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Corporate entrepreneurship is the process of identifying the opportunities with business and finding the way to avail these opportunities whereas strategic leadership involves mostly handling the employees of the company to achieve these opportunities.
According to Diane Lockridge (2010), "corporate entrepreneurship typically might involve the creation of a new business department, product line, change in production methods or a different approach to leadership. While this represents the innovative side of the business, strategic management focuses on the accomplishment of entrepreneurial ideas"
Murray (1984) as cited by Allen and Bruce (1999) describes that entrepreneurship of any corporation is determined by its strategic management. So, a good strategic leadership is very important and crucial for an appreciable corporate entrepreneurship.
Allen and Bruce (1999) used five strategic management tools: planning horizon, locus of planning, scanning intensity, control attributes and planning flexibility. These were used to determine the relationship between strategic leadership and corporate entrepreneurship in their study. The relationship was rigorously determined and is defined as follows:
"A firm's entrepreneurial intensity is influenced by the nature of its strategic management practices. This conclusion is not surprising because a firm's strategic management practices are intended to shape and mould its behaviour."
Diane (2010) describes entrepreneurs as the thinker of new ideas of the business whereas strategic leadership mostly focus on accomplishing the certain tasks of the organisation. Corporate entrepreneurship gives a more broad idea than strategic leadership.
All leaders in an organisation try to bring a sound planning and strategy in order to achieve the goals. Strategy and tactics are adopted by the organisations to achieve the right things. There is a little difference between strategy and tactics. Strategy is about doing right things whereas the tactics are about the detail of doing right things.
"Strategy sets the direction in which the organisation will proceed while tactics determine how it will proceed. The major strategic challenges for firms encompass how to please customers, win orders, and simultaneously achieve financial objectives on an ongoing basis." [Wallace Robley and Jacqueline (2006)].
Strategy is an ongoing process and it never stops. For instance, if a company decides to reduce the price of its products then obviously its competitors would react and the company would need to adopt a new strategy in order to meet the new challenges.
A company strategy should develop gradually over time by having the result of its previous strategy and it should bring some amendments according to the results of its tactics and strategy. This would help refine the strategy-making process.
We will apply the theories given above to aid our analysis of the strategic change implemented by Continental. On July 20, 1991, Dr. Hubertus von Grünberg took over as Continental's Executive Board Chairman. This was at a time when the company was facing serious threats of competition, drop in profit, loss-making operation in the business and takeover risk by Pirelli. In a press conference, he established a clear new strategy for the corporation by defining the main goal of the corporation which was profitability. He stressed that for company survival, we needs our own entrepreneurs' forces rather than by growing via acquisitions. He established ten strategic points in order to increase the profits for the company. The new strategic agenda later on proved to be a very productive tool for the company. Agenda for strategic change adopted by the corporation was exactly the need for the corporation on that time with respect to the competitors, the needs of the customers and market current situation. Dr. Hubertus took some steps keeping strategic leadership in mind. His strategic management can be divided into four steps:
Strategic learning: in this step, he attained the total understanding of the organisation's operation and its environment, including all internal and external factors.
Strategic thinking: here, he moulded his learning in thinking in order to make a new strategy for the organisation.
Strategic planning: strategic planning involves the theoretical step of implementing the strategy to achieve the objectives and goals of the corporation.
Strategic action: the final step of strategic action is about implementation and execution of strategy which have been developed for the business.
A thorough analysis of the company was carried out to observe where profits were being made and where losses were being inflicted. The implementation of this strategy enabled the corporation to eliminate losses to a great extent. Expanding the market to new areas, emphasizing the central responsibility, rescue operation for the general tyre, fewer acquisitions with new focal points and investment in sales revenues instead of in size led the corporation to move from a position of making losses to a position of generating profits.
In today's competitive global market, only those organisations can survive which can understand the needs of the market and their customers. They develop new strategies over time and try their best to meet the needs of the customers. So, strategy is an ongoing basis for any business which needs to be refined and changed over time. It is indeed those companies who dynamically mould their strategy who succeed in today's competitive markets.
Porter (1985) introduced a model in his book named Competitive Advantage in 1985 which is known as Poter's value chain. This model helps to analyze and identify those activities which can create value and competitive advantage for the company. He suggested that the activities within the organisation can add value to the company's services and products if they are carried out at an optimum level. If a company is successful in running them in an effective manner, the value obtained should exceed the cost of running them. Hence, a company can get competitive edge over its competitors. Michael Porter (1985) divided these activities into primary activities and support activities. The following table depicts this segregation.
