Part A
Entrepreneurship as integrated management

1. Corporate development: Integration of strategy, structure and culture

1.1 Introduction

An increasing number of companies are taking the opportunity to initiate development processes in order to increase not only efficiency but also effectiveness. Top managers have realized that there is a need to face environmental challenges such as a changing competitive situation, technological advances or value change and that internal processes ought to be adapted.

The conscious opening of a firm to the environment requires that operating efficiency be increased through optimizing market and client orientation, as well as developing the company’s structure and culture (= corporate development). Visionary corporate development comprises mutually harmonized measures that are based on strategic reorientation and that initiate structural reorganization and refinement of the management process (Picot 1999, 46). Furthermore, corporate development can be viewed as the result or object of integrated management requiring rational and socioemotional consideration of the situation (Bleicher 1999, 484). Obviously, the main challenge – which is that of the coordination of strategy, structure and culture – assumes a dynamic character (Figure 1.1).[1]

The necessity for a flexible approach stems from the constantly expanding and changing environment that a company is confronted with. In general, two substantial options arise for the leaders of a firm: either they moderately change direction, which is often difficult due to the complexity of tasks in the environment; or they downsize the system by decentralizing certain units, for instance. However, change undoubtedlyleads to the need for stability. Stabilityand prospects are of particular importance in turbulent environments but ought to be interpreted differently here. Dynamic stability, i. e. stability in development instead of static stability, and action-guiding visions instead of fixed long-term objectives are necessary. Strategic ability requires organizational learning which is likely to result in innovative thinking and acting (O’Reilly/Tushman 2004, 75).

Innovations can be considered as the driving force of a major restructuring process in a company. In fact, they serve as a basis for the further development of existing core competences and the building of new ones. The innovation process is regarded as an essential dynamic capability which actually permits the adaptation and further development of a firm’s competences. Therefore the innovation process represents a vital element for the realization of a sustainable corporate strategy.

Figure 1.1: Integrated corporate development

Consequently, innovations constitute a major contribution to securing profits in a sustainable and effective way and therefore contribute to ensuring a company’s viability. This objective is reached through developing dynamic capabilities and continually adapting them. Adequate perception of the environment, as well as anticipation of future scenarios makes great demands on the top management. The process of corporate development requires initiation, planning and realizing these necessary and sometimes unpopular changes. The authors of this book are of the opinion that it is quite possible- to a certain extent- to plan and control the sustainable development of a company and its viability.

Example: Mettler-Toldeo (www.mt.com)

The company serves as an example of the very successful implementation of a visionary business model on the basis of the “fractal company”. It uses the principle of a “self-organizing network”, a scientific expression. During the implementation of this new business model, the biggest problems were the following:

• Overcoming mainly emotional problems with change and alleviating fears by adapting the corporate culture.

• Motivating the company staff and creating adequate conditions.

• Reducing obstacles to make room for employee development.

• The main problem here has proven to be the motivation of staff and giving them a sense of security.

• Promotion of entrepreneurship so that employees assume responsibility for their own actions on the basis of information that is generally available.

Furthermore, it is important to note that sustainable corporate development objectively differs from the notion of corporate growth; provided that growth is understood as purely quantitative change. The equation corporate development = quantitative growth is incorrect, in that purely quantitative growth often leads to an unwanted new system status and exceeds the tolerable maximum (Vester 2003, 81 f.). This is the consequence of a non-cybernetic development forced by external interferences in the firm and its environment. The critical point is easily exceeded if development is defined by quantitative growth. Possible consequences might be, for instance, an inflexible organization structure that is difficult to control, or that the range of products and services may become so vast and opaque that both clients and stafflose orientation.

Negative feedback prevails, and innovative ability diminishes. The resource “flexibility” is fostered inadequately and the company’s products no longer meet the market’s needs. In fact, objectives like an increase in output, profit maximization or a sales increase are no longer ideal benchmarks for a sustainable company.

