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In 1998, a significant event sparked a full focus of attention in auto industry, which was a merger occurred between two giant auto manufacturers, Daimler and Chrysler. The merger allowed DaimlerChrysler to become the fifth largest car maker worldwide. Before the merger, the two companies respectively faced various challenges under their complicated contexts. Daimler was just the world’s fifteenth largest car production, while Chrysler hardly expanded its products beyond North America market. At the same time, the auto industry was confronting the situation of overcapacity and ever-changing global markets. It seemed that the merger was an alternative strategy to both of the two companies. However, while the benefits would be generated by the merger, the potential problems would be brought about as well. During the merger process, knowledge management would become one of the most vital issues. First of all, knowledge, which should have significant effects on the innovation of technology and design of an automobile, was a core determinant of auto industry. Also, the two companies had different backgrounds, cultures, and brand portfolios and independently knowledge management strategies, which might trouble the incorporating processes. In addition, due to the geographical markets and far-flung workforce, DaimlerChrysler had to make their efforts to motivate people effectively and efficiently work together, even though the employees from different companies dispersed in countries hold the divers ideas and opinions as well as behaved differently.
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Based on these backgrounds, this article will primarily focus on discussing the application of knowledge management, especially the implementation of knowledge management technologies and tools, in the merged DaimlerChrysler. Firstly, DaimlerChrysler’s knowledge management strategies will be briefly described and its measures and means will be detailed. Then, the knowledge management issues during the process of merger will be analyzed. Lastly, the lessons learned from the merger process of knowledge will be presented.
2) ABOUT KM IN DAIMLER BENZ AND CHRYSLER CORPORATION (BEFORE MERGER)
In order to further analyze KM technologies and tools in DaimlerChrysler, it is essential to compare the respective application of KM systems in the two companies before the merger.
2.1) KM IN CHRYSLER
The knowledge management in Chrysler dated from the financial crisis happened in the early 1990s. However, in 1970s and 1980s, some issues, which were layoffs, plant-closing and budget cuts, had resulted in decreased knowledge. Two key repositories “Technical Reports” and “the Chrysler Institute of Engineering” in engineering area gradually disappeared. Under this situation, the top-management began to perceive the needs of knowledge management. The Chrysler’s KM systems were embodied in three aspects showed below.
The Buckets. It meant that every bucket represented the category of knowledge. Before the classified knowledge was put in the bucket, the important step was to discover where the knowledge was. The category of knowledge included product databases, CAD/CAM systems, and manufacturing, procurement and supply vehicle test data. The buckets effectively located knowledge and then classified them. However, the possible problem was likely to the isolation of various knowledge areas or domains, which needed to be highlighted to break into the knowledge boundaries during the process of sharing knowledge.
Tech clubs. It bridged the engineers and designers and provided a platform for interaction of knowledge between them. When they tried to deal with the similar issues, they could share their knowledge from respective dimensions. The benefits would be that it created the possibility to exchange best practices through informal meetings. As matter of fact, the Tech clubs could be seen as the tool of communities of practice (COP), which would be improved and applied in DaimlerChrysler.
Engineering Book of Knowledge (EBOK). The purpose of it was realizing the function of capturing the knowledge shared in Tech Club. It could maximize the contribution to knowledge, share empirical knowledge and technologies and pass down knowledge to new engineers. EBOK absorbed the suggestions and reviews from employees and then was published to employees. It would further increase its values in the merged DaimlerChrysler.
2.2) KM IN DAIMLER
Comparing to Chrysler, Daimler did not operate formal knowledge management systems before merger. However, it built Daimler’s Corporate University (DCU). DCU targeted for senior executives of Daimler and its programs included leadership, management skills, strategic thinking etc. It could be thought as a means to activate intellectual capital in Daimler.
At the same time, the problems occurring in the processes of organizational operation and product developments highlighted the top management a hint that knowledge needed to be created, captured, managed and shared. Firstly, as a traditional German corporation, Daimler had the abilities to retain excellent technologies and qualities in the performance of product development, while its weakly creative capabilities led to the lack of innovation and flexibility. Secondly, the flaws of new products generated the emphasis on knowledge management. In 1997 and 1998, Daimler successively introduced A-CLASS, M-SUV and Smart mat products to markets. Nevertheless, the technical disadvantages upset the top-management, and even some journalists implemented a performance test for A-CLASS, which brought about a redesign for it. Due to these issues, a “Learning champions” team established took responsibilities for writing reports about processes of products development and lessons learned from them. And the reports would be stored in database for future use. However, Daimler discovered that the knowledge provided by the “Learning champions” was less helpful than those generalized by the practitioners. Also, only if the database was controlled within a touchable span, it would better realize its function. Although these issues had been gradually perceived by Daimler, it did not systematically manage knowledge till the merger.
