DAIMLER CHRYSLER MERGER

A Project Done Under the Training & Development Block of Human Resource Management

Submitted by:

Nidhi GuptaPallavi Jain

Prashant SoniShivangi MathurYookani Passah

INTRODUCTION

Chrysler Group LLC is a U.S.-based automobile manufacturer headquartered in the Detroit

suburb of Auburn Hills, Michigan. Chrysler was first organized as the Chrysler Corporation in

1925. In the mid-1990s, Chrysler Corporation was the most profitable automotive producer in

the world. All the product sales were at an all time high. The kind of products manufactured

included light trucks, vans, and large sedans.

Chrysler had always fashioned itself as the bold and risk-taking underdog. The company has

gone into bankruptcy four times since the Second World War, and still has been able to come

back and gain its market position and wealth in the market. With $7.5 billion in cash and a full

range of best-selling products, Chrysler finally seemed ready in 1997 to take charge of the

American market without the help of any bail outs for the governments and/or private entity.

After such a remarkable position the company planned to merge with one of the biggest

German companies, Daimler Benz.

Daimler-Benz AG is a German manufacturer of automobiles, motor vehicles, and internal

combustion engines; which was founded in 1926. It is the thirteenth-largest car manufacturer

and second-largest truck manufacturer in the world. In addition to automobiles, Daimler

manufactures buses and provides financial services through its Daimler Financial Services arm.

When Chrysler Corporation and Daimler-Benz announced their merger in the late 1990s, it

caused a whip in the automotive industry. Mergers and acquisitions have occurred in many

poles apart industries, mainly in the 1980s and 1990s, but the automotive industry had not

seen a merger of such large companies based in different countries that had immensely

different corporate cultures.

This merger of Daimler/Chrysler had opened up a wide array of business choices and a way for

both the brands to target global market. By this merger Chrysler had taken its first step to

becoming international. Chrysler considered a joint venture with Daimler to make this

international move and in the initial stages expected each control. What the two companies

had not counted on was the turmoil between the German and American teams. This conflict

has been referred to as “an inevitable cultural and corporate clash”, articles on these issues had

showed the world how different two nations and hence their companies can be.

PERFORMANCE PROBLEM: Culture ClashThe merger deal between the two major giants was a remarkable achievement. There were no

cultural differences there. Although DaimlerChrysler's Post-Merger Integration Team spent

several million dollars on cultural sensitivity workshops for its employees on topics such as

"Sexual Harassment in the American Workplace" and "German Dining Etiquette," the larger rifts

in business practice and management sentiment remain unchanged. Thus, both the brands

were not able to get along due to various reasons of cultural class which include:

James Holden, Chrysler president from September 1999 through November 2000,

described what he saw as the "marrying up, marrying down" phenomenon. "Mercedes,

universally perceived as the fancy, special brand, while Chrysler, Dodge, Plymouth and

Jeep, the poorer, blue collar relations". This statement by him gave fuel to fire and

tensions, arrowed by certain facts that American workers earned appreciably more than

their German counterparts, sometimes four times as much. This was one of the major

problems that arose as a cultural barrier, and this dislike and distrust ran deep, with

some Daimler-Benz executives publicly declaring that they "would never drive a

Chrysler". "My mother drove a Plymouth, and it barely lasted two-and-a-half years,"

commented Mercedes-Benz division chief Jürgen Hubbert to the "Chrysler Head Ousted

in Shakeup," Milwaukee Journal Sentinel.

Another issue that was related to culture arose when Bob Lutz, Chrysler vice-chairman,

pointed out to the Detroit Free Press that "The Jeep Grand Cherokee earned much

higher consumer satisfaction ratings than the Mercedes M-Class". These words spoken

by such important people showed the entire world that there was cultural clash

between Americans and Germans. Both thought they were superior and they are better

than the other. Both tried to humiliate bend one another all the time.

Also there were clashes of union between the two companies as they had different

wage structures, corporate hierarchies and values. At a deeper level, the problem was

specific to this union: Chrysler and Daimler-Benz's brand images were founded upon

diametrically opposite premises.

Cultural clashes were also seen in the approach both the brands took to showcase their

companies. Chrysler's image was one of American excess, and its brand value lay in its

assertiveness and risk-taking cowboy aura, all produced within a cost-controlled atmosphere.

Mercedes-Benz, in contrast, exuded disciplined German engineering coupled with

uncompromising quality.

The merger between these two powerful brands was never a merger of equals, it was always

one trying to control another due to which they never shared the same platform or features.

This created a threat of losing their intrinsic value. Thus the cultural clash seemed to exist as

much between products as it did among employees.

In order to minimize such cultural clashes, it is important to make people aware of the merger

and sensitize them towards the culture of the other company. This can only be done when the

Human Resource Department gives top priority to OD (Organization Development)

intervention.

