A Publication of WTVP

Glen Barton has been chairman and chief executive officer of Caterpillar Inc. for exactly one-half year. But he's been a corporate officer-making significant decisions for the company-for a much longer time. Prior to assuming the top position, he had been a group president-one of four-since the company reorganized in 1990. A year before that, he had become an executive vice president with responsibility for marketing. In 1987, he was named a Caterpillar vice president and the president of Solar Turbines, a Caterpillar subsidiary, in San Diego. During his 38 years with Caterpillar, he's also handled assignments in Europe, Africa, and South America.

Barton is a Missouri native and graduated from the University of Missouri-Columbia in 1961 with a bachelor's degree in civil engineering. He holds a number of prestigious positions nationally, including membership on the Bradley University board of trustees.

He and his wife Polly are active in a number of Peoria organizations.

What major changes should we expect to see at Caterpillar now that you're the CEO?

I may be the new CEO, but I'm not new to the way we do things and why we do them. In fact, I've been part of the Executive Office for the last 10 years. So I've played an integral part in developing our strategies and helping carry them out. As a result, there won't be any big sweeping changes.

You sit at the top of a huge, multinational organization, yet I'm hearing reports from many that you are very open and accessible – something you don't hear about many CEOs. How are you approaching this job?

Everyone is different, including CEOs. Sometimes how they react is a matter of personality, sometimes a matter of the circumstances under which they're operating, sometimes a combination of those things. I've been with Caterpillar almost 40 years and have, essentially, grown up with many of my fellow employees at Caterpillar. I not only like them as people, I have a tremendous respect for their abilities. We have very modern factories, an effective organizational structure, outstanding products and a world class dealer network – those are all part of our successful equation. But it's the ability of the people of Caterpillar that continue to put us at the top of the heap. After all, who has developed the strategies we follow as a company? Who has bought and maintained the sophisticated machinery in our factories? Who maintains regular contact with customers and develops designs that reflect customers' wishes? Our people. I enjoy interfacing with them, understanding their challenges and concerns, working with them to keep our company out ahead of our competitors.

As you've said, you've been with Caterpillar for a long time. But now that you're in the "driver's seat", how easy is it to make things happen? Do you go to your office every day and just push some buttons and pull some strings and things happen?

It doesn't happen that way … fortunately. Caterpillar is a big company – a global company with almost 66,000 employees and facilities all over the world. Maintaining leadership in what is becoming an increasingly competitive industry requires the efforts of many talented people. Our executive team can make decisions that guide a massive organization like ours, but it takes lots of individuals, pulling together, to not only lay the foundation for those decisions, but then to make them work. We like having the people closest to the situation make the decision. We are comfortable they'll involve the Executive Office and myself whenever it's appropriate.

You said you're in an "increasingly competitive" industry. What does that mean?

Our industry changes almost continuously. The key players, for example, are in a constant state of flux. New Holland and Case have merged, which may change the face of the agricultural equipment industry. Volvo, who recently sold their auto business to Ford, is said to be interested in acquiring additional businesses competitive to us. There have been numerous other acquisitions or mergers. Since we're the leader in almost every business we're in, competitors usually have their sights set on replacing us. Because of that and because there are newer and bigger competitors, we have to keep doing things that will keep our customers coming back to Caterpillar.

In your many years at Caterpillar, you served the last eight of them as a group president and before that were an executive vice president. So you have a unique perspective on the company's reorganization. Has it worked as well as it appears to have?

You're right – I've had a birds-eye view of life before and after the reorganization. Plus, I was very involved in the strategic planning that led to its development and implementation. I think it's worked remarkably well. The real benefactors are the customers and our shareholders..

Remember, everything major that we do at Caterpillar is done with the customer foremost in our minds. So in the late 1980s, when it appeared that we had grown too large for the organizational structure that had served us so well for so many years, we sought to change it. Without going into too much detail, it was an organization that operated in what we call "functional silos." Manufacturing, marketing, accounting, engineering, human resources – all did some extremely good work – but they did it in a sort of vacuum. Each area gave its findings on an issue to the Executive Office which then sorted it out and actually made decisions. That's an oversimplification, but that's essentially the way we worked, and the customer was well-served. But there came a time when we got so big that that sort of organization just wouldn't work as well as was required. We had become inflexible and bureaucratic and couldn't respond quickly to things the customer wanted.

So we decentralized. We interviewed folks at other major American corporations who had done the same thing, picked the best of what they had done for ourselves and put together an organizational structure that made sense for us.

The advantage of today's organization is that everyone now is thinking constantly about how we're doing as a company, what the customer needs and what makes sense to our shareholders. In fact, most decisions don't get as far as my office. They are made somewhere else in the organization, by people who have regular contact with customers and direct knowledge of the situation.

You've mentioned the "customer" quite a bit in your answers. Why so focused on the customer?

We have a saying around Caterpillar that when you "buy the iron, you get the company." That means, essentially, that we're always there to help the customer – whether it's servicing a machine or engine, providing replacement parts, providing expert counsel on what's the best machine for the job, etc. We do that ourselves and through our dealer network. I'm very fortunate to have been in a number of jobs at Caterpillar that required me to meet and work with customers. So I know quite a few of them very well. I have both professional and personal reasons to see them succeed, and I know that we (Caterpillar) play an important role in that success. Believe me, the customer is why we're all in this business. If he disappears, then so do we. At Caterpillar, we've always understood that.

