Since its establishment in 1924, Chrysler has been the leading automobile company manufacturing various motor vehicles such as the Chrysler Six; which was the one of the first modern cars to be built. Chrysler Six was claimed to be the first car scoring several firsts, for instance, oil filter, air cleaner, high compression engine, four wheeled hydraulic brakes and other such tech parts.
Chrysler took over its competitor, American Motors Corporations in 1987. This was one of its initial mergers and acquisitions that placed Chrysler on the third position of United States auto manufacturers.
On the 12th of January 1998, Chrysler Corporation merged with the German company, Daimler. In the period leading up to the merger, both companies were experiencing high profit growths. Daimler admired Chrysler’s entrepreneurial spirit and innovative thinking while Chrysler respected the methodological engineering and technical capabilities of Daimler. The two companies were interested in a merger as it would complement their capabilities and resources which would produce greater profits. The merger was touted as a “corporate merger of equals” and held high expectations among all stakeholders of the organizations (Darling, Seristo, & Gabrielsson, 2005).
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Soon after the merger, both subgroups experienced various conflicts due to different national and corporate cultures, business practices, management and leadership styles and inefficient communication networks. Negotiations between senior leaders frizzled and led to the lay-off of then Chrysler’s CEO, Robert Eaton. Due to the lack of management support, communication and the eventual domination of Daimler’s culture over Chryslers, key executives who had been credited with Chrysler’s success in the 1990s left the organization. This resulted in a management brain drain which evolved into a crisis situation for DaimlerChrysler. Subsequently, an organizational restructuring, production cutbacks and cost cutting measures were announced. However, it was unable to resolve the crisis and thus faced huge losses which eventually resulted in a merger failure.
Chrysler dropped from its third position in the United States automobiles chart when it went through a merger with Daimler-Benz. Although it was a merger of equals, it was soon overridden by Daimler-Benz due to Globalization, Classical Approaches, Systems Approaches, Management Styles, Leadership Processes as well as Culture.
Soon it was realised that Daimler and Chrysler could not function successfully, and thus in 2009 DaimlerChrysler filed for bankruptcy which left a mark on the history of United States automobiles.
The main focus of our report will centre on Chrysler, throughout the period before and during its merger with Daimler, and how internal and external factors affected its operations.
GLOBALIZATION
When Chrysler first started out, it scored several firsts in the industry such as an oil filter, air cleaner, high compression engine, four-wheel hydraulic brakes, and other advanced Chrysler parts. As the company progressed on, it went through several disturbances in its environment continuing into its merger with Daimler. Globalization started taking its toll on Chrysler.Globalization, according to Miller, K. (2009), is the improvement of transportation and telecommunications system making our world, both on a personal and organizational level ever more connected, efficient and interconnected towards a more global economy (p. 2).
Chrysler embarked on its journey of manufacturing efficient automobiles through various improvements such as significantly expanding the electronics and computer content on vehicles, with applications ranging from power train controls for improved fuel economy and reduced emissions, to enhanced safety systems and chassis controls and to on-board communication systems. Moving on in the years, Chrysler developed vehicles using outdated and expensive structures even as its sales and resources shrinked. Since Chrysler’s business was heavily weighted to North America, this made the organisation more vulnerable to local economic fluctuations and less able to take advantage of developing markets, as stated by the New York Times.
Climate change also made an impact on Chrysler. As Stephen J. G. said,
The decision to drive cars long distances to work was common among people in North America and Europe in the past 60 years. Cities grew larger. The development of suburbs often placed homes far from work places; massive road construction encouraged extravagant car use…Driving a car is the most air polluting act an average citizen commits.
Chrysler produced auto vehicles that were manufactured without any consideration to its environment. Stephen J. G. (2008), said that Chrysler faced criticisms for their larger vehicles as they were “exploiting the innate human tendency to seek domination over others…Bigger is better.”
However, in 2009, due to climate change, Chrysler changed their tactics, targeting buyers with their higher fuel efficiency and smaller automobiles. Soon after, Chrysler came up with a Hybrid car which boasted fuel efficiency. Chrysler is further expanding on this idea by following it through till 2011 by making new models of the car but using the same technology, for instance, the electric vehicle Dodge Ev.
