The Global Corporate Strategy Of Continental Business Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

The activities and behaviours of an Entrepreneurial at corporate level or we can say that in established and big organizations is called as corporate entrepreneurship.

Today's market required all companies to develop a strategy so that they can respond to changes. These changes may be an opportunity or threat for companies. Now in this situation the corporate entrepreneurship comes in to the picture as they play a vital role in identifying such opportunities and achieveing success. The entrepreneur identifies the needs and wants of the existing and emerging customer, develops a solution to fullfill them as well as they identify the dissatisfaction of the customer and develop a solution to eliminate them (Ramachandran, 2003).

Strategic leadership:

Strategic leaders work with thousands of people in an organization, they are responisible to establish the organizational structure, deciding the strategic vision and manageing their resources and thousands of employees.

Meaning of 'corporate entrepreneurship' and 'strategic leadership' in Continental AG:

Corporate entrepreneurship in Continental AG:

As we have already disscussed that corporate entrepreneurship helps to improve the position of the company in the market or to find out the opportunities as well as to produce value added products through innovation.

During 1991 Continental had a loss of €65.5 million, after that they changed their core target market from a manufacturer of rubber products to automotive specialist product.

In Continental AG corporate entrepreneurship process was implicated in order to bring back profitability indicators in to black. both in terms of finance and growth of the company. So in 1991 July 20Dr. Hubertus von Grunberg became chairman of Continental AG and focused on company's future survival and growth. He adopted innoviation as their strength to achieve profit. Dr von decentralized the working procees in Continental. 8 different independent companies had been set up and they all had different range of products. So that Dr. von can directly point out those companies with low profit.

The entrepreneurship led to the competition where every unit was in the race to generate more and more profit and to reduce cost. He restructured the corporation's business and focused more on product and technical process innovation.

One succesful example of entrepeneurship is use of rubber lifting belts instead of steel cables in lifts. Similarly developing a new product sytem for automobile industry or reducing cost in different unit, acquisition of teves, making two separate productline for passenger tire and commercial tire, closure of different plant and the example of steel cord procurement provides a clear illustration of new thinking and the corporate entrepeneurship in Continental AG.

Strategic leadership' in Continental AG:

We have already discussed that strategic leadership is all about managing the workers and motivate them to improve the productivity to achieve the strategic objectives of the organization.

The corporate entrepreneurship was started during 1991 in the same time strategic leadership played an important role inorder to encourage them to accept the new innovation strategy and the strategy of entrepreneurship. Dr von appointed entrepreneurs in key position; he helped other managers to enhance their career. He created some personnel policy which was usefull for young employees and mangers; even he gave responsibility and authority to new entrepreneurs and young senior executives. Performing under a difficult situation was the routes for fast promotion. He involved in process of identifying young executives who were interested to involve in the progress of the corporation. Junior Management Training Program (JMTP) to promote the young mangers, to develop an ability to face challenge and to create leadership qualities.

So they more involved in manageing the workers and motivate them to improve the productivity. They encourage others to take proper action for the bright future of the company. They empowered and motivated the employees to achieve the strategic objectives of the organization. They created a working environment so that the employees understand the strategic objectivies of the organization and their role in the organisation.

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 overcapacities and a decline in vehicle registration.

Continental's agenda for strategic change at the beginning of the 1990s:

Strategy of Continental AG during 90's:

During 1990's Continental AG was primarily active in the rubber industry. They were main manufacturer of the Car, truck tires and other technical products with a high rubber stake.

In 1990's the world tire market faced a huge recession and the number of vehicle registrations was decreased but Continental pursued growth strategies in their traditional markets to achieve economies of scale. The result was a fierce price war.

