiçek

May 01, 2013, GAU, North Cyprus

CASE STUDY: CATERPILLAR TAKING CHARGE FOR CHINA MISMANAGEMENT

Done by

Asaad Ali Karam No:123001059

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Contents

Introduction ......................................................................................................................................................... 3

Caterpillar Background ........................................................................................................................................ 4

The innovation approach, ................................................................................................................................... 5

The prescriptive approach, ................................................................................................................................. 5

Vision & Mission .................................................................................................................................................. 6

CRITICAL SUCCESS FACTORS ............................................................................................................................... 7

Improving quality................................................................................................................................................. 8

Sustainability Strategies ...................................................................................................................................... 8

Caterpillar in China .............................................................................................................................................. 9

Statement of the problem ................................................................................................................................ 10

Recommendation for the case ......................................................................................................................... 11

Performing effective investigation ................................................................................................................... 12

Organizing for a fair hearing ............................................................................................................................ 12

Documentation of findings with regard to managers’ misconduct ............................................................... 13

Instituting a disciplinary action against the managers ................................................................................... 14

Strategic role of HR ............................................................................................................................................ 14

Conclusion .......................................................................................................................................................... 15

Bibliography ....................................................................................................................................................... 16

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Introduction

Caterpillar Inc. is one of the largest manufacturers of construction and mining equipment,

diesel and natural gas engines and industrial gas turbines across the world. The firm was formed

in 1925 after a merger between Holt Caterpillar Company and C.L. Best Gas Tractor Company.

Their business lines include Engines, machinery, and financial products. It is a multinational

corporation with operations in about 42 countries across the globe. Caterpillar Inc. has extended

their services and operations to China. Where the firm has about 23 manufacturing facilities, they

produce compactors, hydraulic excavators, undercarriage, compactors, motor graders,

remanufactures product machinery, electric power generators and iron castings.

This paper seeks to evaluate and examine the human resource management of caterpillar

Inc. in china. This is as been influence by the existence of ineffective human resource

management at the subsidiary where corrupt officials and corrupt deals are evident. This was

indicated by accounting misconducts at the firm. The misconduct involved officials overstating

the firm’s profitability prior to their actualization.

Human resource management misconducts are increasing gradually for multinational

corporations. This is associated to the increasing complexity of business firms, which demands

high decentralization, and delegation of duties. Firms must ensure that any misconduct is

handled effectively to discourage future misconduct and maintain a good reputation of the firm1.

It is essential that the management ensure that it organizes for a fair hearing for the victims.

Make proper and accurate documentation of the findings on the case, which is important in

1 John Remington, Richard T. Heiser, Cyrus Smythe, Kenneth Sovereign, Human Resources and the Law, chapter 11, 2011

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making a fair judgment. It is also important that the firm institute deterrent disciplinary measure

for all victims of misconduct. This discourages future inefficiencies and misconducts in the firm.

It is important that the firm ascribe to the best practices of human resource management.

Caterpillar Background

Caterpillar Inc. also known as "CAT", is an American corporation, the Caterpillar Tractor

Co. was formed in 1925 by Benjamin Holt and Daniel Best as a result of the merger of the C.L.

Best Gas Tractor Company and the Holt Caterpillar Company. Restructure as Caterpillar Inc. in

1986, and it is currently one of the world’s largest manufacturers of construction and mining

equipment, diesel and natural gas engines and industrial gas turbines. Caterpillar has over 3

million machines in usage and it runs in three primary lines of business such as Machinery,

Engines, and Financial Products. Caterpillar is a worldwide Inc. it is exist in 42 country with

100,000 employees with 18 different language2

In addition Caterpillar formed its university on 2001 by David Vance which he retired on