Your day is filled with challenges … different ones every day. But are there a handful you can point to that you consider to be the most significant?

At the moment, the most challenging thing facing all of us at Caterpillar is dealing with fragile and uncertain economies. For the last year or so, we've had a number of geographic and product markets that have seen better days – Asia, Latin America, the mining, oil and gas, and agricultural industries. Despite these soft markets, we're determined to demonstrate to everyone that we can do what we've been saying for the last several years – that Caterpillar can continue to be profitable despite a downturn in business. This is an opportunity to prove it, and we're doing it.

Other key challenges are really opportunities – to continue growing as a company and to assimilate the growth we've experienced over the last decade. As you know, we've acquired a number of companies, have formed numerous joint ventures, and added not only many new products but geographic markets as well. We have every intention of becoming a $30 billion company well before the end of the next decade. Our growth strategies have and will keep us on track to meet that goal.

Caterpillar has announced a few layoffs and week-long plant shutdowns during 1999. The timing of this occurring at the outset of your administration is not good.

It's important to note that while demand for some products is down, it is at record highs for other products (truck sales are at all-time record levels while mining and ag customers are hurting). Likewise, some areas of the world are in recession while others are booming. The steps we've taken to balance production and demand are relatively minor in the context of things. We're a different company than we were just a few years ago – a very diversified company – and that enables us to handle economic cycles in a much better way. We didn't enjoy the experiences we had at the beginning of the 1980s and the 1990s, and vowed not to go through them again. We've been putting strategies into place for the last decade or so to prevent those kind of losses from ever reoccurring.

What strategies? First, we modernized almost all of our facilities around the world. Almost $2 billion and six years later, we had developed factories that were the most modern in the world for our industry.

About midway through our plant modernization, we reorganized the company, as I said earlier, going from a highly centralized structure to one that established profit centers. That changed our culture significantly … and has allowed us to get much closer to the customer.

In about this same time period, we took a whole new approach to our new product introduction process, or NPI as we call it. Previously, we had approached changes to our products very infrequently, so when we did make modifications, they were very significant – a major change. Also, we designed, manufactured and marketed the new product in compartmentalized stages. Our engineers did the design, test and validation work. Then they would give it to the manufacturing people to figure out how to make it – then to marketing to sell it. We didn't ignore the customer, but we didn't take into account the constantly changing nature of his business. So our NPI changes were twofold: first, rather than make major changes every 6 years or so, customers told us they needed fewer changes more often. Secondly, we formed teams with the various disciplines represented, so we stayed up-to-date on what the customer wanted, whether a particular design could be manufactured, and so on. We call it Concurrent Product and Process Design (CPPD). The new NPI process includes the customer as a vital part, and has cut development time dramatically.

The ag industry is suffering more than any at the moment. Yet Caterpillar has made it a priority. What do you see that we don't see?

Our vision takes us beyond this particular stage in the ag industry cycle. We know that the ag industry will come back – that's part of the definition of a cyclical industry. When it does, we're going to be more than ready. Even now, the ag industry is evolving – commercial and corporate farms are increasing their share of the industry. It's those larger farms that will benefit most by using high production Cat equipment, both Challenger tractors and LEXION combines. Challenger tractors are big, powerful, reliable machines that have a distinct compaction advantage over their competitive 4-wheelers. LEXION combines are bigger, faster and more efficient than anything in the marketplace. Our patented Mobil Trac System allows farmers to be in the fields earlier and to continue harvesting long after other machines have had to stop due to bad underfoot conditions.

This last year represented a milestone of sorts for Caterpillar … for several reasons. With the acquisition of Perkins, your engine line grew considerably. Plus, you've entered an entirely new business in small machines … notably, the skid steer loader, the mini-excavator and the compact wheel loader. Do these mean the company is going in a different direction?

We call it diversification. We haven't changed directions … we're just going in additional directions. We have no intention of abandoning the businesses in which we've been so successful. We want to build on those successes. Compact equipment, for example, is essentially just a smaller version of the sorts of things we do so well. We decided to expand into that area (it represents $4 billion a year worldwide) and become a leader in it. Actually, we're making the kind of machines now that some of your readers might want to rent for the weekend … to do some landscaping, do some trenching, plant some trees, etc. We found out that 70% of the people who buy or rent compact machines are not on our dealer call lists – they're not customers today. But they've heard about Caterpillar, and I think what they've heard is good. On the engine side, we were not very competitive in engines below 150-175 hp. The Perkins acquisition gives us a very competitive line of engines down to 5 hp – for use in our own machines as well as for industrial, marine and power generation applications.

Are there other areas of focus at Caterpillar?