But this growth strategy didn't work for Continental as their figure slipped into the red. And the acquisition was the part of its growth stratgey. The internal factors were also one way responsible for these poor figures. But the acquistion strategy also created some trouble as the acquired companies were targeting same market segment (customer). Again the acquired different branded companies projected their brand value of the product in the same market as a result of which the finacial figure were decreased. In 1991 July 20, Dr. Hubertus von Grunberg became chairman of Continental AG and focused on company's future survival and growth. And he projected the future with new idea by emphasizing on profit and innovation. They focused on 10 point program as below:

10-point program of Dec. 2, 1991

Growth through successful in-house developments and profitable production structures

Investments in sales revenues, not in size

Strategic alliances

Fewer acquisitions, with new focal points

Technological leadership and a wide range of systems

Expansion of market position in Eastern Europe

Pro-active environmental protection

Rescue operation for General Tire

Decentral responsibility: Fight losses and improve earnings

Figures well into the black from red in 1992

This program highlighted strategic agendas adopted by Continental during 90's. So, they more concentrated on innovation and technological leadership. They focused on existing resources in the organization; they expanded their market rather than acquisitions. Instead of projecting different products of different brand in same market they targeted different market segments.

Cost-cutting strategy in 1990's:

During this period Continental has gone through rigorous restructuring and cost-cutting. They concentrated to reduce labor costs. They shifted production away from Germany in order to regulate work practices and to reduce expenses.

Technical innovation was a part of Continental's cost-cutting program. They produced different parts at low-cost sites and transported it to plants in other markets for assembly. These plants were more cost efficient than other plants. Again Dr. Von closed some of the plants to reduce the operational cost and the production line was shipped to different plant.

By the late 1990s, the cost cutting strategy had begun to pay off. Even while 1997 tire prices averaged lower than in 1996, in 1997 the income of the company increased by a 67 percent and the net income increased to $176 million.

Question Two:

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.

Porter's Value Chain:

Michael Porter used the term 'Value Chain' in his "Competitive Advantage: Creating and Sustaining superior Performance" (1985). It explain the main activities the organization and its relation to the organizations competitive position.

The calue chain analysis describes the core function of the organization and relates them to an analysis of the competitive strength of the organization. In other word it examines the each process of the organization.

Porter argues that ''the ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage''.

Continental AG fostered strategic innovation to achieve growth in productivity from1991 to 1999:

In 1991 July 20 Dr. Hubertus von Grünberg took over as chairman of the Board of Continental AG. He worked on decentralization of all divisions. Dr von noticed that organizational restructure was required in order to make it clearer where losses and profits were being made.

According to Porter's Value Chain:

According to him manufacturing companies create acquiring raw materials and using them to produce something useful. And the companies can create value by adding other products to the system and providing other services to the customers. This will give an added value to the product or service and the value created by the company will be the profit margin.

Value Created and Captured - Cost of Creating that Value = Margin

So more the value created by the company, more will be the profit margin. As the company provides value added product or service to the customer, the market share will be increased and they will build a competitive advantage.

Fostering Strategic innovation to achieve growth in productivity:

A technology center was inaugurated in Hanover in April 1996. Continental AG used their available resources to increase the innovative power of the organization. The researchers and developers were confronted with the demands of managers from market and customer units. They invested around €51 million on technology center and 1000 engineers and technicians were employed for car/truck tires and automotive systems.

Value chain in Continental AG:

Tire production, prduction of electronics product for automobile industry and ContiTech (Production of rubber) were the main business of Continental AG.

They have started their business from a rubber industry to a tire industry then entered in to electronic system.

Dr. von formed 8 independent companies so that the value or the profit created by these companies can be read easily. To avoid any trouble each company had different product range and different market segments. In 1st February 1992 he restructured the operational function. The product line was divided in to two lies one was for passenger tire and another was commercial tire and both division have were responisible for oveall prduction and marketing process. So that success could be measured directly. As a result of this split-up the loss making areas were pinpointed.

Every function/divisions were responisible for profitability and to generate revenue. They focused on customer and the markets rather than the brand value of the different companies. The regional mangers were accountable for the results of the business and had authority to deal with the customers. As a result of which each brand targeted a specific market. To bring transpenrency through out the organization Dr. Von decentralised the activities.

As a system supplier for automotive industry:

In 1992 Continental AG entered in to the systems business with the automotive industry and the product range was expanded so that a complete system can be supplied to the automotive industry. They believed that the suppliers of complete systems will give them a competitive advantage in the future.

