Managing Corporate Culture after a M&A (example DaimlerChrysler)

Managing Corporate Culture Change 2

How can one develop a mutual or common culture after a large merger or acquisition?

1. Global cultural interaction……………………………………………………......... 3

2. What is culture? ………………………………………………………………........ 3

3. Corporate culture…………………………………………………………………... 6

3.1. History of Daimler-Benz and Chrysler……………………………...………… 6

3.2. Characterization of Daimler-Benz and Chrysler………………...…………..... 8

3.3. Changing corporate culture………………...………………………………… . 9

4. Merger & Acquisition………………...…………………………………………... 11

5. Process of Merger & Acquisition………………...………………………………. 13

6. Post Merger Integration………………...………………………………………… 15 6.1. Sources of trouble………………...………………………………………….. 17

7. Summary & Conclusions………………...……………………………………….. 21

References………………………………………………………………………... 23

Managing Corporate Culture Change 3

1. Global cultural interaction

In terms of globalization, enterprises have to be aware of their own identity, values and thoughts and develop a grasp for interaction with foreign cultures. So it’s not only some kind of business behavior necessary, it is also important to know something about the values, morals and attitudes for a better interaction. Even more important is a survey, if you plan a merger or an acquisition with a foreign company. Researches proof, that 50-70 % of all mergers don’t succeed ¹ . This essay deals with the difficulty of consolidating two different

corporate cultures to one common culture. In order to visualize this issue, DaimlerChrysler is taken as an example.

2. What is culture?

Culture is an “everyday thing”, it is present in every situation. It is a guideline for living together in large groups, giving rules to act and behave. In most instances these facts are not written down but unexpressed rules. There are many definitions in literature. The most widespread definition is likely

“Culture refers to the cumulative deposit of knowledge, experience, beliefs, values, attitudes, meanings, hierarchies, religion, notions of time, roles, spatial relations, concepts of the universe, and material objects and possessions acquired by a group of people in the course of generations through individual and group striving” ² .

Already the Egyptians and Romans created their own distinct hierarchies, laws, knowledge bases and values and tried to preserve it over several hundred years. Culture is needed to

¹ Gudacker, Martin ;Cultural Change; eine Aufgabe in der M&A Post Integration Phase; from: http://sbgp.de/cultural_change.pdf; Frankfurt; Systemische Beratung Gudacker & Partner

² Hofstede, Geert (1997). Cultures and Organizations: Software of the mind. 27.09.2007; from: http://www.tamu.edu/classes/cosc/choudhury/culture.html

Managing Corporate Culture Change 4

organize and administrate a group of people or whole population. Nowadays this lead to sophisticated cultures in every country of the world. These cultures are non-static grown individual reflections of society that are always adapting to their environment.

Beneath the national cultures subculture could develop e.g. regional cultures or corporate cultures that could differ or harmonize with the national culture. Culture could not be change in short terms, it is a long term adaption (for instance former Russia satellite states).

Geert Hofstede classified culture in five parts ³ . These parts are:

- Power distance (equality, hierarchy, consultation)

- Uncertainty avoidance (level of anxiety and emotions, formal rules)

- Individualism / Collectivism (individual or group interests)

- Masculinity / Feminity (equality of gender)

- Short-term / Long-term orientation (scheduled satisfaction of needs)

In case of USA and Germany generally spoken

- there is in both countries a low power distance; relatively flat organizations, equality of employees, respect for individuals and distinct consultation.

- uncertainty avoidance is lower as for example in Japan appearing in fewer standardized rules and more independence.

- is more individualism; individual rights, freedom, responsibility and competition.

- gender equality is communicated but not integrated, most leading position are engaged by men.

- long-term orientation in planning is situated in both countries because of historical experiences.

³ Johnson, Debra ,Turner, Colin (2003); International Business Themes and issues in the modern global economy; London, New York; Routledge (page 203)

Managing Corporate Culture Change 5

Therefore all classifications seem to fit to USA and Germany, unless German culture is a little bit more rigid as the American mentality as shown on Figure 1. Especially in case of the organizational structures. In USA the divisionalized work leads to more empowerment and responsibility for the employees. So the employee works more independent with only few guidelines except the result that should match with the assignment. That is quite a big difference to Germany, where bureaucracy is used to guide the whole working process of the employee and by controlling the skills of the worker achieving the needed results.

Concerning the equality of race and gender there is a different treatment in USA. Discrimination on the job is forbidden by law. The realization is very strict.

Figure 1. Five preferred configurations of organizations 4

⁴ Hofstede, Geert ,Hofstede, Jan Gert (2005); Culture and organizations; New York; McGraw-Hill (page 255)

Managing Corporate Culture Change 6

3. Corporate culture

Culture in business is similar to regional culture, it is the backbone of a complex structure. Every enterprise has its own corporate culture that organizes its workflow, quality, employee attitude, behavior, salary, troubleshooting, innovation power, market position etc. Corporate Culture is established by the founder of the business and is step by step adjusted to the needs and goals of the company, customers, stakeholders and shareholders. Thereby the company stays competitive. In other words the values, thoughts and behavior is transferred from national culture into an own corporate culture which is proven as reasonable if the company is successful over some period of time.

3.1. History of Daimler-Benz and Chrysler

In the following the history and culture of Daimler-Benz and Chrysler are specified, before the merger was accomplished.

Daimler and Benz invented the first cars in the world. They founded a company that today stands for a company that is a global acting manufacturer of luxurious cars with the newest technical inventions and a classic design. Different visions/goals of CEOs were enforced in the last 25 years, which also influenced the corporate culture. At first, the company was only an automotive producer (Daimler-Benz), than it became a technical orientated conglomerate (late 1980s) that owned shares of automotive, aerospace, electrical and train producers but this didn’t lead to success. The focused synergetic effect didn’t occur in the target time (until 1996) and the thought of a global leading technical holding for mobility of people and goods was buried. That’s why Mercedes-Benz Corporation was integrated again and nearly all other shares were sold to concentrate effort on car production again. The Merger between Daimler- Benz and Chrysler came to early, the integration of Mercedes-Benz and the selling of the