SWOT analysis of Continental AG

Continental AG

Continental has a number of strengths upon which to draw. The first of these is the intrapreneurship program that the company has been implementing for the past decade. This program, although incomplete, is a starting point for the new innovation strategy that the company intends to pursue. The second main strength for Continental has been its ability to enter new markets such as the chassis market. Given the structural weakness in the company's core market, this ability to enter new markets is essential to future growth.

There are a number of weaknesses, however, that threaten Continental. The company has a relatively low market share in its core markets. Although it is number one in Germany it is number two in Europe and a distant #4 globally. Another weakness is the company's finances. After an acquisition spree, Continental has a high debt load, which not only increases organizational risk but it also inhibits future growth investment. The company has also recorded a loss in the last fiscal year, culminating a downward trend that has been evident for the past three years.

Within the company, there are other weaknesses as well. The corporate culture has not yet fully embraced the intrapreneurship strategy -- after ten years the program has only made progress but has not resulted in a wholesale transformation of the organization's culture. That the culture shift is only loosely supported by executive-level behaviors and was not supported by shifts in the company's rewards systems contributes to the slow pace of culture change at Continental. Dr. von Grunberg's stick-and-stick motivation tactics did little to encourage managers to embrace change for its benefits and did little to genuinely empower employees to improve.

The corporate culture has also in recent years emphasized sales over profits, so that the firm is not oriented towards attaining the point of profit optimization. This is likely both a cultural issue and an issue with respect to the motivation incentives provided by Continental, such as Dr. von Grunberg's active encouragement of risk-taking for the sake of risk-taking. Another internal weakness was the glut of tire brands, some of which competed directly against one another. This contributed to price wars and could result at times to cannibalization of market share between Continental divisions.

The mix of centralized control and decentralize management could also be identified as a weakness. The splitting of centralized and decentralized functions seems arbitrary and could potentially lead to conflict. For example, Dr. von Grunberg's control over investment decisions would lead to rejection of decisions that had been approved by those with greater knowledge of the financial and strategic ramifications of that decision. His takeover in 1996 of the tire division directly conflicts with the decentralization message. Conflicts can also arise from the lack of broad strategic direction. The company has a hodgepodge of plans and ideas but there is no coherent thread or vision to guide them. That these strategies worked for a couple of years but failed to gain traction in the long run is not surprising.

There are few opportunities in the market. The most important of these is to move into other automotive product lines. Continental has demonstrated the ability to make such a move in the past, and there is ample room for growth other product lines. Specifically, electronics is expected to be an increasingly important component of automobiles going forward, so there is opportunity to develop and control that market.