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The global corporations are managed and operated with the concept of entrepreneurship. Entrepreneurship is taking business risks for new ventures for making profit. Te concept was first used during the eighteenth century. Today's concept of entrepreneurship has been modified to a great extent. According to Drucker (1985) entrepreneurship is a distinct feature and not a personality trait. People who need certainty are unlikely to make entrepreneurs. People who can face up to decision making can learn to be an entrepreneur. Thus he concludes that entrepreneurship is behavior rather than personality trait and its foundation lies in concept and theory rather than intuition. Entrepreneurship requires different style of management, although the ground rule is same, i. e. systemic, organized and purposeful management. There is also a need to define their roles and contribution in the organizational structure. This is very important in view of the developments after the recession of 2007-08.
Global corporate managers are good leaders and strategists. Primarily all strategists should have the learning ability irrespective of their age and position in the organizational hierarchy. The strategic management process consists of formulation, implementation and evaluation (David 2009). The formulation process includes defining mission and vision of the company. Mission and vision give direction to the company. What to do and how to do it? As also said by many Management experts, what business we are in and why? The implementation takes care of the operation functions. Once the business gets running, each operating function is evaluated for its return and productivity. The root cause of failure of the industry is not that certain things have not been done or done poorly. The problem is that the right things which should have been done effectively and for results were done aimlessly and fruitlessly. For example, IBM did not invent computer or the PC, but its adaptation and flexibility to the changing market created the computer industry. Later still, its lack of adaptation and flexibility eliminated IBM from the PC market altogether.
Strategic leadership defines the theory of business. Every organization believes in a theory for doing business. In 1809, a German scholar Wilhelm founded the University of Berlin (Drucker 2006) with a new theory of research and scholarship. The theory is accepted worldwide today. Now it is believed that the primary function of a university is knowledge creation. Knowledge dissemination or impartation of knowledge is its secondary function. In 1870, Deutsche Bank was established with the theory of financing industrial entrepreneurship. The theory became so widespread that today main business of any bank lies in industrial financing. On the other hand industries are built by banks financing.
Q1 B. Critically evaluate Continental's agenda for strategic change at the beginning of the 1990s when the world tire industry was in the midst of a serious recession marked by considerable over capacities and a decline in vehicle registration.
Continental's strategic change at the beginning of 1990s when the tire industry was in crisis and serious recession was already started to show its after effects was not appropriate. During 1991 when the entire tire industry was undergoing recession, Continental opted for economy of scale production and growth. Thus, the company suffered a huge loss of $65.5 million in 1991 as against profit of $ 116.6 million in 1989. Acquisition made a loss of $1.2 billion. A hostile takeover was attempted by Pirelli in September 1991, a fierce Continental competitor, ranked at number 5 in those days. There were internal factors too. While some departments were showing profit some other departments were showing loss creating a net loss for the company as whole. The acquisition of three major companies that it acquired from 1979 to 1987 (Uniroyal 1979, Semperit 1985 and General Tire 1987) could not be integrated effectively. This further aggravated the problem to a great extent. Among other factors its centralized structure and bureaucratic management style were major ones. The structure was tuned to functional responsibilities rather than customer focused. The high degree of central control gave little autonomy to the departments. Thus, productivity was more control oriented than product focused. The internal factors also included lack of awareness of the sources voluminous losses, poor control of internal completion, suppression of decentralized initiatives potential and lack of entrepreneurial initiatives on the part of management.
During 1991 - 2000, Continental shifted its focus from manufacturing tires to chassis manufacturing. This diversification increased its business and in 2001 and its sales were substantially higher than what it was during the nineties or to be more specific in 1990 - 91. In July 1991, the company's CEO was changed. An inside member of the board Dr. Hubertus von Grumberg took over as the chairman of the company. He decided about the main focus and made it clear that profitability of the company was at top priority and the company was going to do away with products that are making losses. In December 1991, he reemphasized his objectives and elaborated them further with his ten points program. During the decentralization process particularly for units making losses, each and every step was further broken down till the last ones. Then a junior executive was sent to the department concerned to correct the situation. Dr. Grumberg learned enough from his experience. In 1991, he pulled apart the tightly knit structure into eight independent companies each having range of products of its own. These issues were handled by a manager responsible for revenue generation. He created creative destruction of status quo and placed entrepreneurs at key positions. The junior executives placed as entrepreneurs were trained and groomed for performance. For the next ten years, Continental ran programs and projects helping these junior executives to excel in their departments. They were given project assignments to complete within well defined deadlines. On completion, they presented their results in front of the management group and board of directors. On the one hand, this action motivated the young employees for better and creative performance; whereas on the other hand, the company was getting new ideas and insight from the fresh people, thus the stuff that came out of this exercise were new, innovative and cost effective. The disciple of innovation may meet unexpected occurrences, incongruities, process needs, industry and market changes, demographic changes, changes in perception and new knowledge. Innovation should be purposeful and should start with the analysis of new opportunities. Innovation is both conceptual and perceptual, therefore it is essential that people involved in innovation work together to satisfy the opportunity. Next they need to find consumers' expectations about the opportunity, their needs and values. To be substantially workable and effective the innovation has to be simple and customer focused. Innovation requires knowledge, ingenuity and targeted focus. But above all innovation requires hard purposeful work. Entrepreneurship and innovation may be related together, but they may remain independent as well. But the foundation of entrepreneurship is the practice of systematic innovation in any organization.
