Caterpillar: Smart Iron Delivers Customer Value

From Product Promise of the Past to the Promise of the Future: In the pre digital revolution economy, products were defined by technical features and detailed specifications that product marketers and designers believed were important to customers. Product companies enumerated technical specifications and delineated contract terms to which they promised to adhere.

Caterpillar and the Internet of Things

Caterpillar uses Internet of Things (IoT) technology to connect more than 500,000 units of industrial equipment around the world. For instance:

  • Caterpillar’s VisionLink, a joint venture between Caterpillar and Trimble, connects machines, fleets, and construction jobsites.
  • Cat Connect is Caterpillar’s digital telematic backbone, offering multiple levels of connectivity and data analysis based on incremental customer value.

 


In the digital era, the product promise of the past is quickly transforming into the product promise of the future, in which the competitive edge is achieved not by technical specifications but rather by the ability to help customers realize meaningful business outcomes.

The key to success in the era of the pervasive digitalization and ubiquitous connectivity of the Industrial Internet of Things is to shift the product strategy away from tightly controlling products and supply chains, and waging price wars aimlessly and in vain, to focusing on delivering and measuring customer value. Product thinking must shift from inside the company to customer value and a dynamic, interconnected, and collaborative ecosystem that continually realigns itself around worthy innovation.

In my book The Outcome Economy: How the Industrial Internet of Things is Transforming Every Business I posed a challenge to industrial manufacturing companies: “The question that remains is: will your organization be a leader in pursuing the promise of the future, or be a footnote in the annals of the past?”

One company that is at the forefront of realizing the product promise of the future is industrial equipment manufacturing giant Caterpillar.


“In his keynote at bauma 2016—the world’s largest construction industry trade fair—then Chairman and CEO Doug Oberhelman unveiled a vision of “The Age of Smart Iron,” declaring: “Caterpillar is the world’s leading innovator around iron. We’re going to lead innovation in smart iron, too.”


Connected Assets, Connected Customers

Caterpillar uses Internet of Things (IoT) technology to connect more than 500,000 units of industrial equipment around the world, and deliver digital solutions designed to improve productivity, efficiency, safety, and profitability to its customers worldwide.

As Terri Lewis, Digital and Technology Director at Caterpillar, sees it: “If we don’t get connected and add value and help solve the customer’s pain points, others will disintermediate us and we’ll just be data feed into their service and solution.”

Caterpillar’s VisionLink, a joint venture between Caterpillar and Trimble, connecting machines, fleets, and construction jobsites. It is one component in a growing portfolio of industry-specific connected applications designed to improve value to customers by tracking equipment location and utilization, monitoring and managing fuel consumption, identifying operators needing training, and planning and scheduling equipment maintenance. Another customer-centric application is Marine Asset intelligence that helps equipment operators and fleet owners optimize fuel usage and scheduling of maintenance and repairs when making port calls.

Cat Connect is Caterpillar’s digital telematic backbone. It offers multiple levels of connectivity and data analysis based on incremental customer value:
· Level 1 — Inform: Access to machine data and equipment usage reports such as run time, fuel burn and idle time.
· Level 2 — Advise: Data analytics and recommendations from Caterpillar advisers for operations optimization and proactive maintenance.
· Level 3 — Partner: Outcome-based contracting to achieve maximum efficiency, lowest cost of ownership, and highest availability. For instance, a “fuel guarantee” contract offering that reduces fleet fuel consumption.

While industrial IoT software vendors love to talk about sophisticated artificial intelligence (AI) and machine-learning technologies that promise to monitor and predict impending failures in complex machinery, Lewis sees equally important and easier to reach opportunities to deliver customer value: “Asset visibility has tremendous value without the need for complex AI, which is difficult to sell in many industries.”

Delivering Customer Value: If You Build It, Will They Come?

Creating a business application that customers will buy into requires much more than mere connectivity to remote machinery. Holger Pietzsch, Head of Marketing and IoT Solutions at Caterpillar, states emphatically: “it is difficult to get paid for promises without having clear evidence of value.”

The notion of collecting and analyzing data and turning it into customer-value insights isn’t as simple as it sounds. Lewis led a three-year effort to mature and crystallize the company’s understanding of business outcomes from the customer’s point of view. Not surprisingly, the journey has also resulted in a deeper understanding of the customers’ expectations concerning data ownership and usage rights, and establishing the appropriate policies to collecting and sharing machine-generated data.

Lewis’s initial goal was quite modest and straightforward: provide continuous visibility to Caterpillar-made assets around the globe. Industrial equipment is frequently resold and moves around, sometimes across oceans, and tracking its whereabouts is difficult. Caterpillar’s service dealers worldwide use VisionLink to identify the location of different pieces of equipment in their territory, and preplan service resources and spare parts logistics.

In Africa, caterpillar’s generators are installed in far-flung remote locations that are difficult and often dangerous to reach. They are frequently put out of service due to theft of batteries and fuel. While the software application cannot prevent theft or vandalism, it can alert service personnel and help improve the availability of emergency system.

All new equipment from Caterpillar is shipped with telematic capabilities. Caterpillar also offers connectivity to competitive equipment, and fleet owners can use a retrofit solution to raise the “electronic IQ” of older products and add them to the network.

Lewis’s vision is clear: “we focus on better, richer, more fully integrated relationship with the customer”.

Data is Showing the Way

Caterpillar’s fleet of over 500,000 connected assets provides a continuous torrent of highly valuable information, helping Caterpillar gain valuable insight into machines’ operation, utilization, and reliability.
Initially, this information was utilized to inform service demand forecasting and management, and drive spare parts strategies.

The same data is being fed into product quality, durability and reliability performance analysis.

Caterpillar product marketing uses operations data to define and product performance claims. Instead of general specifications describing average performance goals, which often understates the equipment capabilities, detailed data now allows product marketing and engineering to design for and commit to higher level of performance. And fleet-wide objective and finely-segmented data provides product and service engineering unprecedented insight to define and validate new product requirements.

And Caterpillar promises more to come. Lewis plans to “let the data show us where to go next.”

The Promise of the Future

In a 1996 HBR article Make Your Dealers Your Partners, then Caterpillar’s chairman and CEO Donald Fites wrote: “Independent dealers know more about their customers’ needs than Caterpillar ever could.” The Internet of Things connects Caterpillar, its dealers, and customers in ways not possible 20 years ago.

Caterpillar is moving from a highly product-centric culture to one that focuses on delivering customer value. Caterpillar is moving from the product promise of the past, which was based on specifications and figures of merit, to the product promise of the future: helping customers achieve better business outcomes. Pietzsch observes: “As a vendor, we want to optimize our products. But our customers focus on optimizing the entire process.”

And to accomplish this, an organization must rethink not only product design practices, but also how products fit into novel business models and customer engagement practices, as Lewis puts it: “it’s not going to drive just digital business. It’s our whole business model.”

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