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In todays highly competitive business environment, there are a lot of companies that are competing with each other for business and also these companies have to be aware every now and then of a new market player emerging with new ideas, technological innovations and techniques that can impede those existing market player's business ambitions. The key to success for businesses is to be able to identify that competition and to respond to it, be able to constantly develop, acquire and adapt, i.e evolve according to the market demand. This has bought forward the concept of corporate entrepreneurship. The culture of corporate entrepreneurship has to come from within the management of organisations. With the intense competition among businesses, the contemporary style of management has given to strategic leadership. Corporate Entrepreneurship is the culture of innovative thinking from within people in the organisation that ensures sustained growth of companies (Ray & Ramachandran 1996).
The motive for entrepreneurship comes from the urge to enhance customer satisfaction (Ramachandran 2003) and also plan better for the future. The motive for entrepreneurship can also be a response to the changing market scenarios that businesses face, whether it is from competition from rivals or in the pursuit of new business opportunities. This kind of entrepreneurship was first started at Continental AG by Dr Von Grunberg, who fostered the idea of innovative thinking among all staff at Continental when he started as the Chairman of the executive board in 1991. This corporate innovation bought forward the idea of profitability among each business unit of Continental AG. The company moved from a strategy of expansion by acquisition to a growth strategy by profitability.
For this kind of innovative thinking (corporate entrepreneurship) companies need leaders who are able to foresee changes, predict and plan for the future. This is what is known as strategic leadership. Strategic leaders have multiple skills but most important among them are the interpersonal, conceptual and technical skills. They are also adept at managing changes.
Under Dr Von Grunberg's strategic leadership, the company "set about implementing a re-orientation of the company's business" (Bruch and Vogel 2001). He encouraged the idea of entrepreneurship among all business units of Continental AG and urged the company to "strive for the leading position in technology" (Bruch and Vogel 2001) as his astute vision envisaged the gap and opportunity for the future technological market. He felt that the tyre market was saturated and Continental could have not survived just by being a tyre supplier alone. He put forward a plan for future product and process innovations towards being a systems supplier by re-structuring the Research and Development division (R & D) at Continental AG, it started to show results, Continental AG moved ahead from its dark days at the beginning of the 1990's and re-invented itself in the market.
Corporate strategy must be in the hands of strong leaders in the company and their strategic thinking drives a company forward. Strategic leadership is not only concerned with giving direction to present strategies but also future strategies for the company and plans in place for those strategies. Strategic leadership also motivates employees by giving them the right direction ahead and preparing them better for the future.
1b) The 1990's saw a serious recession in Europe and the world tire industry was also hit by this recession. Vehicle registration declined and the market shrunk. Continental was faced with drop in profits, units running on losses and the takeover bid of Pirelli. This prompted a strategic change in its external and internal policies. Before looking into Continental's strategic change, the factors responsible for those strategic changes in Continental's policy need to be looked at and is discussed in the nest paragraph.
In spite of the difficult times talked about in the earlier paragraph, Continental pursued growth strategy and as a result suffered huge losses (65 million euro in 1991) (Bruch and Vogel 2001). Pirelli, a competitor of Continental at that time wanted to attempt a takeover of Continental which was not successful and at the end it was settled with Pirelli controlled block of shares being transferred to a bank consortium and the departure of Executive board chairman Horst W. Urban on May 10, 1991. Continental was also facing difficulties integrating the companies/tire brands like Uniroyal, Semperit, General Tire etc acquired as part of its growth strategy. "There were also poor profits in a number of corporate divisions" (Bruch and Vogel 2001, p740). The company structure of Continental was bureaucratic and centralistic (Bruch and Vogel 2001). The corporate structure was handling "functional responsibilities" instead of being market and customer oriented. Most of the management were involved mostly in carrying out administrative duties and lacked entrepreneurial skills/energy and strategic leadership and that also came down to the employees. To sustain in the highly competitive market, Continental needed strategic change and those strategic changes implemented by Continental are discussed in the next paragraph.
More importance to profitability and innovation
Continental shifted its focus from being growth by acquisitions to more on stabilizing the company's profitability and innovation and no further acquisitions. The innovations, Continental stressed would be achieved by the company through its own entrepreneurial forces (Bruch and Vogel 2001). Dr Von Grunberg presented a 10 point program which was designed to place more emphasis on company managers having a clear profit orientation and also be a leader in innovations and technology.
