vicki powers
freelance writer

Virtual Communities At Caterpillar
Foster Knowledge Sharing

T+D (American Society for Training & Development), June 2004

by Vicki Powers

Knowledge management at Caterpillar used to revolve around coffee. Jim Coffey remembers how buying a colleague a cup of coffee at Caterpillar would enable employees to learn anything they needed to know.

"That was our knowledge management for years," says Coffey. "Now, the Knowledge Network helps support that virtually for people who can't walk by my desk and buy me a cup of coffee."

As a 31-year Caterpillar veteran, Coffey doesn't believe the Knowledge Network has changed the organization's culture—rather, that it has supplemented what had already been in place for more than 75 years: a genuine culture of sharing. Now it takes place virtually instead of over a cup of coffee. And it achieves significant savings along the way.

Focusing on Intangible Assets

Thirty years ago, Caterpillar Inc.—a Fortune 100 manufacturer of construction and mining equipment, engines, and gas turbines—operated with roughly 70 percent of its outstanding value in hard assets and 30 percent in intangible assets. Today, the numbers are dramatically different: Caterpillar's intangible assets, such as intellectual capital, account for 85 percent of its value.

"Most people don't think of us as a knowledge-asset company," says Reed Stuedemann, knowledge sharing manager and a 27-year Caterpillar veteran. "It's an indication of how important knowledge is to Caterpillar." Just as many current corporate innovations and strategies started primitively as a drawing on a dinner napkin, Caterpillar's huge knowledge-sharing system—with nearly 40,000 registered community members—started with a laptop computer and a summer intern. Back in 1998, engineers in Caterpillar's Technical Center wanted to capture "lessons learned" and avoid duplicated efforts. As the organization moved from a silo-based organization into 26 business units, its 70,000 worldwide employees lost track of people and knowledge.

"We found we were repeating the same mistakes and doing the same research multiple times from different business units," Stuedemann says. "If one business unit funded research, you weren't aware of it and funded it again."

In January 1999, Caterpillar launched its Knowledge Network as a Web-based system delivered via the Internet to 12 communities of practice. In the beginning, these communities comprised employees working to improve performance by collaborating and sharing knowledge. Topics for the first communities related mostly to standards and regulations.

One early community, for example, focused on bolted joints and fasteners. In this specialized engineering field, these people generally work solo in a manufacturing facility without others to ask questions or gather second opinions. "They had a need to get the message out to a very focused, limited audience around the world dealing with bolted joint designs," Stuedemann relates.

Caterpillar structured its system so community members can communicate to others through community discussions and knowledge entries. Community discussions provide a way to post a question out to the community immediately, without any approval, through email. Knowledge entries allow community members to distribute validated information that has been reviewed and approved by the community manager. Stuedemann says this is Caterpillar's way to ensure that members receive credible information.

Communities also provide space for reference materials that relate to the topic and users within a community. Community managers can select documents and links to add under Tools and Guides. Another section, Standards and Specs, contains links to standards and regulations relevant to the community.

Moving KM to Caterpillar University

In 2001, Caterpillar discovered a number of relevant issues that would affect its business: new technology, a changing marketplace, and changing demographics of an older workforce that would begin retiring in the next few years, often with more than 30 years of service. A team within Caterpillar examined how the organization could remain competitive in the future. It recommended that Caterpillar make the transition to a continual, learning organization, of which knowledge sharing is a key element. In response to that need, the organization formed Caterpillar University in 2001. Its learning philosophy centers around a triangle-shaped learning model with "Build People" as the center. Three elements make up the sides of the triangle: Leadership, Knowledge Sharing, and Learning Culture.

The Knowledge Network moved under Caterpillar University and out of the Technical Center at that time because the organization viewed it more as a knowledge-sharing tool than as technology. Through this relationship, Caterpillar University has supported the organization's business objectives of knowledge management that focus on supporting a learning culture, delivering bottom-line results, and improving performance.

Mark Shipley, global learning project manager at Caterpillar, believes that the Knowledge Network's reporting relationship to Caterpillar University — rather than to a corporate-level executive—definitely made a positive impact on its success. Managers within each community facilitate the 3000 communities of practice. The corporate staff for the Knowledge Network is a small team of six, including positions in marketing, information services, technical support, and a knowledge-sharing manager.

Shipley manages several communities of practice, including the Global Learning community. He especially appreciates how easy it is to get the word out quickly within a community.

"If anyone has a question [around learning], there are upwards to 400 people who have part of their job responsibility for learning," Shipley relates. "There's a wealth of knowledge out there to tap into quickly."

