Daimler-Chrysler was a merger formed by joining German industrial giant Daimler-Benz AG and American auto mobile manufacturer Chrysler Corporation, in 1998. Brands they produce include Dodge, Jeep, Chrysler, Mercedes, and Plymouth. DaimlerChrysler upholds headquarters in Stuttgart, Germany, the original home of Daimler-Benz, and in Auburn Hills, Michigan, the original headquarters of Chrysler. According to (Mopardaddy, 2013), Daimler-Benz acquired Chrysler Corporation for $38 billion, and it became one of the largest industrial mergers in history. The merger also placed DaimlerChrysler for contractions into Asian and Latin American markets, where analysts foresee significant future growth in the automobile industry.
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(Miliou, 2011) mentioned the reason for this merger in her study. By this merger Daimler will be able to enter U.S market and produce more low-end cars in their production. On the other hand Chrysler will be able to access Europe market. Daimler-Chrysler also has benefit of lowering the cost, increasing the productivity and exchanges the technology. The main goal of this merger is to form a larger global enterprise to compete in the larger markets of the world.
The result of this merger was unexpected. DC’s sales and share price started falling, started making huge losses and synergies were not working as expected. This failure resulted to selling Chrysler to Cerberus Capital Management.
After all the main reasons behind the failure of merger of Daimler-Chrysler can be answer by several factors, which is cultural clash, mismanagement, lack of due diligence and Asian challenge.
Analysis of Corporate Culture
Edgar Schein of MIT’s Sloan School of Management define organizational culture as follows: a pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.
The main reason for the failure of Daimler-Chrysler is cultural mismatch. The two companies failed in managing and reducing the difference between both companies. The diversity of culture from each region will take effect in work manner, quality, system of authority, and create the business culture itself.
In this merger Daimler-Benz and Chrysler come from two different cultures. Daimler-Benz is from east culture of Germany and Chrysler Corp is from America. Two cultures is different in terms of organization, working style and compensation. The cultural incompatibility is the single largest cause of lack of projected performance, departure of key executives, and time consuming conflicts in the consolidation of business (Bijilsma-Frankema, 2001)
The Culture of Human Resource Management of Daimler: According to Daimler, the “company’s sustainable human resources policy focuses on safeguarding the future, ensuring effective health management and occupational safety, and promoting diversity throughout the Group. We seek to achieve top performance in these areas – and thus present Daimler as an attractive employer” (Daimler.com)
With this, it shows that the company mainly focus on its HR in order to achieve and maintain competitive advantage. According to the report of the company, for December 31, 2008, the Group had already a 273,216 employees in the world. All of them are considered as very important to the overall operations and performance of the organization. Thus, the company mainly focus on the altered strategies and efforts that will aid them to retain their talented people, which will help them in order to save cost of hiring and training new employees, at the same time, maintain efficiency and effectiveness of the entire HR.
According to (Habsjah, 2011), Daimler-Benz perceived itself as a leading innovator of the automotive industry with a rich engineering and quality heritage building the upscale cars. According to Daimler, the “company’s sustainable human resources policy focuses on safeguarding the future, ensuring effective health management and occupational safety, and promoting diversity throughout the Group. We seek to achieve top performance in these areas – and thus present Daimler as an attractive employer” (Daimler.com). Daimler’s main focus is on quality rather than providing low priced products.
Looking at the strengths and weakness of the Daimler-Benz, Daimler-Benz offers luxurious products to the market and they are the leader in the quality. However, high production cost is the main weakness of Daimler-Benz and they also have face lacking of global models offer to the market.
Corporate Structure and Corporate Culture: Daimler-Benz has a hierarchical structure in their organization where Chrysler’s is team-oriented. Daimler-Benz’s corporate cultures depend on management processes of planning, organizing and controlling. By this they are more conservative, efficient and safe. In Chrysler corporate culture depends on setting goals, directing and monitoring implementation. (Lu & Sampsel). From this we can conclude that Daimler-Benz have based their work more on individualism with higher power distance with less uncertainty avoidance and Chrysler possess the quality of low power distance with more team oriented works. Daimler-Benz considers the quality regardless of the cost occurred.
According to (THE HOFSTEDE CENTRE), American scores low on power distance whereas German is highly decentralized and are among low power distant countries. Chrysler used the strategy of being innovative to develop business ideas and venture into new markets. Daimler was a complete opposite of this and encouraged formality and hierarchy. At Daimler, decision making is formalized and the employees wear formal clothes at work (Luo, Jackson & Schuler, 2003).
