Two Major Management Culture Differences example essay topic

HURT International Business School Human Resources Andreas C seh November 11, 2003 "We are working within structures of yesterday with today's instruments on strategies for tomorrow - mostly with people, that have created within the cultures of the day before yesterday the structures of yesterday and the most likely won't survive the day beyond tomorrow within their companies". (Prof. Knut Bleacher) On Thursday, May 9th, 1998, Chrysler Corporation and Germany's Daimler-Benz AG formally announced a $36 billion merger, creating a new automotive giant stretching across two continents. The new company, DaimlerChrysler, combined Germany's biggest industrial company with the third-largest U.S. automaker which once used a "Buy American" slogan and which was best-known for Jeeps, minivans and light trucks. If DaimlerChrysler were a country, it would rank 37th in the world in terms of Gross Domestic Product, just behind Austria, but well ahead of six other members of the European Union. "The country flags have come down and the flag of profitability has gone up". (Times) On the day of the merger, DaimlerChrysler was number one worldwide in the premium car segment, world market leader with sport-utility vehicles and minivans, world's largest producer of commercial vehicles, aerospace, financial services, railway systems, automotive electronics, and diesel engines.

DaimlerChrysler's strategy rested on four pillars: Global Presence, Strong Brands, Broad Product Range and Technology Leadership. In the pre-merger planning, both sides, Daimler and Chrysler, considered just the typical merger arguments: o too many companies (competition) o merging can cure overcapacity o size means success o global equals growth None of these arguments had an explicit cross-border element. It was important to agree to the broad terms to make the merger successful. In the article, it said that the parties would have applied the same methods had the deal been between two German or two American companies.

But where were the people behind the story? Germans and Americans- two very different cultures yet cultural differences and its implications were not factored in the discussions. Financial commentators and auto industry analysts screamed: "My God, German engineering and Chrysler design" it can't go good". The merger's designer had a vision, a clear understanding: "one company, one vision, one chairman, two cultures".

(Mr. Hubert) Could this vision be true? Principle-oriented corporate culture meets pragmatic corporate ethics There were two corporations with strongly developed and "lived" corporate cultures, different working styles, different hierarchical orientation, distinctive communicative behavior and last but not least, in different time zones. In 1999, the first year of the merger, the company performed well. Revenues had increased by 14 percent, operating profit had risen 20 percent, 4.9 million passenger cars and commercial vehicles had been sold worldwide, and earnings per share had increased by 11 percent.

However, by 2000, 2 years after Robert J. Eaton, Chairman and CEO of Chrysler Corporation and Juergen E. Schrempp, Chairman of the Daimler-Benz Management Board, as new co-chairmen of DaimlerChrysler, first shared the balcony of the New York Stock Exchange, stock has unexpectedly fallen by more than 40% and market was skeptical about the prospects of the merger. Both Schrempp and Eaton declared earlier that the merger would not mean any plant closures since the two companies do not compete directly in most markets. But ethical behavior is economical behavior in the 21st century and the reason why after two years, DaimlerChrysler beset with problems, began cost-cutting - closing plants and laying-off people. Two sets of problems came to the surface: Chrysler's business background was an ongoing problem.

By the mid-1990's Chrysler had survived near bankruptcy and a failed hostile buy-out. Chrysler's advisor recommended an alliance with a German car manufacturer in order to survive the crisis. That's one reason why on January 12, 1998, Eaton was more then happy to discuss with Schrempp, a possible merger between the two companies. Mr. Eaton worried about the growing overcapacity in the world's automotive industry. "By 2002, he figured, there would be more assembly plants than market demanded, on overcapacity equal to six Chrysler corporations".

(Jon Pepper, News columnist) The merger was a welcome solution without the cross-border elements. But Cross-border problems did surface. Executives faced two major management culture differences; First Chrysler managers received higher salaries than Daimler-Benz managers. As a result, an American manager working in Germany, may have had a much higher salary than his German boss.

Second, Chrysler engineers, designers and marketing people worked together to build and market cars, but a Daimler-Benz, engineers were in charge, and designers and marketing people did not work together as much. There are two different people; Mr. Eaton: - cautious, a reserved former GM manager, buttoned-down instinct Mr. Schrempp - gutsy, earthy, willful leader, first listen than dominate character. The Chrysler approach was: free-wheeling spirit, quick decision, fast response to changes. The Daimler approach: bureaucratic, authoritative, very structured, very centralized. These differences could turn out as a "sure-fire way for disaster" but DaimlerChrysler has formed a powerful automotive council of five senior managers to handle the hundreds of integration projects. What went wrong?

Basically, we can identify two reasons. One was a culture clash, along with an ego clash. The second was management weakness, emanating from the stakeholder variety of capitalism practiced in Germany. Company executives admit now that they greatly underestimated the cultural problems that would form the core of the company's present-day woes.

The DaimlerChrysler managers learned a valuable lesson. Public-accepted product offerings and manufacturing efficiencies are obvious factors in a successful business venture. More importantly, however, is the human factor - the managers who run the business. When that management team is not functioning in perfect harmony, its impact will be reflected in the stock market, adversely affecting per-share value. Present situation. Revenues Employees December 1998 USD 130,064 million 421.168 September 2003 USD 119,543 million 375.213 DIFFERENCE USD +10,521 million -45.955 Source: Daimler Chrysler Interim Report Q 4 1998 and Q 3 2003 The new company was formed with one clear goal, to become the preeminent automotive, transportation and services company in the world.

The merger was equal in terms of financial data, but cultures did not match: German culture is presently the main one, most stock is held in Germany and the company is incorporated under German laws with headquarters in Stuttgart. The website also reflects its German aspect more - straightforward and formal. The conclusion is that Chrysler is now history. Was it really a merger of equals or a planned takeover? In the end, the lesson of DaimlerChrysler's merger may be that cross-border deals are, in essence, the same as all other mergers, only with extra layers of difficulty. So how can DaimlerChrysler ensure that 1 + 1 = 3?

MNE managers should participate in cultural integration programs, aimed at building a bridge between the two cultures and bringing mutual cultural respect between the two groups. The two parties should be educated in and aware of each other's culture in terms of both management and working style. Does the Chrysler-Daimler merger demonstrate the urgent necessity for the working class to develop an international strategy to fight the attacks of globally organized capital? "The first time in mankind's history economic success will no longer depend on technical innovations and raw materials, but on progress with inner-human soft factors". (Leo Nefiodow).