Strategic Management (BUSS 1009)–Spring19-CW1- QP

Strategic Management (BUSS 1009)–Spring19-CW1- QP

Learning Outcome:
? Explain the differing perspectives and theories that contribute to the processes of strategic
management within different contexts. (e.g. large/small organisations), critiquing
assumptions and limitations of existing theories and paradigms.
Daimler-Chrysler Merger: A Cultural Mismatch?
Introduction
In May, 1998, Daimler-Benz1 and Chrysler Corporation, 2
two of the world’s leading car
manufacturers, agreed to combine their businesses in what they claimed to be a “merger of
equals.” The DaimlerChrysler (DCX) merger took approximately one year to finalize. The process
began when Jurgen Schrempp3 and Robert Eaton4 met to discuss the possible merger on January
18, 1998. After receiving approval from a number of groups, the merger was completed on
November 12, 1998.
Individual Assignment – Case Study SPRING 2019
Module: Strategic Management (BUSS 1009) Level: 6
Max. Marks: 100 Duration: 4 weeks
Strategic Management (BUSS 1009)–Spring19-CW1- QP
BUSS 1009– Fall – 16–CW 1- QP
The merger resulted in a large automobile company; ranked third5
in the world in terms of
revenues, market capitalization and earnings, and fifth6
in the number of units (passenger-cars and
commercial vehicles combined) sold. DCX generated revenues of $155.3 billion and sold 4 million
cars and trucks in 1998. Schrempp and Eaton jointly led the merged entity, as co-chairmen and coCEOs. DCX sources were confident that the new company was well poised to exploit the growth
opportunities offered by the global automotive market in terms of geographical and product
segment coverage.
However, analysts felt that to make the merger a success, several important issues needed to be
addressed. The most significant of these was organizational culture. German and American styles of
management differed sharply. A cultural clash would be a major hurdle to the realization of the
synergies identified before the merger. To minimize this clash of cultures, Schrempp decided to
allow both groups to maintain their existing cultures.
The former Chrysler group was given autonomy to manufacture mass-market cars and trucks, while
the Germans continued to build luxury Mercedes. However, analysts felt that this strategy wouldn’t
last long. When Chrysler performed badly in 2000, 7
its American president, James P Holden, was
replaced with Dieter Zetsche from Germany. Analysts felt that Zetsche would impose Daimler’s
culture on its American counterpart. A few senior Chrysler executives had already left and more
German executives were joining Chrysler at senior positions.
In an interview to the Financial Times in early 1999, Schrempp admitted that the DCX deal was
never really intended to be a merger of equals and claimed that Daimler-Benz had acquired
Chrysler. Analysts felt that this statement probably wouldn’t help the merger process.
Clash of Cultures
DCX’s success depended on integrating two starkly different corporate cultures. “If they can’t create
a climate of learning from each other,” warned Ulrich Steger, a management professor at IMD, the
Lausanne business school, “they could be heading for an unbelievable catastrophe.” Daimler-Benz
was characterized by methodical decision-making while Chrysler encouraged creativity. Chrysler
was the very symbol of American adaptability and resilience. Chrysler valued efficiency,
empowerment, and fairly egalitarian relations among staff; whereas Daimler-Benz seemed to value
respect for authority, bureaucratic precision, and centralized decision-making. These cultural
differences soon became manifest 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. Daimler-Benz executives were equally
perplexed when Eaton showed his emotions with tears in a speech to other executives. Chrysler was
Strategic Management (BUSS 1009)–Spring19-CW1- QP
BUSS 1009– Fall – 16–CW 1- QP
one of the leanest and nimblest car companies in the world; while Daimler-Benz had long
represented the epitome of German industrial might (its Mercedes cars were arguably the best
example of German quality and engineering).
Another key issue at DCX was the differences in pay structures between the two pre-merger entities.
Germans disliked huge pay disparities and were unlikely to accept any steep revision of top
management salaries. But American CEOs were rewarded handsomely: Eaton earned a total
compensation of $10.9 million in 1997. Complications would arise if an American manager posted at
Stuttgart8 ended up reporting to a German manager who was earning half his salary. Chrysler could
cut pay only at the risk of losing its talented managers. Schrempp mooted the idea of overcoming
the problem through a low basic salary and high performance-based bonus, unlike anything seen in
Europe. Base pay would be lower than what Germans were used to, but the pay structure would
have more variables such as stock options (an American feature).
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. Americans favored fast-paced trial-and-error experimentation,
whereas Germans drew up painstakingly detailed plans and implemented them precisely. In general,
the Germans perceived the Americans as “chaotic” while the Americans felt that the Germans were
stubborn “militarists.”