ORGANIZATION DEVELOPMENT (OD)

OD is a planned, organization-wide effort to increase an organization's effectiveness and

viability. It can be defined as a strategy intended to change the beliefs, attitudes, values, and

structure of an organization, so that they can better adapt to new technologies, markets and

challenges. OD is neither "anything done to better an organization" nor is it "the training

function of the organization"; it is a particular kind of change process designed to bring about a

particular kind of end result.

WHAT IS AN OD INTERVENTION?

A sequence of planned activities, actions, and events intended to help an organization improve

its performance and effectiveness.

TRAINING DESIGNCustomer service, employee retention and growth, doing more with less, quality and

productivity- these are some of the issues affecting DaimlerChrysler and influencing training

practices.

Training refers to a planned effort by a company to facilitate employees’ learning of job related

competencies. These competencies include knowledge, skills or behaviors that are critical for

successful job performance.

For imparting effective training, a training design process must be put into place. The training

design process refers to a systematic approach for developing training programs. The stepd in

training design have been demonstrated in a flow chart.

TRAINING DESIGN PROCESS

Need Assessment The Daimler-Chrysler merger was announced as the “biggest Industrial merger of all time”. The

merger was considered to be the “merger of equals” and was supposed to be very successful.

But in less the two years’ time it became apparent that it was an acquisition rather than a

merger.

The most significant issue was organizational culture. Germans and American styles of

management differed sharply. DaimlerChrysler underestimated the influence of culture.

Following the merger, the stock price fell, its share value had slipped below $40 from a high of

$108. Since the merger, Chrysler’s market share fell from 16.2% to 13.5%.

The Chrysler division, which had been profitable prior to the merger, began losing money

shortly afterwards and was expected to continue to do so for several years. In addition, there

were significant layoffs at Chrysler following the merger that had not been anticipated prior to

the merger. Differences in culture between the two organizations were largely responsible for

this failure.

Operations and management were not successfully integrated as “equals” because of the

entirely different ways in which the Germans and Americans operated: while Daimler-Benz’s

culture stressed a more formal and structured management style, Chrysler favored a more

relaxed, unrestrictive style (to which it owed a large part of its pre merger financial success). In

addition, the two units traditionally held entirely different views on important things like pay

scales and travel expenses.

As a result of these differences and the German unit’s increasing dominance, performance and

employee satisfaction at Chrysler took a steep downturn. There were large numbers of

departures among key Chrysler executives and engineers.

The contrasting cultures and management styles hindered the realization of the synergies.

Daimler-Benz attempted to run Chrysler USA operations in the same way as it would run its

German operations. Daimler-Benz was characterized by methodical decision-making. On the

other hand, the US based Chrysler encouraged creativity. While Chrysler represented American

adaptability and valued efficiency and equal empowerment Daimler-Benz valued a more

traditional respect for hierarchy and centralized decision-making.

These cultural differences soon became noticeable in the daily activities of the company. For

example, Chrysler executives quickly became frustrated with the attention Daimler-Benz

executives gave to trivial matters, such as the shape of a pamphlet sent to employees.

Germans and Americans also had different working styles. The Germans were used to lengthy

reports and extended discussions. On the other hand, the Americans performed little paperwork

and liked to keep their meetings short. Chrysler managers believed in spotting opportunities and

going for them. However, post merger were trapped in the German style of planning by

constantly being told what to do.

Analysts felt that after the merger Chrysler would no longer exist as an entity. In fact Chrysler

was reduced to a mere operating division of DCX. The Daimler-Benz management presence

permeated every important function at Chrysler USA. There was no Chrysler presence on the

DCX supervisory board or the board of management. Chrysler employees still working in the US

operations, were all anxious and demoralized. Daimler-Chrysler has combined nothing beyond

some administrative departments, such as finance and public relations.

Due to the above mentioned gaps between both the organizations, OD intervention has an

important part to play.

Training objectives Training objectives are important to formulate because:

Employees learn best when they understand the objective of the training program

The objective refers to the purpose and expected outcome of training activities

Training objectives based on the training needs analysis help employees understand

why they need the training

Objectives are useful for identifying the types of training outcomes that should be

measured to evaluate a training program’s effectiveness

Based on the need for training, objectives have been formulated, which are as follows:

To make a working system which is flexible and incorporates working styles of both the

companies.

To train Germans in English language and Americans in German language for better

communication among the two companies.

To identify the core teams responsible for leading the development and implementation

of the overall cultural integration strategy.

To become self managed teams, consisting of employees of both companies.

To create the new leadership team which created a shared vision for the organization,

including a common platform for new product development.

Organizing the Training Department

The training department would be organized according to the business embedded model,

where training is not only given to the trainee, but also to his supervisor or manager. This

would create an environment of support and encouragement, thereby increasing the credibility

and result of the training program.

