Why Caterpillar is letting its geek flag fly

A few weeks ago, Dale Milton sat at his desk in Caterpillar’s fleet monitoring office in downtown Peoria, keeping tabs on a piece of Cat equipment half a world away in a key mining region in western Australia, reports Chicago Business.

From his computer, Milton studied the machine’s oil pressure and filters. A condition-monitoring adviser at the equipment behemoth, he could recommend that the owner take some preventive maintenance measures based on analysis of the most recent oil sample on hand and other data points.

The goal was to stay ahead of any unforeseen “events”-that is, when the grind of mining causes a breakdown and idles an expensive piece of equipment. “I’m trying to alert people before events occur on the machine, because events usually drive downtime, unscheduled,” he said.

The monitoring center fields information from about 350,000 Caterpillar machines around the world. How to use such information to drive growth and improve customer performance is high on CEO Doug Oberhelman’s to-do list-especially since, with 3.5 million or so pieces of equipment active across the globe, much more data is coming.

Challenged by sluggish sales and salivating over a market that could reach $500 billion in spending by 2020, heavy-equipment manufacturers are racing to figure out how to triangulate streams of information from their machines and use that knowledge to arm customers. Tokyo-based Komatsu and General Electric kicked off a data partnership in April that allows mining companies to find the most efficient trucking routes and even drive faster on mine sites. Separately, Fairfield, Conn.-based GE has been out front promoting its effort to modernize its products, adding sensors to locomotives, for example, so it can predict when axles are going to break down.

Long known for its manufacturing prowess, Caterpillar is scrambling to figure out how to compete in the Internet of Things era, when machines must do much more than push dirt. Cat’s signature yellow trucks and dozers are able to vacuum up valuable information about performance, permitting the company to show clients how to make the most out of the behemoths. Such insights, in turn, could keep customers loyal, presenting Cat with new sales opportunities.

“The stakes are high because mastery of these trends can consolidate or expand their global reach, but losing traction could disrupt them or shear off pieces of their businesses,” says Mark Muro, a senior fellow at the Brookings Institution in Washington, D.C., who studies advanced industries.

This year, Caterpillar has launched a string of tech-focused projects. In March, the company announced an investment in Chicago-based Uptake, a data analytics firm helmed by Groupon co-founder Brad Keywell. (See “A new model for used cars,” Page 1.) The serial entrepreneur says in an interview that the firm is working on “competitively significant” solutions related to the industrial sector, but he and Cat decline to provide specifics.

In April, Caterpillar launched an in-house analytics and innovation division. Then, in May, the company invested in Yard Club in San Francisco, a startup that lets equipment owners rent out inactive machinery to other contractors. Meanwhile, Cat started a venture fund in Silicon Valley and recently opened a data innovation lab at the University of Illinois at Urbana-Champaign.

Like other big manufacturers, Caterpillar has invested mightily in technology and innovation. The company spent $2.14 billion on product-oriented research and development last year. It employs legions of engineers and holds 15,000 pending and granted patents.

But the big-data era requires a different focus. Rob Charter, a group president at Caterpillar, says the company wants to surround customers with a tech-savvy suite of products and services. It’s about moving beyond simply making machines, he adds.

“Originally, when we built product, it was about the product,” Charter says. “What we think about all the time these days-and you’ll see it more and more in people’s thinking-is, how do we make a customer successful? And if they’re successful and they rely on us, then we’re successful.”

Caterpillar’s new emphasis on big data comes during a prolonged difficult phase for the company, and it must prove to investors that its initiatives ultimately will pay off. The equipment manufacturer has been at the mercy of broader economic factors, such as a global mining slowdown that has dampened demand for its products. Cat’s revenue fell to $55.18 billion last year from $55.66 billion in 2013, and its stock closed at $84.38 on July 2, off 23 percent from a year ago.

“I would probably tell you that 80 to 90 percent of investors are more focused on the macro issues,” says Kwame Webb, an analyst at Morningstar in Chicago who follows Caterpillar. The technology initiatives represent the future of the industry, but no one incorporates them into an investment decision about Cat right now, adds Ted Grace, senior research analyst at Susquehanna Financial Group.

Charter thinks the best is yet to come. The upshot for Cat customers from the company’s new analytics initiatives, for example, is big potential gains in productivity-by 30 to 40 percent in some cases, he says.

Using Cat’s specialized “domain knowledge” about heavy equipment and analytics, the company thinks it will be able to predict what’s going to happen to one of its machines in the field up to 95 percent of the time. That gives customers a significant advantage and will keep them working with Cat, according to Charter, instead of other companies.

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