Daimler Chrysler Merger Example

This sample paper on Daimler Chrysler Merger offers a framework of relevant facts based on the recent research in the field. Read the introductory part, body and conclusion of the paper below.

The merger of Daimler-Benz (the manufacturer of Mercedes-Benz) (Germany) and the Chrysler Corporation (USA), is classed as a cross-culture merger. A cross-cultural merger is the process of two companies from different backgrounds and with different practices were joined together to form one successful company. There were many different reasons why a cross-culture merger is not successful.

Daimler-Chrysler failed to analyse both companies before they went ahead with the merger. The main reason that their merger was not successful was that the German way of business and the American ways differ profoundly. Both companies should have been analysed to examine their strengths and weaknesses, in regards to their practice. The communication between both companies lacked and therefore no common ground was found.

A merger is the process of two or more entities combining into one for the hope of increasing market share.

This process can be achieved by a company merging with or acquiring their competitors.

This process has become quite common over the years. Differences in culture, language, and business practices can prove a liability. In most cases, mergers are claimed to be a partnership of two equal businesses but this may not always be the cases. Some companies may acquire companies that are under-performing in a mutual market. Companies may indulge in such a process to increase customer share or to avoid costly marketing battles.

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Co-CEO of Daimler Chrysler stated that the deal was never expected top be a merger but more Daimler-Benz were acquiring Chrysler.

Who Owns Daimler Chrysler

Looking can the histories of both Daimler-Benz and Chrysler, Its clear to see that Daimler Benz were the bigger company as Mercedes-Benz’s are manufactured in no less than 13 different countries including Thailand, UK, and Argentina. In regards to sales revenue Daimler- Benz outperformed Chrysler as the Chrysler Corporation Had experienced hard times in the early 1990’s. It seemed that Chrysler was starting to show improvements in sales, especially when they introduced their range of jeeps, which proved to be most profitable.

Introduction

In this report we will be discussing questions in regards to the merger between Daimler- Benz and The Chrysler Corporation. One of the basic elements within a merger is to realise the synergies between two or more companies. However, some companies that take part in a merger fail to realise the synergies that were expected to be gained. We will discuss why The Daimler Chrysler merger failed to realise the synergies that were expected from it.

Another important aspect of mergers and acquisitions is the identification of cross cultural issues between two companies from different cultural backgrounds. Many cross-cultural mergers fail due to the lack of attention given to the difference between the two cultures. We will briefly describe the issues that should have been addressed to make the cross cultural merger between Daimler-Benz and Chrysler a success.

In most cases, companies involved in a merger claim for the process to be a partnership of two equals. This may not always be the case as one company may always be bigger than the other. Jurgen Schrempp, co-CEO of Daimler Chysler made particular comments stating the deal was never really intended to be a merger and that Daimler- Benz had acquired Chrysler. We will be discussing the backgrounds of both companies, which will then give an indication of why Mr. Scrempp made such comments.

Case 2.1 Daimler-Chrysler Merger: A Cultural Mismatch

1. Mergers and acquisitions take place to realise the synergies between the two or more companies involved. Why do you think the Daimler-Chrysler merger failed to realise the synergies that were expected from it?

After the merger in 1998, DaimlerChrysler have been through integration problems especially due to the differences of culture between Americans and Germans. By making references to the Cultural Web, this part of the report will show the key post merger problems that the company had to solve and will analyse if solutions were effective or not. Firstly I will present the culture of the organisation, then I will describe the Cultural Web and lastly I will present the key issues and assessment of solutions.

First of all, the culture of the organisation must be resumed by the representation if the Beliefs and Values of the company. Beliefs are “issues which people in the organisation can talk about” and Values represent” missions and objectives of the company”. The paradigm is the “taken for granted assumptions” as the core of an organisation (Johnson. G, eds. 2002, p 229).

The Cultural Web of Daimler Chrysler

The key issue here was the definition of the alliance between the two companies. As it was presented as a “Merger of Equal”, Managers followed this way of work. But as we will see later in the report, it turned into a take-over of Chrysler by Daimler-Benz. It was a mistake to call it a Merger of Equal as many people in Germany and in US have been confused. This problem will have consequences on the US part of the company as Americans did not expect to be acquired by Germans and especially because you do not work the same way or the power of decision making is not the same when you merge than when you are acquired. Germans should have said it at the beginning of the processus to avoid such problems.