We can view Chrysler in two different views, namely the Utopian view and the Dystopian view. For the Utopian view, we know that Chrysler will continue to change along with globalization and expand its horizons further than North America. It can also adapt with other cultures and societies by learning from its past and bringing it forward to use it in its future. Despite several downfalls, Chrysler always manages to pick itself up and survive through mergers, with Daimler in 1998 and Fiat in 2009.
In terms of the dystopian view, clearly, due to its several changes, Chrysler is losing its original organizational structure. Chrysler is maintaining its image by retaining the Chrysler logo for its automobiles despite merging with various other organizations. Nevertheless, even though Chrysler has worked hard to preserve its external image, it has undeniably lost its charm to potential buyers and its customer base.
SYSTEMS APPROACHES
During the period of cultural change in the 1990’s, Chrysler made some improvements to its organizational system. It increased the involvement of people in its operations which improved the permeability of its operations with its suppliers and customers.
Before the merger with Daimler, Chrysler’s management had allowed permeability in its operations in which there was a two way communication between Chrysler and its customers through feedback and information flows. Recognizing the importance of receiving information from customers for improving their focus on development, Chrysler’s system processes utilized positive, growth and deviation amplifying feedback. In which, customers were requested to provide feedback about their products. Through processing these inputs from customers and workers, Chrysler modified its products to achieve higher profits (Zatz, 1994).
In addition, Chrysler improved its system properties namely, holism and negative entropy. The CEO, designers and assembly line workers held meetings together to create and gather information and ideas. This resulted in the creation of successful products by the company (Zatz, 1994). This shows the property of holism where the end product achieved was greater in value than what the employees could have created individually. Chrysler also practiced negative entropy as it valued customers’ feedback and provided information of its operations to the public.
However, after the merger with Daimler, Chrysler’s existing organizational system processes and properties were replaced by the dominant Daimler’s system. This resulted in organizational restructuring, production cutbacks, cost cutting measures and numerous worker layoffs. The loss of Chrysler’s successful system resulted in high losses for DaimlerChrysler (Darling et al, 2005).
The merger also brought about a high level of uncertainty among employees of Chrysler. According to Cervone, T (2009), communication was an area where DaimlerChrysler fell apart, because there were differences about what needed to be communicated and how to communicate. Daimler’s style of communication was solely top-down management communication. However, Chrysler used a more in-depth and extensive communication network with its employees. Therefore as employees were unable to receive important information after the merger, equivocality was high among employees of Chrysler. This was due to the different enactments by employees which created multiple informational environments due to the limited information received in the communication networks.
Karl Weick’s Theory of Organizing states that reducing equivocality is central to the process of organizing in an organization. It also states that through the use of assembly rules and communication cycles, equivocality should be resolved. In the case of DaimlerChrysler, no effort was made to reduce equivocality and this eventually resulted in the departure of key executives of the organization, creating huge losses for the merger (Darling et al, 2005).
The period of merger was a time of uncertainty, disorder and constant conflicts among employees of Daimler and Chrysler. There were various conflicts that stemmed from a vast difference in national and corporate cultures, conflicts on compensation as well as travel expenses. Failure to integrate or assimilate the organizational practices and cultures of both companies created disorder in the merger. Furthermore, the period after Chrysler’s CEO was fired by Daimler due to differences and the subsequent domination of Daimler’s management, pulled Chrysler’s employees further into disorder (Darling et al, 2005).
The New Science Systems Theory states that when systems are at the ‘edge of chaos’, order can emerge from disorder. It emphasizes the importance of relationships and being open to information to create new and innovative organizational processes. The high level of disorder present in the merger could have been advantageously used by the management of DaimlerChrysler to create a sustainable and innovative new system. However, as there were problems in the management itself and a lack of information flow and disharmony among employees in the organization, this opportunity was lost to DaimlerChrysler.
