Carl Zeiss Jena

15 October 2004

As part of Business policy & strategy, students have to write a small (guided) analysis of CZJ. This example is by Pene Geard.

Whilst I haven’t finished reading all the cases yet, this is the best so far. Well done Pene. I hope others can learn from your work (and thanks for letting me post your essay here). N. Any problems with the formatting are entirely mine.

Evolution through Vision and Inspiration

Pene Geard

Introduction

The future is shaped by the past. Before we can begin to consider what changes we will implement in the future, we must first understand the changes that have lead us to our current position. In particular, this essay investigates the changes experienced by the company Carl Zeiss Jena as set out in the case “Carl Zeiss Jena: Managing Catastrophe.” (Kets de Vries & Cannizzo, 1998) and the future of Jenoptik, one of the surviving parts of Carl Zeiss Jena now under the leadership of Dr. Dierolf. Through this investigation I hope to uncover what further strategic changes I would recommend Dierolf implement at Jenoptik.

###Stagnation Let us first consider the structure of CZJ as they approached this unstable period of 1989–1991. Wolfgang Biermann, the general manager of CZJ during 1975–1989, had an autocratic leadership style causing the organisation to be highly centralised and high in formalisation. Additionally, the Kombinat developed under the communist regime meant the organisation was incredibly complex. These three dimensions high centralisation, high formalisation and high complexity–indicate the bureaucratic nature of CZJ (Robbins & Barnwell, 2002, p. 127).

“Bureaucracies have a well-deserved reputation for being slow to change” (Robbins & Barnwell, 2002, p. 312). However, in the political environment of the time change was not particularly desirable. Stability was encouraged through “the system of state-directed subsidies, prescribed prices, rigid production schedules and pre-determined ‘revenue surpluses’” (Kets de Vries & Cannizzo, 1998, p999). Given the political and economic system CZJ’s bureaucratic structure was appropriate as “bureaucracy is most efficient when matched with large size [and] a stable environment” (Robbins & Barnwell, 2002, p.116).

As the communist economy started to fall apart, however, the pressures for change began to grow. But despite the fact that some members of management had been pushing for change since the mid 80s, Biermann remained in place as a significant barrier to change until he withdrew from the operational side of the business and eventually left the organisation in December 1989.

###Preparation At the same time resistance to change within the organisation began to decrease once the GD border opened and employees were able to visit the west. Most people attributed the relative luxury they experienced there to the market economy (Kets de Vries & Cannizzo, 1998, p1002) so looked forward to the changes that they believed would allow them to enjoy the same luxuries. The opportunity to rejoin the Carl Zeiss Foundation was another factor that likely made the coming changes seem more attractive.

At this point a market economy had not yet been introduced so the forces for change, though easily identifiable, were still relatively weak. According to Strebel (1998), with the organisation relatively open to change, the required approach to strategic change was cascading implementation. Cascading implementation involves “progressive adaptation to change forces [motivated by] participative commitment” (Strebel, 1998, p. 312).

This change path was partially supported by Gattnar’s attempts to decentralise. However, the effectiveness of these attempts was hindered by high absenteeism. Unrealistic expectations and limited understanding of the market economy, combined with an over-confidence in CZJ’s ability to succeed in its current form also acted as a barrier to effective change.

This lack of effective change meant CZJ was caught unprepared by the economic and monetary union on 1st July 1990. The forces for change were now full throttle and unable to be reversed and CZJ’s long term difficulties meant the organisation had little time available to make the adaptation. According to Strebel (1998), the new approach to change required was restructuring.

###Reorganisation The development of a restructuring plan was begun but during this time resistance to change within the organisation was also developing. First, they refused the consultants recommendation to close down the Analytical Instruments part of the organisation demonstrating an emotional attachment to the current organisational structure. Additionally, the realisation of how many jobs were on the line and the lack of regular, consistent and clear information built up fear for the future which translated into a resistance to change.

At the same time CZJ’s worsening financial situation, the introduction of the D-Mark and the subsequent collapse of the eastern markets meant the pressure for change was ever-increasing. The restructuring process needed to have been completed more quickly in order to meet these change forces while they were manageable, to minimise the resistance to the restructuring at the time of implementation and to maximise the chances of the restructuring process being carried out successfully.

Speed in the restructuring process could have been aided by bringing in new management sooner. Gattnar and his management team were highly attached to both the people and the current organisational structure so it is understandable that they would have resisted and slowed down the process. Yet the consultants on their own did not have the authority to move the restructuring plan through to implementation. New top management could have provided the firm leadership and control that the organisation had been lacking ever since Gattnar replaced Biermann. If this firm leadership was provided in a form more akin to management-by-objectives rather than the centralisation of bureaucracy it could have helped the organisation become more adaptable to change.

