Wednesday, December 23, 2015

Module Name: Cross Culture Management


OPEN UNIVERSITY MALAYSIA
FACULTY OF BUSINESS AND MANAGEMENT
BBSB 4103
CROSS CULTURE MANAGEMENT


Name: Adam Khaleel


Lecturer: Fathmath Muaza
Learning Centre: Villa College



Trimester:  January 2013
Contents

Executive Summary

Today’s economy is becoming more and more affected by the continuously increasing globalization. Due to the globalization of the markets businesses face strong competition, rising cost and the need to adapt business processes at multinational level. Meantime, more cross-border mergers and acquisitions are increasing. Therefore merger and acquisition of two organizations from different cultures is not an easy task in this globalized world (Hollmann, Carpes & Beuron, 2010).  
The purpose of this report is to develop student’s ability to analyze a case on corporate culture and make appropriate recommendations. This report mainly will analyze the Daimler-Chrysler merger case in the context of corporate culture.
The first part of this report will give a detailed introduction on merger or acquisition of DaimlerChrysler AG including how the merger has taken place.
The second part of the report will analyze the corporate culture similarities and differences between the two organizations. In addition to this, the two nations’ culture is analyzed by using Hofstede's Dimensions of Culture graph. Also, the two business models are discussed.
The third part of the report will give a clear discussion on the issues faced in the context of organizational culture analysis with explanation on each aspect.
The fourth part of the report will talk about the recommendations by using theories on how the merger can be managed to achieve the strategic objectives.The final part will give a summary of the whole report and my personal opinion about this merger.

Introduction

Introduction on Merger and Acquisition

Daimler-Benz was a famous German car manufacturer founded in 1926. Daimler-Benz was a well-established company in the German and European car industry. Cars of the Daimler-Benz brand represent cars of the luxury sector. Prior to the merger with the Chrysler Corporation, Daimler-Benz’ market share of the U.S. market was less than 1%. Their work power throughout its production processes was high in order to maintain the high quality and did not allow Daimler-Benz to become competitive on the difficult American market (Hollmann, Carpes & Beuron, 2010).  
On the other hand, Chrysler Corporation was also a well-established firm in the U.S. market. Chrysler was successful in producing car models that responded to the American demand with new invention. In1997, the Chrysler’s market share of the America car industry was about 23%. After World War II, Chrysler had faced bankruptcy four times but it succeeded in defending itself from the competition. The company had efficient production process and low costs in product design and product development. As a result, in 1990’s it was considered as world’s most profitable car manufacturer (Hollmann, Carpes & Beuron, 2010).  
In these days, Daimler-Benz also had faced the same challenges faced by Chrysler in the international market for passenger cars. So that, these two companies had to manage the challenges faced due to overcapacities and the strengthened position of the customers. In addition to overcoming the difficulties faced, the German car manufacturer Daimler-Benz planned to strengthen its position in the U.S. market. Hence, from the view of Daimler-Benz, the merger with Chrysler would be very favorable and they wanted to get a vital competitive advantage for the future. Chrysler was considered the best business for this deal because of the yearly revenues, the high efficiency and the low costs in product design.
Once decided to merge, these two companies shared the goal of becoming the leader in the world’s car industry. Within a ‘merger of equals’ they aimed to reach this goal by combining their different knowledge, their different work processes and their completely different organizational cultures in order to make use of shared distribution channels, to draw on shared technologies and to take advantage of the combined knowledge (Hollmann, Carpes & Beuron, 2010).  
For the developments in the car industry mentioned and the other good reasons, the two companies entered into negotiations over a possible merger in January 1998. On 7th May, 1998 the two chief executives Robert J. Eaton, CEO of the Chrysler Corporation at times, and Jürgen E. Schrempp, former CEO of Daimler-Benz, declared the merger of these two car producers. The DaimlerChrysler AG was become the world’s third biggest car manufacturer. None of the two companies needed to take over the other one but they want to make use of the strengths of the two companies involved and to be strong together (Hollmann, Carpes & Beuron, 2010).  
They did the post-merger integration during their merger process. However, they worked with the original culture as a result the cultural clash had arisen inside the integration process. Meantime, they did not go with transformation phases successfully because none of them were willing to understand each other’s cultures (Hollmann, Carpes & Beuron, 2010).  