Human resource management:
Marketing and Sales
(cited in http://www.ifm.eng.cam.ac.uk/dstools/paradigm/valuch.html and http://www.learnmarketing.net/valuechain.htm - access date 25/12/10)
AG fostered strategic innovation to achieve growth in productivity from 1991 to 1999 by his ten-point programme in which those activities were pointed out which were more profitable for the company.
In the primary activities, the company introduced new profitable structure, new technologies and new market for the company. In 1993, the company became more market oriented than brand oriented.
Dr.Von Grünberg stressed on two points. Firstly, the managers of the company should follow a clear profit orientation (constituent of support activity) and secondly, to achieve this profit maximisation the company must bring new technologies in order to claim the technology leadership in the tyre industry (constituent of primary activities).
New growth strategy and profit orientation service were improved by the company. Special attention was given to the growth of those segments which were facing losses. In service function, the IT department was given special attention.
The example of procurement was seen in 1995. Tyre makers were very much at the mercy of a monopolistic supplier of steel cord which is a very important part of tyre production. At that time, the company took some daring steps for finding new suppliers of steel cord. So, new suppliers were found from Russia and long term contracts.
In order to increase the corporation's innovative power, Dr.Von Grünberg stressed the efficient use of available resources to the company by recruiting and encouraging the employees and managers with more entrepreneurial energy. Creating internal competition, appointing entrepreneurs to key positions, developing entrepreneurial competition and accurate supply to the demands all helped foster strategic innovation to achieve growth in productivity from 1991 to 1999.
Corporate governance sets the framework for the directors and managers of the company regarding how to add and produce the value for the shareholders.
Continental AG VS Goodyear Tire & Rubber Company:
AG's executive board and supervisory board are responsible for matters relating to corporate governance. They are responsible of developing such principles and policies in the corporation by which shareholders value increases. The executive board comprises of eight members.
In Good tyre company, the Board of Directors make the final decision and they are responsible for the principles and policies in the corporation. The shareholders elect the board of directors. This board of directors later on elects the Chief Executive and other members of the executive management team.
In the general meeting of AG corporation shareholders use their rights. The Executive Board presents the financial statements and consolidated financial statements. Each share carries a single vote in the general meeting. All shareholders can arrange a meeting and discuss about the agenda and principles which are adopted by the company. The chairperson of the meeting is responsible for conducting the meeting in reasonable manners. The documents and reports required by the law are the company financial report and the vote form. The company uses modern communication means to arrange meetings for shareholders. Many crucial decisions take place in the general meeting. The Executive Board and Supervisory Board work closely with each other and have an open and free discussion on the matters of the corporation. The Supervisory Board is responsible for advising the Executive Board on a regular basis. The chairman of the Supervisory Board is always in contact with the Executive Board in order to discuss the strategic matters. The Supervisory Board has made some committees to do certain tasks such as the Nomination Committee, Auditing committee and so on.
In Goodyear tyre, the meeting agenda is prepared by the management and sent to all the board directors. The directors can review the agenda and they have the discretion to include or exclude something in the agenda. The Chairman of the Board can be elected as the Chief Executive but this is not necessary. There are five committees formed by Board of Directors: nomination, auditing, compensation, compliance and finance committees. The performance of the Board of Directors is evaluated on an annual basis and for this purpose, assistance is required by the committees.
Corporate Social Responsibilities (CRS) is a volunteer function of an organisation in which a company shows its environmental and social concerns. Companies use this strategy to obtain a competitive edge. CRS make a corporation more trustworthy in the eye of the consumer. In today's world, it is part of every successful corporation.
Both Goodyear Tyre & Rubber Company and Continental AG Corporation are keeping up well in their social responsibilities. More or less, both of them are investing on important social behaviour fronts.
With regards to CRS, the AG Corporation respects the culture and law of the country in which they operate. There are certain codes of conduct within the corporation on how to carry out the daily works. In order to improve the CRS of AG Corporation, there are open discussions with all groups in the society. AG Corporation is environment-conscious and takes steps to keep up this image in full entirety. AG Corporation also took many steps for the improvement of traffic safety. They also donated money to the flood victims in Mexico. They spend a lot of money on the research of Aids and donated large funds to Philippines as well. The employees of AG at Gifhorn have been helping a children's charity by raising funds for them. In 2004, AG focused on the safety of children on the road by promoting the slogan of "we reward your safety". More than 50 projects were promoted by AG which were aimed at improving safety on the way to school. AG was devoted to education and science as well. In 2010, one thousand students were hired with the intention of 'training of young people'. Finally, AG has been promoting sports for a long time. Goodyear tyre and Rubber Company is also investing in similar areas to work on its CRS but obviously in different locations and countries.
http://www.goodyear.com/corporate/ access on 29/12/2010
Functional structure is the most common structure which is found within organisations. This structure is based on certain specialties such as engineering, marketing, human resource, etc. The leader of each functional department should have in-depth knowledge and experience to run the unit effectively.