The complicated components are anticipated to reduce the strategic problems between the supplier and automaker relationship. It was assumed that if Continental continues to produce only tire then they could not be ramain a direct supplier. So to avoid this risk they combined the different automobile prducts with tire and suppled as a system.

Pre-assembled of wheel/tyre systems was a main part of their supply chain. Around 10,000 tyres were produced in 1994; again it was increased to three million tyres preassembled in 1996. They developed a different range of innovative product ideas for the chassis - TPMS, CECC, CASS, and SWT.

This idea didn't work immediately but in future it added a value to their potential.

Using relevant data/information from the literature and company websites, compare and contrast the 'corporate governance' and 'corporate social responsibility' practices of Continental AG ( with those of Goodyear Tyre & Rubber Company ( ).

Corporate governance is the processes which can affect the company directly and indirectly. It describes the relationship between stakeholders and the objectives of the organizational.

Corporate governance at Continental AG:

In Continental AG Corporate Governance is a key feature of corporate management, it focus focuses on interest of all stakeholders. Corporate governance is the responsibility of the company's corporate bodies: the Shareholders' Meeting, the Supervisory Board, and the Executive Board.

Corporate bodies:

The members of the Executive Board shared the responsibility for the management of the company. The chairman of the Executive Board manages the work of the members of the Executive Board. And the Supervisory Board advices the Executive Board. They play a vital role in decision making of the company. As the Supervisory Board approve every law or policy. The chairman of the Supervisory Board coordinates with members of Executive Board, and with its chairman, to discuss the company's strategy, business development and risk management.

The Executive Board:

The Executive Board of Continental AG consists of eight members. The memeberes ad governed and regulated by the Corporate Governance Principles and ploicies.

Transparent and prompt reporting:

Each and every report is distributed among all the shareholders, shareholders' associations, the media, and among other members who plays significant role in the corporation. All annual reports, Annual Shareholders' report and other information are declared timely so that every body has a direct and immediate access to all information.

Corporate social responsibility' practices of Continental AG:

The roles of Continental AG in economic, ecological and social matters are vital. Continental is working all over the world and provides a safety, sustainabile products in road traffic. It considers the ecological and social aspects during its manufacturing process. Different eco friendly and socialgroups are associated with Continental AG so they are commited sustained social responsibility - Corporate Social Responsibility (CSR). They consider the environment and people as the part of the company. They motivate their employees to achieve the strategic objectivies of the organization. And continental AG is responsible for their health, carrer balance and for the bright future of their family members.

The organization supports different groups in society.

Corporate governance' and 'corporate social responsibility' practices of Goodyear Tyre & Rubber Company:

Like continental AG Goodyear also have some commitment towards the society as well as towards the enviornment.

Focus on consumers:

Goodyear produces products for every type of personal or commercial vehicle at a global level. It also provides a fuel-efficiency and performance options to its customer. The distributer and Goodyear's retail network placed Goodyear at a competitive position then other. In 2009 they introduced 62 new products to the market with high quality standard. They provides a professional work, high standard automotive services as well as they educate other customers about the road safety programs

Relatioship with associates:

They have a strong bonding with their associates such as the corporate body, their stakeholders and with other social groups. They are commited to emphasis on health and safety in their permisses as well as in the road trafic. They provides quality product and ensure that "No One Gets hurt". The working enviornment in Goodyear is in accordance with the international human right policies and other ethical guidance. The human resource group concentrated on identifing the career development opportunities for their associcates. With the help of their skilled employees they are able to prduce ecofriendly products. The management of Goodyear communicated with associates, in order to develop an effective and efficient strategy to remain in the market.

Respect the environment:

Reduceing the environmental impact of their operational acitvities is a key part of their startegy. They have developed different programs in order to follow the global regulations. They promote recycling throuh out the world. They are commited to raise awareness of environmental issues around the world, and to produce products using environmental benefit raw materials. Due to all these intiatives in 2009 Goodyear is recognized for their environmental achievements and support to communities. Now they are working with different culture and groups through out the world. They spend their funds and countless hours to improve the quality of life in their local communities. They respond quickly to any disasters. They helped victims of bushfires in Australia, flooding from typhoons in the Philippines and earthquakes in Indonesia.