Figure 1.2: The growth trap Source: Vester 2003, 82

Hence sustainable corporate development is only possible if the company, as a complex system, is managed in a selfregulating way. The application of cybernetic principles, orientating towards living organisms, appears crucial because it means that the main role of the management is to give the impetus for selfregulation and interaction between employees and the environment. The focus of this evolutionary, system-oriented management lies on the viability of a firm, and leads to dynamic growth, innovation and development of the company as a system. However, what are the characteristics of sustainable corporate development?

1.2 Characteristics of corporate development

The concept of corporate development has to be regarded as the evolution of the company as a system that is analyzed between the conflicting priorities of external opportunities and threats, as well as internal strengths and weaknesses. In particular, this area of tension becomes apparent in the market-based and resource-based view of a corporate strategy – a debate that has been intensified since the publication of Hamel/Prahalad’s (1994) paper in the 1990s.[2] Their criticism of Porters market-based approach leads to the elaboration of a resource-based perspective that highlights the need for a correlation between the external market context in which a company operates and its internal capabilities (Figure 1.3).

Figure 1.3: Integration inside-out and outside-in Source: Bleicher 1999, 458

The area oftension can be reduced by combining the two schools of thought rather than treating them as rivals. A company needs to choose its own development process at market entry – for instance, one that is based on its capabilities – without neglecting the market orientation. This approach to corporate development makes high demands on management and staff, which makes its implementation difficult.

Example: 3M Corporation

The 3M-Corporation (Minnesota Mining & Manufacturing) has created a competence-based management and structure in a way only a few other companies have. The competences are to a large extent identical to various technologies that are the basis for the development of new business ideas. Undoubtedly, this part of the corporate process is affected by a competence-oriented process that aims to remove existing resources and develop new ones. For the product development within a business unit, 3M has created a process starting with the client.

The first market-oriented stage consists of a meeting of the so-called “Major-Customer Team”, i. e. selected customers and representatives of all areas of operation of 3M. The customers outline their specific problems, as well as product requests and requirements. These inputs subsequently result in concrete projects for the laboratory responsible for that product.

Competence-oriented feedback usually starts with the assessment of the outcomes by the responsible members of the project management. In successful cases, the new products will be launched. In addition, the findings are assessed by a “Technical Audit” comprising a group of specialists with different functions in other areas of operation who check transfer possibilities and multi-shift usage. Thus, good ideas can be used in various other product fields.

The lead user method was a key element in the sourcing of innovation and new business ideas. 3M began using this method in one division in 1996. Five divisions of 3M had completed seven lead user projects and had created the development of the product concepts. The teams employed an identical lead user process with identical coaching materials. Each team consisted of three or four members of the marketing and technical departments. The lead user project teams began by identifying important market trends. Information from a number of innovating lead users was then combined by the team to create a new product concept and a lead user idea (von Hippel 2006).

Figure 1.4: Competences and market of 3M

The capability of a firm to provide additional value for stakeholders has an impact on the area of conflict in comparison with other competitors.

According to Bleicher (1999, 484f.), corporate development is characterized by the following criteria:

• Quantity and quality
Corporate development does not only use quantitative measures as benchmarks but also focuses on the skills a company possesses. Basically, corporate development expresses change by providing long-term benefits, as well as the qualified and relative positioning with reference to other companies.

• Potential values and strategic potentials
Corporate development aims to change the normative and strategic potentials of a company.

• Intended and realized amount of corporate development
The distinction between intended and realized amount of corporate development is decisive, since it emphasizes the challenge of designing and managing this process.

• Manageability and monitoring
Only to a certain extent is it possible to manage and monitor corporate development. Certain paths of development and strategies can be concretized. Nevertheless, depending on a company’s level of development, self-evolutionary non-determinable forces that have an impact on the firm remain active.

Adistinction is often made between quantitative and qualitative, or external and internal corporate development. Quantitative corporate development is used synonymously to external corporate development, measured by turnover, total assets, number of employees or cash flow, for instance -permitting analysis of change in company size or subdivisions. The company does not grow organically but makes use of other’s potentials for success, for instance by acquiring another firm. Quantitative change, such as change in turnover, creation of value or number of employees receives priority. Qualitative corporate development, however, is often referred to as internal corporate development. It derives from an entrepreneurial idea resulting in the creation of potentials of success and core competences. Qualitative change can involve strategic reorientation, new learning processes, reorganization, modified assignment of executives and a new assortment policy.