Watching the Customer

Once the Knowledge Network moved out of the engineering arena, Caterpillar's nontechnical audience found it difficult to use. What appeared intuitive to the IT people wasn't so intuitive to others in the organization.

"It was obvious that this was never going to go anywhere outside a technical group when we showed it to nontechnical people," Stuedemann says. "If we even thought of taking this across our value chain to dealers and suppliers, there was no way it was going to work."

Caterpillar University brought employees into its usability laboratory to complete a list of 20 to 25 common functions that occur within a community. Stuedemann says CU wanted to see whether users could complete the list without help. Where did they look? Where did they move their mouse? Where would their eyes go for certain activities? The group redesigned the system based on feedback and conducted more usability testing. Stuedemann says CU conducted three different rounds of usability testing before getting it right. "What surprised me most was the impact from the redesign," Stuedemann says. "Our growth rate more than doubled. It turned on a dime and never stopped."

In January 2002, Caterpillar's communities numbered 800. A year later, they reached 1800. Its communities hit the 3000 mark in February 2004.

Over time, Caterpillar's KM measurements have developed and increased right along with the community participants. The organization tracks about 50 volume metrics each month, such as number of discussions, number of searches, number of people logged into the system, and number of participants. That has evolved into more sophisticated system queries using real-time data.

"We don't have a set goal for number of communities, but we do have a goal for engagement," Stuedemann says. "We try to increase and grow the amount of discussion and activity in the system because people can leave anytime. That's a very direct way of measuring whether people are satisfied. Currently, about 80 percent of participants are highly satisfied."

John Crager, senior adviser at Houston-based American Productivity & Quality Center, says that measures and return-on-investment are important elements of KM initiatives from a financial perspective. When a business case doesn't exist and money seems to be going into a black hole, organizations have no understanding of KM's impact on business.

"It's hard to get follow-on funding and support without it," Crager relates. "The organization needs to tie KM to tangible success factors that the organization uses."

Focusing on the Day Job

One of the elements that has helped the Knowledge Network succeed is its delegated management approach rather than a centrally controlled system. The people who have a need in the community define its purpose. The community managers in each community of practice define who the experts are in that specific area and locate them within the organization. Community managers also invite participants to join the community, who can either accept or decline based on their needs and interests. Communities of practice number from a small team to hundreds of employees spanning the globe from places such as Australia, Singapore, Asia/Pacific, and Europe .

"By having delegated management, you can have 3000 communities, and it works. For the people who are involved in managing those communities, it's about their day jobs," notes Stuedemann. "It's not something in addition to. Our recommendation is to have very focused purposes, such as threaded fasteners or contamination control. World hunger and world peace don't work at Caterpillar!"

Crager, who served as project lead in APQC's consortium study, "Measuring the Impact of Knowledge Management," says Caterpillar stood out from other study partners for several reasons. The first element is the depth of Caterpillar's communities of practice. These aren't just organized by areas of interest, he says, but by areas of interest where they can improve and solve problems. "Caterpillar would rather have small, targeted communities," Crager says. "And for their culture, it works very well."

Another aspect that contributed to Caterpillar's success with its Knowledge Network is the company's long history of sharing ideas. Although it might have been difficult to find the right person in the past because of its worldwide audience, there never was any fear of sharing ideas.

"No tool is going to make people share something they don't want to share," says Coffey, manager of the Quality and Reliability community. "But if people are willing to share, a good tool that supports the community of practice and knowledge sharing increases the velocity of that sharing in a worldwide organization. That's what we were aiming to do, and that's what has been successful here with the Knowledge Network."

Taking it Outside

Caterpillar moved beyond its borders in August 2002, to invite its independent dealers to participate in the Knowledge Network. Today, Caterpillar boasts 7000-plus dealers participating in its external communities, which spread profusely by word of mouth. These communities, which make up approximately 10 to 15 percent of Caterpillar's communities, include dealers, suppliers, and customers. The company expects in the next year that external users of the Knowledge Network will outnumber Caterpillar employees, based on its current growth rate.

Crager says Caterpillar's choice to bring external people into its communities is another unique aspect. Though Caterpillar was in the forefront with this idea, other organizations are just now in the early stages, says Crager. Many organizations generally believe their intellectual property isn't protected with external users.

Dealers such as Don Pratt in Fargo, North Dakota, can't imagine not having external communities at Caterpillar. Pratt became involved in Caterpillar's pilot community of practice focusing on Dealer Service Training in March 2002. At the time, he chaired the Dealer Advisory Board and jumped at the opportunity to pilot a tool that only previously existed inside Caterpillar. Communication throughout 1,800 dealer locations and 90,000 dealer employees proved challenging before the Knowledge Network.

