According to Sharma and Chrisman (1999 in Dess et al., 2003, p.352), "Corporate Entrepreneurship is the process whereby an individual or group of individuals, in association with an existing organisation, create a new organisation, or instigate renewal or innovation within that organisation".
Also according to Vesper (as cited in Hornsby & Kuratko, 1999, p.29), "Corporate Entrepreneurship is a new strategic dimension, initiative from below and autonomous business creation."
That is mean, focuses on creating a new product market that competitors have not discovered yet or are not successful in that market. Domain redefinition aims to have first mover advantage in that new market.
While CEOs are concerned about profitable organic growth, they find corporate entrepreneurship or creating new business as one of the solution (Lippitz & Wolcott, 2007). As corporate entrepreneurship is becoming popular, research on CE has grown too (Dess et al., 2003).
Corporate Entrepreneurship Success Factors
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According to Abraham, there are four important corporate entrepreneurship success factors that must exist within an organization (1997 in Kenney and Mujtaba, 2007; Sathe, 1985 in Kuratko and Hornsby, 1999)
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The first factor is management support which is about promoting entrepreneurship in the organization. The management support consists of championing the innovative ideas, providing necessary resources, transparency within organization, being a coach or mentor rather than being a manager .The second factor is autonomy which points out that employees are ready to take risks and failure is tolerated by management. This factor must be strengthened by the organizational structure which facilitates the implementation of ideas. The third factor is reward and reinforcement. The effective reward system will enhance entrepreneurial behaviour in organization and help employees to take risks. Both extrinsic (monetary) and intrinsic (recognition) rewards motivate employees to be more entrepreneurial. The last factor is time availability. There must be flexible time constraints which let employees to deal with a long term problem. (Echols and Neck, 1998; Kuratko et al. 1999).
The concept strategy does not have a very old history in the business context. It was originally introduced as the ability to use the company resources to reach the company goals and entails an interlinked pattern of behaviours describing how to reach the business visions and goals (Bengtsson & Skärvad, 2001).
Different perspectives are based on different beliefs and views and can then inevitably also be found within the same company (Melander & Nordqvist, 2008, p. 34). If the strategy defines pattern of behaviour of how to reach goals, then there should be a unified understanding of the strategy to maintain unified pattern of behaviour.
Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. Multifunctional in nature, strategic leadership involves managing through others, managing an entire enterprise rather than a functional subunit, and coping with change that continues to increase in the 21st century competitive landscape. (Green, Hassan, Immelt and Marks, 2003, 38-45)
The crux of strategic leadership is the ability to manage the firms operations affectively and sustain high performance over time. (Maccoby, 2001, 58-60)
Firm's ability to achieve strategic competitiveness and earn above average returns is compromised when strategic leaders fail to respond appropriately and quickly to changes in the complex global competitive environment.
However, managers also make errors in their evaluation of the competitive conditions. These errors in precaution can produce less effective decisions. But, usually it means, that managers must make decisions under more uncertainty. Effective strategic leaders are willing to make candid and courageous, yet pragmatic, decisions that may be difficult but necessary, through foresight as they reflect on external conditions facing the firm.
The ability to manage human capital may be the most critical of the strategic leader's skills. (Hit and Ireland, 2002, 3-14)
Competent strategic leaders also establish the context through which stakeholders can perform at peak efficiency. (Post, Preston and Sachs, 2002, 6-28)
Strategic leaders also need to understand how such decisions will affect the internal systems, which currently use in the firm. Effective leaders use visioning to motivate employees.
The primary responsibility for effective strategic leadership rests at the top, in particular with the CEO. Others commonly recognised strategic leaders include members of the board of directors, the top management team, regardless of their title and organisational function, strategic leaders have substantial decisions making responsibilities that cannot delegated. (Finkelstein and Hambrick, 1996.)
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Strategic leadership is an extremely complex, but critical, form of leadership. Strategies cannot be formulated and implemented to achieve above average returns without effective strategic leaders. Because strategic leadership is a requirement of strategic success, and because organisations be poorly led and over managed, firms competing in 21st century competitive landscape are challenged to develop effective strategic leaders.