CLASSICAL APPROACHES
As with most German companies, Daimler embodied the concept of absolute formality. There was a high emphasis placed on the respect that junior workers had to show those higher up in the hierarchy, and it was expected of workers to take extreme care not to make mistakes when names and titles were concerned. Chrysler, being an American company, was practically the complete opposite of this. There was very little emphasis placed on hierarchies within the company, and the management encouraged a very comfortable, relaxed atmosphere. Many a time, mid-level executives could make decisions without fear of negative repercussions from higher-ups. In fact, it was this spontaneity and risk-taking attitude that Chrysler’s success was partially attributed to. (Vance & Paik, 2006.)
Upon the merger of the two companies, the actions of Daimler-side co-chairman Schrempp made it clear that despite touting the merge as a ‘marriage of equals’, Daimler was still fighting to retain dominance in the newly merged DaimlerChrysler. The Chrysler executives were used to ensuring that their opinions were heard by the rest of the board, no matter what their level was in the corporate hierarchy. This style of communication was unheard of in German companies, and Schrempp felt so threatened by this openness that he removed them from the company to preserve his position and power. (Badrtalei & Bates, 2007.)
Schrempp also axed some individuals from the post-merger management board, and a large majority of those fired hailed from the Chrysler division. Communications-wise, we can see that Daimler favored a top-down, formal style of communication within the company as seen from their strict hierarchy and style of decision-making. Chrysler, on the other hand, preferred to encourage an open floor of discussion, allowing as many employees as possible to participate and took their input into consideration. The main mistake committed by the DaimlerChrysler’s managerial board was that of being far too rigid when it came to the issue of communications within the company. (Vance & Paik, 2006.)
In Daimler-Benz, all decisions were made by a board of management executives in the main headquarters in Germany. Those in the lower levels of management had no power in making decisions, as everything would first have to be put past those at the very top of the corporate hierarchy. This cost the company their stability in the time period immediately after the merger, where many problems had the tendency to occur.
Despite Chrysler’s executives being those who were used to making decisions on their own, without having to go through higher levels of authority, they were unable to make any quick decisions which might have saved the company due to Daimler’s insistence on forcing them to adopt German style of decision making, which was an arduous, intricate process, and thus took a very long time. Although Frederick Taylor’s theory of Scientific Management offers that there is only one best way to accomplish any task, the case of DaimlerChrysler’s failed merger shows that this is not necessarily so – there are situations which call for spontaneous, quick thinking as well. (Badrtalei & Bates, 2007.)
The reason for Chrysler’s apparent assimilation into Daimler, as opposed to there being a stabilized platform of equals between the two, was made clear by the remark passed by Schrempp in an interview conducted in October 2000. In it, it was insinuated that the German co-chairman had intended for it to be an acquisition of Chrysler instead of a merger of equals from the very beginning. This was ironically the exact same view that Chrysler chairman Robert Eaton had rejected so vehemently. It is then easy to see exactly why such a large majority of the Chrysler executives (about two thirds) had been either fired or left the company and replaced by managers from the Daimler corporate grid (Darling et al., 2005).
DaimlerChrysler’s Hierarchy
MANAGEMENT STYLE
Despite many labelling the merger of DaimlerChrysler as “the deal of the century” (Keegan, 2005) where the merger of equals would bring out the best of both organisations, DaimlerChrysler went under major crisis after their merger. According to Darling, Seristo and Gabrielsson (2005), crisis is defined to be situations that interrupt an organisation’s usual activity and process (pp. 346-347). Crisis occurred within the newly merged company due to a few reasons; Firstly, the merger of Daimler and Chrysler resulted in irreconcilable differences in its managerial and leaderships styles. Managerial-leadership, or the lack of it, makes or breaks an organisation in times of crisis.
According to Blake and Mouton’s Managerial Grid, Chrysler’s management belonged to the Country club style of management, where organisational leaders exhibited a high concern for its people as compared to the low concern for production. Chrysler, being an American based company, had its managers concentrating efforts on the establishment of a pleasant workplace with friendly and comfortable human relations.