Chrysler managers believed in spotting opportunities and going for them. However, post-merger,
they were trapped in the German style of planning, constantly being told what to do. Steve Harris,
Chrysler’s former communications chief (who defected to General Motors) commented, “The
Germans played literally by the book—theirs. You’d go into a meeting and have to turn to Volume 7,
Section 42, and page 597.” The Germans prided themselves on analytical research that produced a
plan, while the Americans reached for the impossible and kept coming up with new ideas to achieve
these “impossible” goals.
Before the merger, Daimler-Benz was known for its top-down management approach. Chrysler, by
contrast, seemed to be a humble collection of colorful consensus managers. DCX claimed that the
merger process would be complete in twelve months. However, analysts felt that the authoritarian
German management methods would prove foreign to the non-hierarchical style at Chrysler making
the integration of the two cultures difficult. From the start, the cultural differences made DCX’s postmarriage period of adjustment difficult. No sooner was the merger announced; Schrempp started
issuing reams of organizational flow charts to the employees. Every phase was given titles like
“synergy tracking;” and every group had its weekly meeting schedule. DCX also set up a “post-merger
integration” (PMI) structure in which 12 “issue-resolution teams” were assigned to push and cajole
their counterparts into combining everything from supplies to research. Every time there was
disagreement, the integration process for that group was halted until a solution was found.
Strategic Management (BUSS 1009)–Spring19-CW1- QP
BUSS 1009– Fall – 16–CW 1- QP
Attempts to Bridge the Chasm
DCX took several initiatives to bring the two cultures closer. Press reports indicated that in Stuttgart,
the more formal Germans were experimenting with casual dress. The Germans were also taking
classes on cultural awareness. The Americans at DCX were encouraged to make more specific plans,
while the Germans were urged to experiment more freely.
Analysts felt that there were many indications that the Americans and the Germans might come
closer. The Americans were impressed by their German counterparts’ skill with the English language
(though they tried to cut down on slang to simplify speech when the Germans were in town). To
reciprocate, many Americans were taking lessons in German. When the DCX stock began trading on
November 17, 1998, German workers celebrated with American-style cheerleaders, a countrywestern band called The Hillbillies, doughnuts and corn on the cob. At a Detroit piano bar, the
Americans were taken by surprise when they came to know that the Germans knew the lyrics of old
rock-and-roll songs.
Daimler’s Hegemony
In 2000, there was a management exodus at Chrysler headquarters in Detroit: two successive
Chrysler presidents, James Holden (Holden) and Thomas Stallkamp (Stallkamp), both American,
were fired. Holden was fired after only seven months in the position. Stallkamp replaced Holden
and was forced to resign after only twelve months as CEO. Unreal as it might seem, two highly
regarded Chrysler executives were fired from their CEO positions in the space of 19 months.
Zatsche, the newly appointed CEO of Chrysler USA, was a Daimler executive and a close confidant
of Schrempp. He, in turn, appointed Wolfgang Bernhard, another Daimler executive, as COO.
Neither had any real exposure to the US marketplace. This turn of events demoralized Chrysler’s
workers. According to an employee, most of the workers were disgusted and frustrated because
they felt they were being punished. The employees were expecting big layoffs, and were worried
that the company would be sold out.
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. By the end of 2000, there were only
128,000 Chrysler employees still working in the US operations, all anxious and demoralized. ExChrysler managers felt that Daimler-Benz was steadily leading Chrysler into a state of chaos.
Schrempp himself said that he never intended the merger be one of equals. He openly
acknowledged that if Daimler-Benz’s real intentions were publicly known before the merger, there
would have been no deal. However, in a press interview, Schrempp largely retracted his statements
Strategic Management (BUSS 1009)–Spring19-CW1- QP
BUSS 1009– Fall – 16–CW 1- QP
by saying that if the strategy were to take over Chrysler, Daimler would never have included them
in the name of the new corporate entity. Analysts felt that these contradictory statements had
severely tarnished Schrempp’s image, both in Germany and the US.
Given these chaotic circumstances, Chrysler reported a third quarter loss of $512 million for the
period ending September 30, 2000; and its share value slipped below $40 from a high of $108 in
January 1999.
DCX in Trouble
Analysts were of the opinion that DCX should eliminate between 20,000 and 40,000 jobs at
its North American Chrysler division and permanently close at least one of its 13 plants in the US
and Canada because of huge financial losses in 2000. After third quarter losses of more than half a
billion dollars, and projections of even higher losses in the fourth quarter and into 2001, Schrempp
told employees that Chrysler had only 13.5% of the US market, but it was staffed as if it had a 20%
share.
