Roles and Role Dynamics within the Daimler-Chrysler Corporation after Their Merger - Essay Example

Roles and Role Dynamics within the Daimler-Chrysler Corporation after Their Merger We live in time of globalization that touches all the spheres of human activity, and the business world is not an exception. One of the major tendencies of the corporate business is creating international businesses going across boundaries and uniting nations. As the researches claim, “Populist fears of industrial concentration have faded, replaced by the conviction that the globalization of markets and the speed of technological change has tied efficiency to size.”(5) Merger is one more important element of globalization. The phenomenon of merger has been observed by the specialists of various sciences. One of the interesting aspects of the phenomenon is its influence on the corporate relations and the role dynamics after the process of merger. The case with Daimler-Chrysler Corporation is interesting to be examined as the example within the research as the case of the merger that appeared to be a takeover, with all its effects, influencing the relations within the corporation with its financial success. “In fact, up to 80 percent of corporate mergers and acquisitions fail to garner the expected financial gains, mainly because the deal-makers fail to anticipate the psychological and philosophical clashes that can undermine the alliance, industrial/organizational (I/O)”( 8) Before describing the circumstances of the merger it is important to describe the major events that happened just before the merger. The Chrysler company was a successful enterprise when it was headed by Lee Iacocca, its President. By the end of 70s, he provided his company with $1.5 billion dollars as federal loan guarantees. These loan guarantees made Chrysler a profitable company until 1988, when innovations became necessary. The President of the company decided to risk and produced four kinds of new products - pickup trucks, sedans, minivan and jeep. (6)  But at the beginning of the 90s Lee retired and it led the company to failure. After the merger Chrysler began to lose money very quickly. In 2000 it lost $1.8 billion, and the value of the stock of the company dropped, starting from $ 84 billion and ending up with $39 billion in 2000. Except for getting profit, the Chrysler company tried to survive for few years, and, at last, it stopped losing money by April, 2002.(2) The factors that led to such regress need careful consideration and the specialists are ambivalent as to determine the reason for the situation occurred. The company seemed to run well, when the problems fell. When the problems revealed, the successor of Lee Iaccocoa, Robert Eaton, was fired and some other executives were fired with him. His place was occupied by Dieter Zetche, who found that the present market situation demands reorganization in company structure. He created a team of specialists that replaced the executives that were fired with Robert Eaton. His innovations comprised changes in improvement of the quality and as well as producing new products – a new model of pickup and jeep. This policy turned out to be successful and Chrysler received 788 million euros in 2002.(9) In the merger of 1998, Daimler Benz and Chrysler Corporation created a new corporation of companies approximately of the same size but quite different in organizational culture and corporate relations. Chrysler was a company created in the USA, with the business strategy of the company dictated by the necessity of the flexible approaches and innovations. Daimler Benz was inspired by the features of the German culture – it is characterized by strict hierarchical structure with high diversifications in corporate relations. The merger looked like it was the union of two partners with equal rights, and this was the information that had been presented to the USA public by Daimler. But the fact was that the Chrysler Corporation had been sold. This led to numerous problems that occurred in the company itself, and these problems may partially influence the failure the company faced in 1998 – 2000. The merger that turned out to be a takeover, rather than a unit of two equal partners, aroused protests among the persons related to former Chrysler Corporation. One of the main shareholders of Chrysler Corporation, Kirk Kerkorian, protested against the merger that prevented the equal rights of the companies. Lee A. Iacocca told in his interview about the unsuccessful attempt of the company to call him as the consultant. A part of the staff also rejected to agree to merger and created a web site to post their complaints. A significant part of them suggested that Lee A. Iacocca should be brought back to rule the company.   