On the other hand, Daimler exercised the authority compliance style of management. As quoted from Daimler’s Chairman Dieter Zetsche, Daimler “systematically train [their] employees so that every one of them clearly understands that compliance is not optional – it’s an integral element of [their] corporate culture” (2009), which is characterised as high concern for production and low concern for people. The organisation’s main objective would be to ensure that its managers focus on arrangements of components in the workplace to maximize efficiency and attain goals. Hence, unlike the American based Chrysler, German Daimler management had little concern for human needs.
According to Darling et al. (2005),
The DaimlerChrysler merger … was not an ordinary merger. This merger had embedded within it the existence of two very strong yet different organizational cultures that were expected to become integrated to facilitate achievement of the goals and objectives of the merged cross-cultural global enterprise. Failure to successfully integrate the two cultures gave rise to a crisis that … threaten[ed] the existence of DaimlerChrysler.
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As there was no clear distinction of a culture after the merger, employees from both companies encountered various intergroup conflicts. These conflicts escalated during the interactions of these now interdependent sub bodies of an organisation that lived in mistrust and continued to perceive opposition of goals, aims, and values, each perceiving the other party as potentially interfering with the realization of these goals. Both companies failed to drop their existing organizational culture and find a shared direction or vision.
The merger was thus marked by deep distrust between the two subgroups, as could be seen from how Daimler and Chrysler both openly showed their conflict. They failed to reach a compromise, much less a collaboration to solve the differences to resolve the conflict.
Many later commented that the DaimlerChrysler merger “was nothing more than an outright acquisition of Chrysler by the German automaker” (Keegan, 2005). American President of Chrysler group Jim Holden, together with the management, was eventually replaced by Zetsche and the German management from Daimler, who tries to instil the German practice on the American organisation, hence causing the organisational culture of Chrysler to be dominated by the Daimler management.
As the merged organisation fought to survive in the highly competitive manufacturing sector, they adopted the Likert’s System I due to the Blake and Mouton’s Authority-Compliance leadership style, the exploitative authoritative organisation, which is characterised by motivation through downward communication, top-level decision making, the giving of orders, and top level control. Although the strict hierarchical regime might have worked with the German Daimler, it only served as a harsh culture shock to American based Chrysler. Chrysler and Daimler succeeded on their own because of their unique features. Merging without collaboration simply meant that their uniqueness had to be sacrificed, hence causing them to lose their edge in the market.
LEADERSHIP PROCESSES
After the merger of DaimlerChrysler both subgroups experienced a high level of change. Many problems surfaced during the organizational change process. Firstly there was a lack of management support by Daimler and Chrysler’s management. According to Darling et al. (2005), Chrysler’s CEO, Robert Eaton who was in charge of the integration of the two companies, lacked the leadership skills or political savvy needed to help the new entity develop a unique culture that represented the best of both worlds.
Secondly there was inconsistent action on the part of the management on both sides. Daimler-Benz and Chrysler both had extremely different styles of management and corporate culture. As a result, both companies experienced clashes in operational practices during and after the merger, which quickly escalated in intensity and frequency to the point where the merged company found itself entering a state of crisis (Darling et al, 2005). The leaders of DaimlerChrysler were thus unable to form a clear management vision to be shared with others in the organization. Ownership tension, characterized in this case by these two issues, hampered the successful implementation change efforts and subsequently resulted in a failed merger.
In addition, communication between the two subgroups was poor. Daimler practiced an autocratic top down communication style, while Chrysler used an in depth and extensive communication style (Cervone, 2010). As the cultures and communication networks of the two subgroups were not assimilated, there was no clear communication network to both subgroups. Also there were differences about what needed to be communicated. This resulted in uncertainty and anxiety among all organizational members.
Despite the multitude of problems experienced by DaimlerChrysler, during the change process, there was no clear effort by the leaders to successfully implement the change process by providing effective management support and reducing uncertainty for organizational members. These problems escalated and subsequently became one of the main factors that caused the merger failure.
CULTURE
In the early 1990’s, Chrysler experienced several problems that stemmed from a lack of a strong culture in the organization. Chrysler was historically known for its innovation but along the years, lost its core value by producing outdated products. Its relationships with its customers and various stakeholders deteriorated. These problems adversely affected the company’s profits (Zatz, 1994).