2007. The university were founded to ensure the right education, training and leadership.

Douglas R. Oberhelman Chairman and CEO

2 http://www.caterpillar.com/company/history

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The innovation approach,

emphasized by Caterpillar and other forward-thinking companies, proactively gathers and uses

data to identify sustainability constraints and priorities. This information is used to drive the

development and implementation of efficient methods, innovative solutions and technology

breakthroughs to create more sustainable systems, and in the development of performance-based

sustainability policies and regulations to promote innovation. This approach is highlighted

through this report’s feature stories that describe how sustainable development is integrated into

our day-today business operations.3

The prescriptive approach,

emphasized by many governmental and nongovernmental organizations, focuses on data

collection, data reporting, transparency, development of standards and development of policies

and regulations. Compliance and enforcement measures are then developed and implemented

that are intended to lead to more sustainable systems. You will find evidence of this approach in

3 http://www.caterpillar.com/secfilings

Chairman’s Message I can describe Caterpillar’s strategy in one word — Customers. We wake up thinking about our customers every day. What do they need? How can we add more Value? What challenges do they face?

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the Goals & Progress section, where we report on Caterpillar’s performance against our 2020

aspirational goals for operations and products, services and solutions. Both approaches are

important with respect to improving the quality of our environment, communities and business

performance. As our sustainability journey progresses, our focus on innovation and technology

will be paramount in order to fully achieve sustainable development solutions that meet the

needs of our enterprise, customers, communities and planet.

Vision & Mission

Our vision is a world in which all people’s basic requirements — such as shelter, clean water,

sanitation, food and reliable power — are fulfilled in an environmentally sustainable way.

Our mission is to enable economic growth through infrastructure and energy development, and to

provide solutions that support communities and protect the planet. Our strategy is to provide

work environments, products, services and solutions that make efficient use of the world’s

natural resources and reduce unnecessary impacts on communities, the environment and the

economy. We apply innovation and technology to improve the sustainability performance of

Caterpillar products, services, solutions and operations. We believe sustainable progress is made

possible by developing better systems that maximize life cycle benefits, while also minimizing

the economic, social and environmental costs of ownership, as reflected in our sustainability

principles.

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CRITICAL SUCCESS FACTORS

Culture.

Create a culture of sustainability in all our business units and in all our daily work. Progress: We

identify and share best practices to promote our employees’ awareness and understanding of

sustainability. We continue to foster a corporate culture of transparency, disclosure and

engagement.

Operations.

Be consistent with our sustainability principles and contribute to 2020 aspirational sustainable

development goals. Progress: The Caterpillar Production System provides the recipe for

efficiency and excellence in our facilities. We actively encourage employees to conserve

resources and be more efficient. Operating in a more efficient and sustainable manner will

reduce impacts on people and the environment, and help us and our customers save money.

Business Opportunities.

Identify and pursue business growth opportunities created by sustainable development. Progress:

We are actively embedding sustainability throughout our Caterpillar brand portfolio, our new

product development process and our technologies. Our business leaders continue to drive

growth in sales of products, services and solutions that help customers meet their sustainability

challenges. We utilize 6 Sigma methodologies to focus our work and drive measurable benefits.

We will execute our strategy by working to meet our long-term aspirational sustainable

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development goals. We set yearly targets where possible and are working on additional targets to

help us measure our annual progress.

Improving quality

by proactively implementing measures that prevent waste is another key sustainability principle

at Caterpillar. Traditionally, this principle applies to the quality of the processes, products,

services, solutions and safety practices utilized throughout the Caterpillar enterprise. However, it

also applies to the quality of life for our employees, as well as the quality of the communities and

the environment in which Caterpillar operates. Healthy people, communities and environmental

resources are all valuable components for a thriving Caterpillar enterprise. Preventing waste and

improving quality measures provide the key drivers for developing better systems that are

inherently more sustainable. When Caterpillar brings people, materials, energy, water and land

into the various systems found throughout the enterprise, care must be taken to ensure that these

resources are not harmed or wasted. Keeping resources in the value chain through a circular flow

of materials, energy and water is critical to maximizing total life cycle benefits while minimizing

the cost of ownership. This leads to sustainable progress for communities, the environment and

the economy.

Sustainability Strategies

The sustainability principles described above complement the five key strategies described in the

graphic on page 8. It is noteworthy that the strategies described toward the top of this ranking

tend to offer more sustainability benefits than those described at the bottom of the ranking.