Analysis of corporate culture

The two organizational cultures of Daimler-Benz and Chrysler Corporation were too different to be integrated successfully because they were based on basically different values and morals that came to light in the day-today work (Hollmann, Carpes & Beuron, 2010).  
National culture comparison by Hofstede's Dimensions of Culture
 
(The Hofstede Centre, n.d.).

Similarities

According to Hofstede’s dimensions Germany and the United States are rather similar. They have low power distance which shows that both nations value equality. Although there is difference among them, their high levels of individualism indicate that both cultures pursue individual results. Germany and the United States are also both masculine cultures who focus on the material things in their lives. The both nations try to see quick results and prefer determination. Gesteland characterized both nations as being deal-focused cultures. They are also monochromic time cultures as well as both cultures prefer direct communication. Long-term orientation of both countries is almost same which means that both culture focus on traditions and fulfilling social obligations (Roy-Bonde, & Olsen, 2008).

Differences

The Germans and American differ in terms of uncertainty avoidance. The Americans tend to welcome change but the Germans make rules and regulations in order to avoid surprises and prefer knowing what lies ahead. Americans are the fastest decision makers in the world but Germans tend to take their time when it comes to decision-making. This could lead to the Germans regarding the American as being careless in their dealings. Germans are formal and the Americans are informal. There might situations where Germans would consider the Americans rude in their general manner. Germans are quite reserved but the Americans are moderately expressive (Roy-Bonde, & Olsen, 2008).

Corporate culture comparison

Similarities

Although the similarities are less, the two businesses seemed to be quite similar. They look alike, the way of talking is similar, they both focus on the same things and their English is impeccable. They both manufacture cars and they have similar professions in terms of people and technology (Hollmann, Carpes & Beuron, 2010).  

Differences

The two parties involved did not seem to be all that different but soon the existing differences became obvious in the daily work. Firstly, Decision making in Daimler-Benz was very methodical but in Chrysler it was creative in the decision making process which was strongly encouraged (Hollmann, Carpes & Beuron, 2010).  
Secondly, Chrysler’s values were efficient, employees are empowered and equal rights are given among all staff. However, Daimler-Benz’ culture is more based on authority, bureaucracy and centralized decision making (Hollmann, Carpes & Beuron, 2010).  
Thirdly, American managers received very high pay packages than German company. So that, DaimlerChrysler’s management proposed two compensation structures as a solution to the problems, by fixing very low base salaries and complemented by high performance-based incentives (Hollmann, Carpes & Beuron, 2010).  
Fourthly, German and Americans employees working methods are very different. German have a lot of red tape and but Americans have no red tape. The German have more excessive bureaucracy or adherence to rules and formalities in the organization but in Americans have fewer formalities (Hollmann, Carpes & Beuron, 2010).    
Fifthly, the Americans preferred the trial and- error-method to come to a solution and that is why they thought to be very disorganized but the Germans preferred to develop detailed plans and the precise implementation of these plans (Hollmann, Carpes & Beuron, 2010).   
Sixthly, Chrysler’s management is flat hierarchies, which causes incomprehension among the Germans and Germans prefer the tall hierarchies. The flat structure has fewer layers but in tall structure has more layers (Hollmann, Carpes & Beuron, 2010).  
Due to these differences in the organizational cultures, the integration process in DaimlerChrysler failed. These differences are from their different organizational models applied in these companies (Hollmann, Carpes & Beuron, 2010).  

American Model

The Americans are very individualistic and feel themselves responsible for themselves instead of relying on others in reaching a goal. Moreover the Americans are very pragmatic and work efficient. Americans are used to face strong competition and in a free market economy everyone is responsible for his or her own economic survival. The Chrysler’s culture is relaxed, informal, flexible, risk taking, free form. Meantime, their structure has top down management, lean staff, highly centralized and team work (Hollmann, Carpes & Beuron, 2010).   

German Model

There is greater power distance in German businesses organizational model. The Germans are less individualistic and think more team-oriented. The decision-making process is based on very detailed plans. The Daimler’s culture is formal, traditional, mannerly and bureaucratic. Meantime, their structure has high authority, strong hierarchy and little payment disparity (Hollmann, Carpes & Beuron, 2010).  

