Daimler Organization Culture - Assignment Example

?Introduction In 1998 the German car maker Daimler announced a merger with American car maker Chrysler in a deal that was worth $38 billion, and was,at that time, the largest cross-border deal ever. This merger brought visions of the merged company competing in every facet of the auto market, from $11,000 compact cars to $100,000 Mercedes (DaimlerChrysler Dawns). However, the merger of Daimler and Chrysler auto companies in the late 1990s was a failure almost from the start. There was the issue of the fact that this merger between two giant car companies was to be a “merger of equals,” with one management team governing the company that was made up of both managers from Daimler and Chrysler, but it really turned out to look more like an acquisition, with Daimler acquiring Chrysler (Badrtalei & Bates, 2007, p. 305). Moreover, neither the Americans nor the Germans liked the merger, and it destroyed both companies. Chrysler was faced with falling profits shortly after the merger, which destroyed Chrysler’s market advantage; meanwhile, Daimler was faced with the fact that their products were not as quality as they once were, which destroyed Daimler’s market advantage (Markowitz, 2003). The end result was that the company posted losses almost immediately after merging, and this occurred from the beginning, and Daimler had its biggest loss ever in 2001. The two companies finally de-merged in 2007 (Banal-Estanol & Seldeslachts, 2007, p. 1). Chrysler probably should not have been looking for a merger at this time, however, the CEO of Chrysler, Bob Eaton, felt that the coming years would bring problems for the company for three reasons. First, there was the issue of overcapacity. Chrysler had too much inventory and needed a new market, and wanted inroads into the European market. Two, there was the issue of environmental concerns, which threatened the existence of the internal combustion engine. Three, Eaton saw a retail revolution that would empower buyers (Tuck School of Business at Dartmouth, 2002, p. 1). Daimler was also looking for a partner. It had failed to make inroads into the American market, and was longing for a partner that would help it do so (Tuck School of Business at Dartmouth, 2002, p. 3). Daimler was also vulnerable, in that its company was dominated by one brand, Mercedes-Benz, which made up 95% of its sales. Therefore, it needed to diversify (Golitsinski, 2000, p. 10). A merger of equals proved not to be the case, however, as the German company Daimler insisted that the new merged company be domiciled in Germany, and Daimler CEO Jurgen Schrempp stated that Daimler would never be a junior member of any merger, and that Daimler must take the lead in the merger (Badrtalei & Bates, 2007, p. 309). Moreover, Schrempp never envisioned the company to be anything but a German entity. Finally, there was the issue of the name. While Bob Eaton, the CEO of Chrysler, wanted the name to be Chrysler-Daimler, the German company once again got its way, and the name was Daimler-Chrysler. Thus, Daimler managed to dominate on all the key issues – domicile & name, while still pretending that the merger of the two companies were equal. Later, Bob Eaton was made co-chair of the organization for three years, and this created a huge leadership vacuum in the United States end of the operations (Badrtalei & Bates, 2007, p. 309). Thus, within a year after the merger, many of the key executives from Chrysler had left the merged company and the stock prices for the company plummeted. In the end, however, much of the problem was that the merger involved a clash of cultures. Culture conflict is one of the leading causes of merger failure (Weber & Camerer, 2003, p. 412). The analysis of this problem, with regards to the failed merger of Daimler and Chrysler, will be conducted by using Hofstede’s Cultural Dimensions. These cultural dimensions represent four different ways that countries differ from one another in a fundamental way. The first is individualistic verses collective – some countries emphasize the individual, while others emphasize the power of the collective. The second is power distance – some countries value hierarchies and do not question them, other countries question hierarchies and demand justification for them. The third is masculine verses feminine – in some countries, men dominate and the women are nurturers and caretakers; in other countries, there is more equality between the sexes. The fourth is uncertainty avoidance – some countries have strict rules and little tolerance for deviancy from the rules; other countries are more relaxed and less conformist (Hofstede, 1984). A. Hofstede’s Cultural Dimensions Hofstede’s cultural dimensions will be used as a framework to explain the merger failure between Daimler and Chrysler. Hofstede’s dimensions are widely accepted and have been used in many different contexts to locate