In order to boost its falling profits, Chrysler made efforts to create a strong organizational culture that increased individual and organizational performance to greater levels. Chrysler began by revamping its core assumption of innovation with a multitude of effective values. These values supported individual participation, growth and improvement in processes which resulted in an overall increase in organizational performance. They are also described as themes for ‘excellent cultures’ by Peter and Waterman.
The values Chrysler incorporated are; the involvement of people in which ideas were solicited from suppliers, customers wants and needs were collated via customer feedback, assembly line workers were included in the planning process and mechanics were consulted early in the process. The value of learning or the ‘Hands-on, value driven’ theme in which members actively took part in the analysis of past mistakes and achievements in order to improve their overall processes was implemented. In addition the value of quality was created. Chrysler had in place a ‘product quality improvement partnership program’ to improve quality by increasing teamwork. This is similar to the theme of ‘Simultaneous loose-tight properties’ as employees exhibited a unity of purpose of achieving ‘quality’ through diversity in the form of teamwork. The program was a success as it produced the 1966 Grand Cherokee and Chrysler PT cruiser which consistently appeared at the top of the quality charts (Zatz, 1994).
These values were encouraged by top management and in time, supported by all employees. This form of synergy was represented in the organization’s behaviours and artefacts. Chrysler adopted a participative decision making style, practised wide communication on all networks, implemented low power distance which resulted in a freewheeling open culture that was indifferent to positions or hierarchy.
Chrysler’s Onion Model in the 1990’s
In 1998, Chrysler merged with Daimler. The merger was touted as the ‘merger of equals”. However, Daimler and Chrysler failed to consider the vast differences in their national cultures during merger negotiations. This led to conflicting corporate cultures, unresolved problems and ultimately a failed merger (Darling et al, 2005).
The German culture of Daimler-Benz was generally less individualistic then Americans. They were uncomfortable with anxiety and ambiguity, practised indirectness in communication and gave respect for title, age and background. While, Daimler’s culture consisted of an autocratic leadership style, top- down management and limited involvement of employees. Daimler was characterized as being conservative, efficient and safe. This collided with Chrysler’s values and opposed its American values of a free-wheeling and open culture. They were characterized as being risk-taking and innovative. Therefore, misunderstandings soon occurred due to the differences in their communication styles, planning and decision-making processes and leadership styles (Darling et al, 2005).
During the merger, there were long heated discussions between the CEOs’ of Daimler and Chrysler about the differences in their corporate cultures and behavioural traits. They recognized the differences but were unsure of how to assimilate the cultures. Finally, they decided “that if the differences were far apart, they would pick a spot in the middle and they would merge” (Cervone, 2010). By doing so, the CEO’s failed to recognize that organizational cultures are often ambiguous. There are potentially multiple manifestations to a corporate culture which are diverse and dynamic. Thus, picking a spot in the middle of two different cultures will not create an effective culture for DaimlerChrysler.
Also, organizational cultures are not unitary. It is impossible to characterize an organization as having a single culture as there are multitudes of subcultures existing in conflict or harmony with one another. As such, the CEOs’ decision to pick a culture that is midway between their cultures will not result in success. This would fail to recognize the subcultures within the organization that largely impacts its behaviours and decisions.
In addition, organizational cultures are complicated. Integrating two independent companies with divergent cultures into one cohesive organization is a major undertaking (Zatz, 1994). Simply picking a culture will not create a sustainable culture for DaimlerChrysler. This objectifies culture by simplifying it and de-emphasizing the complex processes via which organizational culture is created and sustained. Culture is in actuality pervasive and it affects the everyday business of the firm (Weber, & Camerer, 2003). Thus, more effort is needed to collaborate both cultures. The leaders should create joint basic assumptions and related values for the organization. This would create a shared meaning among all employees and subcultures which would in turn create similar behavioural traits. This level of synergy in cultures will result in success for DaimlerChrysler.
