In this assignment I have examined a case study about the company Continental AG, which has a huge market share in the world tire and automotive industry. The primary motivation for this assignment was the case study and the interesting part of the corporate development process during 1990's recession period. Some mismanagement and inappropriate strategies guided the company to a big failure in early 90's and because of the great managerial and leadership approach by the newly appointed Chairman of the company Dr. Herbertus Von Grunberg, the company has reached to the record heights in next 7 years time. During this case study I have investigated different strategic decisions and role of corporate entrepreneurship in the development of an international company. The information provided in the case study and the methods followed by the top managers to meet the organizational goals were so inspiring to me. During the coming sections I have explained the positive and negative approaches by Continental AG in its strategic planning process during 1990's.
a. Corporate Entrepreneurship and Strategic Leadership
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Corporate entrepreneurship is the ability to initiate a change in a corporate environment. A manager who has entrepreneurial abilities must have clear understanding of his duties, responsibilities and his role in the strategic growth of the company. Entrepreneurial strategies help organizations to release the entrepreneurial energy of its employees. In this environment contribution of the employees plays vital role in the development of the organization and the development of the organization determines the existence of the employee. Entrepreneurial changes will lead companies to greater profits or solutions to the existing internal or external problems. Corporate entrepreneurship enables employees to face difficult situations effectively and make decision favorable to stakeholders accordingly. The ability to implement a strategy or get things done is also counts in this process. It is a complicated and hard process to initiate changes in an existing industry and get on with it but corporate entrepreneurship enables managers and employees to do this and hence improved performance and productivity.
On the other hand strategic leadership is something different, which enables organization to reach its goals by coordinating and managing all its resources. The key concept of strategic leadership is the identification internal and external resources and capabilities available to an organization. This will help the leader to understand the internal and external potential of the company and helps him to make strategic decisions accordingly. There will 100's or 1000's of employees under one leadership and the main functions of strategic leadership is managing and coordinating these employees by spreading strategic vision and values to them. Strategic leadership affects more people and they have to be quick decision makers, alternative finders and visionaries. Strategic leaders making future decisions and makes their employees to work on it.
b. Continental AG's agenda during 90's
To understand the Continentals agenda in 1990's during the recession period to develop new strategies for company development, we must understand the reasons of failure of the company who were world leaders in the industry in the beginning. In 1990's the world tire industry was in crisis and in the middle of a serious recession as well. This is due to the overcapacities and reduced vehicle registration process. During this period the company was adopted some common strategies like growth strategies like many other companies without doing any situational analysis. This lead to big losses and made the company indebted. During this period individual divisions in the company were running in loss because of the lack of self-motivated managers and employees. And at the same time different brands of the company such as another acquired companies in 1980's have no specific target customers and they competed each other for the same customer groups, which brought an overall loss to the company. Another factor lead to strategic failure of the company was the centralized organizational structure, which gives managers of separate divisions less control over the division and hence less responsibilities. And there are so many internal reasons for the failure and crisis of the business processes on the company during this period; those are unidentified sources of problem, failure to eliminate internal competition between acquired companies, poor centralized control and lack of understanding of the entrepreneurial initiatives by the individual divisions of the company.
Always on Time
Marked to Standard
In 1991 Dr. Hubertus Von Grunberg appointed as the Execute Board Chairman of the company and he understood the current competitions and other factors in the company leading to losses and decided to implement new ideas to utilize the full potential of the company resources. His aim was to stabilize the company profit through new strategies and sustained improvements. He decided to stop acquisitions and use full entrepreneurial force of the company for attaining future goals. This decision was intended to withdraw company's growth strategy and reduce investments on the unprofitable assets. In December 1991 Dr. Grunberg introduced his 10 points on the profit and innovation program. These key points were so successful during the next decade to make big profit by the company by reducing investments. Those 10 points are
Make growth of the company by the effective utilization of the in house resources and useful restructuring of the business and organizational processes.
More investments on sales and marketing and less investments on increasing the size of the company.
Introduce strategic alliances with other organizations for new innovations and increased productivity.
Reduce number of acquisitions by the parent company
More technological innovations have to be made to develop wide range of systems.
Spread the market to Eastern Europe
Pro active environmental protection plans by the company
Make companies general tire business profitable
Decentralization of the organizational structure and hence more responsibility to division managers.