certain countries within these dimensions (Steenkamp, 1999, p. 59). Recognizing that culture is important when considering any kinds of relationships, Hofstede found that there are different dimensions of culture that must be taken into account. One is the dichotomy of individualism verses collectivism. An individualistic culture is an “I” culture, and this is a culture were people are individuals and are expected to stand on their own. A collectivist culture, on the other hand, is a “we” culture. In a collectivist culture, people are part of a group, be it a family, clan or in-group, and this group is unquestioningly loyal to the other members of the group (Hofstede, 1984, p. 84). In individualistic cultures, individual concerns are put ahead of group concerns; in collectivist countries, this is just the opposite (Steenkamp, 1999, p. 59). Another dimension is power distance. This is the extent that hierarchies are respected and unquestioned. In a country that has a large power distance, hierarchies are put into place and people do not question them. In a country with a small power distance, hierarchies are not necessarily respected, as people question the hierarchies and there is a greater striving for equality among members. Power inequalities must be explained (Hofstede, 1984, p. 83). This means that the inequalities in society are just as accepted by followers as the leaders (ITIM Intl., 2004, p. 2). The power distance is bred in families, as the families in cultures with large power distances bring up their children to be obedient; families in cultures with smaller power distance bring their children up to have initiative (Hofstede & McCrae, 2004, p. 62). Uncertainty avoidance is another aspect of culture. This is the level that the culture accepts differences and uncertainties. Countries that have a strong uncertainty avoidance are hostile to deviancies, and are rigid in their codes of beliefs. Countries with weak uncertainty avoidance are more relaxed about deviancies, conformity is not necessarily demanded, and codes for beliefs are similarly relaxed (Hofstede, 1984, p. 84). Masculinity and femininity is another cultural dimension. For Hofstede, countries that are masculine are dominated by men, and women take the role of nurturer and caretaker. Women are also submissive to men in masculine countries. Countries that strive for more equality between the sexes, such as countries where there are an equal amount of women in the workforce, striving and achieving, while there are men who take a backseat and are the caregivers, are, for Hofstede, known as feminine countries (Hofstede, 1984, p. 85). Of course, the above analysis presumes a stereotype, which is the basis for criticism of the theories that group countries together by cultural characteristics. For instance, even within a collectivist country, there are members who are individualistic, and vice-versa (Blanchard & Frasson, 2005). Another criticism is that the cultural analysis theories are outdated, and do not take into account the global nature of culture, which presumes that cultures are fluid and amorphous (Wurtz, 2005, p. 4). McSweeney (2002) believes that Hofstede does not prove that that individuals think along the lines of everybody else in their given culture (McSweeney, 2002, p. 112). However, Blanchard & Frasson state that these cultural theories are useful, as they indicate a cultural tendency, not necessarily that every member of the given culture will behave in the same way (Blanchard & Frasson, 2005). Likewise, Wurtz (2005) believes that these cultural theories are useful because prevailing norms are still present throughout cultures, therefore the parameters of the cultural theories should not be abandoned (Wurtz, 2005, p. 4). B. Daimler and Chrysler merger There were many cultural differences that would explain the failure of the Daimler-Chrysler merger. The first deals with the power distance. Daimler had a firm hierarchy in which the executives worked their way to the top through formal channels. On the other hand, the Chrysler company allowed its mid-level managers to proceed up the ladder on the manager’s own initiatives, without waiting for executive approval (Badrtalei & Bates, 2007, p. 310). Moreover, the German company had a more formal way governing, as its executives always wore suits and ties, titles were respected, protocols were formal, and proper names were used. Chrysler, on the other hand, had more of a free-wheeling style, much more informal, the repartee was casual, cross-functional teams were utilized, and barriers were disregarded (Badrtalei & Bates, 2007, p. 309). This shows that the two companies were differing in two different dimensions of the Hofstede cultural analysis – that of power distance and uncertainty avoidance. Daimler showed that it was operating with a great deal of power distance – hierarchies were formed in formal channels, so they were well-respected by