There were some reasons that made the merger possible. At the moment when the merger has been observed by both companies, it seemed to be profitable for both of them. Robert Eaton in Chrysler Corporation and Jurgen Schrempp, a CEO of Daimler-Benz, decided that each company needs a partner for further successful activity on the market. Chrysler faced financial problems from time to time, remaining financially unstable company. It survived in numerous crises, but it became evident that the company needs a financially stable partner to go on with the successful activity. Daimler-Benz turned out to be a stable company that could bring the Chrysler Corporation to financial security, being one of the largest companies in Germany. But the largest part of its profit the company received from Mercedes-Benz division that produced luxury cars. By this time, a market demand of this type of cars started to decrease, making the financial stability of the company less secure. Thus Daimler faced the necessity of finding a new partner to gain new segments of the market. Except for the reasons, mentioned above, there were one more reason that turned out to be profitable for both partners – the lines of the products produced didn’t cover each other. As it has been said above, both companies seemed to be stable and profitable in the period before the merger, and the future merger was presented by the PR departments in such a manner, that it made the public be sure in future success of the merger. It also made the employees of the both companies believe that the merge would be helpful in gaining the potential and capabilities of the partner company. This was the same reason for stockholders’ approval of the merger. However, the stock prices fell soon after the merger occurred and Chrysler started to lose money and continued losing it during several years. This merger revealed some challenges that disturbed possible success of the matter. One of the major conflicts that occurred within the merger, was the conflict of the cultures, as it is described by Oliver Recklies: “It is widely recognized that cultural diversity between the parties of a merger are one of the most common reasons for failure in mergers. This may happen during pre-merger negotiations or during post-merger integration. Despite all Due Diligence, the two partners of a merger fail to form a new successful unit that is able to exploit all synergies.”( 3) At first, each company came into the merger with its own historical traditions and heritage that couldn’t be merged. Then, the companies had definite differences in corporate relations formed under the influence of national cultures. The business strategies and corporate relations were not restructured in an appropriate manner, because of the differences in the natures of American and German cultures. The companies had opposite tendencies, such as innovativeness and flexibility as the features of the Chrysler Corporation and conservatism and strictly structured management system as the feature of Daimler-Benz. Except for all this, the companies had different notions about important items like travel costs or paying scales. Speaking about the conflict of cultures, it is necessary to mention one more aspect of the problem – the opposition between organization cultures. The notion of the organization culture comprises “the system of values, rules, symbols, taboos and rituals that evolve over time. “ (2). Organization culture offers definite models of the behavior in the internal organization situations, as well as the relation with the environment. “When people join an organization, they are socialized, or taught the procedures and nuances of culture through formal training programs, interactions with mentors and coworkers, and by simply being on the job.  Within a few months, an employee can determine whether they fit in with the organization’s culture. “(2) Organization culture helps an employee to recognize and understand the nature of the internal relations in their dynamics, see the links and knots of the structure network and find out a way to feel comfortable within the corporation. “. Culture is transmitted through stories, heroes, villains, rituals, material symbols and language.  Stories retell significant events in an organization’s history.  They provide keys to what types of behaviors are expected and respected.  Stories anchor the present in the past, explain current practices and identify what the organization values.”( 2). As far as the culture of Chrysler Corporation is concerned, there was a story about Lee Iaccoca and his successful attempts to save the company in the time of crises. That was the reason why many employees dreamed about brining back Lee Iaccoca as the hero who would save the company from the evil that was represented by Dieter Zetsche, a chief executor from Daimler. After the merger Daimler soon began to dominate in the relations between two companies. This led to employee dissatisfaction, decreased the performance within Chrysler Corporation. A significant number of key executives of Chrysler company left the corporation, as well as experienced engineers. This also decreased the performance and aroused dissatisfaction among top managers of the German partner. On the other side, the employees of the Chrysler division expressed growing discontent with the attempts of the Daimler to rule the corporation without referring to the needs of Chrysler division. To make the process of merger smooth and successful, the firms should work out a definite strategy comprising a number of necessary measures that should hold up relations with customers, improve the technologies, watch finance and costs, combine prices of the products, and support corporate relations. They should, but here is the situation described by one of the specialists: “In many deals, however, management's fixation on speed and secrecy causes them to announce plans for the merger or acquisition prematurely, before they can accurately assess the impact on the employees. A surprising number of people reported that their firms either lied outright or, at least, misstated the potential impact of the deal. These firms, apparently in an attempt to keep employees from jumping ship after the M&A announcement, assured everyone that jobs would be safe, when, in fact, the shoe dropped a few months later and significant numbers of employees were let go.”