Corporate Proposition and value chain: Daimler-Benz’s main focus is image and experience connected with the highest quality obtainable in the market. Where Chrysler aim at satisfying customers by providing eye-catching, attractive design at comparatively low prices. Daimler-Benz alleged itself as a leading innovator of the automotive industry with a rich engineering and quality inheritance building the upscale cars( (Habsjah, 2011)). Chrysler, in the other hand, was a trendsetter for new design, short development time referring to its organizational flexibility and a sense of market opportunities ( (Habsjah, 2011)).
Daimler has quality engineering service with superb designs and provides after sales services, whereas Chrysler produces in high volume and sells in low cost. In other words they emphasis on cost strategies.
The summary of Daimler-Benz is they culture is formal, traditional, mannerly and bureaucratic. Daimler-Benz has structure of high authority, strong hierarchy and little payment disparity. They offer products of high quality, high price, luxurious and small sized cars.
Chrysler can be summarized as they have culture of relaxed, informal, flexible, risk taking and free form. Their structure designed from top to down management, have lean staffs, highly centralized and encourages team work. Their products are attractive, offer a competitive price, comfortable and moderate speed.
Issues faced in the context of organizational culture analysis.
Cultural familiarity theory argues that firms are less likely to invest in organizations in culturally distant countries, and subsequently have poorer performance post integration (Lee, Shenkar, & Li, 2008; Li & Guisinger, 1991; Shenkar, 2001)
The research on this issue, however, has been inconclusive. Datta and Puia (1995) found that cultural distance had a negative effect on subsequent shareholder wealth of the acquiring firm, whereas Chakrabarti and colleagues (2009) found a positive effect of cultural distance on firm performance 36 months after integration.
Germans and Americans have often ignored cultural differences during initial merger negotiations; however, those differences typically resurface when the actual integration efforts begin and, in essence, signal a major crisis situation (Nees, 1998, p. M6). Misunderstandings between Germans and Americans have often occurred because of differences in communication styles, planning and decision-making processes, negotiation strategies, and leadership practices (Shelton, Hall and Darling, 2003, p. 315).
Language and communication barriers: A potential matter that should not have been ignored was the strong cultures and language barriers between the U.S. and Germany. There are lot of language barriers between Daimler-Benz and Chrysler. These barriers should be solved through communication between both the parties. Fitzgibbon and Seeger (2002) found that cultural differences were one of the primary factors in the failed merger of the Chrysler Corporation and Daimler-Benz. Among other things, pre-merger communication and public relations created unrealistic expectations that simply could not be met. Cultural difference is a factor that affects individual communication style and the communication process.
Leaderships Role: Academic scholars and most business analysts tend to view these business ventures only from financial and operational perspectives,” says Ghosn. They are often surprised when mergers struggle or even fail, when on paper they seemed sure to succeed. The leaders of both companies are from two different culture. The leader of Daimler, Jürgen Schrempp, is with independent personality and south African overlay and leader of Chrysler Robert Eaton, broke the Chrysler tradition of commanders.
Leadership team alignment is also vital to guarantee that common messages and significances are communicated, and that relationship building activities and role lucidity efforts are applied. This case is a strong reminder of the complexity of cross-border integration and the importance of having a leadership team capable of dealing with cultural complexity.
James Holden, Chrysler president from 1999 to 2000, share his vew about marrying up and marrying phenomenon. ” Mercedes was universally perceived as the fancy, special brand, while Chrysler, dodge, Plymouth and jeep were the poorer, blue collar relations”(Grasslin, 2000, p.162).
Although Daimler-Benz and Chrysler are from same industry both are using different techniques in production. Their target customers are also different. As a result they face difficulties in bringing both the product lines into same order under the newly formed merger. The only product Daimler-Benz relied on was Mercedes Benz. They require extending their product range. This was the main aim of Daimler-Chrysler merger. (Turnock & Cobbs, 2003).
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Management style: Style of management of the Germans encouraged for long meetings with long negotiations and reports. The Americans think that creativity is the central idea in management and they acknowledged short meetings with few reports. Chrysler Group was initiated on the trust that invention and innovation was the best approach to success. This was the opposite of Daimler which accepted formal set up of activities with all the strategies being directed in a formal manner to retain a good image about the company (Luo, Jackson & Schuler, 2003).
Chrysler had a reputation for having a more freewheeling, open culture, in contrast to the more traditional, top-down management style practiced at Daimler-Benz (Akre, 1998, p. C3). Daimler-Benz was synonymous with words like conservative, ef¬cient and safe; whereas, Chrysler was known as daring, diverse and creative. In fact, these cultural differences in many ways were the foundation for the mutual attraction between the two companies, but belied the crisis situation that was imminent.
Employee’s interest: American workers tend to have more informal way of working while Germans like to be very formal in the working style. More of the German workers are following instructions from their top managers where American managers welcome feedbacks from lower level employees.