Strategies associated with preventing waste and emissions through improved efficiency and

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quality measures are preferred because they offer the most opportunities to enhance cost

competitiveness and reduce the potential for unnecessary impacts to communities and the

environment in both the short and long term.

Caterpillar in China

In Greater China, Caterpillar products have been associated with the region's growth and

development for many decades. In 1978, Caterpillar (China) Investment Co., Ltd. (CCI) was

established in Beijing to augment the increased investment and business development activities

in China. Today, Caterpillar has invested in 23 manufacturing facilities in China. They produce

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hydraulic excavators, compactors, diesel engines, undercarriage, iron castings, motor graders,

track-type tractors, wheel loaders, remanufactured products machinery components, and electric

power generator sets4.

Statement of the problem

The situation can be retrieved from the case that there is some corruptions in the

company’s human resource. This case involves an accounting misconduct that Caterpillar Inc, a

U.S. company, realized in its recently acquired Chinese company. Caterpillar Inc, a company

dealing with mining and construction equipment decided to eliminate some managers at the

company. Further, the company took non-cash 580 million USD, as charge, in the fourth quarter

linked to the misconduct. This shows a problem that existed with the human resource

management system of the Chinese company. An effective human resource system could have

averted the misconduct from taking place.

The issue, according to Caterpillar Inc, was an inspiration from internal investigation of

its subsidiary Siwei Company, and ERA, a coal mining company. Caterpillar noted that several

Siwei senior managers involved in the misconduct for many years before the acquired the firm.

This means that the Chinese company’s human resource had failed to create transparency and

accountability, thereby allowed the managers to continue with this misconduct. These managers

were attempting to overstate the company’s profitability prior to the deal. Because of this, the

company has decided to put in place a new leadership team. This keeps in line with good human

4 http://china.cat.com/en/caterpillar-in-china

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resource practices. 5They have also moved manufacturing to another division, whose head is a

longtime Caterpillar employee. The transfer of the manufacturing process means that the

company will try hard to meet the human resource needs because of the arising gap.

The gross misconduct by the managers can make far-reaching consequences on the

employees and the management. This hampers the financial returns of the business, as well as

other elements of the human resource management. Already the misconduct has made impact on

the trading shares. As it appears, the case has a considerable effect on the human resource of the

company. The elimination of the managers has created some gap, which the company has to feel.

This shows misconduct among employees can be detrimental to the business process. This means

that a company must put in place effective human resource management system to help a

company to function properly. However, in cases where there is misconduct, better human

resource management systems dictates that a company undertakes serious actions to come up

with solutions to the prevailing problem6.

Recommendation for the case

Human resource is a crucial element of the management process. It forms the pillar that

drives all operations to ensure that a company realizes its goals and objectives. Every company

has to institute a supportive human resource framework to ensure smooth undertaking of

operational and strategic activities. Through this, it becomes easy to minimize any form of

5 h p://www.businessweek.com/ap/2013-01-18/caterpillar-taking-charge-for-china-mismanagement

6 http://www.businessweek.com/ap/2013-01-18/caterpillar-taking-charge-for-china-mismanagement

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dishonesty arising from employees. Usually, employee dishonesty deals a serious blow to an

organization. However, with appropriate measures, Caterpillar Inc is able to ease the effects of

such misconduct. It has to carry out reactive measures to solve the problem.

Performing effective investigation

Effective human resource practice requires that a company carry out investigation on the

pretended misconduct. In line with this, Caterpillar Inc has to work more into the issue to come

up with strong evidence on the misconduct. The company should carry out a thorough

investigative and analyze the effect that the misconduct has posed on its operations or returns.

This is crucial in understanding the level of punishment that the employees should face. This

would be making the right decisions on how to relate with the employees, and whether to

redeploy them to various sections. The investigation must be fair and balanced. This is

significant because in the end, it helps in coming up with a supportive decision on whether to

take any further action on the employees. The investigative process must go in-depth into

understanding the background information, as well as the available internal control systems. This

helps Caterpillar Inc to know where things went wrong so that it initiates proactive processes that

can bar potential misconducti7.