The development of a firm with a focus on its potential has turned out to be paramount, whereas various levels of potentials can be discerned (Gomez, 1993). The reference framework differentiates between potential of the normative and the strategic level.

Figure 1.5: The system and its potentials Source: Binder/Kantowsky 1996,61

As a result, potentials of the general environment, strategic potentials of success, as well as core competences can be differentiated. Potential value on the normative level occurs on the one hand through value creation for the reference groups, on the other hand through systematic communication with the stakeholders. Bleicher (1999) talks about the so-called ability to create value and communication potential that the company possesses.

The strategic potentials of success aim to provide specific customer value that competitors are unable to deliver. In cases where these core capabilities can be successfully implemented on the market, the company has managed to develop a strategic success position (SSP). Strategic potentials of success and strategic success positions are the link between resources and capabilities, as well as the value creation of the firm, i. e. its fundamental objective (Pumpin/Ammann 2005, 24 ff.).

Figure 1.6: Bridge function of strategic potentials Source: Bleicher 1999, 465

The limited manageability and controllability is shown, for instance, by means of models illustrating the different stages of development of a company. These models follow the lifecycle and describe, the development of a company – similar to a living organism – as a process consisting of different phases. There are various business lifecycle models that consider foundation, growth and change of an organization as necessary stages of development. In Anglo-Saxon countries, the model by Greiner (1972) is widely accepted. According to his model, company age as well as quantitative and qualitative size criteria, play a role in a logical order. Depending on the stage of the business lifecycle a firm is in various organizational forms are adequate in order to overcome a particular crisis. It is vital to adapt the organizational form to the situation a company is in, and to fill the organizational gap. Further models have been developed by Scott/Richard (1987), Churchill/Lewis (1983), Kazanjian (1984) and Kazanjian & Drazin (1990).

In the German-speaking area, Knut Bleichers (1999) model is popular. It basically analyses a company and its six ideal phases: the pioneering phase, market development, diversification, acquisition, cooperation and restructuring. These different phases are the consequence of conflicting priorities (tension) between the internal situation and the firm’s environment (Bleicher 1999, 517ff.).

All of the lifecycle models have in common that different stages of development occur with a certain logic, and often consist in a founding- and a growth phase. At the end of the growth cycle the company finds a new equilibrium (stabilization phase or maturity). Consequently, the growth phase is embedded into a phase of change that leads to the stabilization, closing down or the turnaround of a firm.

Due to these characteristics, corporate development can be understood as a company’s change processes over time, which gradually has an impact on defined paramount objectives and strategies on the structure of a firm, as well as on modified values and behaviors of staff and management (Figure 1.7). The objectives of a company; its organizational and management structure are reflected in different management concepts, such as information and communication management, project management, organizational concepts and production management/technology management. All the management concepts help to realize the firm’s objectives during a change process. It is important to bear in mind that the company as a system or organism in the cybernetic sense develops its own dynamics, triggered by human and non-human factors, resulting in a situation where the company is no longer fully manageable and controllable.

Corporate development interpreted in such a manner uses the development concept of biologists, implicating basic processes, such as cell enlargement, cell proliferation, cell differentiation (organ creation), as well as regeneration and regression of organs and parts of the body.

Figure 1.7: Dimensions of corporate development Source: Trebesch 1994, 15

1.3 Management of change

The primary aim of corporate development is to permanently find new and more flexible Solutions (Kobi 1996, 33). Realistically it is impossible to define the “best durable concept” for strategic orientation, organizational form and cultural management. System-oriented management is about working out possible and adequate solutions within an already existing process. A framework needs to be created to give change processes basic orientation, as well as enough leeway at the same time. Thus, there is no focus on the obviously “right” solution but rather on limiting the variety of alternatives – so that there is some control in the development of the company. The way change is implemented is equally as decisive as the objectives themselves, all the more because companies are in constant change and because many change processes happen without intent, are coincidental and remain unperceived for a long time.

