Case Study - “Daimler and Chrysler: Lessons from a Merger”

This case study is about the merger occurred in 1998 between two big companies in the auto industry: German company Daimler-Benz and American auto manufacturer Chrysler Group. At the end, this merger appeared to be a failure because of different types of problems. Chrysler benefited from Mercedes while benefits to Daimler were harder to find, so that Daimler decided to sell 80% of its stake in Chrysler for just 7.4 billion dollars.

They were two companies from different countries with different languages and different styles that came together although there were no synergies. First of all, these firms operated in the same sector but they had different customers, goals and cultures so there was a lack of common vision and values. Daimler was a luxury brand based on excellence and superior engineering that wanted to enter new markets and develop new products, especially by raising its standing in the North American auto market.

On the other hand, Chrysler addressed to “blue collars” purchasers and decided to look for a partner being aware of the overcapacity in the industry. Originally, the plan was for Chrysler to use Daimler parts, components and even vehicle architecture to sharply reduce the cost to produce future vehicles. The operation started with the intention to realize a “merger of equals” but it ended up being more like an acquisition as Daimler strove to impose its own position, even though Chrysler was financially stronger at that moment.

In addition, they had different structures, reporting systems, travel polices, dress codes, level of salaries, decision making processes and working hours. Specifically, Daimler had a tall structure, with high power distance, formal dress code and meetings, annual reporting system, lower salaries of executives and fixed schedule; Chrysler instead had a flat structure, with lower power distance, informal dress code, quarterly reporting system, flexible hour schedule and higher salaries of executives.

Another big problem was that Daimler and Chrysler only focused their attention on assets and financial structures whereas cultural aspects were totally neglected in the pre-merger analysis.

One possible solution to avoid the failure could have been a better analysis of the situation before the merger. In fact, two organizations can merge in a successful way only by checking the compatibility of their own cultures previously.

Culture is composed by formal and informal characteristics and artefacts like dress code, rituals, routines, symbols, language, ceremonies, environment and the amount of working hours can be easily assessed through a shallow analysis made of meetings, interviews and direct observation of workers. In order to discover deeper values and assumptions, it's important, instead, to create an environment of trust, where people can talk and exchange their ideas and opinions in a honest way, avoiding biases and opportunistic behaviors.

As Riad says, cultural tension in society can coexist if points of common ground are recognized and appreciated, so it's possible to overcome cultural obstacles through communication and big efforts of collaboration and negotiation, in order to find win-win solutions.

Other alternatives are: trainings on cultural diversity and cross-cultural management to increase cultural awareness; internal communication and sharing of best practices; specification of common vision and objectives, taking into account the interests of both parts, even though it's impossible to make a merger in really equal conditions; creation of a new organizational structure and identification of new HRM procedures in line with new strategic goals; regular face-to-face meetings to build a culture of trust and cooperation; creation of a leadership team before and during the process.