Increase the sales and profit by 1992
This program insisted divisional managers to position the company towards profit and avoid growth strategy by reducing investments on the profit generating divisions of the company. And the program was mainly focused to take the company to the technology leadership levels. As a part of the program the company decided to get rid of the loss generating divisions and give full concentration on the profitable operations. According to the 10 points of introduced by the chairman; the company undergone decentralization to give more responsibility to managers and to maintain the transparency of the profits and losses in the company. The company itself divided in to eight independent groups with different range of products and target customers. Each group was having their own managers who had to report to the head quarters and they are fully responsible for the business processes and end results of each group. This method was so useful in identifying the product market developed by each groups and income generated from different operations of the company. As a part of the decentralization process different functional groups of the organization such as tire production, were split in to passenger tires and commercial tires/ research/ environment and both of the units were responsible for the production, marketing and sales of the product. They also have the responsibility to research for the development of environmental friendly tires.
In 1996 the company introduced new strategy on purchases and suppliers of the company. The company decided to buy steel cord essential for the tire production from Russia to avoid potentially dangerous demanding suppliers. It reduced the cost of purchase considerably. Even when different brands acquired by the company in 80's were making problems in case of overlapped target customers and market positioning. To avoid this conflicts the company concentrated on market orientation rather than brand orientation by appointing general managers to a set of brands and they are responsible for interacting with customers and positioning them to the proper brands. This considerably reduced competition between brands. Then the company controlled all the decentralized activities centrally by introducing corporate headquarters. This avoided the drifting of individual business units from the organizational aims.
The most important part of 10 points was the strategic differentiation via technological innovation. The company was aimed to become the technology leader in the industry. So the company decided to invest more on research and development process. And this resulted in to a new line of tires and other innovative tire production equipment for the company. For the research and development support to the company; it decided to add a technological centre along with company headquarters in 1996 and the same technological innovation were used by the company to centralize the decentralized operations. And there were Research Development engineering meetings at the head quarters to present new technologies by the developers and to convey the customer needs by managers. As a result of the technological innovations gained by the company, Dr. Grunberg decided to produce automotive parts along with general tire manufacturing. Dr. Grunberg believed that the Continental AG can play a dominant role in the market if they can provide complete automotive systems. As a result a new functional group called continental automotive systems were introduced in the organization. During this period the company came up with some innovative tire and chassis production ideas, which brought a differential outstanding position to the company in the market place. And later these technologies become the standards of tire and chassis manufacturing. So Continental AG has obtained uniqueness through the innovative thinking and strategies, during that period.
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In 1998 Continental AG acquired the company called Teves, which was famous for brake and chassis production. The company's major production was ABS and Electronic Stability systems on vehicles. The automotive industry of Continental GT with the introduction of innovative technologies from Teves, made the company in 9th position of the top selling automotive suppliers. And the company was an inspiration and role model for rest of the automotive industry in the world. By successful technological innovations Dr. Grunberg was able to blend the available inhouse technologies effectively to produce better results and they he tried to get uniqueness to the product of the company by making products which cannot be easily copied by competitors.
These are the main strategic changes introduced by the company in 1990's during the recession period in the leadership of Dr. Grunberg.
a. Reflection of Porter's value chain model
Porters value chain model is based on the system perspective of the organizations. A system can take input and process it to get desired output. And when we consider a business as system the operations included can be compared with that of a system. According to Porter's value chain main business operations are classified in to primary and secondary operations. Primary operations include
Inbound logistics, which deals with row material supplies to the company. Operations, which deals with internal production of the company including business processes
Outbound logistics, which deals with product output of the company and its distribution
Marketing and sales, which deals with marketing and sales of the product
Services, which deals with support services provided by the company after the sales process
Secondary operations are also known as support services include,
Human Resource Management, which deals with managing human resources necessary for the business processes
Technological Advancements, which deals with support technology implemented for business processes
Procurement, which include the procurement of resources to the company to support business operations
These operations are called value chain because it brings added value to the customers and other stakeholders.
This model is clearly visible in Continental AG's operation during 1990's. Company's main inbound supply was rubber and steel cord for the production of tires. When the company started the production of automotive parts it encouraged more suppliers. And in between Dr. Grunberg took an initiative to implement a supplier strategy to reduce the cost of supply and impact of demanding supplier problems. As a result a parallel team of management studied the market and made decisions on the steel cord purchase from Russia.