( 4) Daimler-Chrysler faced definite problems, implementing the above-mentioned measures. At first, the staff had been deceived, being told about the merger on the conditions of the equal partnership, that finally turned out to be a takeover, as it has been said above. As a result, the staff of the two companies didn’t receive the equal rights and didn’t place the equal position. Moreover, the culture and business traditions appeared to be useless for a new organization and were omitted by Daimler. The activity of top managers wasn’t designed as to prepare the staff for the future changes, so the process of implementing these changes was slow and painful for the employees. These factors led to the loss of profitability in 1998 – 2002. The case with The Daimler-Chrysler merger shows the necessity to smooth the progress of the process and prepare the staff for the changes. It is very important to understand that the stress and further resistance are obligatory factors accompanying such processes: “For instance, employees in each of the two firms may have reasons to prefer maintaining the “old way of doing things” – possibly because of learning costs, inertia, etc. – and may therefore intentionally resist adopting the other firms’ practices.”(7) The major task of the top managers is to facilitate the influence of the stress and prepare the staff for the situation. Therefore, the CEOs of the company should interfere with the activity of the staff, observe the structural relations in order to decrease resistance and forge new tactics. These tactics may include training, consultations, developing the skills, changes in culture and traditions. The company should create an atmosphere where the staff could satisfy the needs that depend upon the needs of the individuals and make a possibility of getting informed, thus providing successful learning process. As the employers have different needs, the system should be changeable in order to be assimilated to the differences and help people in their learning process. The executives should emphasize the importance of employers’ role in the creating and performing a business strategy of the company. It should also include emphasis on the personal development of each individual and the necessity of getting new information and sharing it with others. For instance, a company that has innovativeness and flexibility as the key directions of the business strategy, like Chrysler Corporation, but engages the employees that came from quite different background, like Daimler-Benz, will soon face the situation with two possible results – a new staff will try to change the existing degree of values or leave the company. In that case the situation should be changed basing upon the links between the subsystems within the organization structure, judging from the strength of the links between the knots. It also may occur that the links between subsystems are weak or completely lost, and the change within the subsystem won’t influence other subsystems. In this case the assimilation won’t happen. When a shift in values driving from commerce-oriented direction to an efficiency-oriented direction occurred in Daimler – Chrysler company, it didn’t touch the system of rewards in the company and the employees were rewarded for selling the product, rather then for its quality. In the case with Chrysler Corporation, various subsystems, including the style of management, culture values, business strategy and developing the skills were influenced by the changes in the company’s possession scheme that led to a decrease of Chrysler competitiveness. As a rule, the largest part of the long directions is corrected within several years, as it happened with Chrysler and it again started to gain benefit in 2002. At last it happened, however, this process must run more quickly and less painful, compared to Chrysler case. Taken For a Ride: How Daimler-Benz Drove Off with Chrysler, a book by Bradley A. Stertz and Bill Vlasic depicts the events that are common known, but these events are shown from the deep inside, with all the peculiarities of the process and hidden motives of the persons involved, describing the complex relations that reveal between players when two corporations merge. Inspite of the fact that the Chrysler company started to receive benefit being a part of Daimler-Chrysler corporation, the authors consider that vitality of one of the most outstanding and successful automaker companies suffers much from the merger occurred. Bradley A. Stertz and Bill Vlasic describe the negative sides of the merger, that linked a German company with its tendencies to regulation and hierarchical structure to a flexible organization of an American company, with its informal style of corporate relations, open-minded discussions and innovativeness. The authors describe the characters of Lee Iacocca and his