the people lower on the hierarchy. Chrysler, on the other hand, seemed to be operating with less of a power distance. Their method of promoting executives was egalitarian, which is one of the hallmarks of a culture with small power distance. Moreover, the adherence to rules shows that Daimler was operating with much more uncertainty avoidance than was Chrysler. Daimler had rigid rules that were to be followed, as shown by their formality. Chrysler, on the other hand, appeared to be operating with a culture that had less uncertainty avoidance and more tolerance for deviancy from the rules, as shown by their more free-wheeling style. Another clash of the cultures involved a kind of snobbery on the part of the German company. One prominent executive exclaimed, publicly, that he would never drive a Chrysler, because his mother had one, and it only lasted 2 ? years. To this public salvo, Chrysler fired back, stating that their cars had better satisfaction ratings than Mercedes-Benz. There was clearly an image problem - whereas Chrysler products appeal to a certain demographic, namely, at that time, a blue-collar demographic, the Mercedes line, which was part of the Daimler auto company, clearly appealed to the upscale (Tuck School of Business at Dartmouth, 2002, p. 5). This could be seen as a clash between the individualistic and collective countries. The United States is an individualistic country, in that the members of the culture see themselves as being individuals and not reliant upon groups. In the United States, it does not take a village to raise a child, so to speak. This is shown by their preference to drive cars that do not necessarily impress other members of society, but, rather, are utilitarian according to their individualistic needs. Since there is not a need to impress members of one’s group, because one is an individual, then cars do not necessarily have to be status symbols in the United States. In Germany, on the other hand, the preference for luxury automobiles such as Mercedes Benzes shows that Germany is arguably more of a collective country than the United States. This is because there is more of a need to impress other members of the collective, as the collective means much more to the individual than in the United States. Thus, their branding differences, which was one of the key reasons why the merger failed, could be seen as the clash between an individualistic culture, the United States, and a collective culture, Germany. While this showed an arguable division between individualism and collectivism, another factor showed the opposite. Daimler’s executives were used to having beer breaks and being able to smoke in the workplace. Chrysler was having none of that. Moreover, Chrysler was very strict about their sexual harassment laws. Daimler not so much – the CEO Schrempp made no secret that he was having an affair with his personal assistant (Golitsinski, 2000, p. 12). What this showed was that, at least with regards to smoking, drinking and sexual harassment, Chrysler was much more collective than Daimler. This is because Chrysler’s policies had clear regard for the good of the collective over the good of the individual. The policies put into place – the ban on smoking in the workplace, the ban on drinking on the job, and the ban on sexual harassment – were designed to protect the collective workplace. On the other hand, Daimler’s policy showed a preference for the individual. If individuals smoked, this harms other individuals, but that was not Daimler’s concern. If individuals drank, they might get behind a wheel and hurt others. This also was not a concern. If sexual harassment rules were not enforced, then members of the collective, mainly the women, would be hurt. This was not a consideration. Therefore, Daimler clearly put the rights of the individual over the rights of the collective. There was another clash along the masculine-feminine dynamic. This was that Daimler announced, after the fact, that the “merger” was really an acquisition, and that it was always intended to be so. Daimler dominated the board seats. High level Chrysler executives left. Daimler still expected that the Chrysler end of the business would hold its own, doing business as it had done in the past. However, with so many Chrysler executives gone, this was impossible to do. Meanwhile, Bob Eaton settled into a kind of apathetic depression, where he was withdrawn, dispassionate and detached. Shrempp urged him to “step up the podium” and act like a co-chair, to no avail (Tuck School of Business at Dartmouth, 2002). Daimler demanded things, instead of seeking cooperation (Jamieson, 2002). Because of this apathy, and the bleeding of Chrysler executives, the Chrysler division stalled, while the Mercedes division “purred along” (Harding, 2007). Chrysler was treated like a “step-child” (Krebs, 2007), and it showed. This is arguably an example of a Daimler taking the role of