Furthermore, organizational cultures are emergent. It is a product of constant interrelationships between organizational members in different contexts and settings. After the merger, cultural workshops were put in place to integrate both subgroups of the company. These workshops were not supported by both members and thus failed. Subsequently, no other efforts were made by the management to integrate the members. As no clear distinction of a culture was made, Daimler’s culture grew to be more dominant and oppressing to employees of Chrysler. Employees became increasingly dissatisfied and there were constant cultural collisions in the interrelationships between Daimler and Chrysler’s employees. This led to the departure of key Chrysler executives who had led the company to success in its domestic and international markets for creativity, efficiency and profitability. As a result, the companies faced huge losses (Zatz, 1994).
This situation could have been avoided by integrating employees of both corporations. By creating opportunities for employees to interact in settings such as orientation of members to the newly merged company, company events, department dinners or joint work teams, would have increased familiarity and created cohesive relationships between employees. Also, communication networks should be expanded and fully utilized to disseminate information during the merger in order to reduce uncertainty and increase support of the merger. These methods would have allowed a cohesive culture among members of both companies to emerge over time.
CONCLUSION
Why was Chrysler a success?
Chrysler initially pioneered several automobile parts, making it more accepted in the automobile market. After being criticised for not being environmentally friendly, Chrysler replied to the criticisms by introducing a new line of automobiles such as Hybrid cars and electric cars in the Dodge EV series and brought the brand back into demand.
Why was DaimlerChrysler a failure?
The merger of Daimler and Chrysler did not thrive as many people had predicted. It would have became the collaboration of the century if only they had managed to solve the problems that occurred within the newly formed DaimlerChrysler. The issues they faced were:
There were problems with the organizational system processes of the newly merged organization. Chrysler, on its own, constantly strived to improve its system properties, for instance, holism and negative entropy. However after it was merged with Daimler, they went under organizational restructuring, production cutbacks, cost cutting measures and numerous worker layoffs resulting in a high level of uncertainty among employees due to limited information received in communication network.
Daimler embodied the concept of absolute formality, while Chrysler placed very little emphasis on hierarchies within the company. Furthermore, Daimler was still fighting to retain dominance in the newly merged DaimlerChrysler. The main mistake committed by the DaimlerChrysler’s managerial board was them being far too rigid when it came to the issue of communications within the company.
The lack of a suitable managerial-leadership also caused a crisis. Daimler exercised the authority compliance style of management over Chrysler’s style of management of the Country club. The merger was thus marked by deep distrust when they failed to even reach a compromise to resolve their conflict.
Chrysler experienced several problems that stemmed from a lack of a strong culture in the organization. Chrysler was historically known for its innovation but along the years, lost its core value by producing outdated products. Daimler and Chrysler failed to consider the vast differences in their national cultures and assimilate them during merger negotiations, thus causing DaimlerChrysler to lose its edge in the market, which ultimately led to a failed merger.
What they should have done to solve the problems?
During the negotiations prior to the merger, leaders of Daimler and Chrysler should have identified the vast differences in the national and corporate cultures of both companies. As both of the companies merged to complement their capabilities and resources, the domination and oppression of Daimler’s culture over Chrysler’ adversely affected the merger. Chrysler experienced a loss of culture and an erosion of its successful values which reduced its overall capability. Therefore, the leaders of DaimlerChrysler should have exhibited cultural sensitivity and emotional intelligence to facilitate the growth of a cohesive culture. Through the collaboration of shared meanings and values, DaimlerChrysler would have created a successful merger.
What happened to Chrysler in the end?
Chrysler’s sales tumbled 30 percent in 2008 and it ended the year with only $2 billion in cash and reliant on a government bailout to keep it afloat. After which Fiat took an interest in Chrysler after thorough research of whether it will have “minimal downside” and be profitable. As JP Morgan’s analyst Himanshu Patel said, the merger for both Fiat and Chrysler “could help the U.S. automaker secure another round of bailout funds.”
“This is a strategic alliance,” said Tim Ghriskey, chief investment officer with Solaris Asset Management in New York By Gilles Castonguay and Poornima Gupta
We hope that Chrys
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