Cultural and organizational analysis of Daimler

Daimler

A Long and Tangled History

The Daimler car company, under various different names and throughout various configurations, has been around almost as long as the history of the automobile itself. It has seen good times -- including some very good times -- as well as some very troubled times. While Daimler, like any other company, has been to some extent purely at the mercy of chance and external forces, it has also risen and fallen a number of times because of the company's internal culture. This paper examines that organizational culture and how it has both helped and hindered the company during its recent history, relying primarily on the theoretical model of the cultural web. While "culture" is most accurately understood as an element of an integrated human community rather than a corporation (which includes elements of a wider human community but is much narrower in function and scope), it is an extremely useful concept in working to understand a corporation.

Indeed, the concept of a cultural web model as it is applied to understanding a company is especially helpful in understanding the most recent developments in the Daimler company because much of the trouble that it faced in its most recent chapter resulted, this paper will argue, because of differences between the original German company and the American car company with which it merged. Not only are there cultural and organizational differences between American and German corporations, but there are much wider and broader cultural differences between American and German groups of all types that were central to the problems after the merger.

The company has a complex history, especially so a century ago when it was being formed and most recently, when it first merged with the American car company Chrysler and then, relatively quickly afterward, divorced its American partner. This changing and changing of partners is not unusual in the corporate world in general and in the automobile in particular, although until relatively recently such mergers tended to be only between companies from the same country. There will always be complexities when companies have to merge their organizational structures, because each company has its own ways of doing things, its own habits, rules, and customs -- a trio that can serve as a loose definition of what culture is.

But when the larger culture in which a company operates is quite different from the culture of the company with which it is merging, there can be organizationally catastrophic consequences. This was the case with Daimler when it merged with Chrysler. The merger no doubt seemed as if it had a strong possibility of success when it occurred, with the companies being able to offer each other ways to fill in gaps in financial and technical matrices. But simply because both companies were interested in making good cars would not prove in the end to be enough of a shared set of ideas and ideals to make the merger work.

This paper explores the cultural and organizational reasons why the Daimler-Chrysler merger failed to be successful. This analysis will incorporate the following considerations. First, the background of the Daimler company will be outlined. Second, the organizational culture of Daimler and how it failed to take hold in the merged company will be explored using the theoretical model of the culture web as well as several other models. Finally, the paper will conclude with a brief analysis of the aftermath of the corporate divorce.

This prescient assessment from 2005 of what had gone wrong and what would go wrong provides preview of the themes taken up in this paper:

In 1998 Daimler-Benz and the Chrysler Corporation tied the knot. The newly created DaimlerChrysler [DCX] conglomerate was touted in the business world as a merger of equals with both companies retaining their unique and distinct identities. Soon after the merger the honeymoon period abruptly ended and the rancor began. Diametrically opposite management and cultural differences contributed to deep divisions which nearly scuttled the new relationship. Today, things are much different than they were in 1998; however it remains to be seen whether the long-term partnership between the German and American automakers will outlast the deep, mutual distrust that prevailed for so many years. (Keegan, 2005)

That deep and mutual distrust arose directly from the fact that the two companies were operating on very different cultural rules. And, as any anthropologist can tell you, when there is conflict on the level of such fundamentals of culture, there can be very little chance indeed for a felicitous outcome (Dooley & Van de Ven, 1999, p. 358).

Economic and Social Background of the Merger

As noted above, at the time of the merger, the economic stars at least seemed to be in line. The global automobile market was a rough place to be in at the end of the last century. Smaller car makers were having a harder and harder time keeping their products profitable, even when the quality of those products was good. Chrysler Corporation was hardly a small family-owned company but was small enough in the market conditions of the time to be facing significant and possibly overwhelming challenges. It had faced serious economic challenges before, nearly going extinct in the early 1980s and its managers recognized that the company's financial state was once again approaching a dire point.

The major problem that the company was facing was that it needed a great deal of fluid capital. Without large amounts of walking-around money (or, in its case, motoring around money), the company would not be able to keep its stock up-to-date (essential to keep people buying its cars). It also needed a great deal of capital to be able to move into new markets, something that was almost as important to its present profitability as to its future health.

