Malcolm Baldrige National Quality Award
2003 Award Recipient, Service Category

Caterpillar Financial Services Corporation U.S.

• CFSC constitutes about 5 percent of Caterpillar, Inc.’s revenues, but its contribution to the company’s total earnings has increased from 5.6 percent in 1998 to more than 25 percent in the first nine months of 2003.

• Performance levels exceed industry and American Customer Satisfaction Index world-class benchmarks.

• CFSC’s 6 Sigma improvement efforts have led to significant after-tax savings since the company embraced the methodology in 2001.

• In 2002, 80 percent of employees said they would recommend CFSC as a good place to work. The national norm is 55 percent.
  
  
  
  
  

Caterpillar Financial Services Corporation U.S.

Type of Work: Caterpillar Financial Services Corporation U.S. (CFSC) is the financial services business unit within Caterpillar Inc., a manufacturer of construction and mining equipment, gas and diesel engines, and industrial turbines. Incorporated in 1981 to finance Caterpillar’s lift trucks, CFSC now provides financing for the complete line of Caterpillar products. CFSC is the second largest captive-equipment lender in the United States and provides financing services to users and dealers of Caterpillar equipment and the Caterpillar Business Units.

Revenue: more than $1 billion
Workforce: About 750 employees
Location: Nashville, Tenn.

Quality and Performance Results:

• From 1998 to mid-2003, CFSC has increased assets 34 percent and profit 54 percent while industry performance declined 21 percent and 35 percent respectively. The organization has attained maintained strong ratings from the top three credit rating agencies.

• CFSC constitutes about 5 percent of Caterpillar Inc.’s revenues, and its contribution to the parent’s total earnings has improved from 5.6 percent in 1998 to 25.6 percent in 2003. This supports its mission of helping Caterpillar, Cat dealers, and their customers succeed through financial service excellence.

• The Non-Interest Expense as a Percent of Assets, a key measure of organizational efficiency, has stayed below 3 percent from 1998 to present, while the industry top quartile comparison has increased from 2.41 percent to 3.99 percent, and the industry average has increased from 5.46 percent to 8.73 percent during the same time period.

• Satisfaction of end users, one of three key customer groups, has increased from 89 percent to 93 percent over the past five years in the Equipment Division. User satisfaction with Loan Origination in the Marine Division has improved from 91 percent to 97 percent from 1999 to 2002, and from 90 percent in 2002 to 93 percent in 2003 in the Power Division. In all cases, the current levels of performance exceed industry and ACSI (American Customer Satisfaction Index) world-class benchmarks.

• CFSC exceeded customers’ expectations twice as often as competitors. Only 1 to 2 percent of customers were dissatisfied with the service or options they received from CFSC.

• CFSC has created an environment of empowerment for employees. As a result, employee satisfaction with their involvement in the business has improved 15 points to 79 percent since 2001, with the current level of performance significantly better than the industry norm at 51 percent and best practice benchmark at 68 percent.

• Trends in the Employee Satisfaction Index have been favorable, improving from 67 percent in 1995 to 89 percent in 2003. Employee satisfaction with the job exceeds the financial services norm and is consistent with the score achieved by best practice organizations.

• In 2002, 80 percent of CFSC employees recommended the organization as a good place to work, up from 67 percent in 2000. The national norm is 55 percent. Likewise, the measurement of Employee Retention improved four points to 94 percent since 2000 with the current level of performance significantly better than the top quartile comparison. These results reflect CFSC’s efforts to meet its strategic challenge of attracting and retaining skilled employees.

• CFSC’s investment in employee recognition programs has increased by nearly four times, from $84,000 in 1999 to the current level of $263,000 in late 2003. Employee recognition is used to enhance and reinforce workplace initiatives such as 6 Sigma. CFSC also recognizes employees with incentive pay, which is paid out quarterly and directly aligned with company goals.

• Senior leaders have made employee development a priority at CFSC based upon employee feedback. The training investment in 2003 is over $2 million.

• From 1197 through mid-2003, productivity has improved by more than 10 percent and the current level of performance is nearly 35 percent better than the average of the financial industry’s Top 100.

• Since 1993, CFSC has used the Baldrige performance excellence criteria to assess the organization and guide improvement efforts. CFSC has improved its Baldrige-based assessment score, which is identified as a key improvement methodology, by more than two-fold since 1993.