Quite a few. Our engine business continues to grow. As you've pointed out, we acquired Perkins a year ago. A year before that, we acquired MaK Motoren, which is based in Germany – a producer of engines from 3,500 to 23,000 hp. Just this month we completed the acquisition of F.G. Wilson, the leading packager of electric power generation equipment. With these, and the growth taking place in the rest of the Engine Division, engines now represent a third of our total sales. In 1998, that was more than $6 1/2 billion. By the end of the next decade, engines will represent half our total sales.

How about a truck that's as big as many houses? We now make the world's largest off-highway truck – at 24 feet tall and 30 feet wide. Your readers won't be using it, but many of the larger mines around the world need it to enhance their competitiveness.

Ag equipment will be big for us. When the industry climbs out of the bottom of its cycle, we'll be ready.

We're also focusing on a number of geographic markets around the world. For example, we do only about a quarter of our business currently in the developing world, but we expect that to change. In five years, that percentage will be significantly higher because those countries are growing at a faster rate than the rest of the world. We make products they need – machines to help them develop infrastructure and engines to provide power until they have a utility grid in place. Eventually, we expect to do about three-quarters of our business in the developing countries.

Caterpillar has long been a major supporter of worldwide free trade. Are things better than they used to be? Can they be better? What opportunities exist for changing that?

Trade between countries is in far better shape that it used to be. But there's always room for improvement. Caterpillar took the lead 10 years ago in forming the Zero Tariff Coalition, which pushed for zero tariffs for construction and mining machines, and many more products. Zero tariffs were finally adopted five years ago, and implemented earlier this year. Strong companies everywhere, like Caterpillar, are benefiting – because our customers are benefiting. Now, a customer who buys a Cat excavator in Italy, for example, no longer has to pay an inflated price that reflects a tariff.

We've asked the U.S. Trade Representative that two things be considered at the upcoming World Trade Organization meeting in late fall: 1) that the developed countries add engines to the zero tariff list, and 2) that the developing countries begin reducing tariffs on construction and mining equipment.

We're also concerned about the frequent use of unilateral trade sanctions and their use as a United States foreign policy tool. Unilateral sanctions of various types now threaten 75 countries and two thirds of the world's population. These sanctions rarely work and all too often result in the business going to one of our foreign competitors. Statistics from the Institute for International Economics found that in 1995 between 200,000-250,000 U.S. jobs were lost due to unilateral trade sanctions. We are strongly supporting the sanctions reform bills now working their way through Congress.

For a period of many years, Caterpillar had a very low profile in the Peoria area. To a certain extent, that's changed. Why?

I don't know that our public philosophy has changed that much. We've always been very actively involved in the Peoria area, doing the sort of things that we thought would help to improve the quality of life here. After all, many of our employees make their home here, and we certainly want them to enjoy being here. We have become more visible, I think, because we wanted our employees to know that the company cared very much about the community and wanted to make it a better place. We think education, health and human services, cultural and recreational activities are important elements of Peoria. Our employees agree — they gave $1 million this past year in gifts to those kinds of activities, gifts that qualified for matching funds. Frankly, we like Peoria very much. We think it has most of the advantages of a much bigger city without the disadvantages.

Peoria has been Caterpillar's home for a long time. You're a very big corporation in a relatively small metropolitan area. Does that work?

It's worked exceptionally well. We're centrally located in this country and find we can get to where we need to be relatively quickly (which is almost anywhere in the world). We've got some great facilities here, and an excellent workforce. And, as I said, there are some other benefits about living in a city this size – it doesn't take long to get to work, prices and taxes are less than major cities, we have a wonderful Civic Center, a developing riverfront, two excellent institutions for higher learning, some great theatres and museums, the crime rate is low, there's little pollution. Peoria has great people — it's a great place.

Yet some have suggested that you're making a concentrated effort to move out of Peoria.

That's just not true. Peoria will always be at the core of the Caterpillar operation. Some of our largest facilities in the world are located here, we pump more than a billion dollars into our Peoria area payroll every year, we spend in excess of $170 million on health care services, we've hired hundreds of new engineers, financial experts and computer people. Between the company and its employees, we spend more than $12 million with local charities. There's another billion dollars a year spent with other companies in the Peoria area who are Cat suppliers, money spent on pensions, and money spent to improve our Peoria area facilities. Caterpillar has grown considerably in the last 4-5 years, and a number of new facilities are located in other parts of the world, but that sort of thing happens when you're not only a global company, but a global leader.

Being the CEO of a Fortune 100 company occupies most of your time. But certainly you create a few spare moments for yourself. What are your avocations?

Polly and I find time to work a lot of things in. I'm an avid Bradley basketball fan, we enjoy the opera-the theatre. We both play golf and tennis. Having grown up on a farm, I still enjoy working in the yard – making things grow. We eat so many meals out that staying at home and cooking for ourselves is a real treat.

What are your priorities in terms of things you and your wife would like to accomplish in Peoria?
We would like to see the community continue to grow and prosper. We'll involve ourselves in special projects as time allows. Educational and recreational needs are special interests of ours.

I'm told a Japanese reporter once asked your predecessor where he liked to go on vacation. Can I ask you that?

We travel so much that the idea of going someplace on a vacation is about the last thing that interests us. We have a condo in San Diego that we enjoy. The weather is always nice and we're close to golf. It's a great place to unwind and get refreshed. IBI