Discussion on the issues

There were unclear roles and guidelines in the organization about the responsibility because it is part of the German business culture to give “commands” instead of discussing with lower-levels. The organizational structure emerged through the German “decision-making process” but processes in the new Chrysler unit were not actually controlled. Hence wrong management decisions kept undiscovered until Chrysler had to report massive losses (Laufhütte, 2003).  
The research and development departments were still separated and the integration meetings wasted a lot of time. When Chrysler managers noticed that they were only a business unit of the German DaimlerChrysler and Stallkamp, the change agent, was fired, talented executives left and started working for competitors (Laufhütte, 2003).  
The both companies favored totally different communication styles. There were no influence on American employees but they are forced to adopt German decisions. Meantime Stallkamp was fired without any reason and Chryslers’ employees became insecure (Laufhütte, 2003).  
Even though DaimlerChrysler's Post-Merger Integration Team spent large sum of money on cultural awareness workshops for its employees on topics such as "Sexual Harassment in the American Workplace" and "German Dining Etiquette," were the larger gaps in their business practice and management style remained same (Prof. Finkelstein, 2002).
The original merger prospect agreed on the new business would be named Chrysler-Daimler-Benz but Schrempp argued that he would not be able to present this name to his own board. However, the company was named DaimlerChrysler dropping out the Benz part. It was agreed that Chrysler would have one extra board member when Schrempp retired as compensation (Roy-Bonde, & Olsen, 2008).
There were mutual misunderstandings within this new organization. For instance, the American made a clear distinction between private and professional lives for which Germans felt offended. Americans never stay at work late in order to socialize with their new transatlantic colleagues. They never invite colleagues at home which Americans would take as “a major cultural violation” (Shevchuk, & Makhlouk, 2008).  
The Chrysler’s freewheeling culture was an issue for the Germans. They would call each other by their Christian names while the titles represented academic distinction in the German culture. Moreover, several persons from the American side felt themselves victim of racial discrimination due to some German jokes just because of a “touch on the shoulder”.
The documentation of every meeting was an issue by Germans but American work with each other quickly and they do not compile the minute of the conversations. Due to this, the former Chrysler executives found themselves involved in decisions that they had not realized they had taken. They would not be aware that they have reached a critical point in the discussion so that the decision is taken (Shevchuk, & Makhlouk, 2008).   
The differences in executive compensation schemes caused potential for a cultural clash too. The American executives were remunerated much higher than their German colleagues for the same work. For instance, “Daimler-Benz board was earning $11 million between them while Bob Eaton alone made $9.8 million in basic salary”. Bob Eaton said “You guys in Europe have a real problem with this”. According to their beliefs and views about each other, Americans were motivated only by money and Germans by power because they want to dominate the world (Shevchuk, & Makhlouk, 2008).  
Their communication styles, planning, decision-making processes, negotiation strategies and leadership styles lead to a cultural clash and misunderstandings between German and American employees. The German communication style is more indirect and respectful of status. Germans prefer a more autocratic style and employees expect to be treated accordingly. German employees are more polite and respectful to their managers than US employees (Shevchuk, & Makhlouk, 2008).  
The employment practices are also different because the German employees are protected by labour laws and union rules but the US hiring and firing practices are more brutal (Shevchuk, & Makhlouk, 2008).  
Chrysler’s management style was more flexible but the German had top-down management style. For instance, German employees expect to receive from their managers the instructions which they will follow without any questioning but Americans feel comfortable challenging their managers or even giving them advice. Chrysler broke barriers and promoted cross-functional teams. Also, Daimler’s attempts to take over the entire organization by imposing their management style and corporate culture had created disagreement among them (Shevchuk, & Makhlouk, 2008).  
Chrysler and Daimler had two different customer segments, which concerned different attitudes towards the use of funds. For instance, Daimler which produced Mercedes cars were used to sparing no expense in order to create a premium brand image but Chrysler focused on production of cheaper cars and their organization had a more restricted financial policy. Also, German executives used to have five-star hotels and flying corporate jets for short meetings that could be done by phone but the Chrysler employees had much more financial restrictions.  These things had resulted in a different attitude towards the use of funds in the respective corporate cultures (Egerlundh, &  Ihre, 2011).
Daimler and Chrysler refused to work together on the grounds because the both parties would destroy their brand with their ways of marketing. One example of disagreement was when they had a copy of the Day One international magazine. Americans sent a detailed description of Chrysler to Daimler. Just before they had to print the magazine, they returned the combined publications with twice as long. The Americans were unhappy but had to accept it and had to let it go to press (Egerlundh, &  Ihre, 2011).
There was dispute at the top level about cultural issues. For example, Schrempp was not keen of the Chrysler’s rules of alcohol, smoking, chose to install a bar and a humidor in his office. Chrysler had mostly abandoned several form of humor within company culture where people had actually been fired but Daimler culture was very free and allowing regarding humor (Egerlundh, &  Ihre, 2011).
There are several occasions which led to complicated culture-related confusions. For example, one occasion Schrempp divorced his wife of thirty five years for the priority of the company. On the other occasion, a Chrysler secretary chose to report a Daimler executive for sexual harassment because he touched her shoulder by asking politely to make photocopies. Therefore, except for handshakes, physical contact is out of the question between colleagues within Chrysler culture (Egerlundh, &  Ihre, 2011).