Since the two companies were progressed different stages of knowledge management and adopted different strategies, it would generate increased issues in the merger process.
3) STRUCTURE OF POST MERGER INTEGRATION
In 1995, the first negotiation meeting about a merger between Daimler-Benz’s and Chrysler took place. The meeting turned out to be an unsuccessful one.
3.1) FORMULATIONS FOR THE MERGER
Daimler-Benz’s conducted research in 1997, which has shown that the growth of the company is limited. In order to increase its revenues by 7% annually to reach 50 million within the period of 10 years, the company decided to go on with Merger or Acquisitions. Apart from this, the main goal is to secure the company’s technological strength by a merger. The Chrysler not having financial back up to survive competition and also the company feared take over by Kerkorian Company, played key reasons for a merger. The CEO’s of both companies played key role in Merger or Acquisitions. In the year 1995, meeting about a merger is held between both companies, with only confidential executives being invited. At the end of meeting, both companies came up with an agreement of Merging.
3.2) INTEGRATION STRUCTURE OF DAIMLERCHRYSLER
In the process of merging both companies, the Daimler-Benz remained dominant among them. DaimlerChrysler is formed with Stuttgart as headquarter. The board members of DaimlerChrysler included 10 Daimler executives and 8 Chrysler executives. The companies formed an Integration council led by the 2 CEOs, supported by 4 Daimler and 2 Chrysler executives. The Integration council was supported by two integration teams, 100 work teams, 782 sub teams in Level 2.In 1999; the DaimlerChrysler was restructured with 8:4 majority for Daimler. And Eaton made retirement statement. The new organization structure with fast decisions and process control makes integration successful. The Digital decisions and integration process have to be fast and controlled in all operating levels.
3.3) EXPECTED SYNERGIES OF DAIMLERCHRYSLER
The co-operation of two organizations on production, research and development, purchasing and infrastructure are to be met. Added to this, the complementary of brand portfolios and geographical markets are important to be noted. Chryslers made an impact in North America, with its new way of design and considerably low cost. For Chryslers, the technology and standards remained second option. They had very lean management with no bureaucracy. In contrary to this, Mercedes who are bureaucratic and self-disciplined always packed with new technologies and standards having huge market in Europe. Being different on these, both are expected to adapt skills from each other.
4) UNDERLYING KM PROBLEMS IN DAIMLERCHRYSLER
4.1) CULTURAL ISSUES
Cultural Issues play a major part in business merger or acquisitions. Culture differs on regions, country, group, religion and hence the business culture. Business cultures differ in organization, working styles, management, authority and compensation. These cultures influence attitudes to work, work environment, decision making etc. It is very crucial in cross border mergers.
4.2) CULTURE OF DAIMLER-BENZ
Daimler with recent technologies and higher standards is the foremost innovator in automobile industry. They had very rich engineering and quality heritage. Daimler had very successful products such as diesel engineers or ABS. Mercedes attained Luxury status within short period of time. The company is focused on core competences. Daimler with 21 business units run by a strong willed chairman Schrempp, success beckons. The Organization structured bureaucratically. This prolonged Daimler’s decision making. Even the rituals of working late hours and at weekends existed. The responsibilities are distinguished separately. All board members of Organization had equal stakes and compensations.
4.3) CULTURE OF CHRYSLER
Chrysler was always known for its lean management and flexible organizational structure. The new way of design, market sensibility made it as a trendsetter of its times. The short development time is another Chrysler factor. Chrysler in nineties with team of enthusiasts around Bob Lutz built the “Chrysler Spirit”. These enthusiasts and their executives are major powerbase of the organization. They made the company as the most profitable car company in the automobile industry. Even though Chrysler termed as a upcoming company, they challenged the established company’s such as Ford and GM. Chrysler is non bureaucratic with lean management. The Executives were given no status. Even they hold responsibilities each part of one business. Throughout the organization strict cost management is maintained. The teams worked with self responsibility and encouraged to make decisions on their own. Certain decisions were made by the team without the executive’s approval. Each one in the organization worked on deadlines rather than late hours.
4.4) POST-MERGER BUSINESS CULTURE AND ITS INTEGRATED PROBLEM
The cultural differences between companies are obvious to be noted. The Dialmerchrysler failed to make digital decisions on cultural differences, instead each time they compromised. The “German Engineering” and “Cowboy Independence” are two far points, which they tried to merge by finding a point in the middle way in between. This further adding to the confusion evolved as dominant new culture. Still the research and development departments remained separated. The responsibilities are not still clear, thus creating wild responsibilities in the organization. No rules or guidelines are framed. Chrysler realized all talented executives left the company. They started working for the competitors. The Integration meetings are not conclusive wasting lots of time. Only one business unit of Dialmerchrysler was there. The Change agent and Stallkamp are fired. Among all these confusions, one key factor is fulfilled. As bureaucratic structure of German culture dictated all decisions, No digital decisions were made or consulted with the workers. Everything is happening so fast and the process is not under control in the company. Hence the Chrysler brands do not tarnish the luxury Mercedes brand. The company is unaware of wrong decisions till major losses are reported in Chrysler.
