QUESTION 1: How would you evaluate Daimler’s choice of partner/target? What is in your opinion the main reason for the troubles in integrating the two companies? The Daimler-Chrysler merger represent an example of poor partner selection when engaging in cross-border collaboration. Cultural and strategic differences between the two companies have significantly affected the outcome of the merger and should have been taken into consideration in the target choice phase.
Strategic objectives of the two companies are opposite, with Daimler focusing on high-end, high-performance segment, and brand protection, and Chrysler focusing on more affordable and comfortable vehicles. Differences in organizational cultures, flexible and innovative on the Chrysler side, structured and bureaucratical on the Daimler side, have also played a significant role in the failure of the merger. Differences in executives pay, national regulations of governance structures and different degree of executives involvement, contributed to make the conflict even more harsh(see Appendix).
Although cultural differences may be identified as the most plausible cause of DaimlerChrysler merger failure, the cause of the negative outcome is rooted in the ex ante selection and negotiation phase. Negotiations have been mainly carried on by companies’ presidents with few, if any, executives involved in the process. No consideration has been given to business differences and no agreement on the new venture structure and culture has been discussed beforehand. Moreover, while the outcome of negotiations was presented as a merger, it was more of a Daimler acquisition of Chrysler.
This misbehavior was the origin of main management flaws. In fact the creation of a board with equal number of the companies’ executives and the simultaneous differences in executive pay and titles, created confusion among the employees about the nature of the relationship. When Daimler tried to take the lead of the new venture in this context, it lacked necessary leadership to effectively manage the company. Strategic objectives eventually clashed, due to Daimler unwillingness to give up its high-end image in order to adapt to Chrysler culture.
Again, this is the result of a general failure in identifying the most appropriate partner to pursue the company’s objectives. Daimler also lacked a comprehensive analysis of business culture differences between the companies’ employees. A thorough analysis would have showed that the differences in the nature of the processes adopted by the companies could have caused significant problems when coming to the integration of the new venture. QUESTION 2: If you could turn back time and start all over again, what advice would you give to Schrempp and Eaton before the merger?
Should they have considered an alliance? If so – would they be good partners for each other? Why, or why not? In order to ensure a better outcome of their merger both Daimler-Benz and Chrysler should have conducted a more extensive analysis of the partner/target culture and strategic objective and should have evaluated how these factors could have complemented their current competitive advantages. Although the merger objective was to create synergies by exploiting the two companies capabilities, one of the unspoken objectives was to take their respective products to foreing markets. In this view, Daimler choice of merging with Chrysler is seriosly flawed.
The German company strongly relies on high-end products and on fancy brand image, while Chrysler targets a low-end segment. Also the integration of product lines has been flawed, as for example Jeep conveys an idea of ruggedness, insted of a luxury one. In this respect it would have been reasonable to choose a partner which deals with similar line of products in order to exploit its knowledge of the market and its distribution channels, rather than a partner like Chrysler which deals with a completly different market segment.
The choice of an high-end segment oriented partner could have also contributed to reduce differences in business culture. In fact, companies which market similar product lines are likely to share similar processes and structures and hence similar business culture. On the integration side, negotiating the new venture structure and line of authority beforehand could have helped solving cultural issues.
Determining such structure beforehand would have reduced uncertainties in executives roles and misunderstandings between corporate cultures. In order to make this effective I would suggest that executives from the two firms to be involved in the process, so as to develop a strong committment to the new entity’s success(Beamish&Bartlett, 2011). In addition, the role of the two firms should have been clarified, as this uncertainty lead to major management flaws, with each of the side trying to impose their view of the business on the other. In conclusion I wouldn’t recommend Daimler to choose Chrysler as a target.
The differences in strategic objectives and culture are too big for the merger to succeed, especially given the unwillingness of Daimler executives to be open-minded toward the new culture. An automotive enterprise focused on the same segment as Daimler’s(which could eventually share some of the same processes and culture) is more recommended to achieve synergies. However, if the deal has to be made, I would reccomend to start with a temporary alliance and to remain flexible, so as to renegotiate the agreement as strategic objectives evolve and as trust is built among organizations (Beamish&Bartlett, 2011).
References * C.A.Bartlett, P.W.Beamish, “Transnational management”, McGraw-Hill, 2011 * D.C.St. Jean, “DaimlerChrysler merger: the quest to create “One Company””, Babson College, 2000
Appendix Table 1: analysis of Chrysler and Daimler characteristics | STRUCTURE| CULTURE| PRODUCTS| CHRYSLER| * Highly centralized * Team work based tasks(plus matrix structure) * Lean employees * Highly centralized(cost leadership) * Top-down reporting system| * Informal * Relaxed * Fast, flexible and lean * Passionate * Shareholders oriented| * Mid-to-low end, attractive, but with low price * Innovative design * Comfortable| DAIMLER-BENZ| * SBU Structure * Strong Hierarchy, several lines * Independent BU managers * Homogeneous wages| * Very formal * Bureaucratic * Profit oriented| * Luxury product * High performance * Premium quality engineering|