Then, we have the Rituals and Routines part: Rituals are things like training program, assessment, promotion and Routines are the ” way we do things ” (Lynch.R, 2003, p259). R&R used during the integration process were mainly the speed in the integration process and the creation of an Integration Council. This Council was on charge to organise the merger ” quickly ” as when two companies come together, people expect changes and it is better to move fast than to move slowly but it is a dangerous way to do. However, this Council was the real power base of DaimlerChrysler. Routines are also hard to change as they are part of the corporate culture and DaimlerChrysler had to face to many differences in the way they work, in their decision making process and in the way they communicate. Those differences created tensions. For instance, final approval by top management is very important in the German decision making process but Americans encourage own initiative and do not always wait for executive level approval. Then Germans are used to work late hours but Americans do not stay long as a routine. To solve this clash of culture, managers decided to pick up a spot in the middle. That was not an efficient solution as mentalities are hard to change and as German Culture was dominance, it allowed it to become more dominant.

The Control System are the “measurements and reward systems that emphasis what is important to monitor in the organisation” (Lynch.R, 2003, p259). As soon as Chrysler’s problems have had repercussions on DaimlerChrysler, they decided to set up two turnaround plan. But the main key issue here was the differences in compensations. First Eaton was much more rewarded than Schrempp and Americans earned two, three, and sometimes four times more than their German counterpart.

It was not possible to decrease Chrysler salaries as managers would have resigned and such differences were unacceptable for Germans. They also decided to set up a compensation scheme based on low basic salaries and high performance dependent bonuses. It was efficient as bonuses depend on performance because people would feel more motivated by work this way.

In the Organisational System part, which is “likely to reflect power structures and defines the level of hierarchy and the type of structure used” (Lynch.R, 2003, p259), one of the key issues was the choice of the AG structure which is the German way to do. In terms of good development of DaimlerChrysler, it was not efficient as it shows that the Germans want to dominate the merge. We have also to note that as a consequences Daimler executives became more numerous than Chrysler executives in the Management Board (7 Chrysler and 9 Daimler at first and 4 Chrysler and 8 Daimler at the end) (Herbert.P, 2003, DaimlerChrysler Case Study).

Another key issue concerned also the differences in the organisation structure. First Daimler was managed as a conglomerate with 21 separate businesses whereas Chrysler was run as a highly centralised car manufacturer. Chrysler had also a cross functional structure where the Germans kept responsibility clearly separate. Managers did not decide what to do with that they spot in the middle which had not been efficient as German structure were going to be dominant and Americans had to adapt. It is important to underline the fact that as soon as Germans dominance became clear, many designers, production people and executive left the company for competitors. They loose good employees.

Functional integration and branding policies were also core issues because in terms of brands they decided to keep each other brand unique: teams do not have to mix but the company wants to make cost synergies by jointly purchasing components and by benchmarking and mutual learning. It was a good strategy because the brands do not have the same targets. However we have to note that at the beginning Chrysler hoped that linking itself to this luxury brand will boot its image where Germans do not want to associate Chrysler image with Mercedes. The process of mutual learning is really effective because companies save a lot on costs and they also gained on time by using each other’s strengths.

The Power Structure in the case of DaimlerChrysler was a heavy power structure which was not easy to manage (18 members and 2 co-chairmen just after the merger). It was hard for only 2 persons to get along. When it became obvious that Eaton made wrong management decision, some tensions came between Germans and Americans. That is why they decided to reduce the Management Board to 12 members. Right after, Eaton fired the change agent: Stallkamp and Eaton resigned. It was not a good decision as Stallkamp was the one who had always tried to balance the interests and culture of the two firms. Even if it was a good decision to reduce the Management Board, the resignation of Eaton gave to the Germans more power.

The key issue in the Symbol part is in term of branding policy. Brands are very different and Daimler decided to keep each identity separated. They also decided to create a Brand Bible to make it clear. It shows that Daimler consider the alliance an acquisition and not a Merger of Equal anymore.

Conclusion

To conclude, we can say that the merger between Daimler-Benz and Chrysler was not a “marriage in heaven” as it has been said but companies have been through many difficulties to work together especially because of their business differences. Several years after the merger, we can say that majority of solutions were not effective and have to be solved in a better way as they contributes to separate the two companies. The integration must continue as the process to form a “Welt AG” is not complete. This merger is still controvert as today Schrempp is accused of cheating on the real nature of the merger to avoid to pay a higher price to work with Chrysler. Daimler Chrysler also acquired 34% of Mitsubishi in order to conquer the Asian Market. But we can wonder how can Shrempp get along with three companies when he was not able to deal with two.