4.5) USED MANAGEMENT MEANS TO RESOLVE THE PROBLEMS
The merging of two cross boarder companies required major transformational change in less time. Since Daimler’s dominance was evident, it is Chrysler who got transformed mostly. Chrysler lost its lean management and the status of high profitable company. It is Daimler’s dominance and Eaton’s wrong decision has made Chrysler to lose its originality and core competencies, transformed to high costly one. As it was clear, everything is happening so fast and the process is not under control in the company. The board failed to manage the integration process. This should be intervened with a Integration council undertaking Integration process. As explained before, the communication is very important while cross boarder merging. Daimler and Chrysler favored two totally different styles of communication. The Daimler forcing Chrysler to adopt German decisions, firing Stallkamp created insecurity of jobs in Chrysler. Departure of talented executives followed. In the end, the Dialmerchrysler learnt one’s lesson. The new Chrysler CEO Zetsche combines both approaches and the new restructuring plan in Chrysler defines the goals to be fulfilled. Zetsche communicates the plans effectively through chatting, queuing etc. He promotes the plan effectively. Choosing afterwards directive approach effects the commitment.
5) TOOL USED
CAGE analysis is used in this problem solving.
The cultural differences play a major part in Merger or acquisitions. After Merging, Daimler seems committed on what they do. They have been assertive. But Chrysler is very different in this perspective. They are flexible. Chrysler is less rigid. The working lifestyle of the companies varies in a large way. Daimler practiced hierarchy. Formality was there in the way of doing things. In the other side, Chrysler embraced open collars and free-form discussion.
Obviously, two companies had language difference in addition to their Cultural difference. Daimler being a German company tried to converse in English whereas Chrysler did not practice German. Even Chrysler in an attempt to make merger successful, had cultural training to employees. They considered cultural training is not as important as language training.
Besides that, they had difference in business culture. In specific, the difference in power created distance between managers. The managers in Daimler-Benz were rewarded as per profit and loss of the unit. In contrast to that, the managers in Chrysler are rewarded based on success of their teams. There were issues for the title of the president too.
There have been issues in administration perspective. Management of operations is different in both the companies. The view of organizational structure is different as Daimler had direct lines of authority. Autonomous business unit were there for 23 business units of Daimler. Moreover the structure of Daimler looked traditional. Whereas Chrysler practiced platform teams, Matrix management and looked concrete as a single unit.
Most basic thing, both the companies were lagging at financial process. Now the finance of both companies was united. There were no processes to trace the cash flow. Hence it created no records for money spent or earned. Being a upcoming company, the Chrysler put up many process for finance management, while Daimler failed to have simple cash flow system.
Apart from this, Chrysler was good at dealing with investment community. And the Daimler did not have a well built in relationship with investment community. So they followed a customary relationship with Wall Street. And they did not pay any attention towards it.
Added to above all, they were different in discussing matters, the discussion forum of Daimler had overhead charts. The charts contain significant numbers of detailed. They also contained many back up slides. As for Chrysler had little advance preparation compared to Dialmer, the Discussions were always pointed and open discussions
Geographically they are far from each other. Being different in language and Cultural, Daimler-Chrysler should practice direct meetings to discuss bigger problems. Direct meetings also paved way for socializing. But direct meeting would have cost them much travelling and higher price. Instead they carried on with video callings avoiding direct meetings.
Even the geographical distance also posed severe problem. This also became reason for not getting full co-operation from Schrempp. This became a hurdle to establish a distance relationship. Even Stalkcamp thought it is difficult to contact Schrempp. There are bigger problems which needs solution immediately. And travelling also took lots of time.
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In order secure and strengthen the market positions of both companies, the selection of parties and timing of proposed business combination are done properly. The rationalization of product offerings did not happen as there was little overlap in the products. The combination of functioning of office, clarity in process, making the process regular would have saved them few bucks. The operational side is more focused on research and development. As Stallkcamp stated, there were plenty of opportunities for significant savings in the operational side.
Apart from above, both the companies should have created common units which might have saved lots of money. They should have created a single company. They are not going to share their vehicles or platforms but both companies having common protection devices would have saved few bucks.
Even the Daimler employees maintained their company’s luxury image flying first class and the managers booked fancy suites at expensive hotels for the board meetings which never last long. This has had became common practice in Daimler. This had cost Chrysler a fortune that were travelling in budget and booking holiday inns.