the masculine culture, while Chrysler was taking the role of the feminine culture. Daimler was clearly the leader in this scenario, although Chrysler thought differently going into the merge. Once the merge happened, Daimler not only stated that it was not a merge, but a takeover, but it also installed into the Board of Directors most of its people. This shows that Daimler was showing the hallmarks of a masculine culture, in that they were taking charge and dominating. On the other hand, Chrysler immediately started showing feminine traits. They were submissive, apparently not fighting back against the power grabs. The CEO of Chrysler virtually checked out a year before he actually retired, which made the Chrysler company even more submissive and even more prone to let Daimler take total control. This allowed one company, the “masculine” company to totally dominate the other company, the “feminine” company, to the point that Chrysler was virtually consumed by Daimler, which completely destroyed and demoralized Chrysler. Although this really showed that both companies were operating under the masculine dynamic as defined by Hofstede, in that one company dominated and the other company allowed it to happen, which is the hallmark of a masculine country, this dichotomy between the companies is what led to its failure. If the overall culture was more “feminine,” in that both companies were more on equal footing, the merger arguably could have worked. C. Suggestions for Improvement The situation with Daimler Chrysler was certainly an example of what not to do. For one, the merger appeared to be poorly researched on the side of Chrysler. Daimler always had the intention of acquiring Chrysler, which means that, far from the merger being equals, Daimler had always intended that the Chrysler company would be wholly consumed by Daimler. This was clear almost from the start. It is difficult to believe that the American company allowed it to happen, but they did, so the first lesson to this is to know what the intentions are of the party with whom one is merging. There must be some concessions and compromises, otherwise it is not a merger, but an acquisition. Therefore, there must be more equalness between the parties to a merger, which would necessitate more of a feminine way of merging, in that the feminine cultures emphasize equality. Moreover, there has to be more of a good fit for the merging companies. Daimler and Chrysler were two different countries with two very different brands. Chrysler emphasized blue-collar values; Daimler emphasized luxury and class. Each of the brands sullied the others, as Daimler felt that being associated with Chrysler made their company seem cheap, while Chrysler apparently allowed this image to stand. This was a clash of an individualistic country, in this regard, verses a collective country, and this was another major error. Mergers should be a better fit then this. Stronger leadership is also needed in any merger. In this case, one company dominated and the other kind of cowered away. This was brute masculinity and strength, running roughshod and taking advantage. Mergers demand two strong leaders, each of whom will not let the other take advantage, and this did not occur in this case. Finally, the two companies did not accord in their power distance structures. The Germans were much more formal and hierarchical, while the Americans were much more free-wheeling and egalitarian. This is a clash that should not happen in a merger, in that both companies who come together should have similar views about hierarchies and power structures. In the end, Chrysler really needed to do more homework before merging. They would have known that this was not a merger but an acquisition, and would have hopefully backed out accordingly. They lacked leadership in the deal, and allowed Daimler to run all over them. For any future merger, this cannot happen – leadership must be strong on both sides, both sides must be a good fit for one another, and hierarchical structures should be similar. Conclusion Using Hofstede’s analysis, the failure of the Daimler Chrysler merger becomes clear. The companies were just too different, and Daimler was just too dominant, for the merger to have ever had a chance to survive. Their power distance was too dissimilar. Daimler proved to be individualistic in many ways, where Chrysler was collectivistic in these ways. In other ways, the companies proved to be opposite, with Daimler showing collectivistic values and Chrysler showing individualistic values on these same dimensions. In short, the two companies never lined up, and this was the merger’s downfall. Sources Used Badrtalei, J. & Bates, D. (2007) “Effect of Organizational Cultures on Mergers and Acquisitions: The Case of DaimlerChrysler.” International Journal of Management 24.2: 303-317. Banal-Estanol, A. & Seldeslachts, J. 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