When Chrysler had faced a similarly dire financial situation before, the American federal government had stepped in with financial help and guarantees. However, this time no such public money was available. If the company was to survive, much less prosper, the help would have to come through corporate or other private channels. It was at this point, when company officials and managers were coming to the conclusion that this was the only strategy that the company could take if it were to survive, that Daimler-Benz appeared, looking something like a fairy godmother (Wilkins & Patterson, 2005). However, like in one of the unreconstructed versions of the Grimm Brothers fairy tales (as opposed to the Americanized and Disneyified versions in which everything turns out for the best), this godmother was not altogether a benign figure. She arrived on the scene not simply to grant wishes, but to extract promises as well (Capra, 1997, p. 48).

The costs of the merger were not immediately obvious, at least not to the market as a whole. The merger was initially hailed as a good thing for Chrysler and for the American car market as a whole, and as a generally good thing for Daimler as well. This positive take on the merger lasted as long as it was in fact viewed as a merger, a combination of equals in which both companies would be able to contribute important aspects to the new company.

Three Social Models Applied to Daimler-Chrysler Merger

The two companies, at the time of the merger, were of roughly equal size: The merger created what was then the fifth-largest automobile company in the world, large enough to be able to compete strategically in the marketplace of the time. And each company did have significant strengths. Daimler brought to the table the Mercedes line, which represented the epitome of quality German engineering. Chrysler brought to the party its extremely popular lines of Jeep and its minivans, very different offerings from what Daimler offered.

The fact that the companies had such different types of product lines to offer suggested that they could (together) capture a much larger portion of the world market than either had been able to capture on their own. But from the very beginning, problems began to arise in the process. The first bad decision (as can be seen from looking back) was the fact that Jim Holden, an American president of the Chrysler group, was replaced by Dieter Zetsche, a German administrator. Coming as it did at the time that Chrysler was experiencing especially dire financial problems, the substitution of a German manager for an American one felt to many at Chrysler like a vote of non-confidence.

This was not the only substitute of an American manager for a German one: A number of American managers left and were replaced by Germans who had little sense of the company's history and its organizational structure. American managers still at the firm felt that they were being overrun and that their ideas for going forward with the company were not being accorded the consideration that they deserved. They saw German imposition of their ideas as rejection of Chrysler as an equal.

Over the next several years, the unequal nature of the merger -- which would come to be seen as an acquisition rather than as a merger -- became clear. Kirk Kerkorian, a billionaire investor with Chrysler who owned significant shares in the merged company, sued in 2000 on the grounds that the Daimler-Benz company had committed fraud in their characterization of the merger.

An assessment that same year illuminates how badly the two companies fit together from the very beginning:

When the two companies merged in 1998, Daimler Chairman Juergen Schrempp promised a "merger of equals." But it wasn't long before Chrysler executives complained the bullheaded Germans wouldn't listen to the Americans.

"We don't demand things of people; we seek people's cooperation," says Gerald Meyers, former chairman of American Motors and now a professor at the University of Michigan business school. "These two cultures were therefore bound to collide."

And collide they did. (Jamieson, 2000)

Chrysler officials saw the problems as in some measure simple bigfooting, with new managers coming in with a sense of entitlement, something that might well have happened even if the merger had occurred with another American company. But there were also specific points of conflict that arose from differences in culture, such as the following:

The two cultures had never been compatible. Take the Daimler annual meeting, where stockholders are fed sausages and dumplings. In Germany, there's more attention paid to wining and dining the shareholders than to giving them precise information. (Jamieson, 2000)

This seems like a small point: After, all, dumplings are not in and of themselves a serious issue. However, it is precisely such small but personally and culturally significant points that conflicts and unhappiness (and organizational dysfunction) can arise.

Culture is in the details of daily life, and the German managers that began to populate the hierarchy of the Chrysler division seemed remarkably blind to the importance of these details. Either they simply did not care, or they did not understand that the small details matter. Indeed, ironically, a part of German culture is an insensitivity to other cultures.

As noted above, one of the most useful concepts that can be used to explain why this merger (or acquisition), which seemed at least on paper to be one that had a strong possibility of being successful, is that of the culture web. Culture tends as a category to be something that is associated with "primitive" cultures, with colorful costumes and ritual feasts. And while it is certainly all of these things, it is also very much about the everyday. Culture includes everything from whether one stands up when another person walks into the room and what kind of food is served in a company cafeteria.