All organisations are currently undergoing some type of change. Many of these change programmes arise from management activities such as culture change, business process engineering, empowerment and total quality. Other change initiatives are driven by the need for organisations to reposition themselves in the face of changing competitive conditions.
There is no context-free generalise perspective of either strategy or strategic change. If it can be accepted that strategy reveals how an organization should go about, i.e. the pattern of activities and actions, strategic change is a change in that behavioural pattern (Axelsson et al., 2005, p. 38). The view of and approach to strategic change is partly due to the view of strategy and the circumstances where the change is about to occur. As well as for the view of strategy, there are different dimensions of changes in such that it can be either planned or emerging, proactive or reactive, big or small, i.e. there are different dimensions affecting the overall view of strategic change.
For strategic intent to become reality, it is necessary to change the way in which individuals within an organisation behave. This requires more than restructuring and new systems.
The internal and external environment that company is in affects the conditions for change. Mintzberg argues that companies in stable environments have better prerequisites to apply planned strategies. In companies working in changeable and variable environments it is more important to learn to handle and apply emerging strategies. In those latter companies constant learning from the operative activities often sets grounds for strategic changes. And being able to control and use a strategic changing process is one of the most important ability a manager should possess (Bengtsson and Skärvad, 2001, pp. 181-189).
During the 1990's it has become more common to describe strategy with a focus on how values and ideas can be influenced rather than controlling behaviour and production systems (Melander & Nordqvist, 2008, p. 78). Knowledge that is critical is the knowledge of how employees and customers can be understood, affected and influenced.
Continental's agenda for strategic change
At the beginning of 90's world tire industry was in the midst of serious recession marked by considerable overcapacities and decline in vehicle registration. Thus companies pursued growth strategies in their core business to achieve economies of scale. The result was fierce price war.
As consequence Continental slipped into red in just two years. Its earnings plummeted from 116.6 in 1989 to mere 47.8 millions in 1990 followed by losses of 65.5 millions in 1991. Acquisitions in this time period led to ballooning of net indebtedness to 1.2 billion.
Internal factors were particularly responsible for this development. Poor profits in number of corporate divisions were one of the major factors.
One other factor was acquisition as part of growth strategy. i.e. Uniroyal 1979, Semperit 1985, General Tire 1987. Semperit were positioned similar to parent brand in replacement market and ended up competing same target audiences. That was major blow for the company. Thus Continental business was in trouble through internal difficulties.
Continental was aware that a fundamental restructuring was necessary in order to make it clearer where profits were being generated, and where losses were being made. Transparency of profits and losses was seen as a central precondition for transferring responsibility to managers.
"We broke everything down organizationally until we arrived at units that weren't earning anything. A young employee was then sent in to straighten out the unit." (Dr. Grunberg)
One of the cause was company's generally bureaucratic and centralised structure and culture.
"We saw ourselves subjected to high degree of centralization as far as decision making was concerned. The units enjoyed little autonomy. We were characterised by strong finance and controlling orientation and were, bottom line, a control company." (Wilhelm Schafer, 1993-1995. Board Member - Car Tires.)
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With all these challenges company was threatened by takeover attempt on the part of its competitor, Pirelli. Presentation of Pirelli merger on Sep. 15 1990 ignited war between Executive Board, Supervisory Board, Banks, Politicians and Pirelli representatives. That led, in the end, to departure of Executive Board chairman Horst W. Urban on May. 10, 1991.
To ensure the company's future survival, growth was no longer to be fuelled by additional acquisitions but by successful innovations achieved by the company on its own strength and through its own entrepreneurial forces.
On December 2, 1991, Dr. von Grünberg reinforced his emphasis on profit and innovation presenting his 10-point program.