Dierolf did provide this firm leadership once he arrived on the scene in May 1991, however, in my opinion he was less effective than he could have been if brought in earlier. It is also unfortunate that the management team from Oberkochen were not brought in at the same time as it seems Dierolf was unable to complete the restructuring without their assent on the division of assets.

With the restructuring process finally completed along with the separation into two legal entities, Dierolf is left in charge of the new Jenoptik and its future direction.

###Evolution The forces for change are still strong and irreversible but now the restructuring and new ownership has bought the organisation some time. Following Strebel (1998) the advised change path now is revitalisation. Revitalisation involves “ongoing change throughout the organisation [through] slow continuous adaptation” (Strebel, 1998, p. 303). De Wit and Meyer (1998) refer to this kind of change, with its broad scope yet relatively low amplitude of change, as comprehensive moderate change. This kind of change is similar to revolutionary change in terms of scope but differs in the amplitude of change. (De Wit & Meyer, 1998, p. 245).

At this point I believe that due to their previous negative experiences of revolutionary change, the employees of Jenoptik would be more responsive to change with low amplitude. This is important because the success of any change within an organisation often relies on the support of its member. However, by implementing a more continuous form of change CZJ should be able to avoid the need for revolutionary change any time in the near future while still allowing it to adapt to its new environment. The current unstable and fluid state of the organisation means they are also more open to the implementation of continuous change than they have been previously.

###Operation The revolutionary change so far has also been quite disruptive to the operations side of the business, exacerbating the organisations negative financial situation. If the organisation is to move forward, operations need to be gotten under control. It would have been ideal to have someone overseeing operations right from the start. That is, while Späth was responsible for investor recruitment and Dierolf organising the restructuring process, someone should have been responsible for keeping operations running as smoothly as possible given the circumstances.

However, with the restructuring process complete, Dierolf is now available to take on this role. His first task should be the consolidation of the new structure and ensuring that this structure enables operational effectiveness. Then, Dierolf must motivate employees to work towards making the organisation as efficient as possible and able to not only survive, but also prosper.

One way to do this would be to develop a challenging objective that the whole organisation can unite under and strive to accomplish, similar to Dr. Ernst Thomke achieved for Swatch in the 1980s (Ullmann, 1998). If this objective, or vision, was linked to the tradition of Carl Zeiss or Ernst Abbe and CZJ’s reputation for quality I feel employees would be particularly receptive.

To support this vision Jenoptik should look at adopting some of the Carl Zeiss Foundation’s statute, especially the social welfare policies, despite the fact that this part of the organisation no longer as any formal ties to the foundation. This would signal to employees that the organisation is still committed to CZJ’s traditional values and help to mend their currently low morale. It would also help to recover the organisation’s culture of a commitment to high quality and technological advancement. Even if the organisation is not currently in a financial position to offer the social welfare benefits of the foundation it should develop an implementation timeline regarding when these benefits may be feasible, and communicate to employees it’s intentions to provide these benefits in the future.

###Communication Communication between top management and employees will be a huge factor in the future success of Jenoptik and could probably go a long way in curing the mistrust that employees currently feel for top management. This emphasises the importance of reintroducing the in-house magazine and ensuring that it is published regularly, providing comprehensive information for employees on the state of the organisation. The magazine could also be used to support the organisation’s new vision by providing praise for those who have made significant contributions to the achievement of the vision.

###Capitalisation The problem with the reintroduction of the in-house magazine and also the implementation of the Carl Zeiss FoundationĂ‚’s social welfare policies is that these have the potential to be fairly costly and Jenoptik does not have a lot of money to spare at this time. One possible way of raising some funds would be to float the company on the stock exchange; however I am not sure how well this would fit with the organisation’s purpose.

With Jenoptik being state-owned and the majority of its employees being provided to investors in the Jena area this indicates that the organisation’s purpose is to minimise unemployment in Jena. My worry is that when companies are publicly listed the shareholder perspective of organisational purpose (De Wit & Meyer, 1998) tends to prevail, as shareholder’s interests are the most obvious and many people support the belief “that the fundamental objective of the business corporation is to increase the value of its shareholders’ investment” (Rappaport, 1998, p. 820). This perspective would not support the organisation’s current purpose. However, to meet their purpose the organisation needs to survive so, if the organisation is particularly strapped for cash this option may have to be considered anyway, although given the current state of the economy it seems unlikely that this option would provide much money anyway.

If this option was chosen the state would have to ensure that this could be done without compromising the organisation’s purpose. The perspective that is required here is the stakeholder perspective (Freeman & Reed, 1998) which allows the interests of all the parties affected by the organisation’s actions to be taken into account. However, even under this perspective the balance of power often shifts towards the shareholders so if the state would have to do something to ensure their power was maintained, for example by retaining a majority share in Jenoptik.