"One of the frustrations as dealers is how do we communicate," says Pratt of Butler Machinery. "If you have a central place to share projects and emails, it makes it easier to get the resources all in one place. The biggest value of the Knowledge Network is it made me aware of not reinventing the wheel in the training area." Pratt serves as training and development manager for the dealership's 450 employees and manages three full-time trainers.

"We have responsibilities to stay ahead of the training curve, and the Knowledge Network has allowed us to do that—how to communicate and stay on the same page," Pratt says. "It has helped in many different areas—not only the problem solving, but also the ideas that come out for a competitive edge."

One improvement example, according to Pratt, focused on a hands-on aptitude test to hire quality technicians. A dealer posted a question in the Dealer Service Training community about this test and its validity. Pratt says dealers lost this as a hiring tool through the years. While some dealers were using the test, many didn't know it was available. In just two hours, dealers could get the schematics by email from the community after learning about it online.

Stuedemann says people in an external community such as this have an easier time correlating how knowledge and expertise impact more than time savings. In this example, it's customer satisfaction. Stuedemann says the impact of an ineffective mechanic calling on a customer will provide a much greater impact on the bottom line and the customer.

Analyzing Value and ROI

Caterpillar University wanted to provide credibility to its US$2.5 million investment (from 2000 to 2003) for its knowledge management group and expanding Knowledge Network. CEOs and other leaders started asking questions about the tangible business value of the Knowledge Network. The organization studied its ROI impact by working with Merrill Anderson, CEO of MetrixGlobal LLC. It selected two communities—one internal and one external—to examine bulletin board discussions.

The organization interviewed 120 people who had initiated discussions that received more than one response. After studying 23 threads in the Bolted Joints and Fasteners community and five threads in the Dealer Service Training community, MetrixGlobal identified the qualified benefits and calculated a business-cost ratio and ROI for each. The return-on-investment ranged from 200 percent for the internal community to more than 700 percent for the external community.

The breakdown of intangible benefits fell into these specific areas: productivity (40 percent), cost (25 percent), speed (15 percent), quality (4 percent), and other (16 percent). The survey determined the percentage of value derived from the Knowledge Network and validated the confidence level of that estimate.

The findings revealed a number of interesting factors. One, members in these two communities saved more than $1.5 million from online discussions in the Knowledge Network. One entry exceeded more than $1 million, which was removed for the ROI calculations. Two, ROI study results illustrated that the value of discussions in external communities is four times higher ($2500) than the value from internal communities ($600). The total estimated savings from 2003 to 2008 is estimated to reach $75 million.

"Caterpillar was obviously happy with how the results came out," says Anderson . "Clearly, it's a conservative estimate because we examined only the bulletin board. The real strength of the Knowledge Network is its bottom-up approach. People are using what they really need to use in a way they need to use it."

Caterpillar has also achieved a number of intangible benefits from its Knowledge Network. The organization's communities of practice have improved decision making, increased collaboration and teamwork, improved work quality, and improved product design and development.

Just as important, leaders' perceptions shifted to managing knowledge as a strategic asset with a bottom-line return. What started as a grassroots knowledge management program escalated into a vast, enterprise-wide solution involving more than half of Caterpillar's 70,000 employees.

How Do the Best Do It?

Caterpillar participated as a best-practice partner in "Measuring the Impact of Knowledge Management," a consortium study sponsored by the Houston-based American Productivity & Quality Center (APQC). In this study, Ford Motor Company, IBM, Schlumberger, and Halliburton, along with Caterpillar, illustrate how measuring their KM efforts significantly impacts their knowledge management initiatives. These organizations have a 200 percent measurable ROI, which translates to an annual impact of US$7 million to $200 million.

What makes these organizations successful in terms of their knowledge management results and their ability to acquire additional funding to expand?

  • KM programs are specifically focused on the objectives of their organizations and not loosely linked to strategy.
  • These organizations track the impact of knowledge management in addition to KM costs and activities.
  • Study partners use the language of the firm to define and measure knowledge management. They refer to sharing and leveraging knowledge—in place of using the term "knowledge management—which is more tangible and easier to explain.
  • These organizations have a core KM support group to coordinate and facilitate the activities in support of the business goals.

Source : Measuring the Impact of Knowledge Management, (2004), American Productivity & Quality Center, Houston, Texas.

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