10-point program of Dec. 2, 1991
1. Growth through successful in-house developments and profitable production structures
2. Investments in sales revenues, not in size
3. Strategic alliances
4. Fewer acquisitions, with new focal points
5. Technological leadership and a wide range of systems
6. Expansion of market position in Eastern Europe
7. Pro-active environmental protection
8. Rescue operation for General Tire
9. Decentral responsibility: Fight losses and improve earnings
10. Figures well into the black in 1992
To put customers and markets at the centre of attention, a switch from brand orientation to market orientation was adopted at the end of 1993. These increased opportunities arose because the brands were no longer in direct competition with one another. The multibrand strategy attempted, instead, to create a clear distinction among the brands, with each of them focusing on specific target groups.
In order to create competitive advantage and generate shareholder value company needs certain set of activities that create value, these activities constitutes the value chain. The purpose of these activities is to offer customers greater value than the cost of the activities and thereby achieving a profit margin. The size of this profit margin is depending on how efficiently company can perform activities in the value chain, the difference between customers willingness to pay and the costs of these activities constitutes the profit. (Porter 1998)
The value chain categorises the generic value-adding activities of an organization. Where primary activities (Inbound logistics, Operations, Outbound logistics, Marketing and Sales, and Service) integrate with supportive activities (Procurement, Technology development, HRM, Firm Infrastructure) and create value which provides competitive edge to organisation.
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Strategic Innovation in Continental AG
In 1991, Dr. von Grünberg set about implementing a reorientation of the corporation's business. He called on the company to strive for the leading position in technology in the sector on the basis of the innovative capability of the individual employees in all areas of the company.
The importance was demonstrated by substantial investments in R&D - even during the crisis. Approx. 4% of sales revenue was ploughed back into the R&D. This initial investment activity resulted for example in a new tire line, Eco-Contact, in 1992 and the development of one stage tire building machine in 1994.
To make more efficient use of available resources and to increase the corporation's innovative power, a technology centre was inaugurated in Hanover, in the immediate vicinity of Continental AG corporate headquarters, in April 1996. It was to supply the innovations the corporation required and underlined the significance of R&D as a sort of technological clamp around an increasingly decentralized corporation.
From 1992, Dr. Grunberg, pursued a competitively induced reorientation of the company's strategic activities in the direction of the systems business with the automotive industry. As part of this, the tire product range was expanded to incorporate technical chassis components to form complete systems that could be supplied as such to the automotive industry.
The company ran the risk of seeing its status downgraded to that of secondary supplier, with only minimal impact on development. To avoid this, tires were to be combined with other technical components and supplied to the auto industry as systems.
These ideas did not immediately have an impact on profit but formed the basis for the systems business as future added-value potential.
The acquisition of Teves - ITT Industries' brake and chassis operations - in 1998 marked the corporation in his pursuit of systems supplier status. Which give corporation competence, sales and revenue in chassis technology. At the same time it gave the company as whole a development capacity and technological innovation force of around 2500 researchers and developers.
Thereby Continental was enabled to play a major role in the further development of the worldwide automotive industry. For automakers it made more sense to technically and economically optimize whole modules than to work on individual components. Thus Continental positioned itself as a global systems and technology partner in the automotive industry.
To improve Corporate Governance companies can incorporate Corporate Social Responsibility [CSR] in order to be more transparent and to take a bigger responsibility for their stakeholders (Kurihama 2007).
Corporate Governance has grown rapidly due to corporate collapses and financial scandals, especially since the collapse of Enron. The scandals have made a lot of investors suffer and made them lose confidence in the market. Investors are thereby more careful when they invest today and sound Corporate Governance helps corporations to regain the investor's confidence and make the investors invest in them again (Davies & Schlitzer 2008: Van den Berghe 2002).
Corporate Governance is according to The Organization for Economic Cooperation and Development (2004) "a set of relationships between a company's management, its board, its shareholders and other stakeholders. Corporate Governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined".
German Corporate Governance Code
The German Corporate Governance Code (the "Code") aims at making the German Corporate Governance system transparent and understandable. Its purpose is to promote the trust of international and national investors, customers, employees and the general public in the management and supervision of listed German stock corporations. The Code clarifies the obligation of the Management Board and the Supervisory Board to ensure the continued existence of the enterprise and its sustainable creation of value in conformity with the principles of the social market economy (interest of the enterprise).