In general, people are not aware of how important such details are in terms of their overall sense of comfort, efficacy, and competence. Because many of the changes that took place after the merger were changes in such "small" aspects of the company's organizational structure, the cause of a great deal of the friction that arose almost right away after the merger may not have been immediately clear, or even ever clear, to the American workers and managers.

Each of the two sides had a different paradigm about management and business, and so each side "heard" what was going on in the company in terms of its own cultural ideas (Morgan, 1997; Shaw, 1997). Thus, when the German managers believed that they were being clear and straightforward and only appropriately respectful of necessary hierarchies, the Americans "heard" the Germans as being hierarchical, in part because of American ideas that Germans are indeed hierarchical and in part because of actual actions on the part of the German managers.

This idea that people tend to interpret actions to match previously held ideas about something is summarized by the idea of a paradigm that Seel (2005) summarizes, basing his argument on the work of Thomas Kuhn (also Douglas, 1985; Geertz, 1973).

Firstly, it is the paradigm which has the major effect on our perception: if we believe that there is a blame culture we will hear the words from that frame. They might have been meant as opinion or encouragement but that is probably not the way they will be heard. Secondly, the prevailing paradigm encourages certain types of behaviour. If everyone believes there is a blame culture it is much more likely that people will behave in blaming ways; in a similar situation in a forgiveness culture (how nice it would be if they were as common) people would be more likely to act in a constructive and encouraging way. Thirdly, the paradigm tends to be self-sustaining. Because I hear the words, "I hope you do better next time" as a threat I accept them as proof there that is indeed a blame culture: "Did you hear that? She just threatened me -- that's so typical of the way things are around here." A paradigm is like a self-fulfilling prophecy; there is a kind of circular logic attached to it which makes it hard to break. (Seel, 2005)

Had the objectionable actions of the Germans been egregious -- such as overt sexual harassment on the part of German managers, or the refusal to hire individuals of a certain race or a certain religion, the Americans would have been able to pinpoint precisely what was wrong and would have actually been in better shape to protest and possible even correct the problems (Mihata, 1997).

Much of the problem after the merger was the lack of acknowledgement of the importance of the ways in which cultural conflicts were arising. Seel (2005) describes the way in which (in a healthy organization) culture:

In other words, culture is the result of all the daily conversations and negotiations between the members of an organisation. They are continually agreeing (sometimes explicitly, usually tacitly) about the 'proper' way to do things and how to make meanings about the events of the world around them. If you want to change a culture you have to change all these conversations -- or at least the majority of them. And changing conversations is not the focus of most change programmes, which tend to concentrate on organisational structures or reward systems or other large-scale interventions.

Seel (2005) is precisely right. What happened after the merger was that these forms of conversations and negotiations simply did not occur (See also Harrison & Stokes, 1992). Whether no one thought to bring these issues up, or whether some did and the impetus for this was simply quashed is not clear (Bak, 1997, p. 137).

Schein, who is generally credited with having come up with the term of "corporate culture" has created three categories that can cause either conflict or accord. These are the following:

Artifacts: These include any physically real aspects of the company, from memos to the physical layout of an office to a company logo, from a dress code to a cafe menu to standing office jokes to the actual or mythical history of the company. These artifacts were very difference in the two companies, and the Americans no doubt felt that they were losing many if not most of their cultural artifacts when the company headquarters was relocated to Germany.

Values: The entire range of a company's self-concept of its culture. An example of this (which overlaps with the concept of artifact) is casual dress Friday. The merged company in this case never had a single set of values, in part because no explicit attempt was ever made to create a joint value system. Daimler officials in the wake of the merger admitted that they were not terribly invested in such a negotiation because they never saw the relationship as one between equals.

Assumptions: This third and final cornerstone of Schein's model the actual values that are practiced in the company. If "values" can be seen as the ideals that the company leaders believe that they are searching for, then "assumptions" are what actually run the company. These tend not to be easily identifiable by the participants; nonetheless they have highly significant consequences (Schein, 2004).

Schein argues that one of the most important tasks of a corporate leader is to ensure that the corporate culture is a functional one:

I will argue that the term 'culture' should be reserved for the deeper level of basic assumptions and beliefs that are shared by members of an organization, that operate unconsciously, and that define in a basic 'taken for granted' fashion an organization's view of itself and its environment & #8230;. Organizational cultures are created by leaders, and one of the most decisive functions of leadership may well be the creation, the management, and -- if and when that may become necessary -- the destruction of culture. (Schein, 2004)