Once the main company operations was tire production and they decided to move on to automotive industry as well. In 1990's they become one of the top selling automotive systems suppliers in the world. Technological innovations and combined effect of strategic leadership and entrepreneurial management helped the company to reach its position. The company had divided in to different business division as a part of the organizational restructuring process and each division was given responsibility of different product and services. And the company has opened different production centers across the world to adopt Modular Manufacturing Process (MMP) to control the production cost according to the demand.
Outbound operations of the company were actually based on opening new market in the Eastern European countries. When the company started automotive systems business it targeted more commercial customers than retail outlets for tire sales. The company was in number 4 position in the world for its tire manufacturing and number 9 in the automotive system manufacturing during 1990's.
Continental AG had already acquired different small companies in 80's and those companies are turned in to different brands of parent company with different products and services. The company had taken more market-oriented approach during this period to eliminate internal conflicts between own brands. As a part of the technological innovation process the company allowed its suppliers and internal customers to attend Research Development Engineers meetings in the head quarters to introduce new products and services. And the global standards achieved by the company in late 90's helped the marketing and sales process much easier than earlier.
Dr. Grunberg's approach to human resource management helped the company's development in 90's. He took initiative to release the entrepreneurial energy of the internal managers via decentralized control and by giving them more responsibility in their corresponding fields. He encouraged managers to question the status quo and gave more importance to the entrepreneurial development of managers and employees via internal competitions and structured training programs.
Dr. Grunbergs primary goal was to obtain technological innovation and he established it by organizing a Research and Development wing of the Continental AG to support its business operations and attain more market share using future technologies.
Procurement of a company called Teves done a great job in the development of continental AG and it made the company a large developer of technologically enhanced automotive systems in the world.
b. Corporate Governance comparison
Corporate governance principle of Continental AG
The purpose of this corporate governance is to attain good management principles and retain the company's value and transparency across stakeholders.
In general meeting the executive board will submit the annual and consolidated financial reports. The meeting analyses the reports and actions taken by the executive and supervisory boards. And the meeting deals with new shares, purchases and remuneration systems for executive board. Shareholders can participate in the general meeting and they have the rights to vote. There should be one general meeting per year and chairperson is responsible for conducting the meeting and the meeting details and agenda can be published in the corporate website with the consent from shareholders and bound by the existing lows.
Cooperation between executive board and supervisory board
A complete cooperation between executive board and supervisory board is necessary to evaluate the strategic position of the company periodically. The information interchange between two boards is very important for making strategic decisions on the current issues and opportunities associated with the corporation such as take over and other business operations.
Corporate governance guidelines for the Goodyear Tire and Rubber Company
The main points listed on the guideline are
Size and composition of the executive board
Retirement options and responsibility change of the members of director board
Qualification for the boar membership
Election process of directors and voting procedures
Board meetings and procedures
Responsibilities of the chairman
Boards communication with outside world
Performance analysis of the executives
Strategic planning and board meeting
Shareholder rights and business proposals
a. Unleashing entrepreneurial energy
The company Continental AG was having a centralized organizational structure until 1990's, which encouraged an inactive existence of divisional managers with very less responsibility of company's overall development. When Dr. Grunberg was appointed as the chairman of the company, he realized the potential of the human resources inside the company, which is not yet been used properly. So as a part of his structural reorientation strategy, he divided the company to different business groups with different product and service and a manager is responsible for the business operations of the group. In this case individual division managers are fully responsible for the sales, profit and loss of the business and incentives and internal promotions will be given on the basis of their performance to meet the organizational goals. This was the first step taken by the company to release the entrepreneurial energy of the managers.
The company's organizational restructuring gave managers more responsibility and participation in the innovative development process of the business. This process gave managers the full control of their divisions and the freedom of decision-making for their corresponding divisions. And this encouraged managers to behave in an entrepreneurial way. Dr. Grunberg wanted more entrepreneurial managers in the company who are able face difficult situations and make quick decision, which leads to business profits and development. In 1992 Delegation of Authority and Responsibility (DAR) introduced entrepreneurial potential in all areas of the company. During this process Dr. Grunberg gathered all potential mangers with entrepreneurial abilities that showed great performance in their roles, regardless of their position in the hierarchy for the development and new innovation of the business processes. And this group was motivated to provide added advantage to the business. They are advised to initiate cross-functional actions and made them aware of the result responsibility of the business process under them, which goes beyond simple fulfillment. Customer orientation and business targets were given more importance and the group is instructed to have internal functional groups than central control.