It is controversial as to how change processes should be managed. To put it simply, two fundamentally different viewpoints exist. One side – partly based on the “unfreezing/moving/refreezing” theory by Lewin (1963) -postulates the feasibility of large-scale change (Cap Gemini 2005, 6).

The other side denies this view because of the impossibility of planning modern systems. It requires that change management to involve situational, flexible and adaptive reactions in the course of time, similar to a reactive natural change from the system itself. The Anglo-American literature, including Weick, Wheatley or Johnson, refers to this approach as “emergent”. Recently this theory has become prevalent, though nonetheless has been unable to provide a concrete solution to all the practical problems of change management.

1.3.1 The concept of force field analysis

A planned change introduced systematically and with rather intensive preparation occurs if the management is geared to partial feasibility (Reiss 1997, 13f.). Planned change implies all the efforts to modify the functionality of the entire organization, or significant parts of it; with the aim of improving efficiency and effectiveness. Examples of planned change are: development of a new organizational structure, corporate succession, implementation of a new corporate strategy, introduction of new technologies.

The field theory developed by Lewin (1963/2004) serves as a useful reference for the explanation of planned change. According to Lewin, there are always forces in each situation that accelerate change (“driving forces”) and others that inhibit change (“restraining forces”). If the sum of the driving forces equals the sum of restraining forces, equilibrium is achieved, representing the status quo.

Figure 1.8: Change process by Lewin Source: Staehle 1999, 592

If a company wants to survive in the long term, it is bound to reach equilibrium between stabilizing and progressive driving forces. If restraining forces prevail, resistance against change processes is too strong; necessary changes do not take place or occur too late. If progressive forces dominate, the organization does not find its balance; uneasiness and inner uncertainty impede crucial system stability.

Should a given equilibrium be changed, the dominant forces in status quo need to be modified, i. e. the given equilibrium basically has to be unfrozen.

As a general rule, the disruption of a system results in a deterioration in performance. Only when the driving forces have a positive impact and the change process comes to an end will the system reach a new equilibrium on a higher level that ought to be maintained in the future.

Like most other change models, the concept of force fields distinguishes between three different phases of change:

Figure 1.9: 3 Phases of change by Lewin

The “unfreezing” process of the actual state involves preparing the organization to accept that change is necessary. Existing attitudes and behaviors have to be challenged. The process of unfreezing is accelerated by external pressure, poor results, perception of a problem, or the awareness that other companies are simply performing better.

“Moving” means the transition from the actual state (A) to a future state (B). Change can imply many things: the introduction of new technologies, restructuring of a department, reformulation of a job description or learning new behaviors. In many cases change is introduced too quickly, which causes resistance because the situation has literally not been unfrozen yet.

The aim of “refreezing” is to stabilize and integrate the change that has been introduced. This process is crucial in order to prevent a relapse into the original state. Therefore, it is important, for instance, that participants on training courses are able to apply new behavioral patterns in an appropriate way, and deliver convincing results. However, after returning to their job, they often revert to previous behavior patterns because these are more comfortable. One reason might be that rewards in connection with change of the status quo are almost non-existent, which does not motivate employees to apply new methods, procedures and behaviors that they have acquired via theoretical means. In this phase, evaluation is the key to the success of the change process. It provides results on input/output and the possibility of further developing the changed that has been.

1.3.2 Strategies of planned change

If planned change is interpreted as a transition from an actual state (A) to a future state (B), then the transition period, i. e. the path from A to B, is absolutely crucial. Uncertainty, conflicts and disorientation are characteristics of the transition phase. In this context, an important issue concerns how change needs to be operationalized in order to reach the desired goals. It is the process of change that is often the key to success.

In reality, change processes differ in many ways, although typical, partly contradicting types of strategies can be identified. They provide an answer to the question of which hierarchy level ideally lends itself to the implementation of comprehensive change (Figure 1.10).

Figure 1.10: Starting points for change strategies Source: Glasl/de la Houssaye 1975

The top-down-strategy is characterized by a surprise effect with quickly-defined expert solutions aimed at suppressing resistance. The advantage for the management is the controllability, whereby mission statements can be useful.

