Douglas R. Oberhelman, a group president at Peoria, Ill.-based construction and mining equipment manufacturer Caterpillar Inc., was formerly the company's CFO. Oberhelman explains to Business Finance editor Laurie Brannen how a finance background can pave the way to the executive suite.
Laurie Brannen: How did your stint as CFO prepare you to move up in the organization?
Douglas Oberhelman: I served as Caterpillar's CFO for four years. My experience during that time was tremendously valuable to me in several areas. Most notable was the broad perspective you must have as a CFO to view the company as a shareholder does. Cross-functional activities and thinking are important as a CFO, and this carries directly into my current position as group president. In a big, public company, shareholders rule, and the enterprise results are critical. External relations are also important as a CFO, including those with banks; shareholders; some large customers; and, of course, the board of directors. The CFO is really the first opportunity to get to know and understand the board and its function. This has proven invaluable as a member of the executive office and being a group president.
LB: What do you see as Caterpillar's biggest business challenges this year, and what will be the role of the finance function in meeting those challenges?
DO: In 2006, Caterpillar should continue to enjoy robust growth. Our outlook calls for another 10 percent top-line growth, which will nearly double the company's sales compared to sales and revenues over the last three to four years. Cash management inventory levels are important in 2006, as are asset turnover ratios. We simply have to work harder than ever to implement improved cash-to-cash cycles. The finance function plays a key role in this as the cash flow manager as well as the group that can see across all units to not only measure progress but to stimulate thinking and improvement. At Cat, our CFO forum is a perfect group to drive these improvements. It is the CFOs of all of our major businesses within Caterpillar who meet frequently to review this kind of broad topic.
We'll also spend considerable time this year planning for the trough that we know will confront us in the future. One of the greatest challenges is to keep a close control on costs in a time of meeting high demand and producing record earnings. We remind our employees that it's easier to manage costs in the up cycle than to cut costs in the down cycle. If we keep a continued focus on cost now, we will be preparing ourselves for a time in the future when larger economic factors may cause a slowdown in our business. The finance group can lead this type of planning across our businesses.
LB: What are the most important contributions your finance function has made to Caterpillar's success, and how did those activities benefit the company?
DO: There have been several critical contributions over the years. Caterpillar is known for being one of the very early pioneers in cost accounting and activity-based accounting. This serves us very well today, as we can tell the profitability of individual machines and engines sold anywhere in the world. Our active pension-fund management has enabled Cat's pension-fund returns to be first in the Russell 1000 Index's universe of companies for three years. I believe this is exceptional performance, coupled with being well-funded in all the defined-benefit plans.
Finally, in the last two years or so, we've adopted what we call transparent financial reporting -- TFR. TFR's origin came from the desire to tie each business unit's results to our external statements, just as a shareholder would view them. This has directly led to a new understanding of how we make money. It's a simple premise but a powerful tool that our managers can utilize.
LB: Your tenure at Caterpillar has spanned three decades. To what would you attribute that longevity, and what would you tell people starting out in finance about working for one large organization for their whole career?
DO: When I began my career at Cat in 1975, fresh out of school, I really didn't think I'd be here for so many years. At that time, I looked at people my age with 30 years with the company and thought they were out of touch. Well, here I am today, striving to be in touch every day. I do a lot of communicating with employees -- or at least I try to. That can be a challenge with everything going on, but it's important.
For people starting at Cat today, I have a pretty simple but enthusiastic message. As a company with $36 billion in sales, more than 85,000 employees, and factories and offices all over the world, there's never been a better time or a better company to position yourself for the future. When I began, big chunks of geography were closed markets. Vietnam, China, the CIS, India and many others are now open and available. Our products and services have never been broader or better. It's our challenge to go get them.
LB: Your career includes some overseas positions in Asia and South America. Could you comment on the value of that experience?
DO: I lived in Uruguay in the early 1980s and Japan in the early 1990s. I can't imagine being in my position as group president today, in a world so open for commerce, without any international experience. I've been lucky enough to visit about 70 countries over the years and really got to know others in different cultures. I feel this has made me a better manager and leader. From simple things like exchanging business cards to complex joint ventures, all of these experiences have helped me tremendously.
LB: What do you believe are the most important personal characteristics and job skills of an effective finance leader?
DO: My view of leadership is pretty basic. It's about communication and setting high standards. As I look back at my favorite bosses or other leaders here at Cat, they were the ones that asked my opinion, listened and then charted the course. No one likes being left in the dark and not included. I really try to communicate, communicate and communicate.
Secondly, I value performance and success. Everyone does, but it's amazing how people will respond to stretch targets if they feel it's the right thing, and most of all, if they feel their leaders are also committed and leading. That's good leadership, in my opinion.