Carl Zeiss Jena (part III)

23 October 2004

Sigurd Olsson also did a pretty good essay. I think it is interesting to compare and contrast it with the other two essays on Carl Zeiss Jena that I have already posted here.

Once again, thanks Sigurd for letting me use it here as an example to other students.

Carl Zeiss Jena

In this assignment, I will perform an analysis of the case “Carl Zeiss Jena: Managing Catastrophe” by Manfred F.R. Kets de Vries and Marc Cannizzo. Utilizing factual information from the case, in addition to relevant theory and my own understanding, I will analyze the change path of Carl Zeiss Jena from 1989 to 1991. In addition, I will comment on main strengths and weaknesses of this process, and provide ideas for further strategic change in Carl Zeiss Jena’s future. I will conclude by answering the question: “How revolutionary would be my approach to further strategic change if I was in Dr. Dierolf’s shoes in October 1991?”

The change process of Carl Zeiss Jena between 1989 and 1991 was characterized by strong resistance forces and strong change forces, especially in the beginning of this period. The strongest change force came on the 9th of November 1989; the Berlin wall collapsed, and with it the command economy in East Germany. Within months, Carl Zeiss Jena found itself desperately trying to adapt to and survive in a market economy, and was facing a whole new socio-political, economical and organizational environment. This change force is strongest because it has the biggest effect on Zeiss Jena’s current and future performance (Strebel, 1994). The current general manager of Carl Zeiss Jena, Wolfgang Biermann, left the company, and was replaced by Dr. Klaus-Dieter Gattnar, the deputy general manager. This, according to Strebel (1994), is another form of change force.

Under Biermanns’ leadership, every decision needed his approval, and he practiced “management by fear”. Being a true communist himself, he also refused any proposals suggesting change (Kets de Vries & Cannizzo, 1992, p.999). Gattnar was quite different in his approach, stating: “You have to permit some chaos to encourage creativity” (Kets de Vries & Cannizzo, 1992, p.1006). At the same time, the resistance forces were also strong, such as the company structure and culture, which weren’t easily adaptable to the new environment of operating in a market economy, and presented significant barriers to change.

In a situation like this, according to Strebel (1994), where strong change forces put pressures on a system with strong resistance, the result can be a breakpoint, where the change agent behavior overtakes status quo agent behavior. In Carl Zeiss Jena”s case, Biermann, with his closed mindset, was the status quo agent and representing a strong resistance force, preventing change, and Gattner was the change agent, promoting some change.

Biermann’s behavior leading up to his resignation was also slowing down the change process, as change “requires the hands-on guidance of the CE” (Stalk, Evans & Shulman, 1992, p. 364). Tushman, Newman & Romanelli (1986) also suggests that frame-breaking change (which I believe was needed at this point in time) calls for direct executive involvement. Without his involvement, there would be no change, and thus, he represented another barrier to change.

Gattnar’s first decision was to decentralize some of the decision-making processes. I believe that this was a wise decision, as it reduces hierarchy (Hammer, 1990) and it also made it possible for Gattnar to focus on the “big picture” rather than being preoccupied with minor problems easily solved by others.

I believe that the change path followed by Carl Zeiss Jena up until this point was not as revolutionary as is should have been. It looks to me that Gattnar attempted to follow a combination of a resistance, renewal and partly also a revitalization path. I do not agree with this approach, due to the fact that the forces of change were strong, they could not be rolled back and there was little time available (the company had to adapt to a market economy as soon as possible in order to survive). According to Strebel (1994), this situation calls for a restructuring path, where the organization is given a sudden shock, focusing mainly on structures and systems. This view is echoed by Tushman et.al. (1986), who states that sharp changes in political conditions, such as the end of the command economy, calls for discontinuous change. I believe this would have been the right choice in this situation, rather than Gattnar’s incremental change approach.

On the 1st of July 1990 the Treuhand (government privatization agency) took formal control over Carl Zeiss Jena (Kets de Vries & Cannizzo, 1992). It converted Zeiss Jena from a “people’s own enterprise” (VEB) to a limited liability company (GmbH) (Kets de Vries & Cannizzo, 1992). In addition to this, the Treuhand decided to split up the Kombinat, reducing Zeiss Jena’s workforce from 70,000 to 27,000 employees. This decision did lead to a more unstable supplier environment, but I still agree with the decision, as this would further bring Zeiss Jena away from the old way of doing things. The Threuhand also decided to shift the structural focus to product divisions, as opposed to being based purely on production facilities. I believe this was the right thing to do, as it according to Hammer’s (1990) first principle of reengineering limits errors and bureaucracy and improves customer service. This structural change present another strong change force (Strebel, 1994). Even though the actions of the Treuhand was out of Zeiss Jena’s hands, I still believe that they did the right thing by attempting to change the structure of the company, as Strebel (1994) recommends when going down the restructuring path. Tushman et.al. (1986) also suggests reorganization as a response to frame-breaking change. A major weakness of this approach was that it took too long; as time was limited this should have happened swiftly (Tushman, et.al., 1986 & Strebel, 1994), and Gattnar should have initiated this straight away, when he first was appointed as the new CE.

