Liberating Entrepreneurial Energy @ Continental AG in De Wit & Meyer

Continental Case Study

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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 it was intended to supply the innovations needed by the company.

Organizing research-development-engineering meetings

Such meetings were organized by Continental in order to focus around researchers and developers within the company and to grant them an entrepreneur value, in order to directly confront them with the demands expressed by the managers in charge of divisions that worked with the market and with customers. These meetings were in the favor of both the company and the researchers and developers. This is because the company benefitted from the ideas and brainstorming of these employees, while researchers and developers had the chance to express their knowledge and skills and to present their innovative ideas.

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

This strategic direction can be explained through Grunberg’s ambition and belief in Continental’s capability of developing cutting-edge technology and therefore creating the competitive advantage needed by the company in order to become the leader in the market in case. Also, given the fact that the market demands required certain modification regarding the company’s strategy, Grunberg decided to reorient Continental’s strategic activities towards producing several systems used in the automotive industry. The main aspect that the company focused on was represented by technical chassis components introduced in the company’s product line.

This was considered to encourage and support the expansion of the product range offered by Continental, as this was thought by Grunberg to be the strategic solution to the problems that affected the company’s activity. As a consequence, it was expected that Continental would increase its market share by introducing a series of new products on the market. The development of the automotive industry and the increasing demand for such products allowed for such an improvement in the company’s position.

Acquiring several companies

The acquisition of smaller companies is sometimes a good idea in order to expand the production capacity and the line of products of the company, given the fact that such smaller companies have the advantage of being able to produce goods that the acquiring company does not produce. Such an example is Teves ITT Industries. Grunberg decided to acquire it because of brake and chassis operations that were necessary for expanding Continental’s product line and improving its position on the market.

Corporate governance at Continental AG

In the case of Continental, the Corporate Governance Principles serve to create a responsible management of the company that is based on creating value through its innovative product and services (Continental, 2010). The main objectives of these principles are represented by increasing the transparency level regarding the boards’ activity and to help stakeholders understand the mission, vision, and strategy of the company. In addition to this, the corporate governance principles are intended to increase the confidence level of investors, customers, and employees in the management and control of the company.

Corporate Social Responsibility at Continental AG

The current global economic environment requires the sustained support of companies and their involvement the problems of the community. This means that it does not suffice to provide high quality products and services, but it is also necessary to get involved in aspects that concern the environment or the community, with all of its components. Most companies, especially large corporations are intensely involved in such activities. Continental makes no exception.

In order to prove its commitment towards supporting the community, Continental sustains corporate social responsibility activities by developing a constructive dialog with several interest groups (Degenhart, 2010). In other words, the company aims at treating people and the environment in a responsible manner. This means that the company intends to intensify its efforts into improving resource-saving products. In this activity, employees play a very important role. Their skills and motivation is intended to help achieve the objectives of the company.

Corporate Governance at Goodyear

The presentation of Goodyear’s guidelines seems to be more formal than that of Continental. The document refers to the size and composition of the board, the term limits, the responsibilities of the board, the selection of directors, the majority election of directors, board meeting agenda, their interaction with investors, strategic planning, shareholder proposals, and several standards (Goodyear, 2010).

Corporate Social Responsibility at Goodyear

The main aspects that the corporate social activity is based on at Goodyear is represented by the company’s focus on consumers, engaging the company’s associates within such practices, respecting the environment, supporting the communities, supporting the company’s employees (Goodyear, 2009). As one may observe, there is not much difference between the corporate social responsibility at Continental and that at Goodyear. Such practices are similar in most companies. The difference between the activities implemented by these companies is represented by the organizations they collaborate with.

There are two theories regarding to corporate social responsibility that are taken into consideration when companies establish their involvement in such aspects: the shareholder theory and the stakeholder theory. The shareholder theory assumes that the company’s main objectives is to generate profits for its shareholders, with no interest regarding matters of the society (Smith, 2003). The stakeholder theory assumes that the company must involve in the problems of the community and in taking into consideration different categories of stakeholders (Phillips, 2003).

Regarding the company’s functional structure and its modification by Grunberg, the main aspect that can reveal its effectiveness is represented by the fact that he tried to decentralize the structure of the company, especially where the decision making process is concerned. Grunberg’s intention consisted in allowing more power to division managers, in an effort of stimulating their initiative and, therefore, encouraging the innovation that was required by the company’s processes. In other words, Grunberg tried to impose the division managers to implement an entrepreneurial manner in their activities.

His plan proved to be successful, given the fact that the process in case led to unleashed mobilization of entrepreneurial potential in each division of the company. Therefore, one may consider that Continental was characterized by corporate entrepreneurship as a result of Grunberg’s plan. The managers and employees at Continental were encouraged to direct their activity towards increasing profits.

Grunberg also modified the company’s organizational structure. This is because he considered that the initial organizational structure of the company did not allow for a flexible decision making process and satisfactory informational flow. The organizational structure that Grunberg implemented focused on decentralization. This type of structure allowed to the company to focus on the production process and on including innovation within the activities of the company, rather than on administrative aspects. The improvement of the company’s position on the market reveals the efficiency of this strategy.

As a result, the corporate structure of Continental also modified. Grunberg and the managers made certain modifications to the initial corporate structure that allowed more independence to certain divisions. In addition to this, the modified corporate structure supported better communication and collaboration between divisions. This way, the company was able to encourage the entrepreneurial potential of managers and employees.

Stephan Kessel took over Continental when the company was on a good global position, given the significant improvements made by Grunberg. However, Kessel was aware of the fact that the company had to continue to implement similar strategies in order to maintain its position on the market. The company benefited from the opportunities created by the automotive industry growth.

Kessel’s idea was to transform the company from a high quality manufacturer if several products required in this industry to an expert in automotive chassis. This allowed the company to gain competitive advantage in a narrow field, therefore establishing the company as a leader in this market segment. In other words, Kessel decided to address a smaller market segment, but of high importance, and specialize in that segment of products, rather than addressing a larger market dot not allow for significant development of the company, with large players already established on that market, and with difficulties in gaining market share.

Although the idea made sense, it was not easy to integrate chassis production into the company’s operations. The integration of such components assumed that a series of collaboration activities between the company’s divisions had to be developed and implemented. The focus of the company regarding this aspect consists in creating value in all of the company’s business activities. In order to achieve these objectives it is necessary that the company develops and implements an organizational culture of high performance.

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