Why Caterpillar wants to turn into a digital butterfly

Stuart Lauchlan Profile picture for user slauchlan December 2, 2018
Caterpillar sees competitive advantage on offer by investing in digital transformation for it and its dealer network.

Digging for digital

Mining and construction are industries where digital transformation use cases haven’t been as readily apparent as, for example, retail or finance. That’s something that could change if Caterpillar has its way. Bob De Lange, Group President of Services, Distribution & Digital at the firm, argues:

There is still a tremendous opportunity for competitive differentiation in years to come just bringing new digital capabilities that you’re seeing in many other industries, bringing also to our construction and mining and energy and transportation businesses and then make sure we use them to develop our business.

A recent example of this can be seen in the release of a mobile equipment-management application from Caterpillar that enables users to monitor fleet data, request parts and service, as well as to connect with their Cat dealer via mobile devices. Developed based on feedback from 150 customers worldwide, the Cat App displays location, operating hours, machine health, and utilization data. Customizable push notifications can be set up for machine operating condition, and planned service indicators are sent to the user.

But that’s just one example. Following the firm’s most recent results announcement, CEO Jim Umpleby took time out to flag up the growing digital footprint:

We continue to deploy more digital service offerings in autonomy and automation technology for mining. We're collaborating with a gold-mining customer in Nevada supported by our local CAT dealer to automate underground loaders and enable machine operators to work safely and efficiently from a control room on the surface. We're improving existing technology and accelerating deployment of new features.

We're also working with a mining customer in Western Australia where we've secured a deal for the first commercial installation of a retrofit kit to enable autonomous operation of competitor mining trucks using Cat MineStar command for hauling. With this Cat system customers can operate different brands and sizes of trucks, both manned and autonomous in the same space and scale up fleet size to meet the mines' needs.

Our autonomous solutions are demonstrating significant productivity improvements for our customers. We also continue to roll out expanded product offerings to meet the diverse needs of our customers. Last month we expanded the articulated dump truck lineup by reintroducing the 40-ton size class with a new Cat 740 GC model that incorporates proven features and performance including new controls and systems for transmission protection, stability assist, and advanced traction control and a fuel saving eco mode.

These examples of digital technology services and expanded offerings are part of our mission to help our customers both current and future be more successful with Caterpillar than with any of our competitors.

Not a business unit

While digital investment can potentially deliver competitive differentiation, Caterpillar doesn’t regard it as a distinct business in its own right, with its own P&L. De Lange explains:

We see digital was an enabler for our three segments to help grow their business organically. If you see in terms of the major investments that we're making, the one first and foremost is in connectivity. Pretty much all of our equipment going out the door now, it's fully connected and so we can collect the data and make sure that we cannot sell the data as such, but use it to bundle the churn agreements and to bring more interest in service to our customers. So, that's a first major area of investment in connectivity.

The second one is in direct customer-facing tools, he says, citing the Cat App:

When we provide one mobile platform for our customers to do everything from the location, in the health of the machine and productivity information, they can order parts from there. So giving a simple fleet management tool to our customers link through that also, we are investing in e-commerce.

The third main bucket is building on domain expertise and bringing that to together to manage service contracts more effectively and think about expanding service intervals based on the information from machine or predictive analytics, turning unplanned failures and to plan new repairs. This, he argues, will provide a big cost saving for customers as well as playing to Caterpillar’s strengths:

That's where we see a lot of new and a lot of competitive differentiations, most of it and we are going to not just to go digital as an enabler to grow our business. Yes, we're acquiring some talent, we have some partnerships with external companies, but a lot of that will be developed organically. Also because we believe [that] if you have an external IT company, yes, they can do the connectivity or the analytics, [but] they will never have the main expertise, years of engineering on how to design an engine and predict failure.

It’s about more than cost maintenance, he adds:

Digital will also give us new opportunities and when you've have seen in the launch of Cat App now we can also through connectivity remotely flash software, so we don’t need to send a technician out. One of the biggest struggles for our dealers is finding, attracting and hiring qualified technicians. Through connectivity, we can now do remote trouble shoot. That mean instead of three trips to fix a piece of equipment, you only need on average 1.5 trips to fix these equipments.

To have central expertise that can help you with technicians, and then digital capabilities help us on our path towards autonomous and semi-autonomous machines…there is a lot of work going on in developing semi-autonomous equipment for construction, equipment where again those new digital capabilities, connected equipments and more sensors on their machines and electrohydraulics, are giving us a lot of new opportunities even on the new equipment for a launch today.

Digital tech can also transform the Caterpillar relationship with its network of dealers, a critical part of the firm’s business model. De Lange says:

With the two exceptions - if you think of solar and rail - the vast majority of our business is done through the dealers. That was the case yesterday; the case today; it will be the case tomorrow. So if we use digital to provide better services, those services will still be delivered to our leaders; and if we develop new e-commerce capabilities, the last mile of that e-commerce will still be through our dealers.

So, it’s not going to fundamentally change our business model as such. It does put new requirements on our dealers…the average age of our dealers is well over 50 years. So we want to help our leaders through good times, through bad times, through new technology developments. So, we're investing a lot of time and effort right now in working with our dealers to develop their new business capabilities, and make sure they’re ready for these changes too.

The main areas we work with our dealers are in terms of service excellence and I'd say in parts and more on the logistic side, as well that marketing and sales capabilities, developing their new digital expertise and then also supporting them to improve their rental business. Those are the five main areas that we work with our dealers, knowing that we work very hard to make sure our dealer strategies are in line with our strategies, which then also means that, our dealers just like us have a very intense focus on growing these services and the aftermarket pushing up our business.

My take

We’ve heard similar connected equipment arguments - and seen lots of exemplars - in the field service management market, not least from ServiceMax, now part of GE Digital. It’s early days for Caterpillar, but the potential as outlined by De Lange is clearly there. Critical to the long term success of realising that potential will be how Caterpillar brings along its dealer network with it on this transformation journey.

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