Question Three:

Discuss the effectiveness of the 'functional', 'organisational', and 'corporate' structures adapted by Continental AG in unleashing manager's entrepreneurial energy from 1992 to 2001.

Effectiveness of the 'functional' structure adapted by Continental AG:

In functional structure the Continental operates with a centralized approach. The management of the Continetal followed a bureaucratic and centralistic structure to control the operative work and other resources. The Functional structure of Continental AG in 1991 is given as below.

Functional structure of Continental AG in 1991

So it cleary shows that they adopted a centralizes structure where as their main operative functions such as "Tire production", "Tire marketing/sales", "Corporate finance, Controlling and logistics" and "Technical products", were not alinged with the market and customers. That is they were not aware of the customer test and the need & want of the market. This led to the crisis in the Continental AG. Again the top management followed the centralization approach as far as decisionmaking. So the internal competition and entrepreneurial initiative were absennt during that period. So due to this functional structure they recorded a loss of €65.5 million.

Effectiveness of the 'organisational' structure adapted by Continental AG:

Organizational structure was adopted in 1992. In this structure the product line was divided in to two lies one was for passenger tire and another was commercial tire and both division have were responisible for oveall prduction and marketing process. So that success could be measured directly. As a result of this split-up the loss making areas were pinpointed. Each and every department or the functional unit had responsible for their whole production and marketing. They had an authority to deal directly with the customer. The Organizational structure of tire operations in 1992 is given below.

Organizational structure of tire operations in 1992

The organizational structure clearly shows that during that period that the productline split-up in to two different lines and the loss making areas were pinpointed. The Profit making businesses and areas were separate from other so that every one can be identify the area where the profit being generated. Again in this organizational structure they created a transperency through out the organization. As a result of which they pinpointed the loss making area and changed them to a profit making area.

Effectiveness of the 'corporate' structur adapted by Continental AG:

During that period it was assumed that if Continental continues to produce only tire then they could not be ramain a direct supplier. So to avoid this risk they combined the different automobile prducts with tire and suppled as a system. So they added one another business of supplying automotive system to the customer. Before that they have their rubbre business, continental tire business and the Conitech. So with the help of this corporate struture they projectetd the Continental AG with prime supplier of the Automotive system combined with the tires. The Corporate structure of Continental AG in 2001 is given as below.

Corporate structure of Continental AG in 2001

Again this structure increased their sales. The automotive system was hadded by Albert Beller. They supplied the pre assembled wheel/tire systems. In 1994 they produced 10,000 tires where as it increased to 3 million tires pre assembled in 1996.

Evaluate the effectiveness of Dr Stephan Kessel's (Chairman of Continental AG), leadership skills in dealing with the company's strategic challenges in 2001

Effectiveness of Dr Stephan Kessel's (Chairman of Continental AG), leadership skills:

Dr. Stephan Kessel took over as a chairman of Continental Ag on June 1, 1999. At that time continental was a highly profitable company. But he was aware that the process of change was not yet completed, there was more to be done. So he developed a sustained corporate strategy. He saw the challenge as an opportunity and accepted the change process as an ongoing personal task.

Under his leadership the organization developed a new policy - the so-called BASICS - provided the sustainable framework. The main objectivies of the BASIC is to create a value for the customer as well as for the employees. They developed a new idea which led to benefits for all stakeholders, owners, customers and employees.

Dr. Kessel introduced a new policy called balanced scorecard process. A large number of managers were involved in this strategy. A balanced scorecard was prepared for each business unit as well as for the indirect service areas. This balance scorecard was prepared in accordance with the strategic objectivies of the organization so that it can be reviewed annually. As a result of which the level of performance was increased and a new performance standard was introduced. The entrepreneurial thinking of managers and employees were employed to achieve the compitive advantage.

The balance scorecard led to a better working environment in the Continental AG. It provided a better handling of corporate divisions using fewer performance figures.