Another way adopted by Continental AG to release entrepreneurial energy was creating internal competition between different business divisions. They created competition between unprofitable corporate groups. Dr. Grunberg mentioned these groups as 'burning platforms', where the person in charge would be subjected to more pressure to implement strategic changes in the unit and hence increased productivity. To use this pressure as an instrument for change Dr. Grunberg put these units in to competition mode, which could make more damages to the entire organization. This strategy mainly worked in production area of the company. Dr. Grunburg always compares the productivity levels of each division before the management and employees. And he also used the technique that he announced one of the divisions should be closed if they don't meet the production and sales level without mentioning which division. These statements drive managers to find out alternatives to make up the business situation. And continental AG closed some of the divisions and entire production was moved to some other division using this strategy. This process was called internal benchmarking.
Another method used by Dr. Grunberg in Continental AG to increase the entrepreneurial energy of the managers was encouraging the destruction of status quo. He encouraged managers to question the status quo of their corresponding fields and that made thoughts of changes among managers in an entrepreneurial manner. In late 1990's he encouraged managers to take risks as well on strategic decision because the company's position was far better and safe compared to early 90's. He insisted managers for 'creative destruction' of the companies existing structure for better results. Dr. Grumberg introduced incentives to for innovative changes and solutions that could question the status quo and break the existing standards.
At the same time Dr. Grumberg formed a parallel team to question the status quo by planning and implementing new changes on the organization parallel to understand its effect on actual implementation. The company was not satisfied with managers regardless of his position in the hierarchy if they were not adhere with the new entrepreneurial strategies and requirements of the company. This approach led to dismissal of different managers and board members in the company. And the company promoted young talented executives who were willing to participate in the organizational development process and capable of initiating changes. At the same time the company were conducting Junior Manager Training Program (JMTP) to promote the qualities needed to develop entrepreneurship in the organization.
b. Contribution of Dr. Stephen Kessel
Dr. Stephen Kessel became the Chairman of Continental AG in June 1999. The company was in a very stable financial position at that time after the successful administration by Dr. Von Grunberg. The company was filled with Entrepreneurial mindset managers and employees. So the first challenge for Dr Kessel was to keep the situation intact and utilize the entrepreneurial advantage of the human resources. He encourage managers to question the status quo of the company in an entrepreneurial manner, which is very important in introducing new changes in the company and hence the introduction of new product and services. In this way he was actually following the path of Dr Grunberg who unleashed the entrepreneurial energy in the company.
In 2001 company decided to make the chassis system as the prime product and he decided to concentrate more on the chassis systems market. This was a good decision from Dr. Kessel because the company has already gained sustainable technological innovation to support the chassis systems. So he was confident about the systems, which can make difference in the market. Dr. Kessel was expecting a huge rise in the use of electronics in vehicles in next five years, so he decided to put more investment on the research and development of innovative technologies, which can contribute large market share in the future.
Dr. Kessel introduced a policy called BASICS, which is an attempt to combine different functional areas of the business to achieve value to its customers, employees, owners and general public. He was pointing mainly two units such as tire manufacturing and Continental Teves to generate combined effect to make the difference in the global market. As a part of BASICS program he initiated balanced scorecard process in the company. This was very useful in maintaining and developing cross-functional managerial discussions and entrepreneurial thinking and the scorecard was reviewed annually. And this process was maintained in the company through out after realizing the potential advantage of the scorecards. Thus Dr. Kessel was very interested in promoting cross-functional strategies for technological innovations. A new strategic technologic unit is introduced these days and it helped to combine all different functional groups of the company to make profit effectively. And this strategic decision by Dr. Kessel helped the company to reorient as a system supplier and a trendsetter to the industry.
http://www.milum.net/strategic_leadership.htm / Strategic Leadeship
http://www.goodyear.com/investor/pdf/corp_gov/corpgovguidelines.pdf / Corporate governance of Goodyear
http://www.conti-online.com/generator/www/com/en/continental/portal/themes/continental/download/governance_principles_2010_09_29_en.pdf / Corporate governance of Continental AG
www.conti-online.com/ Continental AG
www.goodyear.com/ Goodyear Tyre & Rubber Company