Bertelsmann AG is a corporation that is based in Germany and was founded in 1835. It conducts its business in almost 63 countries as of the end of the year 2007 and has 102, 397 employees. The company primarily serves and markets media as it is included in the description of the structure of the company. It is comprised of the RTL Group, the NO. 1 European broadcaster, Random house which is the world’s biggest group that publishes books and the Gruner plus Jahr which is the largest publisher of magazines. Media and communication services are provided by Arvato while the global market leader in the distribution of media is the direct group for clubs and internet (Anand et al., 2003).
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Bertelsmann is tagged to be one of the most significant companies in the history. Awareness of the tradition is one of the focuses of the company in developing values for the business together with the corporate policy. The company maintains a special responsibility for the employees for many years and makes sure that they are served as how they should be treated. The history of Bertelsmann shows what technique the company used in order to last in the corporate scene and maintains a business that emerges in the world (Anand et al., 2003).
Basically, Bertelsmann is owned by a large part of a not-for-profit organization which is the Bertelsmann Foundation. The remaining ownership goes to the Mohn family which is about 23.1 % of the whole business.
Its history started when the company was founded as a publishing house and print shop by Carl Bertelsmann in the year 1835. The shop then catered to Christian songs and books and in the latter part of 1851 it began to publish novels as well with the help of Heinrich, the son of Carl Bertelsmann. It marked the history of World War II as the company prevails to be the largest source of Nazi propaganda during that time, though at the end of the war, it was closed because of the illegitimate trading of papers. However, there have been a lot of Nazi authors that published their works like the one who made the commemorative speech at the book burning of 1933, Will Vesper.
The company was founded again by the fifth generation of the Bertelsmann family who was Reinhard Mohn. The company tried entering the music market and expounded its business with the book club. Apparently, it began extending its products into other lines and took the majority of the ownership of the publishing house. The 1980s made the company start its emergence in the international scene and this result the activities in the music market to be called BMG as its label. The use of internet also became a fad for the company and started between the years 1995 to 2000 wherein they linked with AOL (Anand et al., 2003).
Thomas Middelhoff, as the Chief Executive Officer of Bertelsmann in 1998, acquired the Random House publishing house and focused the publishing operations through the label. In February 2001, Groupe Bruxelles Lambert, which is led by Albert Frère, bought twenty-five percent of Bertelsmann AG. André Desmarais, the President and Chief Executive Officer of the Power Corporation of Canada, was consequently named to the board. However, CEO Thomas Middelhoff resigned from the company because of discrepancies with regard to the strategies of the company. This discrepancy is specifically pointed to the plans about floating the share of the company on the stock markets.
Issues such as admitting that the company lied when they said that they were involved with Adolf Hitler and the Nazi party were opened in 2002. This case scoped the realization of making profits from the labors of slaves and propaganda publishing. This was during the occupation of the US book publisher Random hose in the year 1998 (Anand et al., 2003).
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After the resignation of Middelhoff, Gunter Thielen took over and bought Zomba Records in 2003 in order to expand the music branch of BMG. The BMG is primarily comprised of almost half of the interest in Sony BMG and publishing business. The joint venture of BMG to Sony Music created the label Sony BMG in 2004. BMG was owned by the Bertelsmann until the year 2006 came, it was sold to the Universal Music Publishing (Anand et al., 2003). But many activities have taken place after this scenario up until the latest updates regarding the company. In 2008, a new CEO was placed after Thielen and a new set of strategies are set by the board.
Bertelsmann’s Corporate Level Strategy before 1998
As one of the first German companies to offer corporate pensions and financial assistance for the disabled and a paid vacation, it was seen to be an effective strategy to retain its employees and continuously be productive for the success of the company. Also, the focus on the being innovative in selling and advertising such as the decorations in window shops, sales promotions, and others have resulted in a positive outlook for the company as it quickened its growth. Introduction of the decentralization, divisional corporate structure with various profit centers acting independently was initiated by Mohn (Anand et al., 2003). Over the period of the 1960s, the business can be described by the diversification and expansion of the business as it rapidly grew over the years is seen. Adding product lines were involved in the strategy of the company and span its business as it acquired labels of specific organizations that Bertelsmann used in order to make profits.
