2

Acknowledgements

I want to thank some people for their help while I was writing this dissertation because without them I would not have been able to do so.

First of all, I dedicate this work to my parents, Karin and Werner, because they supported me for the time I spent in England, unquestioned and always willing to listen to me. Furthermore, I want to thank my supervisor, Gerald Barlow, who always gave me constructive feedback and, although very busy at that time, tried to arrange a meeting whenever there was a need for it.

Finally, I want to thank all my friends who gave me valuable information and encouraging comments.

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  Structure  

  ACKNOWLEDGEMENTS.  2

  STRUCTURE  3

  LIST OF ILLUSTRATIONS (WITHOUT APPENDIX)  6

  ABSTRACT  7

CHAPTER 1   8

1.  INTRODUCTION.  8

1.1.  OBJECTIVES OF THE DISSERTATION  8

1.2.  CHOOSING THE ANALYTICAL TOOLS  9

1.3.  AREAS OF RESEARCH AND DATA COLLECTION  10

1.4.  DEVELOPMENT OF THE EUROPEAN CAR MANUFACTURING INDUSTRY  10

1.5.  READER’S MAP  12

CHAPTER 2   13

2.  EVALUATING THE STRATEGIC POSITION  13

2.1.  ENVIRONMENTAL ANALYSIS.  13

2.1.1.  Macro Environment  13

2.1.1.1.  Situation in the 80’s  13

  Real wage position in the USA and Europe.  14

2.1.1.2.  Situation in the 90’s  15

2.1.2.  Industries and sectors  19

2.1.2.1.  Situation in the 80’s  19

2.1.2.2.  Situation in the 90’s  23

2.1.3.  Strategic groups (Porter, 1980)  25

2.1.3.1.  Situation in the 80’s  26

2.1.3.2.  Situation in the 90’s  27

2.1.4.  The organisational field  29

2.1.4.1.  Situation in the 80’s  29

2.1.4.2.  Situation in the 90’s  30

2.1.5.  Market Segments  30

2.1.5.1.  Situation in the 80’s  30

2.1.5.2.  Situation in the 90’s  32

2.1.6.  Opportunities and threats as part of the SWOT analysis (Andrews, 1980)  32

2.1.6.1.  (SW)OT-analysis for the 80’s  33

2.1.6.2.  (SW)OT analysis for the mid 90’s  33

2.2.  STRENGTHS AND WEAKNESSES AS PART OF THE SWOT ANALYSIS (ANDREWS, 1980)  

   34

2.2.1.  SW(OT) analysis for the 80’s  35

2.2.2.  SW(OT) analysis for the 90’s  36

CHAPTER 3   38

3.  MANAGING STRATEGIC CHANGE  38

3.1.  ANALYSING STRATEGIC CHANGE.  38

3.1.1.  Types of strategic change.  42

3.1.2.  Strategic context.  44

3.1.3.  Organisational culture  46

3  1 4 Forcefield  49

4

3.2.  MANAGEMENT STYLES AND ROLES  50

3.2.1.  Management styles  50

3.2.2.  Management roles.  52

3.3.  LEVERS FOR STRATEGIC CHANGE  53

3.3.1.  Structure and Control Systems.  53

3.3.2.  Organisational routines  53

3.3.3.  Symbolic processes  54

3.3.4.  Political processes  55

3.3.5.  Communication change.  55

CHAPTER 4   57

4.  DISCUSSION AND CONCLUSION  57

4.1.  IMPLICATIONS OF THE DAIMLER CHRYSLER CASE STUDY.  57

4.2.  PERSONAL OPINION ABOUT THE RESULTS OF THE CASE STUDY ANALYSIS.  58

4.3.  EXPLANATORY REMARK ABOUT THE CASE AND CHOSEN ANALYTICAL TOOLS.  60

4.3.  FUTURE OUTLOOK  60

4.3.1.  The car manufacturing industry.  60

4.3.2.  Daimler Chrysler  61

APPENDIX 62   

  FIGURE 1: ANSOFF’S FRAMEWORK FOR ANALYSING ORGANISATIONAL CULTURE  62

  UNEMPLOYMENT FIGURES IN THE 80’S.  63

  PRICE LEVEL DEVELOPMENT IN THE 80’S  63

  WAGE LEVEL DEVELOPMENT IN THE 80’S  64

  PRICE LEVEL DEVELOPMENT IN THE 90’S  64

  WAGE LEVEL DEVELOPMENT IN THE 90’S  65

  SHARE OF ADDED VALUE IN THE CAR MANUFACTURING INDUSTRY  65

  USE OF FUEL CELLS IN CARS, SPLIT UP IN REGIONS  66