Q2 A. Using information from relevant literature, and your own understanding of Porter's Value Chain; discuss how Continental AG fostered strategic innovation to achieve growth in productivity from1991 to 1999.
Michael Porter five strategies for value chain are as follows:
1. Cost leadership strategies: Low cost
2. Cost leadership strategies: best value
4. Focus: Low cost
5. Focus: Best value.
In cost leadership strategy, the manufacturer may try to minimize the cost to increase sales and to become market leader. Continental tried this strategy at first during 1990-91 but could not achieve the desired results. This was followed by its efforts for best value. To do so, Continental focused on fostering strategic innovation striving for technological leadership. The top management spent a lot of time and resources in ensuring that innovation at Continental adds value to the product thus delivering the best possible value at the market place in comparison to its competitors. For this, Research Development Engineering meetings were held every month. In this very meeting issues were discussed on 'How best the customers can be served in terms of value addition and product differentiation.' Creating value and creating differentiation are the two sides of a coin in terms of quality improvement in a product or service. Continental did both successfully. The company introduced modular manufacturing process (MMP), a modern concept in tire manufacturing. The innovative process improved the driving comfort and life of the automobiles.
The company diversified to manufacturing chassis system and made it its core competence product. The company evolved from a manufacturer of tires to manufacturers of chassis. It tried to combine the knowhow of tire manufacturing with that of chassis in the areas of tire sensors, brakes, suspension etc. Integrating the manufacture of tire and chassis as a bundle was not so easy. The task was to create value for all stakeholders. It was crucial for Continental to maintain the price leadership. This was compensated by creating value and increasing customers benefit. The acquisition of Teve at $2 billion was done to broaden the operation base. This off course benefited the bottom line of the company. Porter believed that the superiority of a product or services lies in differentiation. The product may or may not be clearly superior to one another, but the differentiation in product attributes make it preferable to the end users. The differentiation may also be created with services if cannot be produced in the product.
Continental innovation included diversification as well. The importance and contribution of innovation in terms of product and process may be understood with many examples. Hoffman la Roche, a Swiss pharmaceutical company originated very humbly. It constantly focused on innovation and finally discovered vitamins at time when the scientific world still was not open to accept the discovery. The marketing of vitamins changed the size and future of Hoffman la Roche.
Q 2B. Using relevant data/information from the literature and company websites, compare and contrast the 'corporate governance' and 'corporate social responsibility' practices of Continental AG (www.conti-online.com/) with those of Goodyear Tire & Rubber Company (www.goodyear.com/corporate/ ).
Corporate governance: Continental company remains focused on value creation. This is a public limited company listed in Germany. The governance is through the Executive Board and supervisory board. The company ensures that interaction between both the governing bodies remain transparent and understandable. The company promotes the interests of its stakeholder i.e. the shareholders, employees, customers etc. The general Body decides about the appropriation of net income and basic corporate matters such as intercompany agreement, restructuring, issues of bonds etc. In case of new shares the share holders have the pre-emptive rights of share holding. The Executive Board and Supervisory Board work together for the benefit of the corporation. The Executive Board gives strategic direction and ensures the implementation at regular intervals. Any deviation of the actual business from previous year is reported by the Executive Board.
Corporate Social Responsibility: Continental claims to be the trend setters in innovations creating high quality products without any compromise to services excellence. Creative value is the driving force for the organization. Managing the company profitably seems to be consistent with quality of products and services. Continental is a law abiding corporate citizen and respect laws and regulations of the country it operates into. Vision statement of Continental seems to be more superficial and generic. The focuses appear to be more internal and quality oriented.
Corporate Governance: Governance guidelines for Goodyear are the board of directors is independent of their opinion having no age limit. They should have highest personal and professional integrity, sound judgment and reputation in the business community and a record of accomplishments. They need to work with other member of the board for implementing the decisions. There are five committees consisting of board members: Audit, Compensation, Corporate responsibility and Compliance, Finance, and Governance. There is a succession planning for Chief Executive Officer and other members of executive management at Goodyear. The company should have a comprehensive strategic plan. The plan will be implemented by management and evaluated by the Board periodically. The company encourages higher education for the Board members.