The first years of the business are certainly embracing a strategy wherein the company will be able to make profits and take the market as it introduced its products. This was followed by planning how the business can be expanded and thus will make the company be more profitable and increase its sales with the growing number of labels under Bertelsmann. Globalization took place in the latter years and indeed made a big difference in how Bertelsmann was operated before the 1900s and after. Local market had been easy for the corporate level to execute the strategies of the company though but emerging into the international market had been challenging. But still, they achieved the growth that they expect through adding more product lines and the span of the businesses. Internet played a big role prior to 1998 when it had its business transactions with AOL (Anand et al., 2003).
Corporate level strategy is more on the internal sense of the company on how the board plans its portfolio. The focus of the strategic management moved from the process of planning up to the search for the profit of the business. Characterization of the development of the strategy of Bertelsmann can be described as a shift from the corporate planning to strategic management as it prevails to initiate more activities in a wider and broader market. Being the best was what the board tried to achieve rather than being the biggest. Changing the business industry has required more practical needs on making a foundation for the theories. Corporate planning is linked with the dilemmas that the managers faced during the year 1950s and 1960s with regard to the decisions and controlling the expanding large and multiple business enterprises. The process on the financial budgets should then have mechanics that can be controlled and it should be related to the decisions on the capital investments that need longer planning time frame compared to the basic one (Grant, 2002).
The strategies in the 1960s reflect the motivation to accomplish a consistency in investment planning through the stability and expansions. As Bertelsmann tried to take advantage of the efficiencies of the products, the company should as well manage the control for the risks involved. In addition, economic factors and market forecasts were on the first list of the management because they determined the position of the company in the market. Bertelsmann is a large corporation and thus it is widely involved with the activities that happen in the economy and with the consideration that not-for-profit organization is part of the company which is the Bertelsmann Foundation (Anand et al., 2003).
The ideas on the development of the Bertelsmann’s strategy before can be linked to the idea of Ansoff which is the diversification of division. Vague it may seem but the first years of successful operation of the business were with the diverse decisions from the board through its expansion. In 1994, the company even had five divisions and two more new divisions were even added. The primary focus of the corporate strategy is to pursue the growth and security of the business which is nevertheless made before 1998 and before Woosner stepped down as the CEO (Anand et al., 2003).
Thus, establishing expansion of the enterprises did a great significance for the success of the company until today and its product positioning in the market. It has its own label and still continues to operate in the global scene. Corporate strategy depicts a trial to change the strength of the company and leveling it to its competitors which is all about their competitive advantage. The only reason why strategic planning should be made is to enable the company to acquire a sustainable advantage over its top competitors (Grant, 2002). Venturing with other labels has also been an effective technique in expanding the business enterprises.
The changing business and competitive environment that Bertelsmann operated in between 1998 and 2002
The operation between 1998 and 2002 had introduced a succession of goals which is pointed at the integration of its varied business units and enforcing the competitive position of the company. The series of guidelines that evaluate the portfolio mix of Bertelsmann and the transition to a prompted initial public offering in the succeeding years are also highlighted for a competitive environment (Anand et al., 2003).
Integration is what prevails during the years that MIddelhoff led the company and it indeed did a great job. Having an integrated business unit can be more productive and profitable as it will have continuity instead of quick revenue that does not assure further development of the business (Anand et al., 2003). Operating as a global media, according to Middelhoff, will probably result in the emergence of meeting the criterion set by Middelhoff in order to define its management guidelines (Anand et al., 2003). Strengthening each of the business units that may result in the integration of the company will be a good technique for reaching the corporate and business strategy. Corporate strategy pertains to the strategic level performed inside the business wherein the attractiveness of the industry is highlighted. Maintaining its position in a competitive environment thus defines the business strategy of the company and takes its competitive advantage over other competitors (Grant, 2002).
The use of internet largely contributed to the development of the company’s global market. This caters to the business strategy and is a good point for Bertelsmann to convict the key to success of each enterprise for a competitive environment. Hence, the concern of business strategy comes first before the corporate strategy. It should plan the integration of the major goals of the company, its policies and the series of actions into a strong point (Grant, 2002). A good-structured strategy will help protect and provide the resources of the organization in a unique and possible posture according to its connections in the internal competencies, presupposed shifts in the environment and sustainable moves made by the smart opponents.
