Bob's Gutsy Leadership Blog

Crisis = Disaster?

Which company’s stock grew the most in 2010: the iPad/iPhone-powered innovation machine Apple or the yellow bulldozer maker Caterpillar?

Surprise! Caterpillar +64%, Apple +53%. How did Caterpillar do it?

Back in 2005, the Caterpillar (CAT) business was thriving. On the other hand, the CEO knew how volatile that business could be (historically monthly sales can be up or down as much as 50-60%). Hence he launched a top priority project of having each business division develop a detailed plan describing what they would do to still make money if revenue dropped 80% in two years.

This was not a popular exercise because it caused divisions to realize they would have to make dramatic cuts. On the other hand, it did spawn all kinds of creative ideas on how to run the place more flexibly and efficiently.

When the exercise was finished in 2006, the business was still booming and the crisis plans were put in the file. Who knew that in late 2008, division heads at CAT would be reaching for those files and quickly implementing them, but that is exactly what they did. Cat got most of the pain and termination costs of layoffs (35,000 of the 120,000 employees) behind it by January of 2009.

The result: CAT quickly came out of the recession and not only did spectacularly well in 2010, by spring of 2011 the stock reached an all-time high. Currently CAT’s business is absolutely booming and all time high revenue and profit levels are being achieved.

Are you adequately paranoid about possible crises?

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