Organizing for a fair hearing

Proper human resource management requires that employees get a fair hearing whenever

they are under search for gross misconduct. This is useful in coming up with a solution to the

7 http://www.hr.ubc.ca/administrators/employee-relations/discipline-in-the-workplace/

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problem. In this case, the company should also organize a disciplinary hearing to get the insights

based on the employees’ side of the story. This is useful in having an exhaustive understanding

of the whole issue. In that case, it becomes crucial to inform the employees on the company’s

intent to carry out thorough investigation, thereby demanding their availability to offer more

information. This will ensure that the employees have an opportunity to have their cases heard.

This enables them to respond to the allegations. As part of this initiative, the company should

provide the employees with requisite handbook policies that underline issues of dishonesty,

misconduct or theft. During the hearing, the employees must back their statements with officially

signed documents in relation to the accounting misconduct. The process should also involve

witnesses who might give relevant in information on the matter. The input from witnesses would

be vital. They may include employees who were working in the accounting department.

Documentation of findings with regard to managers’ misconduct

It is extremely essential for the company to document its findings. In other words, there

must be a comprehensive report on the issue. This is useful as a reference tool for future matters

of human resource nature. A company can make appropriate decisions based on the content of

such documents. In this case, part of the solution lies in detecting any future problems in view of

human resource management. The documents, therefore, offer basic information in issues that

touch on the company’s workforce. Caterpillar Inc should also copy such reports to their legal

team. The recommendations of the finding also help the company to know which action to take

against the employees. It provides a roadmap on how to proceed with the matter. Such

recommendations would call for reinstatement, potential prosecution, termination, suspension,

or even demand the employees to pay for the misconduct.

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Instituting a disciplinary action against the managers8

Employees discipline is essential to ensure effective and efficient undertaking of

activities. This means that a company should have a code of ethics that gives a framework on

how employees should behave with regard to their duties. In view of the mismanagement

problem realized by Caterpillar Inc, they should institute a disciplinary procedure to help correct

the situation. They should recall their rules and regulatory framework for disciplining the

employees for having failed to comply with the stipulated company standards of operation. The

disciplinary procedure should base on the professional and ethical code of practice. The

disciplinary action should explore punitive measures to undertake depending on the severity of

the guilt in relation to the business process. In other cases, this should include the possibility for

compensation by the managers. This acts to ensure that other employees do not fall into the same

trap.

Strategic role of HR

Strategic HRM has often been discussed in the context of enhancing firm competitiveness and

improving firm performance. With many changes occurring as a consequence of global

competition, technology advancement, workforce casualisation, government deregulation and

organization restructuring, a greater emphasis on HRM to offer value added services and

deliverables in terms of administrative efficiency, flexibility, employee quality, cost

effectiveness and overall organizational capacity to facilitate fast change is required (Becker,

Huselid and Ulrich 2001). Hence, in the context of the coal industry with a number of HRM

8 Human Resources and the Law, John Remington, Richard T. Heiser, Cyrus Smythe, Kenneth Sovereign, chapter 11

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challenges as outlined above, it is postulated that HRM might have also been used to play a

strategic role to address new challenges, rather than simply the traditionally-defined functional

role (Beer 1997).

To evaluate whether HRM is playing a strategic role or not, it is necessary to understand whether

the role of HRM really exists, and if it does, the extent of HR managers’ involvement in strategic

planning of coal companies both at the corporate and mine site level. Again, the following results

were generated from views and information given by the participants in the interviews and the

survey.

Conclusion

The company must strictly adhere to the best practices within human resource

management practices to deal with the problem. It has to handle this matter maturely knowing

well that any inappropriate engagement in the matter may destroy the company’s human

resource through continued misconduct.

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Bibliography

http://www.caterpillar.com/company/history

http://china.cat.com/en/caterpillar-in-china

http://www.businessweek.com/ap/2013-01-18/caterpillar-taking-charge-for-china-

mismanagement

http://www.hr.ubc.ca/administrators/employee-relations/discipline-in-the-workplace/

John Remington, Richard T. Heiser, Cyrus Smythe, Kenneth Sovereign, Human Resources and the Law, chapter 11, 2011

http://www.caterpillar.com/secfilings

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