Recommendation

Daimler-Benz never did due diligence before it bought Chrysler. They did not look into the future to see whether Chrysler could afford to be competitive with the others in the industry. So it is very important to conduct cultural due diligence before the merger. Some of the important steps to be taken before the merger are as follows;
  1. Explore the cultural differences and how they impact the operations,
  2. Discuss the language issues and how they will be handled,
  3. Determine how to manage conflicting cultural styles,
  4. Clarify and accept team goals,
  5. Establish operational norms for team process such as decision making (ICFAI center for management research, 2002).

Managers must be aware of the possible conflict between individual and corporate objectives. It is difficult for people to focus on corporate goals if they are worried about their lives. The employees are worried about their position because there can be some insecurity about the form of the merged business. This problem can be overcome by having a good communication strategy (ICFAI center for management research, 2002).
The impact of leadership problems on corporate identity and communications should also be studied during the merger process because of different corporate cultures which could lead to misunderstandings and disagreement like issues in communication, decision making, planning, conflict resolution, performance expectations and evaluation (ICFAI center for management research, 2002).
In this case, both parties should be willing to cooperate committedly and to accept changes and to enter compromises in order to make this merger of the two companies a success. It is very important to consider the key aspects even before the actual merger takes place in order to avoid the failure of cross-border merger and acquisition (Oktariza et al., 2011).
Communicate the “merger” as Daimler acquisition of Chrysler to avoid further uncertainties. There should be proper communication in all the departments regularly. It is necessary to be aware of national differences which can affect the business culture and must observe the business culture before the merger with the professional and better quality observer (Oktariza et al., 2011).
Since there is separate research and development department, they should build a combined research and development department. Channels of communication must be open and consider a mediator if it is necessary. It is necessary to avoid cultural stereotyping with contextual differences, should share knowledge and exploit the merger (Oktariza et al., 2011).
The cultures of the two organizations must be sure that they are well-matched. If they are not compatible, the two parties can identify before merger or acquisition what needs to be done to fit the two cultures together. It is important to take ‘Direction’ as management approach. This will help employees to know what they have to do. It is also important to take Chryslers’ strengths into account such as Lean management, platform-strategy etc (Oktariza et al., 2011).
According to the Hofstede's Dimensions of Culture diagram given in this report, the uncertainty avoidance and individualism are very different between these two countries. Therefore, it is very important to focus more on these two areas when the merger decision is taken. The employees need to be more aware of the two cultures and should tolerate certain things to avoid possible conflicts (The Hofstede Centre, n.d.).
There four Prototypical Approaches to managing cross-border alliances. They are maintaining separate culture, choose the best element from the each culture, develop a new culture that fits the new organization and assign legitimacy to one culture and expect assimilation by members of the other culture. So, one of these four approaches can be used to minimize the cultural issues (Jackson, & Schuler, n.d.).