6) The Failure of New Knowledge Management Strategies
6.1) The new knowledge management strategies
The chairman of DaimlerChrysler, Jurgen E. Schrempp, called the merger of Chrysler and Daimler Benz as merger in equals, which means two companies that are roughly equal in size and capability choose to combine into a single business entity. However, the top-level decision makers overestimated the synergies between the two totally different firms. And the merger loaded much expectation failed, finally.
Despite a variety of analysis from the business strategic angle, we here analysis the failure of new knowledge management strategy which is a component of merger failure, and summarize some lessons learned
We go through the new knowledge management strategy implemented in Daimler Chrysler and try to figure out what went wrong.
It is necessary to mention few knowledge management projects involved in the new knowledge management strategy.
The first was a project aimed at promoting mutual learning and knowledge sharing between engineers of Daimler and Chrysler. For example, the project attempted to reduce the number of new car prototypes required for a vehicle development, by using CDA simulation tools.The two companies also learned more about the comparative strengths and weakness of each. For instance, Chrysler was better at 3D modeling and simulation, while Daimler was better at crash simulation.
As a result of launching the project, the stronger company in certain area was unable to share its practical experience.
The second was PMI project, aimed at management. It involved some knowledge management measures. Executives from each company were assigned to one of 12 “Issues Resolution Teams”, under the joint leadership of Daimler and Chrysler officials. Each group was given a subject area, and requested to think through the PMI issues from their respective area. The PMI system was easy accessed, providing a variety of information, such as the e-mail, project schedules, and reports about IRT project and so on.
Besides, other knowledge management projects were underway in each company.
6.2) Problems with new knowledge management projects
All of these seem helpful to knowledge merger and integrative knowledge management. But, what’s going wrongly?
We try to figure out some reasons by assessing these knowledge management projects mentioned above, find out what are limitations they have.
The First project was using the CDA to store some technological knowledge from both Chrysler and Daimler engineers for sharing and reuse. Apparently, it can capture and store data, such as simulating data, which are useful to both Chrysler and Daimler; hence, it can reduce some repeat work to improve efficiency. However, the scope of data captured by such a tool is very limited. Because such kind of knowledge sharing is purpose-driven; for instance, when Chrysler need to improve its crash simulation in a new product design, it find that maybe Daimler’s experience can help, under such condition, crash simulation knowledge sharing may take place. Instead, it’s almost impossible that the two companies sharing all kind of explicit knowledge which are useful to both two by inputting relative data to CDA system; while selecting what explicit knowledge are useful to both is also a complicated task.
The second is the PMI project. Here, we think the PMI was over expected. For example, PMI project encouraged executives from two companies do collaborative work on some certain issues and make some information of such collaborative projects accessible to staffs, so as to push the integration process. Whereas, the project was not able to make the collaborative work become a routine of DaimlerChrysler and neither to involve most of staffs rather than just executives in IRT. And there are some inherent problems that lead to the limitation of PMI project. We will discuss in next part.
In short, we think in the new knowledge management strategies of DaimlerChrysler; there were some knowledge management technologies and techniques that were applicable. But these mechanisms and techniques had limitation, and they should not be expected to overcome all problems and achieve the knowledge merger goal.
6.3) Lessons Learned
As the knowledge management projects and the technology used should not be the only thing blamed for the failure of knowledge management strategy implemented in DaimlerChrysler, we find other underlying reasons and summarize lessons learned.
Strategy Planning should be emphasized more.
The most significant problem with knowledge management strategy lies with too much focusing on getting the deal (implement those projects) done. That means strategy planning, negotiating and dealing with “culture clash” issues and all the rest that needs to be done have not received adequate attention. Assessing the readiness of the new company for new knowledge management strategy, and creating a good cultural environment, etc. these are all compulsory to a new company. Otherwise, relying on implementing a few projects to achieve the new knowledge management strategies of a new company made up of two equal and different parts, is not realistic.
Preparing for knowledge management strategy sufficiently and start it early.
Facilitate knowledge sharing between Daimler and Chrysler can build organizational commitment to the new company among staffs. It’s a crucial influencing factor to whether the merger can achieve “1+1” greater than 2. Therefore, knowledge management should be considered as key issue of merger, and should be thinking before merger instead of in “post merger”. As Daimler and Chrysler differed in the perception of knowledge management and the traditional strategies of knowledge management, it determines that it’ll need a lot of time for negotiating about new knowledge management strategy for DaimlerChrysler.
Take culture integration more seriously.
Culture always has a vital influence to the success of knowledge management. Since Daimler and Chrysler have very different culture and style, it’s a very serious task to integration.
Why mergers do fails?
Massive competition among the top level management for leading positions.
The perdition was focused on older organizational chart rather than the new business process.
The goal was not clear among the departments
The avoidance and disregards of needs of the employee,
The agreements copy about the merger was not detailed enough.
Integration process was too long
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