By applying the basics-upward-strategy, the organization is developed from a comprehensive perspective with the participation of the staff. Obviously it is impossible to implement the ideal bottom-up approach, since support from the top is indispensable even on a very limited scale. There can be a problem with the middle management operating between the two.

As this often proves to be a critical hierarchical level that is difficult to convince, the bipolar strategy – a simultaneous approach at the highest and the lowest part of the hierarchy – can be used to create pressure on the middle management.

The wedge strategy has its starting point at the middle management from where it expands to the adjoining layers of the social system. In contrast, the multiple nuclei strategy is particularly suited to network organizations or cases where a few key personalities of the organization ought to be addressed. The main difficulty here is the coordination of all the different activities.

Admittedly, combinations of single strategies are possible. The goal of each strategy or combination is that the change process should include all hierarchical levels. Numerous parameters influence the choice of an appropriate strategy: time, company age and stage of development, corporate culture, as well as previous experiences with change processes. Therefore, methods and procedures have to be determined according to the situation. Mixed strategies are possible, too. An example of this would be a combination of business re-engineering and organization development.

The concept of business re-engineering (Kirsch et al. 1978), i. e. revolutionary change, is about radical and sudden change along with the fundamental redesign of business processes. It is a surprise coup, such as dropping a bomb, which suppresses any kind of resistance. By definition, this approach excludes any participation of the employees concerned. The following figure illustrates the chain of actions and reactions caused by this strategy (Kirsch et al. 1978, 249).

The strategy of organizational development is more recent, and was mainly developed in the 1960s and ‘70s in the US. It is regarded as an alternative to the dominant concept of business re-engineering, which caused an increasing number of problems. Organizational development is a methodical intervention strategy, introduced by a consultant in most cases. Consulting comprises a change in know-how, and holds a holistic view of the development of organizations. The aim is to promote participation, learning through experience and personal development of the staffinvolved, as well as to increase performance and flexibility of the entire organization.

Figure 1.11: Business re-engineering: actions and reactions

1.3.3 Comparison of change strategies

Several assessment criteria are used to compare the concept of business re-engineering with organizational development (Wohlgemuth 1989, 41).

The strategy of organizational development involves a long-term, rather evolutionary process. It leads to a situation where many employees involved identify with the change, which therefore minimizes resistance during the implementation process. Furthermore, benefits can be drawn from the accompanying learning process for future change. The advantage of business re-engineering, however, is the time aspect. That is, change can be achieved in a shorter period of time. In this respect, the role of a consultant is often compared with the job of a doctor, whereas he is rather considered as a process consultant or promoter in the process of organizational development.

Figure 1.12: Business re-engineering vs. organizational development

As mentioned before, the key difference between business re-engineering and organizational development is the time factor. The analysis and conception phase in business re-engineering is often much shorter than for an organizational development process where the involvement of people naturally takes more time. The duration of the analysis and conception phase is often regarded as a major advantage; an advantage which can only increase as the uncertainty of the employees involved is reduced. The fact that the reorganization process is only completed at the end of the implementation phase, however, puts the time factor into perspective.

Nevertheless, the advantage created by saving time can be paramount in those situations where this factor is key to entrepreneurial success. Hence an early warning system is vitally important so that the need for change is recognized at an early stage. Only if there is plenty of time available does a company have room for maneuver, otherwise there is no choice but to apply business reengineering.

Figure 1.13: Change strategies and the time factor Source: Wohlgemuth 1989,42

1.3.4 Resistance to change

Change in corporations cannot be implemented silently, inconspicuously or without any problems. On the contrary, it provokes resistance. On the one hand, it may become manifest in an open manner, for instance by employees going on a strike or expressing explicit rejection. On the other hand, resistance can also be more or less concealed, for example by increased absence, performance restrictions, a reduction in quality or a request for a transfer to another location (Doppler/Lauterburg 1995, 293ff.).

It is recommended that an indepth analysis be made in order to quantify and appreciate the opposition to change. Typically, a differentiation between the economic and social psychological causes of change is made.

It is mainly the fear of being dismissed that leads to resistance, i. e. it is caused by economic reasons. Downgrading of jobs and thus any possibly reductions in salary also constitute a real threat and questions the need for security and social recognition. Technological change, in particular, often has economic consequences that have to be mainly borne by the staffconcerned.

