The Venomous Caterpillar

After reading an article in Bloomsberg Businessweek, I am left questioning the business strategy of the world’s biggest manufacturer of construction and mining equipment, Caterpillar. In this article, Doug Oberhelman, chief executive officer, discusses the problems and vision he has for Caterpillar. Oberhelman believes that looser trade restrictions, lower corporate tax rates and greater infrastructure spending are key policy changes that will boost exports and create jobs within the company and industry. The opinionated CEO participates in trade organizations, CEO groups like Campaign to Fix the Debt, and visits Washington DC to promote international trade deals and corporate tax reform.

While Oberhelman seems to advocate positive ideas, Caterpillar plays host to many unhappy workers. In 2012, Caterpillar had record-breaking sales of $66 billion, producing $5.7 billion in profits, yet some employees are surviving on food stamps. As the CEO’s salary, wages and benefits increase- due to the need to remain competitive at every level, claims Oberhelman- factory workers have incurred health care and other benefit cuts as well as low or frozen wages.

Since 1991, Caterpillar employees have gone on multiple strikes- two of which spanned more than six years and led to higher divorce and suicide rates within the company. Strikes have been caused by employees unwilling to accept 50 percent pay cuts, others by employees who noticed unequal skill-wage levels. According to Moody’s Analytics, as a percentage of gross domestic product, corporate earnings recently hit their highest level in more than 60 years, while wages fell to new lows. One employee has worked for Caterpillar since 1999 and receives $15.66 per hour, yet the company claims to offer market-based wage increases, pay quarterly bonuses to workers and offer locally competitive rates. The worker’s leverage has weakened due to the declining number of manufacturing jobs combined with the decline of unions. In order to keep profits high, Caterpillar released 30,000 workers in 2009. Even in times of high profitability, they will not share the wealth because they want to save it for times of low profitability. In 2012, Caterpillar made $45,000 per employee, increasing significantly from $12,000 per employee in 2007.

Oberhelman often addresses the need for better school systems within our country, believing that 60 percent of people in Peoria, Illinois who apply for blue-collar positions are not suitable due to lack of basic skills. Some economists disagree with Oberhelman, however, by saying that the skill gap is because companies like Caterpillar have created it by demanding too much from workers for too little pay. When asked by the journalist when Caterpillar worker’s wages will rise Oberhelman replied, “When we start to see economic growth through GDP.”

Is there a way that Caterpillar could decrease operations costs and put the saved money towards employees’ salaries? Is Oberhelman’s approach to success, selfish? Should Caterpillar hoard money during profitable times in order to be prepared for times of lower profitability? Could the Caterpillar issue be resolved through improved operations management? Could an increase in automation relieve workers of some stress while creating higher profits and satisfying the CEO?

Kimes, Mina. “King Cat.” Bloomsberg Business Week May 20-May 25 (2013): 68-72. Print.

A Craft Beer Pioneer Begins Again

As I was browsing through last week’s edition of Bloomsberg Businessweek magazine, I stumbled upon an interesting article entitled “A Craft Beer Pioneer Gets a Second Chance,” detailing the rebirth of one of the original American craft beers.

During the 1970s, Jack McAuliffe, a former submarine electrical technician in the U.S. Navy, began his own brewery. Jack tasted flavorful beers in Scotland while serving and was no longer satisfied with the selection offered in America. McAuliffe began New Albion Ale in 1976, using dairy equipment and Pepsi-Cola syrup drums. While in business, the brewery offered pale ale, porter, stout and draft ale, all of which sold quickly. The problem was that Jack McAuliffe had not planned for such success, which forced him to spend the brewery’s cash on an expansion plan. To his demise, no investor would finance such an outlandish concept. The craft brewery, New Albion, filed for bankruptcy in 1982 and left McAuliffe searching for stability. Could bankruptcy have been avoided if Jack McAuliffe had created a better business plan, strategy or operational structure?

The first microbrewer in America turned away from the beer industry after filing bankruptcy. For years, he designed control systems for sewage treatment facilities and manufacturing factories.  Although his brewery failed, he served as motivation, courage, hope to the founders of the 2,360 U.S. microbreweries in business today. Because McAuliffe failed, Jim Koch, founder of Boston Beer, “realized he needed to quickly produce a lot more beer if his company was to survive and prosper.” He also produced Samuel Adams beer in his facility before beginning his own brew, so that he would have plenty of financial resources once he began his own line.

Koch recently contacted McAuliffe, informing him that Boston Beer had purchased the New Albion trademark and wanted to assist McAuliffe in restarting the beer production. Koch felt as though he owed his success to McAuliffe and planned to offer him all profit from the New Albion beer. Sadly, McAuliffe’s spirits were crushed by the beer industry when his original brewery failed, so it took persistence for McAuliffe to agree to Koch’s proposal. In January, McAuliffe and Boston Beer produced and shipped 6,000 barrels of New Albion Ale, more than was ever produced by the original brewery. Jack McAuliffe is now leaving the brewery in the hands of his daughter. It is her turn to learn from her father’s original mistakes.

I believe that Jack McAuliffe made an incredible impact on the American microbrew industry, bankruptcy or not. He stepped out as an entrepreneur, and created something on which our country is still building. If he had initially focused on items like facility location and size, inventory management and process and capacity design, New Albion would have been successful. If he had started with more knowledge of operations management, New Albion would not need a second chance. What hurt McAuliffe’s brewery most significantly? Would a stronger knowledge of operations management have kept the brewery alive? Should he have entered into the industry again after failing in the past?

Leonard, Devin. “A Craft Beer Pioneer Gets a Second Chance.” Bloomsberg Businessweek April 8-April 14, 2013: 17-18. Print.