  PORTERS FIVE FORCES (PORTER, 1980)  66

  AVERAGE FUEL CONSUMPTION PER CAR.  67

  DIESEL CONSUMPTION DEVELOPMENT  67

  PETROL CONSUMPTION DEVELOPMENT  68

  PETROL AND DIESEL CONSUMPTION IN GERMANY.  68

  PETROL AND DIESEL CONSUMPTION IN FRANCE  69

  PETROL AND DIESEL CONSUMPTION IN SPAIN.  69

  DIESEL PASSENGER CAR PRODUCTION IN WESTERN EUROPE.  70

  WORLDWIDE PASSENGER CAR PRODUCTION BY AUTOMAKER ORIGIN (1990 TO 1995)  70

  SALES OF THE BIGGEST EUROPEAN COMMERCIAL VEHICLE MANUFACTURERS IN 2002  71

  THREE ELEMENTS OF A GLOBALISATION STRATEGY  71

  PRODUCT-TEAM STRUCTURE  72

  MATRIX STRUCTURE  72

  TYPES OF ORGANISATIONAL CULTURES  73

  STRUCTURE OF THE EXECUTIVE AUTOMOTIVE COMMITTEE  74

  COMPARISON: SHARE PRICES OF DAIMLER CHRYSLER AND ITS ASIAN COMPETITORS  75

  COMPARISON: DAIMLER CHRYSLER AND ITS STRAT. ALLIES IN THE ASIAN MARKET.  75

  COMPARISON : DAIMLER CHRYSLER AND EADS.  76

  COMPARISON : DAIMLER CHRYSLER AND SEVERAL INTERNATIONAL INDICES  76

  COMPARISON: DAIMLER CHRYSLER AND ITS MAIN GLOBAL COMPETITORS.  77

  LIST OF REFERENCES  78

  BOOKS  78

  ANNUAL REPORTS  79

5

  JOURNALS  81

  ARTICLES  82

  WEBSITES  84

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List of illustrations (without appendix)

Graph 1 European car sales chart (1990 - 2000)….………………………........… 11 Graph 2 The PESTEL framework………………………………………………… 13 Graph 4 Real wage position in the USA and Europe...……………………………..14 Graph 7 New registrations of passenger cars in Middle and East Europe (97/ 98).. 16 Graph 8 New registrations of passenger cars in the Asian market (97/ 98)..……… 17 Graph 11 Future plans of development of R&D intensity (German car manuf.)…… 18 Graph 15 World automobile production…………………….……………………… 20 Graph 22 Development of the second-hand car market in Germany..……………… 22 Graph 25 Portfolio structure of Daimler-Benz in the 80’s..………………………… 26 Graph 27 Some characteristics for identifying strategic groups……………………. 28 Graph 28 Passenger cars...........…………………………..………………………… 32 Graph 29 Commercial vehicles………...…………………………………………… 32 Graph 30 The ten biggest car manufacturer in the world in 1998..………………… 34 Graph 31 SW(OT) analysis for the 80’s…….……………………………………… 35 Graph 32 SW(OT) analysis for the 90’s.…………………………………………… 36 Graph 33 Product/ market matrix........………………………………………………38 Graph 35 Share of national and international trade of selected German companies...39 Graph 36 Mergers and Acquisitions in 2000...………………………………………41 Graph 39 Types of change…………………...………………………………………42 Graph 40 Daimler Chrysler share (DCX) compared w. the Eurostoxx 50 (92 - 03)...45 Graph 41 The cultural web……………………………..……………………………46 Graph 43 Forcefield analysis…………………...……………………………………49 Graph 45 Political mechanism in organisations..……………………………………55 Graph 46 Effective and ineffective communication of change...……………………56 Graph 47 Research evidence on firm specific determinants of business perf. ……...58 Graph 48 Global Automotive M&A activity (80 - 02)……………………...………60

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Abstract

This dissertation is about strategic positioning and managing strategic change. The first chapter makes clear the importance of clear defined strategy, mergers & acquisitions as well as alliances resulting out of increasing globalisation and gives Daimler Chrysler as a good example for analysing these managerial issues.