The CEO is responsible for providing day to day information to the management. He will recommend policies and directions for the company.
Corporate Social Responsibility: In comparison to Continental, Goodyear is more customers focused. To them customers include dealers as well and they help their dealers to grow and succeed. Like Continental they are also quality stringent and aggressively focus on innovation in product as well as services. They focus more on team efforts and team performance vis-a-vis entrepreneurship of Continental. They have a transparent communication system which encourages employees to share the bad along with the good news. Risk taking and initiatives are rewarded as it is in Continental. They consider past another century and strive to look forward with optimism and enthusiasm. They have a serious attitude with their commitment and meet the challenge with winning attitude. Goodyear's focus appears to be more external and customer focused. In the wake of environmental protection Goodyear added a biodegradable substance biolosprene in its tire. This is an environment friendly renewable raw material.
Goodyear practices seven strategies for doing business.
Leadership: Leadership skills are developed and strengthened. Expertise, experience and skills are matched for the right job throughout the company.
Focus on Cash: Focus on cash means increasing profit margin. Their focus on cash expectations drives the company for profit. In the process of doing so they remain flexible to improve the business and conditions of doing business.
Lower cost structure: hey have stronger focus on customer appeal and believe on right customer for the right product at the right price.
Product leadership: Innovation and creativity develops new products which are the lifeline of the company. The company takes great care in its new products.
Advantaged supply chain: Supply chain, a recently identified major step in business success streamlined across the country.
Goodyear focused on safety for its customers. It developed a slogan 'No one gets hurt.' The company claims to be number one in safety measures since 2004. Workplace injuries and accidents were minimized to nil. The company consider natural environment precious and proactively practices 3R principle: Reduce, Reuse, And Recycle.
Goodyear is very conscious about human rights. They are committed to ethical and socially responsible behavior. They have zero tolerance for maintaining ethical standards. Workplace harassment and biased discrimination based on race, color, religion, gender, etc. are not tolerated at Goodyear. Child labor is strictly prohibited. The company respects employees' rights and freedom. The company facilitates communication and direct engagement between associates and management where rights are concerned. Q3 A. Discuss the effectiveness of the 'functional', 'organizational', and 'corporate' structures adapted by Continental AG in unleashing manager's entrepreneurial energy from 1992 to 2001.
Functional is related to the day to day performance of individuals. It relates to the productivity of employees performing certain activity. Organizational performance indicates the whole organization while corporate indicates the mission and vision of the organization through which organizational and functional performance get direction. Continental's reasons for failure were mainly organizational and corporate. Its success reasons were also the same. In 1990-1991 when the world was witnessing a slum in the tire market and vehicles were staying unsold at the dealers' outlet, Continental spent on ERP (Economic Resource Production). The larger volume purchased thus remained unutilized. The decision back fired and the company suffered huge losses. Once the new CEO Dr. Grumberg took over, he changed the direction of the company. From centralized, administrative structure he introduced a vibrant, contributing culture. Entrepreneurship was given more weightage as compared to subordination. There is a code of conduct for doing business at Continental. Code of conduct is the spirit of voluntary self regulation. It describes the basic values and principles of the company are binding to the employees.
Q 3 B. Evaluate the effectiveness of Dr Stephan Kessel's (Chairman of Continental AG), leadership skills in dealing with the company's strategic challenges in 2001. (10 marks)
Dr. Stephan Kessel placed managers at decision making positions and gave them the responsibility for work processes. Arriving to conclusions was much easier. The early significant steps helped to make the correct decisions. He made it certain that people are more risk taking rather than risk aversion, more dynamic and progressive rather than hyper cautious. He nurtured a more positive willingness among the work force so that the company can move on successfully with a good momentum. He believed in blunt exposure to weaknesses and development of strengths, particularly in the light of new products philosophy. He introduced balance scorecard for each business. He established the guidelines and involved managers to ascertain the pros and cons while implementing a decision. Balanced scorecard requires that a firm seeks answers to the following questions as elaborated by Fred (2009).
? How well the firm continually improving and creating value along measures such as innovation, technological leadership, product quality, operational process efficiency, and so one?
? How well is the firm sustaining and even improving upon its core competencies and competitive advantage?
? How satisfied are the firm's customers?
It needs to utilize the information along with financial considerations, to adequately and more effectively evaluate strategies being implemented. Continuous improvement has been termed Kaizen and is believed to be the ladder towards ongoing success. These Japanese principles have been adopted by many US and European companies including Continental for managing their businesses. The company believed that change was needed. To change the company and its culture human resource should be focused upon. Employees need to be tolerant to ambiguity, since this attribute is essential for initiating and leading change. For the selection of these people the company developed 'Big 6': Knowledge, Learning, and Capability for change, Drive, Interaction and Vision.