As an outcome of the strategy led by Middelhoff during his time, changing the business and the competitive environment impacted Bertelsmann a more integrated business that basically attributes globalization. It paved its way to initiate a market where an expanded business scopes the strategy of the whole corporation not only its corporate planning. The way the organizations create strategies has come into the major areas of the disagreements in strategic management. The term designs on a strategy show the strategic decision making as a logical procedure wherein strategy is created through the coherent analysis of a firm, the performance of the key players and the external environment as well. Consequently, the strategy is corresponded to the organization and is implemented by the respective layers of the organization.
Nevertheless, Middelhoff’s ideas have taken a big role in the emergence of the company in the international market and introducing the use of internet which is now the fad to every business industry in the world. A competitive advantage is justified through the use of technology maintaining its level of competition among any other companies that compete with Bertelsmann.
CEO Middelhoff Strategy
The Bertelsmann Excellence Initiative or BEX pins down the strategic changes that CEO MIddelhoff had undertaken. This is indeed a good idea to transform the traditional concepts of the company into a business strategic level that would meet the global market and be able to manage the portfolio mix well. The success of Middelhoff was seen when the revenues have had high rates and the responses of being the only media that generated a positive profit between 1998 and 2002 (Anand et al., 2003). However, the resignation of Middelhpff led to the discrepancies between the ideas of the new media and the traditional guidelines of Bertelsmann. It had been noted that the initiatives of Middelhoff were not indeed accepted by the company and thus apparently led to the disagreement of the primary decentralized idea of the conglomerate.
The idea of decentralization is Bertelsmann traditional strategic level of operating its business. This is where the board focuses and certainly reveals that the initiatives of Middelhoff largely differed from that of (Anand et al., 2003). The consideration that the overall strategy for the company heads up all the managers of each division into a single idea and sets it all into one table is not a good visualization for other people. Thus, what the agreement is trying to reveal is that the SBU should retain its operation according to the corporate planning of each rather than accept the business strategy as a whole. This entails a diversified set of rules on how each enterprise or division is managed by the superiors.
It can be further said that Middelhoff had failed to continue his plans for the business because of his dismissal. His initiatives are good with the consideration of executing the strategy in a smooth way. A strategy is termed as a purposeful set for a plan of action that will help initiate a business competitive advantage in a globally competitive environment which will make up for the whole enterprise. Generally, the search of any company is process that starts with an acknowledgment of the position and where are now your most top competitors. Basically, it becomes the basis of the advantage of the company regardless of being small or subtle it is. Setting a goal to expand the scope of the company’s advantage is vital that can only take place to a particular person’s credit.
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The profitability of Middelhoff can theoretically be given attention towards the strategy as a search for the performance catering to the sources of profitability. This means that, each division should be focused on and integration is highly pursued in order to attain the good structure of the industry and be on the top of the competition. Planning for the whole business is what the CEO aims for.
The framework for evaluating the business strategy of Middelhoff depicts a view that creates a link between the firm and the outside environment. The company should consider the sets that greatly affect the characterization of the whole strategy which will work for the company, the goals and values, resources and capabilities and the organizational structure and systems. In the case of Middelhoff’s initiatives, the external environment of the company is composed of the whole set of economic, social, political and technological factors that affects the decisions and performance of the company. But for many strategic-level decisions, the foundation of the company’s external environment is the industry itself. This can be justified through its relationships with the customers, competitors, and suppliers. Business strategy then organizes and positions its resources in the environment plus the satisfaction of its long-term goals as a sign of continuity and how these are organized in order to implement themselves (Grant, 2002).
CEO Gunter Thielen
After the dismissal of Middelhoff from the Bertelsmann, CEO Gunter Thielen has replaced his position. But his dilemma regarding the strategic issues that he will face for the next few days made him deals with what approach to use. He had transformed an old-world printing division into a new media service wherein it was turned into a digital management system. Thielen’s case is like defining the initiatives of Middelhoff which is integration and the traditional guiding principle of Bertelsmann which is decentralization (Anand et al., 2003).
As the new CEO of Bertelsmann, obviously changing the strategy of the company should attribute to the whole business not only for a specific unit. Realizing the strategic vision is what Thielen should do first such as evaluating the performance of each division, setting goals and defining the corporate planning from the business strategy (Anand et al., 2003). Searching for the key answers should benefit the company and this particular points to the senior management thus, the head of each division. This may be through teams which may affect the answers of each and supply ample techniques for the total planning of the portfolio.