German managers frequently prefer a more autocratic style than their American counterparts, and their employees typically expect to be treated accordingly. Research also indicates that a higher percentage of Germans are obedient to their managers than are Americans (Luthans, 1998, p. 591). For example, American employees often feel comfortable challenging their managers, perhaps even giving them advice. German employees, on the other hand, expect their managers to give them speci¬c instructions and they typically follow them unquestioningly. In addition, many Germans view American hiring and ¬ring practices as unnaturally brutal (Daft and Noe, 2001, p. 62).
The companies were not well-matched with each other in terms of corporate culture. For example, Daimler AG had a corporate culture of permitting the employees to have beer breaks. This culture was not tolerable by Chrysler since them apparent that it could cause fortunes and other unlawful impacts. Later the DaimlerChrysler merger was proven, this matter carried struggles leading to poor support between the managers of the two companies. This resulted to the failure of the merger (O’Sullivan, 2001).
Recommendation on how merger can be managed to achieve strategic objectives.
Quickly eradicating inconsistent and non-common functions causes cultural integration conflict to side track post-merger activities. The post-merger issues with DaimlerChrysler were a result of not clearly identifying non-common or unneeded functions from a company culture standpoint. If the employee base is not clear on strategies of the new company, this causes a separation into two companies vs. a new merged environment. (Jaybrownonline, 2013).
The Chrysler worker base could have n realize that Daimler wasn’t going to “throw the baby out with the bath water”. Likewise, Daimler through this team effort described above would have realize American culture and processes enough to decide upon the most effective approach globally for the new company ensuring that cultural integration was not forgotten. This would have made a smoother transaction and to provide spot check of how it will be handled and communicated early in post-merger negotiations. Culture clash could have been reduced with the approach described above. (Jaybrownonline, 2013)
The severity of communication style differences should have been identified very early on in the pre-merger planning. A plan should have been developed and implemented to ensure cross communication training and awareness were promoted throughout the merger (Jaybrownonline, 2013). Factually the communications style of the Chrysler Corporation was non-hierarchical and far less organized than the bequest Daimler Corporation. Contracts were generally by consensus and employees were given more authorization and self-determination. When this was known to be different from Daimler, they should have taken the necessary steps to transfer and train people on the new communication styles that were to be used going forward.
Top management should have better communicated the reasons for the intensely different return packages between the two legacies companies (i.e. cost of living, etc.) and set the expectations of both companies.
Chrysler’s leadership should have not taken the back seat in the newly merged company. The combined leadership should have lessened the impact of “bowing out” to let the German counter-part lead. A concerted approach could be to have the leaders spouse to ensure adequate span of management control between the two companies to avoid the incorrect message sent out to the employee base. Jürgen Schrempp, CEO of DaimlerChrysler, July, 2000 stated “Implementation is a harder act than the doing of a deal.” This was portrayed in the post timeline after the merger. A clear leadership implementation plan was attempted but not effective to fire up the company as a whole. Pre-merger activities should have identified a discovery period between companies and post-merger should have created a clear plan of action, identified key management and communicated quickly throughout the new organization (Jaybrownonline, 2013).
Changing of the German employee’s compensation to be more bonus driven should have been better evaluated, as this went against the European culture and was bound to have negative consequences. Daimler could have also alleviated the preservation issues by taking better steps to ratify a retention plan which could have included elements such as “stay pay” and a new bonus strategy, based on indicators of the merger. Reward systems of each legacy company should be examined pre-merger to determine areas where significant gaps or potential areas of conflict may occur. The HR organization should create reward systems for each of the disparate cultures but are consistent to the company as a whole. They also need to keep the people that are currently there happy and renew the new company’s commitment to them (Jaybrownonline, 2013).
DaimlerChrysler should have built their platforms around taking advantage of the synergies that could be achieved instead of the cannibalizing markets for their “own” brands. (An instance of this would be not letting the “K-car” to be exported/built in emerging markets for fear that it would eat into the non-existent profits of the Mercedes in the same region.) DaimlerChrysler should have followed ABB merger to the letter or choose a more suitable merger to model their addition (Jaybrownonline, 2013).
Culture plays an important role when it comes to merge two companies across the border. If the two companies fails in taking cultural differences into account, there would be disasters happening inside the newly formed company. The case of merger of two auto mobile company, Daimler-Benz and Chrysler has shown this clearly.
The main cultural differences of Daimler-Benz and Chrysler is started from regional difference, communication and language difference, management style difference and difference of leadership style. Most of the difference is found among the working employees. They are differentiated by the organization before merger. The merger named of equal merger was led by the Daimler-Benz. This was the root of cultural problems.
Issues faced by the two organizations include communication barriers, leadership and management barriers and conflict of interest among the employees of the new corporation.
To overcome these barriers some actions should be taken by which I have included as recommendations. The culture of the organization should be considered as an iceberg, most of it is water under awareness.
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