Company Corporate Governance Principles are also an integral part of corporate management. They are largely drawn from the German Corporate Governance Code.
Continental Corporation, achieving sustainability means striking an acceptable balance between the economic requirements of the Corporation and the justified expectations of its interest groups. To this end, the Executive Board passed the "Corporate Social Responsibility" (CSR) Guideline in June 2008.
Corporate Social Responsibility
Different ownership structures favour different things, they can either have a shareholder focus or be more stakeholder focused. One way to see if the owners and the company is more stakeholder focused is through their work with Corporate Social Responsibility [CSR].
Corporate social responsibility is commitment to improve community well being through discretionary business practices and contributions of corporate resources. (Kotler and Lee, 2005)
"CSR can be understood as a voluntary integration of social and environmental concerns into business operations and interactions with stakeholders."(Enquist et al 2006).
Balance Score Card
Two people of many to acknowledge this need are Robert Kaplan and David Norton that developed the Balanced Scorecard. The Balanced Scorecard was developed as a performance measurement tool seeing the company from four main perspectives. It was first introduced in 1992, but soon further developed and reintroduced in 1996, then with a stronger strategic focus.
A sufficient mix of causes and effects should build up a BSC and it should measure both leading and lagging indicators (Kaplan & Norton, 1999, p. 36-38). Every measure must be part of a chain of events that results in a goal that reflects the business strategy (Kaplan & Norton, 1999, p. 64). The scorecard should be viewed as a set of hypotheses about cause and effect relationships that result in implementing the business strategy. This is done through different perspectives.
Kaplan and Norton have given a suggestion of four relevant perspectives: financial, customers, internal processes and learning and growth. All these perspectives represent different steps in the chain of events that leads to an ultimate goal. The objectives in this perspective identify which jobs or activities (human capital), which systems (information capital), and what kind of climate (organization capital) is required to support the value-creating internal processes (Kaplan & Norton, 2004b). According to Kaplan and Norton (2004b) maximum value is created when all the organization's intangible assets are aligned with each other, with the organization's tangible assets and with the strategy. This is where the chain of events should start - a good foundation is built to identify and strengthen the strategic core activities.
Manager Entrepreneurial Energy
In December 1991, Dr. Grunberg, called upon the corporation's managers to put this extra freedom to good use by adopting an entrepreneurial mindset and, above all, by acting in an entrepreneurial manner.
"Everywhere in the company, it is necessary to think and act more entrepreneurially. I want to have entrepreneurs in our company who assert themselves against any and all resistance. Who have well thought-out ideas and see to it that they lead to profitable results. (...) "I would often like to see more daring and more willingness to take risks. (...) The basic principle for the future is the precedence of earnings over quantity. To this end I would like to provide all senior executives with profit responsibility."(CEO, Dr. Grunberg. 1991to 1999)
The far-reaching process of cultural change that got under way in 1992 - "Delegation of Authority and Responsibility" (DAR) - unleashed a mobilization of entrepreneurial potential in all direct and indirect areas throughout the company.
In this process Dr. von Grünberg brought managers together working on a concept for a higher degree of entrepreneurship extending beyond a mere restructuring of the units.
The process led to the formulation of a concrete call for entrepreneurial, profit-oriented action on the part of Continental managers and employees:
Cross-functional action instead of functional thinking
Result responsibility instead of mere plan fulfilment
Customer orientation instead of functional-hierarchical orientation
Agreement on targets instead of those on top dictating what is to be done
Internal service units instead of central staff functions
Benefiting from an increasingly decentralized structure and managers increasingly sensitized for entrepreneurial thinking and acting, Dr. von Grünberg pinpointed corporate units with poor earnings or especially high costs and kept at the top managers in charge to get the situation into line financially. He focused his interest on these "burning platforms" and kept a close eye on the development of their units.