Chapter two shows different strategies Daimler Chrysler was/ is following, a diversified one in the 80’s and a focused-orientated strategy in the 90’s. Increasing threats of saturated markets, global competition, fluctuating economic influences and rising technological standards had/ have to be coped with by Daimler Chrysler in using their strengths of wellknown brand reputation, high quality standards and developed service culture. The result was a strategic position emphasising the upper car segment in the 80’s as well as reliable commercial vehicle and a completer range of products in the 90’s trying to serve nearly all segments in the car market.

Chapter three deals with the management of strategic change and the process of becoming a global player in the car manufacturing industry. Problems a merger causes concerning differences in culture and management are considered and the act that concentration of power (as it happened at Daimler Chrysler at the time while the merger took place) on charismatic top management obviously paid off in the late 90’s. The final chapter four demonstrates the difficulty of fostering successful change management and the necessity of mergers and alliances when following a global concentric growth strategy. It becomes obvious that, although the automobile industry is confronted with severe competition, Daimler Chrysler has the potential of getting the major player in this industry. When following consequently the chosen path of focussing on the car manufacturing sector and implementing new technologies and customer demands fast (faster than potential competitors), then Daimler Chrysler will be at the “top of the league” in the future.

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Chapter 1

1. Introduction

1.1. Objectives of the dissertation

This dissertation aims at analysing strategic management, in detail, the implementation of company’s strategies suitable for successful positioning in the market and managing strategic change effectively. As Porter defines strategy as a sustainable competitive advantage (Porter, 1980), establishing in the relevant market(s) and fitting management action to changing influential factors is crucial for creating a prosperous company. Due to the resulting importance of strategy, the focus of this dissertation lies on managerial issues and ways of coping with them.

I am concentrating on Europe and its car manufacturing industry which has like many other industries experienced significant competitive dynamics in the past when considering, for example, the creation of the European Single Market or the overall trend of globalisation. Daimler Chrysler is, next to General Motors, Ford, Toyota and VW, the fifth biggest global player in this industry (www. autozine.kyul.net, 02.08.2003 and Potter, 1999) and therefore an adequate example for demonstrating ways of managing strategic positioning and strategic change.

Daimler Chrysler experienced essential change in strategy and consequently a changing company portfolio over time. Portfolio means the mix of different businesses a company incorporates (Hill and Jones, 2001). I chose a time horizon of ca. 20 years which includes two important periods concerning Daimler-Benz (after 1998: Daimler Chrysler; in this dissertation whether it is written Daimler-Benz, Daimler Chrysler or DC, the same company is described) stamped by different strategic objectives resulting in a varying company structure and existing portfolios. That development is always necessarily to be seen in relation with the dynamic influential macro- and micro-environment. The outcome of this dissertation is an analysis of Daimler Chrysler, their different strategies and their measures over time in order to be able to cope with the increasing competitive environment. The result will and cannot be the only right analysis and does not offer a complete reliability concerning future developments. However, it is a possible evaluation of Daimler Chrysler’s strategies and tries to give an understanding of strategic decisions relating to structure and portfolio of the company.

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It is to be mentioned that the strategic development of Chrysler before the merger is not explained and analysed due to the fact that although the merger was characterised as a “merger of equals” (Daimler Chrysler, 1998) the dominance of Daimler-Benz while planning and implementing this merger leads more to a “friendly takeover”. If a merger takes place, there is always one culture dominating, one CEO has to leave or give up his/ her position and only one headquarter will be kept (Schoettle, 2002). In the case of Daimler Chrysler, Robert J. Eaton, former chairman of Chrysler, was appointed until 2001, afterwards Juergen E. Schrempp would be the only chairman of the merged company. 1.2. Choosing the analytical tools

In order to evaluate the development of their corporate-level strategy and the corresponding business units and operational strategies as well as ways of dealing with changes in the business macro-/ micro-environment and within the company itself, it is useful to work with certain analytical tools.