Nowadays, a small number of today’s management is largely disseminated that technology should be aligned with the corporate strategy for either to be successful. The link between technology and corporate strategy should first firmly define the corporate strategy. Having the technology may influence the type of strategy that a firm may use. Managers though should still formulate all the objectives and develop a mission and vision of the company. It is not the profit or the goal of the company that increases the values were in the firm’s thought of describing its strategy. The beginning of the strategy should answer the question of why the business exists. Thielen as the leader should choose a direction for the company and therefore be sure of its future growth. This may also allow him to clearly view a realistic direction of the business in the future and allow a product operation in the present. Value of the significant details should also be taken into account for the strategy that Thielen should use to be successful (Anand et al., 2003).
A comprehensive value metrics framework as such can be used in order to analyze what business strategy can fit Bertelsmann. The framework consists of the shareholder value, intrinsic value, financial indicators and the value drivers. The shareholder value measures the market value of the firm, market value-added and the return to the shareholders while the intrinsic value measures the cash flows that are discounted and the real option values. Financial indicators include the return on capital, growth of the revenues and operating profits and the economic profit while the value drivers are based on the market share, economies of scale, innovation and brands (Grant, 2002). This reflects the framework made by Middelhoff in his consideration of the technical aspects and scoping all the values related to the business. Indeed, this may work as the continuation of the initiatives of Middlehoff.
It should be put on a highlight that the role of strategy is not just for the source of profit but also a whole package of communicating, coordinating and motivating the organization. The roles in the values presented in the framework are important together with the vision of the company (Grant, 2002). The profit objectives link to the material goals of the managers, the search for creativity, recognition and being unique can be a powerful tool not only applicable for the CEOs but also their subordinates.
Bertelsmann as a profitable corporation based in Germany operates in its divisions. The operation of the company before 1998 used a strategy of diversification wherein each division has its own corporate planning and maintains an independent principle as to how the traditional guidelines are implemented by Bertelsmann. When Middelhoff became the CEO of Bertelsmann, the principle of integration has prevailed but apparently led to his dismissal. This is due to the discrepancies regarding the strategy to be used at the corporate level of the company. He was then replaced by the CEO of Arvato which is one of the world’s largest media service providers under Bertelsmann (Anand et al., 2003). However, taking over Middelhoff gave him much pressure as well on what kind of strategy should then be used and implemented by Thielen.
The workforce is also an important part of a large corporation such as the Bertelsmann AG, though this does not include much of the corporate level of the company. Generally, integration is important as depicted in the portfolio of Middelhoff for the company. The strategic planning activities are driven by specific organizational units and different procedures of the management but still a business strategy should first come out. The operations take precedence over the strategy although the strategies are presumed to have the framework for operations. However, technology may offer away from this dilemma. Revival notes that companies do not collect the correct details in monitoring the business goes up for their strategic goals. Sometimes it becomes restricted to the standard operating and financial outcomes wherein they do not pay much attention to the linked and suitable measures of performance that go further than the traditional measures (Grant, 2002).
A successful business must learn how to manage itself through the leaders of the organization. The strengths, weaknesses should be evaluated through the feedback and thus maintain a key decision on which actions should be taken in order to respond to the outcome of the feedback. Whether those are positive or negative, a leader should always be ready to face the challenges of the organization and be able to think of strategies that will be effective enough to manipulate the whole business system (Grant, 2002).
Strategic analysis indeed does not only know the different characteristics of the internal and external environment of the firm but also developing the strategies and executing the strategies accordingly. This should be viewed by looking at the firm as a whole in an industry. The concept of strategic fit should be taken when looking at the integration of the business and the environment. To have a successful strategy, it should be reliable with the goals and values together with the external environment, resources and capacities, and the organization and systems (Grant, 2002). Not having enough reliability may result in a failure between the firm and its environment and this is commonly seen when entering a larger market such as expanding the business internationally.
Anand, B., Rukstad, M. & Kostring, C. (2003). “Bertelsmann AG”, Harvard Business School Publishing, pp.1-50.
Grant, R. (2002). “Contemporary Strategy Analysis”, 4th Ed. Blackwell Publishing.