Daimler-Chrysler Merger: A Cultural Mismatch?



Themes: Mergers Acquisition / Takeovers
Period : 1998-2001
Organization : Daimler Benz Chrysler Corporation
Pub Date : 2001
Countries : India, North America, Europe
Industry : Auto and Ancillaries

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Case Code : BSTR009
Case Length : 07 Pages
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Daimler-Chrysler Merger: A Cultural Mismatch? | Case Study

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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 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, 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 post-marriage 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.

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8] Headquarters of Daimler-Benz.