Due to the replacement of the Ostmark with the D-mark, as well as other problems, their most important export markets (the former East Bloc) collapsed, leading to a 95% decline in orders received from them. Gattnar had only anticipated a 25% drop (Kets de Vries & Cannizzo, 1992). Needless to say, this sudden change in Zeiss Jena’s most established market represented a big negative turning point in Zeiss Jena’s operation, further strengthening the change force (Strebel, 1994). I would have preferred Gattnar to have been a lot more proactive in his approach regarding this issue, as his overly optimistic estimate meant that Carl Zeiss Jena had to face this issue severely unprepared.

Just before this collapse, Carl Zeiss Jena and Carl Zeiss Oberkochen had begun to negotiate a unification of the two companies. As negotiations went along, the East German employees became suspicious of Oberkochen’s motives, fearing that Zeiss Jena would become nothing but an “extended workbench” (Kets de Vries & Cannizzo, 1992, p. 1004) for Oberkochen.

At the same time, the process of selecting who had to go began. This was done with a great deal of secrecy, and this lack of internal communication led to a lot of rumors. This is a major weakness in the change process leading up to 1991, as this failure to communicate, together with the distrust of the Westerners, lead to unwillingness from employees to cooperate, thus creating another barrier to change. Gattnar should not have kept his employees in the dark regarding what was going to happen with them and the organization as a whole, and should have strived to make sure that the workers understood that the changes being done and the help from the Westerners were necessary and vital to the company’s further existence.

After 18 months of negotiations, an agreement to restructure Zeiss Jena with the help of Western management was reached between the Treuhand, Zeiss Oberkochen and the State of Thäringen. This plan included physically dividing Zeiss Jena into two companies, one keeping the name Carl Zeiss Jena GmbH, the other one would be renamed Jenoptik.

Dr. Lothar Späth would take on the role as CEO, first for the whole enterprise, and after the restructuring for Jenoptik GmbH. Dr. Jörg Dierolf, agreed to be second in command to Dr. Späth. When Dr. Dierolf arrived in Jena, the situation facing him was rather chaotic. Gattnar and his top management team were still on board, but did not really have any formal power anymore, and they had done nothing to assist Dierolf at his arrival. Gattnar had also signed off a chaotic organization chart just before Dierolf arrived, without him being aware of it. This behavior on Gattnar’s part is quite similar to Biermann’s behavior, and thus Gattnar had gone from being a change agent to a status quo agent, posing as a barrier to change, just like his predecessor.

I believe it was a good choice to appoint Dr. Dierolf as a new executive, instead of keeping Gattnar, who had worked at Carl Zeiss Jena for 35 years and under Biermann’s command for several of those years. My reasoning for this is firstly due to the fact that Gattnar was not functioning in his role, and secondly, by bringing in new executives, as opposed to keeping the old ones, “business-as-usual behavior” (Tushman et.al., 1986, p. 283) is avoided, and the business is provided with new ideas, skills and drive vital to successful change.

Dierolf quickly established himself as a strong leader. He swiftly reduced the unreasonably large “management committee” (Kets de Vries & Cannizzo, 1992 p. 1011), and I assume he also got rid of Gattnar and his men. He also appointed managers to the new divisions, and gave them full responsibility when choosing their own subordinates. I assume that this made it possible for Dierolf to focus on other issues, without having to worry about how these managers did their task, as “German workers do not necessarily need a manager to ‘motivate’ them” (Hofstede, 1993).

Morale in the 3rd quarter of 1991 was at an all time low, as was internal communication. Carl Zeiss Jena had taken a stakeholder perspective under the communist regime, catering for its employees, and the Jena region as a whole (Freeman & Reed, 1993). Thus, employees did not expect to be fired, but 17000 people had to be laid off. This was not due to take place until October, so the company was rather idle in this period, as there was no incentive to perform.