Transfer of Training

Knowledge and skills must be transferred from the trainer to the trainee effectively, in order to

make the training program a success. For this, it is important to use the appropriate techniques

for transfer of training.

For the particular case of DaimlerChrysler merger, the theory of identical elements must be

used as cultural differences can only be learnt by actually being a part of the culture clash

situation, so as to understand them better, rather than learning theory concepts, which may

not even be in practice anymore.

In addition, stimulus generalization theory may also be used so that trainees can apply general

concepts and reactions to various situations.

Developing an Evaluation Plan

Before the training program is implemented, it is important to develop an evaluation plan so

that it coincides with the learning objectives and the evaluation methods effectively measure

learning outcomes.

Keeping the need for training and the learning objectives in mind, a formative approach

to evaluation would be taken where evaluation of training would take place during

program design and development. This would help provide information about how to

make the program better.

Pilot-testing may be done to preview the training program with potential trainees and

managers or with other customers.

The method that would be most effective for evaluation purposes would be

pre-test/post-test with comparison, where not only will the trainees be evaluated both

times (i.e., before and after the test) but they would also be compared against a control

group (to whom training would not be given). Here Solomon four group model may not

be used as, although the company has a good budget, there is paucity of time during

merger proceedings. Hence, training programs over a period of time may not be

possible.

The pre and post-testing process would include MBTI (Myers-Briggs Type Indicator®) test where

employees would be assessed on the basis of communication, motivation, teamwork, work

styles and leadership skills.

Training Methods Recommended

DCX invested approximately seven million dollars on conduction workshops on cultural

sensitivity, but it did not pay off due to unplanned programs and neglected due diligence. In

order to resolve the cultural clashes between two giants of the automobile industry we as a

group would like to give some suggestions to help in elimination the cultural issues for merger

which it was suppose to be.

Differences in the two organizational cultures can lead to competition between employee

groups and hostile ‘we-they’ attitudes. During mergers the top management should try to avoid

this situation by carefully mixing employees as much as possible at all organizational levels.

When combining departments, functional counterparts should not be placed in subordinate

and supervisory relationships. Both organizations, the acquiring and the acquired, will have

unique and beneficial cultural elements. Rather than imposing one organization’s cultural

elements on the other, ‘the best of both companies can be integrated into a common culture

for the new organization’. Below are few implementations which can bring success to merger

issues.

Ice breaking session: The first step to reduce the cultural differences of DCX is through

an implementation of ice breaking session. The following are the two different kind of

ice breaking session which can be use:

o Birth Order – All participants can take part and this would take only 15minutes.

Put one of the following signs in each room corner: only child, oldest child,

youngest child, middle child. Have participants go to the appropriate corner of

the room based on their own birth order position. When every one is assembled,

ask them to discuss what special characteristics their birth order has and how it

is reflected in their choice of job. Assign a recorder based on some criteria (i.e. a

person who was born the farthest from the meeting site, person who has been

with the company the longest/shortest/tallest etc.) have groups report back.

This ice breaker gets people moving and interacting with a larger group. This will

help in an Integration of both the German’s and American’s culture.

o 4C’s: This ice breaker would take 15 minutes. Each person writes down in an

index card his/her favorite: color, cuisine, country to visit and closest dream. The

cards are shuffled and redistributed. Each person reads aloud the card they

picked up and each person guesses on writing who wrote it. At the end see who

gets the most correct responses. This ice breaker is an easy way to get people

talking and mingling more with each other. It allows the team member to see

what they have in common.

Grievance handling session: This session will help in identifying the forms and causes of

grievances of DCX’s employees. An effective human resource professional should handle

the grievance in such a way, which causes minimum loss to either the employee or the

company and holds to the focus on performance orientation. They should be fair in their

conduct while tending the complaint and foster a positive environment which is suitable

for not only the firm’s growth but also individual’s professional and most importantly

mental growth. Maintaining a positive rapport with the labor is the key to relationship

building.

Counseling: It is really important to guide, console, advice and help DCX to resolve its

problems and issues. This could be done by counseling on an individual basis to help

employees overcome merger stress and fear and to suggest coping strategies may help

alleviate negative reactions. It provides help and support to the employees to face and

sail through the difficult times at work place. This would also help in better decision

making and understand the situations and look at them with a new perspective and

positive outlook.

Focus group discussions (top management): This is a rapid assessment, semi structured‐

data gathering method in which a purposively selected set of participants (i.e. the top

management) gathers to discuss issues and concerns based on a list of key themes drawn

up by the facilitator. Through this discussion they can produces data and insights that

would be less accessible without interaction found in a group setting—listening to others’

verbalized experiences stimulates memories, ideas, and experiences in participants. This

would help DCX to actually integrate its culture.