Organisational and Corporate structure
The organisational and corporate structure of a corporation depends on its objectives and goals. This structure determines how power and responsibilities should be divided within the organisation. It also determines how information flows among different departments within the organisation.
Functional, organisational and corporate structure of AG from 1992 to 2001
In December, 1991, Dr. von Grünberg restructured the companies by shutting down the different functional units or merging them with each other. He encouraged employees and managers with entrepreneur qualities so that they could get motivated based on intrinsic factors and in turn help the organisation progress.
"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." (Dr.Hubertus Von Grünberg, Chairman of the Continental Supervisory Board and Chairman of the Executive Board of Continental AG).
Source:http://www.ifpm.unisg.ch/org/ifpm/web.nsf/SysWebRessources/Liberating+Entreprenuerial+Energy/$FILE/Conti+case.pdf access on 024/12/2010
Using this framework, AG Corporation found entrepreneurial people in the corporation and by decentralising its structure, AG Corporation was able to point out those units of the business which were causing more cost to the company than profit. Productivity comparisons between different units with the help of a decentralised structure enabled Dr. Von Gruenberg to restructure the plants. For example, Dr. von Grünberg announced in 1995 that one of the existing plants would be shut down because the production quantities from these plants are uneconomically small though he didn't mention clearly the name of the plants. (Source:http://www.ifpm.unisg.ch/org/ifpm/web.nsf/SysWebRessources/Liberating+Entreprenuerial+Energy/$FILE/Conti+case.pdf access on 024/12/2010). Dr. Von Gruenberg used performance and productivity ratios as well for the functional restructuring.
Dr.Gruenberg shut down the two plants in Dublin in 1996 and shifted their 2 million tyre production from Traiskirchen to the plant in Otrokovice, Czech Republic. Following these shut down, plants in Newbridge and Scotland were also shut down. By this new structuring, AG Corporation was able to remove the stress on other plants and increased their earnings.
A key change was introduced to human resource department. This was to identify those young executive who were capable and willing to get involved in the progress of the corporation. A management training program was carried out for ten years. This training program helped in discovering prospective entrepreneurs for the corporation. Source:http://www.ifpm.unisg.ch/org/ifpm/web.nsf/SysWebRessources/Liberating+Entreprenuerial+Energy/$FILE/Conti+case.pdf access on 024/12/2010. Therefore, the effectiveness of the 'functional', 'organisational', and 'corporate' structures adapted by Continental AG in unleashing manager's entrepreneurial energy from 1992 to 2001 increased reasonably.
When the company was handed over to Dr.Stephan Kessel, it was financially healthy, profitable and well placed in market. However, yet the process of change was not completed. Dr.Stephan Kessel was aware of this fact and he fulfilled it with responsibility. He introduced a new market by establishing chassis system in the corporation as a core competency. This targeted the system's supply business as its prime growth market. "Electronics make up about 15 to 17 percent of the value of a standard-size vehicle. The general estimate is that in five years time this will have increased to 35 to 40 percent." (Dr. Stephan Kessel, Chairman of the Executive Board of Continental AG).
Source:http://www.ifpm.unisg.ch/org/ifpm/web.nsf/SysWebRessources/Liberating+Entreprenuerial+Energy/$FILE/Conti+case.pdf access on 29/12/2010.
Dr.Stephan Kessel introduced a program called BASICs. This was a strategy aimed at keeping the manager and employees of the company innovative and focused on profit. "The primary goal of the BASICS is to create value. That is not necessarily anything new. The difference is that we want to create value that benefits all of our stakeholders. In other words, our shareholders and owners, our customers and employees and, last but not least, the general public as well. To this end we have developed the clear targets enunciated in the BASICS." (Dr. Stephan Kessel, chairman of the Executive Board of Continental AG) (same above source).
Moreover, he introduced scorecards in the units of the corporation. BASICs increased the strategic and entrepreneurial understanding of the employees and the managers. The scorecards implementation provided a better handling of the corporate division. In order to maintain entrepreneur energy of employees and manager, Dr.Stephan Kessel suggested involving them in the decision-making process.
"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 'hypercaution' 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. Stephan Kessel, Chairman of the Executive Board of Continental AG) (same source as above).
So, the leadership skills of Dr.Stephan Kessel proved to be productive for the company which brought more opportunities of profits to the company.