The Importance of Change Management in Organisations
A strategic analysis of the Daimler-Chrysler merger
Examination Thesis 2011 19 Pages
List of contents
2. The Daimler/Chrysler merger
3. Two cultures - one company
3.1 The Change Management
3.2 Lewin’s Model of Change
3.3 Cultural dimensions
6.1 Literature references
6.2 Internet references
7.1 Appendix 1
7.2 Appendix 2
7.3 Appendix 3
- “ It is not the strongest of the species that survive, nor the most intelligent, but the one that is most responsive to change ” (Darwin, 1853) -
The process of globalization and the intensification of competition, forces modern organizations to adapt themselves quickly and flexibly to changing market conditions. The concept of change by the change management is hence primarily implemented due to economic downturns, economic growth issues, political, societial or technical general conditions or due to the fact that some organizations do not have sufficient internal strength to sustain its position (Lauer, 2010).
By virtue of the merger between the Daimler-Benz AG and the Chrysler Corporation in 1998, the newly created concern DaimlerChrysler tried to build new organizational structures for more efficient competitiveness to expand into new markets and to reinforce it’s financial position, hence taking advantage from a “2+2=5 effect” (Cartwright and Cooper, 1992). Both companies were trying to move from a coordination growth stage to a collaboration growth stage (Clarke, 1994) by the establishment of one single operating entity which as we will see later on, led to the failure of DaimlerChrysler during its “Red Tape crisis” (Greiner, 1972). Goal of the change management was to implement a corporate transformation (Dunphy et al., 1993) by finding the best compromise for both companies in regard to the organizational structure, culture, firm philosophy, operational processes as well as the integration of employees (Waller, 2001).
However, in the course of time a strong antagonism and resistance to the merger arose in particular amongst former Chrysler employees. A study from IBM Global Business Services in 2008 shows that only 41% of all change projects achieve its goals, while 44% only achieve partially the aspired aims and 15% don’t lead to achievement or are abandoned ahead of schedule. The problems of change management adjustments are mostly justified by failures in the acquaintance with the factor human being (IBM Global Business Services, 2008); the partnership between Daimler-Benz and Chrysler also failed due to a primary focus on hard data such as e.g. financial information while forgetting the focus on soft (Cartwright and Cooper, 1995) data namely the support of an organizational culture establishment.
The following report critically evaluates the changes occuring in times of an international merger by the example of the 1998 merger between Daimler-Benz and Chrysler. Beginning with an explanation of the triggers and reasons for the necessity of change as well as its objectives, the report analyses the changes in the organizational structure, leadership and culture resulting of the German-American collaboration. Adjacent, it reflects on some recommendation that might help overcoming the difficulties of implementing change in terms of international mergers and suggest measures how to achieve the aspired change.
2. The Daimler/Chrysler merger
In 1998 the automobile concerns Daimler-Benz AG und Chrysler Corporation merged in a “merger of Equals” to the public limited company DaimlerChrysler AG and thereby became the 3rd largest automobile manufacturer globally (Waller, 2001). Motivations for the merger included the enhancement of Daimler-Benz’s competitive position, expanding into emerging markets and setting up new production sites whereas Chrysler agnised the need of entering a collaboration in order to carry on business (Badrtalei and Bates, 2007). In general, both companies faced an increasingly dynamic environment that required adjustments to new structures to compete on a global basis. Previously both companies operated in varying markets, the merger thus should have established an organization serving a whole range of segments and expanding the business activity consolidated into Asian and Latin American markets (Daimler AG, 2011). The goal was to benefit from synergy effects namely to use ressources and know-how of both companies collaboratively, to establish diversification, a global presence and scale economies (Badrtalei and Bates, 2007). A further strategy to optimizing costs was the outsourcing of many divisions such as IT support and accountancy functions to low-cost countries like Hungary or Romania. Production sites were significantly minimized and services such as logistics, cantenes, or cleaning personnel were outsourced to other companies (Appel and Hein, 1998).
Both companies determined the future domicile; an enterprise according to German law, head quartered equally in Stuttgart, Germany and Auburn Hills, Michigan, USA (Vlasic and Stertz, 2000) which affected paradigm of “stories” (Johnson et al., 2008) for American and German employees. The company also had to be renamed - Daimler-Benz received the first place due to its long culture and history - such changes significantly affect the paradigm of “symbols” (Johnson et al., 2008) of both parties as a change in traditional logos strongly affects the possibility for employees to identify themselves with the new company. Departments that dually existed such as e.g. Marketing or HR divisions are consolidated whereas other operations concerning e.g. customer service are splitted. The Human Resource Planning comprised changes in team collaboration and business units, which also brings about relocations and furthermore, uncertainty for the change management (Waller, 2001).
Thus, rapid implementation of new or splitted business units, newly identified management roles and strategies affect the paradigm of “organizational structures” (Johnson et al., 2008) including all management levels and the board of directors and lead to a deliberate and organizational-wide dramatic frame-breaking change (Tushman et al., 1988).
The changes in terms of a merger can therefore be seen as a planned-deliberate change, as the change intends to move both firms to one operating organization but also as an emergent change, as a merger is necessitated by both parties in order to stay competitive in the market where the result however can lead to increasing negative or positive effects (Senior and Swailes, 2010). The change is thus a radical and “discontinuous type” of change as both companies try to change its “structure and stratgey” (Grundy, 1993) immediately by melting its functions into one single entity.
3. Two cultures - one company
3.1 The Change Management
Americans had great difficulties with the German management style that is affected from hierarchy and beaurocracy. Managers at Chrysler were able to take decisions at each level, thus influencing processes immediately whereas managers at Daimler were forced to take decisions only on advice of specialists, which is the reason, why they tend to execute an authoritarian leadership style. Initially the leadership was transferred to Jürgen Schrempp (Daimler-Benz) and Robert Eaton (Chrysler) with the same responsibility as CEO’s; only two years later Eaton resigned (Waller, 2001).
The paradigm of “power structure” (Johnson et al. 2008) therefore, changed significantly for Chrysler managers as Schrempp operated an uncontrolled and autocratic leadership like a “blind navigator”. Furthermore, Schrempp preferred German managers for top positions which turned the American partners increasingly resitant to change and which further determines the uncertainty of change. The only adaption towards the American business rituals was that German payments tripled by adjusting them to US conditions (Lauer, 2010). As a result the German side of the merger adopted the American “control system” (Johnson et al. 2008) in terms of the principle of shareholder value. The combination of corporate transformation and directive leadership hence, lead to a dictatorial transfomation of both companies (Dunphy and Stace, 1993). It is also important to mention that a negative outcome of change of the formal organization affects the informal organization negatively due to a lacking focus on embedded values of both organizations (Senior and Swailes, 2010).
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- change management business failure merger and aquisition Lewin Hofstede cultural differences DaimlerChrysler