Restructuring the functional orientation in the tire area
Functional restructuring for the tire area in 1992 saw the previous "board areas of 'Tire production' and 'Marketing/Sales' responsible for car and truck tires" being dissolved and replaced by product driven "board level divisions of 'Passenger Tires' and 'Commercial Vehicle Tires/Environment/Research'.
Profit orientation of service functions
The demand for profitability also applied to service functions like Information technology. Continental AG outsourced its IT functions to another company which was jointly run by IBM and Continental.
Marketing organisation of car tire division
Continental AG acquired a number of brands in the 1980's like Uniroyal, Semperit, General Tire, Viking etc. Their profitability was looked after by a separate management team. One of the major problems these brands were facing was that they were apparently targeting the same customers and in fact seemed like each other's competitors. Continental AG realised that and adopted a stance of market orientation, a shift from brand orientation at the end of 1993. Managers were given much more authority in their regions and they were made "accountable for the results" (Bruch and Vogel 2001). They were also given time and space in dealing with customers and understanding their needs.
Central coordination of decentral activities
Even though decentralisation of the various units/activities were pursued, key functional areas like control, finance, technology, purchasing "were retained as central units" (Bruch and Vogel 2001). Dr van Grunberg "continued to exert direct influence" (Bruch and Vogel 2001) particularly in matters of investment.
2a) How Continental fostered strategic innovation (use Porter's value chain understanding)
Any company who is looking to survive in the long run in the market must be able to rethink and reinvent its planning process in order to maintain sustainable competitive advantage in the market. Whether it be through spreading the culture of corporate entrepreneurship among management and staff, through promoting strategic leadership or through fostering strategic innovations. Innovations are part of core competencies of firms and are essential for competitive advantage (Bruch and Vogel 2001).
A careful analysis of Porter's value chain (a useful tool to analyse a firm's core competencies) would reveal two very important facts. The activities in which a firm can pursue competitive advantage can be either by creating a superior cost advantage by which it offers the market and its customers a real value for money or by differentiating its components, products and services from its competitors. Continental was faced with tough times at the beginning of the 1990's with the economic recession and its failure to respond to changing times by redesigning its strategies and policies. However with Dr. Von Grunberg as the chairman of the executive board it identified the areas to address as regards to company strategies and focussed on fostering strategic innovation culture in the company with regards to core competencies of differentiating its components, products and services from its competitors.
Initial strategy of Continental after the appointment of Dr Von Grunberg in early 1991 (as the Chairman of the Executive Board) was to concentrate on the entrepreneurial strength and innovation potential of its staff and managers. However that strategy changed with time, "following the acquisition of Teves, ITT industries brake and chassis operations in 1998" (Bruch and Vogel 2001) when Continental went "beyond its own operations into the value chains of suppliers"(Kotler 2003) in pursuit of systems supplier status (Bruch and Vogel 2001).
Through striving for technological advancement
Continental was looking to differentiate itself from its competitors and one aspect which Dr Von Grunberg felt that the company could make a difference is in the advancement on the technological front. He urged for innovation from individual employees from every single department of the company. The efforts bore fruit and resulted in a new tire line, Eco-contact in 1992 and development of a one stage tyre building machine in 1994 (Bruch and Vogel 2001). Continental invested heavily in Research and Development (R&D) even during the crisis (Bruch and Vogel 2001) and focussed on product and process innovations (case study 7) within the tire industry. A new technology centre was built up in Hannover, Germany. "The R&D resources from Semperit and Uniroyal were all brought together in Hannover" (Bruch and Vogel 2001, p744). Thus more than 1000 engineers and technicians were working together in delivering "market oriented innovations for car/truck tires and automotive systems" (Bruch and Vogel 2001, p744). There were also "research-development-engineering (RDE) meetings" where the researchers were confronted "with the demands of managers from market and customer units to foster new business ideas" (Bruch and Vogel 2001).