Conclusion

Daimler-Benz was a famous German car manufacturer founded in 1926. Chrysler was successful in producing car models that responded to the American demand with new invention. Daimler-Benz had faced the same challenges faced by Chrysler in the international market for passenger cars. They decided to merge the two companies with an aim of ‘merger of equals’, to share the goal of becoming the leader in the world’s car industry. However, they worked with the original culture that can make the clash inside the integration process.
According to the national culture comparison by Hofstede's indicates that the dimensions of power distance, masculinity or femininity and long-term orientation quite similar but the uncertainty avoidance and individualism are very different among these two countries. There is very few corporate culture similarities but there are more differences including methodical and creativity, bureaucratic and empowerment, having or not having of red tape, trial error method and detail plan, flat and tall structure, formality and informality. They had two different business models.  
The issues faced include unclear roles and guidelines, working for competitors, different communication, larger gaps in business practice, mutual misunderstandings, freewheeling culture, documentation of every meeting by Germans, executive compensation schemes, employment practices, Daimler’s attempts to take over the entire organization, different customer segments, refuse to work together, dispute at the top level and culture-related confusions.
The recommendations include conducting cultural due diligence, having good communication strategy, good leadership, cooperating committedly, knowing of national differences, having combined research and development department, avoiding cultural stereotyping, using direction approach, focusing more on uncertainty avoidance and individualism and having suitable Prototypical Approach for integration of culture.
In my opinion, DaimlerChrysler merger’s cultural issue was because of not conducting cultural due diligence before merger. Meantime, they worked with the original culture as a result the business had failed. Therefore, the cultural due diligence must be conducted. Also, the choosing of best elements from the each culture is very important to minimize these possible problems in merger.  

References

Egerlundh, C., &  Ihre, P. (2011). Can corporate-cultural differences affect the outcome of M&A? – A study of the DaimlerChrysler merger: 4.4.2 Cultural Issues. Bachelor Thesis. Gothenburg University. Retrieved January 26, 2013, from https://gupea.ub.gu.se/bitstream/2077/26626/1/gupea_2077_26626_1.pdf
Hollmann, J.,  Carpes, A. D. M., & Beuron, T. A. (2010). THE DAIMLERCHRYSLER MERGER – A CULTURAL MISMATCH?. Brazil: Universidade Federal de Santa Maria. Retrieved January 25, 2013, from http://redalyc.uaemex.mx/redalyc/pdf/2734/273419412010.pdf
ICFAI center for management research. (2002). Daimler-Chrysler merger-a cultural mismatch? Teaching note. Retrieved January 26, 2013, from http://ebookbrowse.com/009-t-n-daimler-chrysler-merger-a-cultural-mismatch-pdf-d413426284
Laufhütte, J. D. (2003). Lessons in Post-Merger Integration. Individual Case Study Report: London South Bank University. Retrieved January 25, 2013, from http://laufhuette.com/Documents/Cases/Strategic_Management_Lessons_in_Post_Merger_Integration.pdf
Oktariza, H., Shafrila D.P, R., Marliyani, R., Sabrina, & Rachmanita. (2011). Case Analysis: The failure of Daimler-Chrysler merger. Retrieved January 26, 2013, from http://www.scribd.com/doc/59790315/Daimler-Chrysler-Merger-Failure
Prof. Finkelstein, S. (2002). The DaimlerChrysler Merger: Why the Merger Failed. Tuck School of Business at Dartmouth. Retrieved January 26, 2013, from http://mba.tuck.dartmouth.edu/pdf/2002-1-0071.pdf
Roy-Bonde, A., & Olsen, C. B., (2008). The Impact of Corporate Culture on International M&As: 5.2.5 National cultural influence.  Master Thesis. Institut for International Økonomi og Virksomhedsledelse. Retrieved January 26, 2013, from http://studenttheses.cbs.dk/bitstream/handle/10417/382/carina_broeste_olsen_og_alexander_peter_roy-bonde.pdf?sequence=1
Shevchuk, O., & Makhlouk, H. (2008). The importance and the influence of the corporate culture in a merger and acquisition context: Corporate culture. Master´s Programme. Baltic Business School. Retrieved January 25, 2013, from http://www.google.mv/url?sa=t&rct=j&q=The+importance+and+the+influence+of+the+corporate+culture+in+a+merger+and+acquisition+context&source=web&cd=1&cad=rja&ved=0CCsQFjAA&url=http%3A%2F%2Flnu.diva-portal.org%2Fsmash%2Fget%2Fdiva2%3A1212%2FFULLTEXT01&ei=eqYIUa3iL46UiAekr4CIBA&usg=AFQjCNG7tc7FlInz-Lchm6XT4lZJJszHvA&bvm=bv.41642243,d.aGc
The Hofstede Centre. (n.d.). National culture: Countries. Retrieved January 24, 2013, from http://geert-hofstede.com/united-states.html

Appendix1

 





Appendix 2 

 


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