In early 2001, DCX announced that it would slash 26,000 jobs at its ailing Chrysler division. “No one
wants this to happen. I personally wish it didn’t have to happen,” said Zetsche. He called the moves
painful but necessary in the face of “brutal” competition and low US sales. Zetsche said a large part
of the job cutting would be through retirement programs, layoffs, attrition and other programs.
About three-quarters of the job cuts would be made in 2001, he said. In addition, production would
be curbed at factories in Canada and four states in the US by slowing assembly lines and trimming
the number of shifts.
However, analysts interpreted this move as a failure of the German and American automakers to live
up to their promise. One of them said, “Instead of making the billions of dollars in cost savings and
synergies at the time of the merger, they’re making desperate cuts to get Chrysler back in the black.”
Why the Merger Failed to Realize the Synergies
Analysts felt that strategically, the merger made good business sense. But opposing cultures and
management styles proved to be a hindrance to the realization of the synergies. Daimler-Benz
attempted to run Chrysler USA operations in the same way as it would run its German operations.
This approach was doomed to failure. In September, 2001, Business Week wrote, “The merger has
so far fallen disastrously short of the goal. Distrust between Auburn Hills and Stuttgart has made
cooperation on even the simplest of matters difficult. Coming to terms with issues like which parts
Mercedes-Benz would share with Chrysler was almost impossible. The Germans and the Americans
had been out of sync from the start. The two proud management teams resisted working together,
were wary of change and weren’t willing to compromise. Daimler-Chrysler has combined nothing
beyond some administrative departments, such as finance and public relations.”
Strategic Management (BUSS 1009)–Spring19-CW1- QP
BUSS 1009– Fall – 16–CW 1- QP
1] Daimler-Benz was formed with the merger of two German automobile manufacturers:
Mannheim based Benz & Co. and the Stuttgart-based Daimler Motor Company (DMC) in 1926.
2] The US based Chrysler was a major automobile manufacturer with headquarters at Auburn Hills.
3] CEO of Daimler-Benz.
4] Chairman and CEO of Chrysler Corporation.
5] After General Motors and Ford Motor Company.
6] After General Motors, Ford, Toyota and Volkswagen.
7] Chrysler reported a third quarter loss of $512 million for the period ending September 30, 2000.
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%.
Tasks:
Question One:
Discuss the emergent versus deliberate strategic management perspectives; illustrating from
the case context the key differences in this approaches.
(25 marks)
Question Two
(a) Using the above case scenario, discuss the strategic reasons and rationale for
mergers and acquisitions.
(20 marks)
(b) Discuss the likely problems with mergers as a means of external growth.
(15 marks)

Question Three
Using the Hofstede Cultural Dimensions’ Theory, examine the position of the merger and
provide a comparison of the two organizations as appropriate, highlighting points of difference.
(40 marks)
Instructions for the Individual Report (100 marks):
Strategic Management (BUSS 1009)–Spring19-CW1- QP
BUSS 1009– Fall – 16–CW 1- QP
1. For the assignment students are expected to use secondary sources and provide appropriate
references.
2. Total words count – 2000 -2500 words for the entire task.
3. The report should contain:
? cover page, which indicates title, names of students, name of instructor and date and
place of submission (students can use provided template);
? table of contents;
? introduction, which discloses the main goal and objectives of the tasks, the main
methods and data used for the task, briefly describes structure of the report;
? discussion, which discloses description and analysis of main issues investigated during
the task
? Conclusion
4. The report should be done in Word, font size 12, font style Times New Roman, text color
black, colors can be used ONLY in appendices; main body of the report should be black and
white. Only word format is accepted and should be submitted. Submission of other format is
not allowed.
Penalties for late Submission:
Please note that 10% will be deducted from your assignment mark for each day (including
weekends) that your assignment is late. Assignment handed in late will not be graded as
per the institutions policy.
Examination(s) Weightage:
? Course Work Two : Individual Assignment
Weighting: 40%
Learning resources:
As provided in the Module Information Guide (See prescribed readings as well)
Feedback to students:
Types of feedback you can expect to receive in this unit are:
? Informal feedback on progress in class
? Graded assignments with comments via Moodle
? Other: General feedback to the whole class; Verbal comments in tutorials; Individual
feedback can be sought from the lecturer/tutor during consultation times.