Dr. von Grünberg made purposeful use of this instrument in the production area. Regularly he had productivity comparisons drawn up at the various plants. At the same time he entrusted the plants with a greater degree of authority to control performance processes. The plant in Mount Vernon, Illinois, was assigned the status of benchmark in 1993.
He was not only unswerving in his insistence on improved profit, he also encouraged top managers to constantly and fundamentally question the status quo in their respective areas. In a major departure from the prevailing mindset at the time he joined the company, he strongly encouraged risk-taking. Risks were no longer regarded as negative but as genuinely positive.
Parallel to the existing structure, Dr. von Grünberg formed teams that were to overcome the status quo by working on pilot conceptional experiments. After giving those concerned a certain time to accept the new procedures consequent measures were taken against employees who persistently disregarded the new ideas and refused to get involved in the process of change. In certain cases employees even had to leave the company. in other areas as well, employees who had developed a new concept were given the job of implementing it. In this way, a stronger link between conception and realization was established.
One effect of Dr. von Grünberg's policies was that the personnel structure reflected the process of change, both by way of dismissals and in the form of enhanced career opportunities. Managers - even Board members - who did not adhere to the new entrepreneurial requirements were let go. Responsibility for profit and loss thus manifested itself in negative and positive personnel consequences. the personnel policy offered major chances for young, venturesome managers who accepted and exemplified the new entrepreneurial mindset. Dr. von Grünberg took the risk and entrusted young senior executives with tasks, authority and responsibility. CEO consciously bypassed the established routes for promotion and assigned concrete crisis areas to young senior executives.
A key task for the human resources department was to identify those young executives who were able and willing to get involved in the progress of the corporation. For about ten years, management development ran a Junior Management Training Program (JMTP) intended to promote the qualities expected of managers, namely the ability to challenge the status quo, on the one hand, and the capability to get things done, on the other hand.
Dr. Kessel's and strategic challenges in 2001
When, on June 1, 1999, Dr. Kessel's became chairman of executive board, Continental AG, was healthy, highly profitable and well placed in new market. Company had achieved important steps its transformation to corporation towards entrepreneurial mindset.
However, company was aware that the process of change has not been yet completed. In fact, maintaining the then liberated entrepreneurial energy was seen as key goal for new CEO. Dr. Kessel's, saw his challenge in terms of new cultural maxim. That involved managers constantly questioning the status quo in an entrepreneurial manner and accepting the change process as an ongoing personal task.
Seminal point of future strategy was the expansion of automotive systems divisions through realisation of further synergies to be derived from the collaboration of Continental Teves with the tire division. The implementation of new policy the BASICS provided the sustainable framework.
"The primary goal of the BASICS is to create value. That is not necessarily anything new. The difference is to create value that benefits all our stakeholders......., last but not least, the general public as well. To this end we have developed the clear targets enunciated in the BASICS" (Dr. Kessel's)
Dr. Kessel's initiated companywide balanced scorecard process. He involved great number of managers in the strategic process of integrating the various corporate competencies. A balanced scorecard was prepared for each of business unit as well as for the indirect service areas. The scorecard was aligned to the prevailing policy or strategic orientation, and was to be renewed annually. Companywide use of balanced scorecard provided better handling of corporate divisions using fewer performance figures.
With these processes, the success of joint technology driven projects played crucial rule, first realising the synergies envisioned from collaborators between the tire division and automotive systems, and second in gaining a technological edge on competition.
An important source of energy was Continental's experience that the corporation was capable, for the most part, of relying on its own resources to effect change. A successful pattern took shape that was characterized by blunt exposure of the company's weaknesses, development of its strengths, a build-up of new possibilities in the light of a new product philosophy and the potential of entrepreneurial managers and employees.
"A major step in the future may be that of quickly putting managers in decision making situations with regard to their work processes. This makes it possible to arrive at positive or negative decisions early on. Significant steps can be made in this direction by continuously turning away from 'hyper caution' in the company's activities and by nurturing an even more assertive willingness to take risks in business. We need this in order to keep going" (Dr. Kessel's, 2001).