• The vision for CFSC’s Business Excellence model is “We will be a significant reason customers select Caterpillar worldwide.” Seventy-nine percent of customers considering the purchase of Cat equipment say that CFSC products and services favorably influenced their decision.

• CFSC is committed to its employees well-being and satisfaction. Ninety-three percent of employees participate in the Caterpillar Healthy Balance program which earned a national C. Everett Koop Award for Wellness Promotion in 1999 and the Wellness Councils of America “Well-Workplace Award” in 2002. Caterpillar’s benefit program has been rated one of the best by Money magazine. To help maintain employees' health, CFSC has a fully staffed fitness center on site. Sixty percent of CFSC employees use the center, up from 42 percent in 2000, exceeding the YMCA’s benchmark of 25 percent.

Processes:

• CFSC supports an environment of innovation. It was one of the first in its industry to launch new technologies including; FinancExpress^SM, – an internet-based financing tool for employees, users, and dealers; AccountExpress^SM, a web-based service capability available 24/7 to provide customers with information regarding their accounts; and CustomerExpress^SM, a system that improves CFSC’s ability to listen to its user and dealer customers and better manage those relationships.

• CFSC uses a structured six-step strategic planning process that yields both a one-year tactical plan and a four-year strategic plan. The process starts with an annual retreat where strategic direction is revised by the top senior leaders, followed by a four-month strategy development period; an annual leadership conference where the top 45 leaders and managers develop preliminary division strategies and support department requirements; a cycle for developing action plans and goals for divisions, support departments, and 6 sigma projects; a plan review and resource allocation step; and, the final step of developing unit action plans/goals and individual employee performance and development plans.

• CFSC uses a balanced scorecard of measures to assess organizational performance. Data are selected to support 11 Top Tier measures and 39 detailed Health Indicators that are aligned with CFSC critical success factors. Top Tier measures and the Health Indicators are analyzed for actual performance, trends, and variance to plan and reviewed at monthly Business Executive Council meetings. To ensure linkage of management, measures, and improvement activities, senior managers lead Business Excellence Council (BEC) discussions, document concerns and decisions, update the metrics, and lead the related Baldrige Category Teams.

• Since 2001, CFSC’s 6 Sigma teams use a five-step DMEDI (Define, Measure, Explore, Develop, Implement) process for designing new processes and the six-step DMAIC (Define, Measure, Analyze, Improve, and Control) for improving existing processes. Specially trained employees called Black Belts, experts in the 6 Sigma process and team facilitation; Green Belts, subject matter experts; and Yellow Belts, trained in basics of 6 Sigma, comprise these teams.

• Since 2001, CFSC has increased the number of Master Black Belts from none to four, and Black Belts from nine to 26, Green Belts from 64 to 182, and Yellow Belts from 42 to 693, and increased the number of 6 Sigma projects from four to 100. The 6 Sigma improvement efforts have led to significant after-tax savings since the company embraced the methodology in 2001.

• CFSC manages organizational knowledge through several mechanisms, including e-mail; an Intranet; shared network drives; public folders which store knowledge by subject, department, and other customized formats; Caterpillar’s Knowledge Network, which is a web-based tool that provides for collaboration at many levels; and a searchable database called eTracker, which captures learning from over 1,000 6 Sigma projects. Best practices are identified through annual state quality conferences, the Quest for Excellence conference, which features recipients of the Malcolm Baldrige National Quality Award, and Peer Learning Network meetings.

Leadership/Social Responsibility:

• Since 2000, selected indicators of ethical behavior have improved. Employee Perceptions of Ethical Behavior improved four percentage points to 84 percent, with the current level of performance significantly better than the national benchmark. Employee perception of the Truth/Reliability of Leaders has improved from 59 percent to 76 percent, with current levels of performance better than the Financial Service Industry norms of 52 percent and the Best Practice norms of 61 percent.

• The Caterpillar Board of Directors was rated by the Institutional Shareholders Services in the top 11 percent nationwide for overall corporate governance, and in the top seven percent within the capital goods industry. The board exceeds national benchmarks for independence. In addition, the organization exceeds requirements of the Sarbanes-Oxley act requiring all BEC members to certify compliance of financial statements.

• CFSC demonstrates favorable improvement trends over two or more years on selected measurements of organizational citizenship. CFSC employees contribute more than 20 percent more to the local United Way than the national norm. It received United Way’s highest honor for financial and program support in 1998 and 2000. Seventy-eight percent of employees are satisfied with CFSC’s community support.

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Created: 11/25/03
Updated: 11/25/03
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