Acquisition and Integration – The Tsingtao Brewery Case
Tsingtao Beer is the most famous beer company in China with over 10 billion revenue and 20,000 employees. In 1998, it held “the big branding strategy workshop” and formulated “the high start-point development and low-cost expansion” strategy. Consequently, in the following few years, it acquired dozens of regional beer companies, acquiring many “other-branded” companies. Pursuing its fast-growth business development model (mostly via acquisition) quickly enlarged the size of the company, but simultaneously brought much integration pressure and operational risk.

By 2002, several rounds of decreasing profitability began to have an unwelcome impact on the company’s financial risk profile. Other non-financial challenges were emerging, as well. For example, integration costs were increasing, attention to core brand identity was being decentralized and diluted due to the demands of the many acquired side brands, and organizational management capabilities were not keeping up with the company’s expanding size. Being faced with these problems, the group began to adjust the development strategy from “acquisition” to one of “growth by building up core competence”.

The “core competence development strategy” began to show initial success by the beginning of 2003. Meanwhile, the trailing effects of all the previous acquisitions were still being felt.Additionally, the new strategy brought with it demands for a new organizational structure.Introducing the new organization structure revealed a definite lack of fit between the design and reality – there were still many internal issues to resolve as well as learning how to make the new organization more responsive to external market realities.
Between 2003 and 2004, the company began to investigate BSC and gradually realized BSC is an effective methodology, with a rich tool set, capable of improving strategy execution capability and organizational alignment. Accordingly, the company appointed eGate to help them build a strategic performance management system based on the BSC.

Executive Team Leadership to Mobilize Change
At the annual work meeting, the President said, “BSC is the management tool for Tsingtao to implement strategy execution. It will be regarded as one of the most important tasks for the group.”

Translate the Strategy to Operational Terms
After translating the strategy using BSC, Tsingtao developed a corporate-level strategy map and scorecard by defining the objectives, measures and initiatives.

Link and Align the organization around its Strategy
After clarifying the corporate strategy map and scorecard, using the principle of cascading strategy, eGate helped Tsingtao develop scorecards of business units and functional departments.

Make Strategy Everyone’s Job
After developing the scorecards of individual business units and functional departments, eGate helped them align the BSC with the position performance management system to incorporate individual objectives into corporate strategic objectives.

Make Strategy a Continual Process
After implementing BSC, a monitoring and reporting system was set up to support the ongoing process of strategy execution. Management was then able to review their business performance and strategy execution status through that system and make adjustments as needed to guide the dynamics of the strategy management process.

In summary, the BSC methodology, along with eGate’s expertise and professional services, assisted the Tsingtao group in its transition from a company growing primarily by “acquisition” to a company that was able to grow in a more stable and sustainable way by “core competency” (core competency still including capability for acquisition). The group is enjoying breakthrough financial results (such as No. 1 in revenue, profitability and market share), as well as making strong progress in non-financial domains.