Essay on "Liberating Entrepreneurial Energy Continental AG in De Wit and Meyer"

Essay 11 pages (3066 words) Sources: 11

[EXCERPT] . . . .

Liberating Entrepreneurial Energy @ Continental AG in De Wit & Meyer

Continental Case Study

The business environment that characterizes the world's economy encourages and somewhat forces entrepreneurs to develop innovative solutions to the necessities and demands of the customers they intend to serve. As a consequence, innovation becomes extremely important in creating competitive advantage. The use of innovation by entrepreneurship is intended to sustain the growth of corporations.

Corporate entrepreneurship is acknowledged as the process used by individuals inside organizations in pursuing opportunities without taking into consideration the resources they possess at that moment. Technology plays a very important role in this process, given the fact that entrepreneurial managers connect small pieces of technological knowledge in order to respond to customers' problems, requests, and needs (Ramachandran, 2010). Furthermore, such managers develop these opportunities and build business segments based on them that are intended to determine and support the growth of the company in case. In addition to this, the process of corporate entrepreneurship helps transform these companies.

The process of corporate entrepreneurship is consisted of several phenomena that must be taken into consideration. These phenomena refer to the generation of new business segments within existing companies, the transformation of such companies by reshaping the main ideas they are based on, and innovation. The generation of new business segments is sometimes referred to as intrapreneurship. The transformation of these companies is considered to be a form of strategic change at organizational level. In other words, corporate entrepreneurship represents the process through which an individual or a group of individuals collaborates with an existing company in order to strategically transform that company and determine innovation within the company in case.

Strategic leadership is a leadership style characterized by developing a vision and general direction that the company must follow. Also, in this case, leaders must make proof of their ability to implement the growth strategy, not just develop it. Such leaders are expected to ensure that the groups they manage become capable of implementing the change processes that their company requires.

Regarding the company's strategy, leaders must ensure that the analytical dimension and the human dimension are addressed by the strategic implementation. The main functions of strategic leadership refer to achieving the common objective of workgroups within the company, developing and maintaining teams, and stimulating and developing employees. Specialists in the field have identified several skills required by strategic leadership: developing a strategic plan, focusing on continuous improvement, developing leaders at all levels, emphasizing stakeholder contributions (Ramey, 1992).

There are several differences between corporate entrepreneurship and strategic leadership. For example, corporate entrepreneurship focuses on encouraging innovation in order to transform and support the growth of the company, while strategic leadership focuses on developing and implementing a general strategy that the company should follow in order to ensure its growth and expansion. Also, corporate entrepreneurship deals with smaller projects, with identifying and developing new businesses that the company must address. In opposition with this situation, strategic leadership provides a larger image or strategic direction intended to help business units within the company to develop value.

Although Continental AG was one of the most profitable German companies and the leader of the rubber industry at the beginning of the 1990s, the decreasing demand for tires significantly affected the company's situation. As a consequence, the company's profits started to diminish, until the company actually started to report record losses. The declining situation of the company was also due to the management team that proved to be quite inefficient and unable to adapt to market changes. In other words, the company's managers focused on fulfilling their administrative activities instead of developing and implementing strategies intended to expand the business segments these managers were in charge of.

The recession of the global tire industry determined Continental to take several measures. The development of the company was determined by the strengthening competition, but also by several internal factors, like poor profits reported by certain corporate divisions of Continental, the inability to integrate acquired companies within Continental's growth strategy. The reasons behind this situation can be attributed to the company's organizational structure and culture.

Continental's organizational structure was a bureaucratic and centralistic one that did not allow for a flexible decision making process and for the development of business divisions in the direction required by market conditions. The company's structure was mainly oriented towards responding to functional issues, instead of responding to the requirements of the market and of customers. This is also because this type of structure implemented by Continental reflected the company's centralized control philosophy. Members of the board acknowledged the fact that the divisions within the company did not have sufficient autonomy, the decision making process was a centralized one, and the main characteristic of the company was represented by control.

This situation, combined with external factors, determined a series of issues that led to the decline of Continental, after the company enjoyed its position as a leader in the rubber industry. Such issues were identified by members of the company as the lack of awareness regarding the factors that determined the company's declining situation, not properly managing internal competition, centralized innovative potential, the lack of entrepreneurial initiative from managers and employees. In other words, Continental was not characterized by corporate entrepreneurship. Even more, the company did not encourage such processes, given the centralized structure that did not allow for this type of practices to take place.

The company's situation started to change when Hubertus von Grunberg became the company's Executive board chairman in 1991. He stated that the main objective that the company had to reach consisted in stabilizing its profitability and encouraging sustained improvement. He considered that the company's growth was inefficiently based on acquisitions instead of innovations. The program developed by Grunberg included the following points: growth through internal development and profitable production structures, investments in sales revenues, strategic alliances, reduced acquisitions, technological leadership, expansion of the company's market position on European level, pro-active environmental protection, rescue operation for the company's tire division, decentralizing responsibility, increasing sales.

In addition to this, Grunberg installed two main perspectives that were to be followed by managers in the company and their employees. Therefore, Grunberg changed the profit orientation as a growth support, in comparison with the company's initial strategy that focused on increasing sales. Also, Grunberg insisted that the solution to the company's problems was represented by innovation.

In order to achieve the objectives established by Grunberg, it seemed necessary to increase productivity in all of the company's divisions, especially in those that did not rise to satisfactory standards. As a consequence, it was necessary to implement a transparency of Continental's revenues and expenditures. Also, Grunberg was aware of the fact that in order to implement a flexible decision making process it was necessary to decentralize the responsibility of managers. This allows for the informational flow to be characterized by a lower number of errors.

The decentralization of each business division of Continental allows to observe them more efficiently and to easily identify the problems that interfere with their activity. This type of business management has proven to be efficient in the case of other companies in this industry. Therefore, Grunberg's decision makes sense from this point-of-view.

The company's management understood that in order to ensure Continental's growth it was necessary to encourage innovation. The management of the company developed a strategy based on the following steps:

Reaching for technological leadership

Developing and sustaining an innovative force

Organizing research-development-engineering meetings

Developing the company into becoming a systems supplier for the automotive industry

Acquiring several companies

Reaching for technological leadership

This strategic direction was established by Grunberg in order to create competitive advantage. His intention was to transform the company's capabilities into becoming the leader regarding technological aspects in the industry in case. He considered that this objective can be achieved through the innovative capability of Continental's employees on individual level. This strategy was applied in all business areas of the company.

Although the tire industry and the technological developments in the field seemed to discourage other progresses on technological level, Grunberg's perseverance led his employees to think that the technological potential of the industry has not been reached, and that certain innovations regarding products and processes were possible for the company to benefit from. In order to prove its intensions in this direction, Grunberg made significant investments in the company's research and development process and also allocated some of the sales revenues for this activity. The results of these investments proved its efficiency. For example, the company was able to develop a new tire line and a one-stage tire building machine.

Developing and sustaining an innovative force

However, Grunberg did not consider himself satisfied with the level reached by the company. He considered that Continental could increase the efficiency regarding the use of its resources, and also the innovative capability of the company. As a consequence, Grunberg and the company developed a technology center. The reason behind building this center was represented by the fact that… READ MORE

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