To summarize my findings, it is clear to me that the right choice of strategic change path was not made by Carl Zeiss Jena. As explained above, the initial circumstances called for a restructuring of the whole company, but Gattnar attempted to renew and revitalize it, unsuccessfully I might add. When restructuring finally was on the agenda, implementation took far too long, leaving the whole company more or less idle. Top management did not have the support of the employees, as distrust, uncertainty and poor communication was present through the whole process. This created on of several barriers to change mentioned above, and strategic planning seemed non-existent. Instead top management seemed to take a short-term approach, thus creating an obstacle to effective strategic planning (Marx, 1991). The arrival of Dr. Dierolf signaled several positive changes, but he also failed to think ahead. In addition, he did nothing to improve the downsizing process and thus the low morale resulting from it.

In October 1991, the change forces were not as strong as they were 2 years ago. I believe that the change forces are easily identifiable, and if I was in Dr. Dierolf’s shoes I would have begun the change process by drastically improving internal communication, as well as starting to plan strategically for the future. This would hopefully reduce the number of status quo agents among employees, and turn them into change agents. The managers appointed by Dierolf could help in this process, acting as change agents for their respective units. This way, the organization would become more open to change, and instead of waiting for something to happen, I would have taken a proactive approach and initiated cascading implementation, where all levels of the organization were asked to change (Strebel, 1994).

Due to the fragile relations I assume I still would have with the workers, I would adopt a stakeholder perspective, i.e. I would value their input and cater for their needs (Freeman & Reed, 1993). This could indeed be more expensive than adopting a shareholder perspective, but I believe it would pay off in the long run, as it is difficult to run a business successfully without the commitment of the employees.

Updating technology and equipment would also be a vital task, as the Western markets were used to better products than the Eastern markets. This would of course absorb a lot of financial resources, but would be vital to the survival of the company.

As wages were only 13 of western wages, it could be tempting to pursue a cost-leadership strategy, but I assume that wage levels will rapidly increase as they now are a part of the western world, so instead I would opt for a strategy of differentiation (Porter, 1985). If Zeiss Jena and Zeiss Oberkochen worked together, their shared core competencies in R&D and production would mean that they have the opportunity to offer a product that is better than their competitors.

As operating in a market economy would still be relatively new for Zeiss Jena, as this would not happen overnight, I suggest an approach of logical incrementalism (Quinn, 1978). This way, there would be no strict plans to keep up with, and as this was common under the command economy, I believe it is important to let people realize that things are done differently in a market economy. In addition, as unforeseen events may still occur, this approach is far more flexible.

My approach is clear and should not be misunderstood by anyone, thus it’s consistent with itself. Of course, as I adapt a planning process of logical incrementalism, it is difficult to be certain about this. With regard to consonance, my approach is a response to changes in the external and internal environment. I believe this approach will create an advantage for Zeiss Jena, as the plan is to offer products that are better than others. If this is not achieved, the advantage is non-existent in that regard. Finally, my approach could overtax financial resources, as the updating of technology and equipment will be expensive, but I believe that the restructuring package funded by the Treuhand and the State of Thüringen would cover this. Another question mark here will be whether Zeiss Oberkochen is willing to cooperate in the way I suggested (Rumelt, 1989).

In conclusion, I believe that the change path of Carl Zeiss Jena from 1989 to 1991 should have been more revolutionary than it was, and it should have been implemented much swifter. If I was in Dr. Dierolf’s shoes in October 1991, my approach to change would not have been very revolutionary, as the need for that kind of strategy was no longer present. By following a proactive change path of cascading implementation, I believe that, over time, Carl Zeiss Jena will again be a respected and successful organization.

References

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

Freeman, E. & Reed D. (1993). Stockholders and stakeholders. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 829–838.

Hammer, M. (1990). Reengineering work: Don’t automate, obliterate. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 250–261.

Hofstede, G. (1993). Cultural constraints in management theories. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 51–63.

Kets de Vries, M. F. R. & Cannizzo, M. A. (1992). Carl Zeiss Jena: Managing catastrophe. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 995‑1014.

Marx, T. (1991). Removing the obstacles to strategic planning. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 204–217.

Porter, M. (1985). Competitive strategy. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 344–358.

Quinn, J. (1978). Logical incrementalism. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 173–184.

Rumelt, R. (1980). The evaluation of business strategy. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 33–40.

Stalk G., Evans, P. & Shulman, L. (1992). Competing on capabilities. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 358–367.

Strebel, P. (1994). Choosing the right change path. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 297–317.

Tushman, M., Newman, W. & Romanelli, E. (1986). Convergence and upheaval. In De Wit, B. & Meyer, R. (1998). Strategy: Process, content, context: An international perspective (2nd Ed.). Minneapolis, MN: Thompson Learning, pp. 275–285.