Towards a systems supplier for automotive industry
Continental AG and its management under the leadership of Dr Von Grunberg in the 1990's realised that suppliers of complete systems (instead of tires or components only) will play the dominant role in the automotive industry of the future (Bruch and Vogel 2001). The supplier market of components and tires was shrinking at that time. It was at that time that Continental realised that it could long longer remain as a direct supplier of production of tires only. It needed to "incorporate technical chassis components to form complete systems to supply to the automotive industry" (Bruch and Vogel 2001, p745) and the acquisition of Teves "to create a superior value delivery network" (Kotler book, p71)
Formation of a separate board area Automotive systems
The board of continental AG founded a separate board area in 1994 called the 'Automotive Systems' headed by Albert Beller, a former manager at ITT Industries who had extensive experience in the chassis business (Bruch and Vogel 2001). From production of 10000 tires in 1994 in a matter of two years production increased to three million tires (3 million). There were also developments of series of innovative product ideas for the chassis that came along during this time, namely TPMS, CECC, CASS, SWT just to name a few (Bruch and Vogel 2001). These developments of innovative product ideas formed the basis for future value addition and growth
2b) Compare and contrast Corporate governance and corporate social responsibility practices at Continental AG and Goodyear tire
Corporate governance at Continental AG
Corporate governance is the way a corporate is governed, the set of rules, policies and processes that dictate the way a company is administered or run (University of Sunderland Handbook 2004).
Continental AG follows certain corporate guidelines, governance and code of conduct which make up the Corporate governance practices at Continental AG in accordance with section 161 of the German Stock Corporation Act (AktG).
The Continental AG Executive board is in responsibility for the management of the company as a whole. The executive board is formed of members who share the various responsibilities. The head of the executive board is the Chairman of the Executive board and is responsible for giving the company the direction it needs, including business policy and overall management (www.conti-online.com). The Supervisory board is responsible for appointing the Executive board and also supervises and advises the Executive board. The supervisory board is also represented by a Chairman who along with the chairman of the executive board discusses the company's strategy and growth. The corporate governance practices since 1990's under the able stewardship of Dr Von Grunberg disintegrated the centralised structure of operation of Continental AG and made business units and business managers more accountable to the profits and losses regarding their units. This developed more transparency in operation at Continental AG.
The Corporate Guidelines of Continental AG was reflected in the new Continental policy, the
BASICS, the Continental AG corporate guidelines. It has reflected the vision, overall focus by value creation (Bruch and Vogel 2001), focus on stakeholders, products and services, corporate spirit, values and self-image of the Corporation since 1989.
Code of Conduct of Continental AG
Continental AG introduced a Worldwide Code of Conduct in 1996 that describes the basic values and principles which are binding for all Continental employees during their everyday work and when dealing with colleagues, customers and other company stakeholders (www.continental-corporation.com). This was to foster a long term successful relation with company stakeholders and clients.
Corporate Social Responsibility practices at Continental AG
Continental AG understands the fact that a company's success is not only defined by its growth and profitability but it also defined by its social responsibility, its caring for the society and the world in general. Continental AG is committed towards sustained social responsibility, called the Corporate Social Responsibility (CSR) (www.cont-online.com). Continental takes into account environmental and social aspects into account in designing its products and makes sure that its products ensure safety and convenience in road traffic (www.continental-corporation.com). The company is committed towards treating its staff in a responsible manner, ensuring they are happy, in good health and can maintain a balance between personal and professional life. The company also offers further qualification and training and development opportunities for its staff. Continental AG also supports and promotes resource saving products to make sure that the environment is looked after.Continental AG works with the wider social community in supporting programmes and projects on education, welfare and sports (www.cont-online.com).
Continental AG follows the framework of International Global Reporting Initiative (GRI) guideline in drawing up its Corporate Social Responsibility Report.
Goodyear Corporate governance practices
Goodyear has a corporate governance committee to oversee all corporate governance activities. The committee consist of three or more directors appointed by the Board of Directors (www.goodyear.com/corporate). The committee listens to shareholders suggestions for board members and also reviews and assesses the corporate governance guidelines to make recommendations to the Board. Goodyear's corporate governance practices has led to innovative thinking, product optimization and optimization of customer satisfaction and is evident in its new policy of seven strategic drivers (leadership, focus on cash, low cost structure, leveraged distribution, building brand strength, product leadership and advantage supply chain) to better integrate and co-ordinate the business activities so that they are more profit oriented, focus more on delivering customer satisfaction, focus on customers appeal on goodyear's key brands and better co-ordination with the supply chain for streamlined ordering process focussing on customer and low operating cost (www.goodyear.com/corporate).
Corporate Social Responsibility practices at Goodyear
Goodyear tire is committed towards the society at large and also the environment. Goodyear realises that to be a world player it must pay same attention to the environment as it pays to success and profits. Goodyear follows all relevant environmental health and safety guidelines not only in relation to its workers but also keeping in mind the global society and community in the place in which it operates. The commitment to zero waste landfill in 2006 all was implemented to eliminate all waste from landfills (www.goodyear.com/corporate). Initiative was also taken for the reduction in the the use of solvents, promoting energy efficiency and controlling wastage of water.