Another way to improve the organisation’s financial situation could be to move into more attractive markets. At the moment the company’s core markets are the eastern markets but these are no longer trustworthy sources of revenue. It may be that Jenoptik could find more fruitful revenue sources in the European, American or Asian Pacific markets and because they are no longer using the ‘Carl Zeiss’ name they are not limited by the agreements with Oberkochen over the rights to use the name in certain areas. But to research the viability of these markets and to have any chance of competing in these new markets, Jenoptik needs to develop their marketing function just as Oberkochen found they had to in order to compete in a market economy.

The new structure based on product divisions with product development, marketing and accounting under the same roof as production should support the integration of marketing and product development, allowing Jenoptik to quickly develop high-quality products that meet customer needs. Further development of this capability could allow Jenoptik to both expand geographically and enter new businesses in a relatively short period of time (Stalk, Evans & Shulman, 1992).

###Education But how Jenoptik will be able to acquire this capability on their limited budget and when they currently have next to no skills in this area. The quickest way would be to bring in consultants who could perform the necessary tasks and at the same time train Jenoptik’s employees so that they can eventually take over the role. However, this could still be potentially quite costly so other options may have to be considered, such as forming some kind of deal with Carl Zeiss Oberkochen to learn from their marketing capabilities.

###Competition Another question is whether this capability will actually lead to a sustainable competitive advantage. “A competitive advantage is said to be sustainable if it cannot be copied or eroded by the actions of rivals, and is not made redundant by environment developments” (De Wit & Meyer, 1998, p. 338–339). For a capability to provide sustainable competitive advantage it needs to be imperfectly imitable (Barney, 1991). There is a definite possibility that other companies in the markets that Jenoptik hopes to enter are already strong in this capability, in which case it will provide Jenoptik with no competitive advantage at all. Further research would be required to determine whether this was the case. However, even if this capability will not provide Jenoptik with a sustainable competitive advantage, if a majority of Jenoptik’s competitors have this capability it will be necessary for Jenoptik to acquire so as not to be at a competitive disadvantage.

###Conclusion Overall, I believe Dierolf needs to focus on evolutionary, continuous change to build Jenoptik up to greatness. Due to their negative experiences with revolutionary change in the past, I doubt he would be able to obtain employee support for more of the same.

Additionally, revolutionary change has the side-effect of disrupting the operational side of business and Jenoptik cannot afford to have their operations further disrupted. Evolutionary change within the organisation can be encouraged through the creation of a vision that causes employees to pull together and work towards a common goal. If this vision builds upon the values of the organisation’s founders, Carl Zeiss and Ernst Abbe, at the same time as incorporating new concepts in business, such as the importance of marketing, Jenoptik has the potential to achieve great success.

References

Barney, J. (1998). Firm resources and sustained competitive Advantage. In B. de Wit & R. Meyer (Eds.), Strategy process, content, context: An international perspective (2nd ed.). Minneapolis, MN: Thompson Learning.

De Wit, B., & Meyer, R. (1998). Strategy process, content, context: An international perspective (2nd ed.). Minneapolis, MN: Thompson Learning.

Freeman, E., & Reed, D. (1998). Stockholders and stakeholders: A new perspective on corporate governance. In B. de Wit & R. Meyer (Eds.), Strategy process, content, context: An international perspective (2nd ed.). Minneapolis, MN: Thompson Learning.

Kets de Vries, M., & Cannizzo, M. (1998). Case 7: Carl Zeiss Jena: Managing catastrophe. In B. de Wit & R. Meyer (Eds.), Strategy process, content, context: An international perspective (2nd ed.). Minneapolis, MN: Thompson Learning.

Rappaport, A. (1998). Shareholder value and corporate purpose. In B. de Wit & R. Meyer (Eds.), Strategy process, content, context: An international perspective (2nd ed.). Minneapolis, M: Thompson Learning.

Robbins, S.P., & Barnwell, N. (2002). Organisation theory: Concepts and cases. (4th ed.). NSW: Pearson Education Australia.

Stalk, G., Evans, P., & Shulman, L. (1998). Competing on capabilities. In B. de Wit & R. Meyer (Eds.), Strategy process, content, context: An international perspective (2nd ed.). Minneapolis, M: Thompson Learning.

Strebel, P. (1998). Choosing the right change path. In B. de Wit & R. Meyer (Eds.), Strategy process, content, context: An international perspective (2nd ed.). Minneapolis, MN: Thompson Learning.

Ullman, A. (1998). Case 2: The Swatch. In B. de Wit & R. Meyer (Eds.), Strategy process, content, context: An international perspective (2nd ed.). Minneapolis, MN: Thompson Learning.