Referencing requirements
Strategic Management (BUSS 1009)–Spring19-CW1- QP
BUSS 1009– Fall – 16–CW 1- QP
? Referencing of the assignments is expected, with evidence of citations and
readings using the Harvard referencing style. You must provide properly
referenced and evidenced answers to this assignment which relates to the
concepts and models used as a strategist and in the management of an
organisation to earn higher grades.
Assignment submission
? Assignments must be submitted via the Moodle (Turnitin link) created online at
the date and time specified.
5. Plagiarism Policy. Plagiarized documents, in part or whole, submitted by the students will
be rejected. As per MEC policy, any form of violation of academic integrity will invite severe
penalty. Plagiarized documents, in part or in whole, submitted by the students will be subject
to this policy.
A. First offence of plagiarism
a. A student will be allowed to re-submit the assignment once, within a maximum period of
one week. However, a penalty of deduction of 25% of the marks obtained for the resubmitted
work will be imposed.
b. Mark deduction: When the work is resubmitted, the marking will be undertaken according
to the marking criteria. In compliance with this policy, the 25% deduction is then made on the
marks obtained. For example, in an assessment that carries a maximum of 50 marks, suppose
a student were to obtain 30 marks for the resubmitted work, the final marks for that
assessment will be 22.5 (after deducting 25% of the marks actually obtained for the
resubmitted work).
c. Period of resubmission: The student will have to resubmit the work one week from the date
he or she is advised to resubmit. For example, if the formal advice to resubmit was
communicated to the student on a Sunday (latest by 5 pm), the student will have to resubmit
the work latest by next Sunday 5 pm.
d. If the re-submitted work is also detected to be plagiarized, then the work will be awarded a
zero.
e. Resubmission of the work beyond the maximum period of one week will not be accepted
and the work will be awarded a zero.
B. Any further offence of plagiarism
Strategic Management (BUSS 1009)–Spring19-CW1- QP
BUSS 1009– Fall – 16–CW 1- QP
a. If any student is again caught in an act of plagiarism during his/her course of study (either
in the same module, same semester or in any other semester), the student will directly be
awarded zero for the work in which plagiarism is detected. In such cases, the student will not
be allowed to re-submit the work.
C. Guidelines
a. Type 1: In case plagiarism is detected in any component or part submission (submitted at
different times) of one assessment (assignment), the deduction in marks will be applicable for
the whole assessment (assignment), even if only the component or part submission alone
needs to be resubmitted.
b. Type 2: In case plagiarism is detected in a group assessment, all students of the group will
be considered as having committed an act of plagiarism irrespective of whether plagiarism is
on account of the act of all or a few or only one member. The policy will then be applied to all
students.
c. Type 3: Combination of Type 1 and Type 2: In case plagiarism is detected in any component
or part submission (submitted at different times) of a group assessment (assignment), the
deduction in marks will be applicable for the whole assessment (assignment), even if only the
component or part submission alone needs to be resubmitted. All students of the group would
be considered as having committed an act of plagiarism irrespective of whether plagiarism is
on account of the act of all or a few or only one member. The policy will then be applied to all
the students of the group.
d. Type 4: Variation of Type 1 and Type 2: In cases where the assessment consists of
components or part submissions that could be a group assessment component (e.g. group
assignment) and an individual assessment component (e.g. individual reflection), the following
will be applicable:
1. If plagiarism is detected in the group assessment component, all students of the group will
be considered as having committed an act of plagiarism, irrespective of whether plagiarism is
on account of the act of all or a few or only one member. The policy will then be applied to all
students of the group. In such cases the group assessment component will be resubmitted as
per the policy.
2. If plagiarism is detected in the individual assessment component, the individual assessment
component will be resubmitted as per the policy. The policy will then be applied to that
student alone.
3. In both cases (a) and/or (b), the deduction in marks will be applicable for the whole
assessment (assignment).
D. Amount of similar material
Strategic Management (BUSS 1009)–Spring19-CW1- QP
BUSS 1009– Fall – 16–CW 1- QP
a. The total amount of similar material in any form of student work from all sources put
together should not exceed 30% (including direct quotations).
b. The total amount of quoted material (direct quotations) in any form of student work from
all sources put together should not exceed 10%.
c. The total amount of similar material in any form of student work from a single source should
not exceed 7 percent. However, cases having a similarity of less than 7 percent in such cases
may still be investigated by the faculty depending on the seriousness of the case.
d. If faculty member finds enough merit in the case of a student work with a similarity (with a
single source) of more than 7 percent as not a case of plagiarism, the faculty member should
provide detailed comments/remarks to justify the case.