Goodyear undergoes numerous works all over the world involving young children, women, backward communities to aware them of the dangers in road traffic and the safety measures that will make this world a better and healthier place to live in. Some of the initiatives are women with drive, test coin kits, Nelson Mandela Business coalition to support the HIV/AIDS people in Africa, child safety seat programme.
In conclusion the corporate social responsibility practices at Continental are more concentrated towards safety and well being of its employees and the society at large, while the corporate social activities of Goodyear tires are more focussed on the health and safety policy and promoting safety to the society at large.
3a) The structure at Continental AG was highly centralized and bureaucratic before 1992. This kind of rigid structure made Continental AG concentrate more on functional responsibilities and as a result distanced itself from the market and its customers. This kind of structure did not allow the opportunity to look into the health of the individual units in the company and as a result it was difficult to find out or track the sources and reasons behind losses and also to hold someone accountable for the losses. However the restructuring of the functional structure in 1992 saw the board areas of 'Production Tires' and 'Marketing Sales' existent in the functional structure in 1991 being dissolved into 'Passenger Tires' and 'Commercial Vehicle Tires/Environment/Research'. Instead of giving separate responsibility to a marketing team/department/unit, the new structure allowed both divisions to look into their production and also marketing responsibilities. The managers were responsible for pretty much everything for their divisions and they were given far more freedom and autonomy to express them and were responsible for the profit/losses. This fostered the culture of innovation and new ideas not only among managers, but also the managers and the board encouraged entrepreneurial energy among staff. The chain of command was much clearer (organisational structure) and this transparency made it possible to set targets/profit demands on top management in those divisions. In 1996 "the organizational split up of the passenger tire division into the highly profitable replacement business unit and loss making original equipment business" made it possible to identify the loss making area from the profit making area. The loss making original equipment business was brought back to profit making under the leadership of Dr. Kessel, who also promoted the entrepreneurship among all levels of the company. But this organisational shake up was important as the company was able to work separately on that particular area and by 1997 it paid dividends.
From 1992 onwards the management at Continental AG felt that with the shrinking of supplier market in tires and components, it could long longer remain as a direct supplier of production of tires only, the automotive industry market was moving more towards "suppliers of complete systems" (Bruch and Vogel 2001). It needed to "incorporate technical chassis components to form complete systems to supply to the automotive industry" (Bruch and Vogel 2001, p745) and the acquisition of Teves "to create a superior value delivery network" (Kotler book, p71). The board of continental AG founded a separate board area in 1994 called the 'Automotive Systems' headed by Albert Beller, a former manager at ITT Industries who had extensive experience in the chassis business (Bruch and Vogel 2001). The formation of a separate department 'Continental Automotive systems' in the corporate structure put greater emphasis on supply of complete systems and led to the development of innovative ideas and entrepreneurial skills for products like TMPS, CECC, CASS, SWT etc.
3b) Dr Stephen Kessel assumed the board chairmanship on June 1, 1999. He knew that it was a hard job following in the footsteps of Dr. Von Grunberg, who was hugely successful in steering Continental from its plunge in the early 1990's and turn it into a profit making company with an entrepreneurial mindset (Bruch and Vogel 2001). The major challenge for Dr. Kessel was maintaining the corporate position of Continental and also to maintain the entrepreneurial energy among employees at Continental. He introduced a new policy known as BASICS which is creation of value that benefits all stakeholders with a clear vision and overall focus (Bruch and Vogel 2001). Dr Kessel initiated a "company-wide balanced scorecard process for the purpose of establishing certain guidelines within Continental" (Bruch and Vogel 2001, p752). In this he involved every single department and devised a balanced scorecard for every single business unit, which was to be reviewed annually. "This provided a better handling of the corporate divisions using fewer performance figures" (Bruch and Vogel 2001). Dr Kessel also played a crucial role in securing Continental AG's technological edge on competition and leading position in terms of technological innovation with the "newly founded Strategic Technology unit collaborating tires, chassis, brakes and technical products shaping company's re-orientation to a systems supplier" (Bruch and Vogel 2001, p752). He was also instrumental in getting the "original equipment business unit" back to profit making with entrepreneurial activities and "adoption of a strategic policy" of not buckling under the "automotive industry's pricing policy"(Bruch and Vogel 2001, p753).