The socio-psychological causes of resistance should also not be underestimated. Every threat to security that has grown over the years through a specific job in a well-known environment causes extreme fears:

• Fear of an unknown impact of the change

• Fear of not getting along with new colleagues or a new team

• Fear of losing privileges and status symbols (without these being substituted by others)

• Fear of losing the autonomy that has been gained gradually in a job

• Fear of the overall change of the entire (well-known) formal and informal behavior patterns in the corporation

Resistance to change does not only come from employees concerned, but also from the management. The higher a person has climbed up the hierarchical ladder, the more power and influence has been gained, which naturally results in fear of losing this power as a result of the change. Despite the high identification with the corporation, the goals of a manager for his firm are not necessarily identical with his own personal objectives. Often he only promotes and supports change processes he can benefit from, whereas he prevents developments that threaten his position, as positive as these might be for the entire corporation.

Empirical studies prove that people with different personalities also show different reactions to planned change (Filley/House/Kerr 1976). Particularly strong resistance against change is encountered from people and teams that:

• primarily rely on their experience

• believe in continuity and stability of the conditions

• have a relatively high aversion to risk

• take their job very seriously

• are less educated

• are of a certain age

Team resistance has to be expected if the team members:

• have a distinct team spirit

• make it clear that they want to stay together as a team

• qualify their team as being superior to others

• have a leader that has a negative attitude to change himself

Generally, resistance to change cannot be avoided if the expected outcome is negative, whereas change processes are supported if the staff concerned perceives positive developments as a result of the change.

Resistance is a natural concomitant phenomenon of change, and it cannot simply be eliminated. A wealth of suggestions for overcoming resistance to change can be found in the existing literature:

• providing information on cause and goals of change

• staff participation

• rewarding supporters of change

• avoiding revolutionary approaches

• choosing a competent change agent

Kotter et al. (1979, 389) relate common measures that help support a change process to situations where they can be applied best. They state that information has to be provided if resistance is based on information deficits, rumors and misinterpretations. Participation is important in cases where important information is lacking in order to design the change, and the staff concerned has considerable power to resist. In a win-lose-situation, and when powerful interest groups exist, it is suggested that negotiations be started, that manipulation be used if all other tactics seem inappropriate, and that finally, coercion be applied where speed is essential and management is in a position of power.

All in all, resistance should by no means be considered as something that has to be overcome immediately. Similar to pain in the human organism, resistance can be interpreted as a warning signal. Just as it is wrong to fight pain with pain killers instead of searching for the cause, it is unrealistic to eliminate resistance by implementing disciplinary measures. Rather than doing so, concepts have to be developed that deal with fundamental aspects, such as the creation of a change culture and the implementation of sustainable values for corporate development. This is all the more important given that according to the management cyberneticist Ashby (1962, 1970); change is a condition of stability.[3] The sustainable development of a company is marked by stability and change, by uncertainty and phases of stability (Figure 1.14). Rather incremental, evolutionary phases alternate with radical, revolutionary phases. On the one hand, radical change means the confrontation of competing paradigms, i. e. different construction of reality. On the other hand, change represents the modification of meaningful models, of the knowledge basis, the role structure. Put simply, it means a change of the system’s identity.

The differentiation between evolutionary and revolutionary phases emphasizes the fact that depth, intensity, and scope of change processes vary between companies. The approach of continuous improvement process (CIP) and the concept of business reengineering, for instance, are reactions to the phenomenon of different change phases. Depending on the stage of development of a company, optimization (“fine-tuning”) is appropriate, followed by phases where major restructuring is inevitable. Scientific research proves the necessity of major restructuring processes (Barker et al., 1994, Mone et al., 1998, Cameron et al., 1993). Company reorganizations that only focus on the increase of efficiency can reduce long-term prospects of corporate growth and stability, meaning that they have a rather negative impact on sustainable corporate profit (Probst/Schmitt 2006, 194).

Figure 1.14: Evolutionary and revolutionary phases Source: Rüegg-Stürm 2004, 125