partner Kirk Kerkorian in an extremely criticizing manner, describing their attempt of takeover of Chrysler corporation in 1995-1996. Another part of the book describes the hidden flows within the merger of two gigantic companies, having contradicting cultures and opposite business strategies. Juergen Schrempp, the CEO of Daimler-Benz, is depicted as a German aggressor, trying to depress an American company. Stertz and Vlasic end up with two conclusions. The first is that the merger wasn’t the merger in its original sense, being a takeover of an American company made by a German company. The other conclusion is that the American society realizes it and is dissatisfied with this fact. Mr. Vlasic says: "Most people we talked to, especially Chrysler workers, say they regret the sale even though 95% of them are not affected,". "There's something about the passing of Chrysler's independence."(10) The careful examination of the merger, uniting the Chrysler Corporation and Daimler-Benz, allows making some advices and recommendations that should be taken into consideration by the CEOs of the company facing the similar challenge. There are some necessary steps that should be taken for successful implementation of the process. They may be divided into two directions – the sphere that deals the human resources and the sphere of cultural integration, which would finally influence the human resources. At first, it is important to keep the staff informed about the present situation within the company, thus getting it involved into the process. It is also necessary to prepare employees to future changes, giving them the necessary information and educating the staff. When forging the strategy that should help the staff to prevent resistance, it is necessary to work out the plans and strategies for employers. The employers should be involved in the process of creating possible alternatives in the business strategy of the company and the possible changes of the direction of the company. The staff should be ready to change the relation within the corporation, to change its structure and the subdivisions, if such changes would be necessary. The CEOs should watch feedback from the employers within the progress of the process. Of course, the major tendencies of the feedback should be considered and used while working out future strategies and business plans. These steps should make the process of the merger more painless, especially in the cases when the staff in concerned. It is necessary to remember that the informed employees suffer less from the stress that the merger causes, so they should realize the nature of the stress and be ready to withstand it. They should be ready to implement new business decisions, combining them with successful old ones. These measures, along with the being informed about pluses and minuses of the matter would protect the employers and make the process easier in the sphere of corporative relations. There are some important observations that should be done for successful cultural integration. The chiefs should forge a plan for future cultural assimilation, stressing the points that would remain the same and the points that could be changed or replaced. Then it is necessary to observe two cultures that will merge. The common items and opposing features should be listed, as they would help to find a common ground to merge the cultures and avoid possible problems in communication. It is also important to clear up the position that the definite cultural phenomenon would place in future corporation. It is necessary to determine the advantages of the culture for its further integration. The next step is to find a common ground between the cultures of the partner companies, which would lead to a future assistance. Basing upon the common items, the executives should forge a plan of creating a new mixed culture that would combine the elements of both cultures of the partner companies. And, at last, the strategy and conclusions should be given to employees in order the staff could prepare for the changes and facilitate the process of merger. Bibliography 1. Danny Hakim (2002).  “Chrysler Is Trying to Leave Its Baggage Behind” New York Times (May 12) Late Edition, Business Section, 3.4. 2. Herbert Sherman,Daniel James Rowley,Barry R. Armandi. Strategic Management :An Organization Change Approach. 3. Oliver Recklies. Mergers and Corporate Culture, Management Portal Publications, 2001 4. Patricia T. Whalen. Correcting common misconceptions about communicating during mergers & acquisitions - Foundation Findings. Communication World, 2002 5. Peter Passell. When mega-mergers are mega-busts. Journal Record, The (Oklahoma City), May, 22, 1998. 6. Robert F. Hartley (2003).  Management Mistakes and Successes.  7th Edition.  New York: John Wiley & Sons. 7. Roberto A. Weber, Colin F. Camerer. Cultural conflict and merger failure: An experimental approach 8. Scott Sleek. Some corporate mergers, like marriages, end up on the rocks. The APA Monitor, July 1998. 9. Scott Miller and Joseph B. White (2002). “Leading the News -- A Global Journal Report: Daimler Chrysler Net Rises 52%; Auto Maker Lifts Forecast for Year” Wall Street Journal (July 19) Eastern Edition, A3 10. Steve Finlay. Looking For Love In The Right Places - AutoNation Inc - Brief Article. Ward's Dealer Business, 2000. Read More