To be able to evaluate the strategic position of Daimler Chrysler, it is essential to analyse the relevant environment. I will start with the macro-environment which refers to the broader influential factors for nearly all organisations. Hence, the PESTEL analysis will be used to examine political, economic, socio-cultural, technological, environmental and legal forces (Johnson & Scholes, 2002).

The next step is to look at the car manufacturing industry. In this case, Porter’s Five Forces (Porter, 1980) are going to be used to evaluate competitive forces within this industry. Strategic groups as well as the organisational field are other important classifications helping to analyse and understand the near environment (Johnson & Scholes, 2002). Finally, the market is to be segmented and, by using part of the SWOT analysis, opportunities and threats will be identified (Andrews, 1987 and Johnson & Scholes, 1989). After having dealt with the external environmental factors, internal strategic capabilities will be evaluated. In this aspect, I will concentrate on existing resources, core competences and key issues in the environment. In order to do so, I will use again the SWOT model which explores internal strengths and weaknesses and the key environmental issues (Andrews, 1987 and Johnson & Scholes, 1989).

In using the framework of Johnson and Scholes, it is possible to analyse Daimler Chrysler’s management of strategic change. It includes the evaluation of strategic change

10

which explores the type of change, the strategic context with its different features, the specific organisational culture of Daimler Chrysler and a forcefield analysis. Other aspects of this framework are the different management styles and roles and the levers for strategic change. The latter includes inter alia structural and control systems, organisational routines, symbolic (rituals and cultures) and political processes and communication change (Johnson & Scholes, 2002). Political processes are let out in this part of the analysis. 1.3. Areas of research and data collection

For the car manufacturing industry and Daimler Chrysler in particular there exists a huge amount of literature. I will use different sources in order to get the relevant information allowing a sensible and effective analysis. To do so, the Web of Science gives a large amount of relevant information. Furthermore, the Templeman library will be used for literature research. Due to the fact that Daimler Chrysler is a German-American company, I will use the library of the Philipps University of Marburg to obtain other relevant material. Finally, the world wide web (www) and Daimler Chrysler itself are other important sources when dealing with this dissertation.

Limitations of these sources of research do occur when dealing with company culture on the one hand and with past strategy in the 80’s on the other hand. Culture is internally and unwritten laws, habits and rituals are hardly published for external stakeholders. Information about the strategic development in the 80’s is partly taken out of archives or databases. However, the existing material is sufficient to analyse Daimler Chrysler and its strategic development.

1.4. Development of the European car manufacturing industry

Daimler Chryslers’ activities in the past were characterised by a strategy of diversification as seen when looking at its portfolio over time. However, the current situation shows a focus on the car manufacturing sector and spin-off’s of other activities formerly included in the company’s operations, for example, the sale of two business units of Dornier (transfer to a company in which the Fairchild Aircraft Inc. held the majority share in June 1996; Daimler-Benz, 1996) or their railway unit Adtranz (agreement with Bombardier in August 2000; Daimler Chrysler, 2000). Therefore, I will mainly concentrate on the car

11

manufacturing industry and describe the overall development in the last 20 years and actual trends in this sector.

While the trend changed from an efficiency-orientated management in the 80’s towards a quality-driven management in the 90’s (Colombo and Comboni, 1991), the stagnating European car manufacturing industry in the mid-nineties (see graph 1) had to face a severe competition due to the fact that Japanese carmaker’s represented high productivity, effectiveness and fast model development. An example would be the trend towards lean production which the Japanese manufacturer like Honda and Toyota master perfectly (Smith, 1997).

In the late 90’s, speculations about consolidations (M&A) were on the spot and the merger of Daimler and Chrysler (www.daimlerchrysler.com, 06.2003) as well as the acquisition of Volvo by Ford in March, 1999 (www.ford.com, 05.09.2003) proofed the assumptions and forecasts made in the past.

Major changes were on the move and the vision of 6 to 8 global players dominating the market started to become realistic. As PWC stated in their survey in 1998, “increasing competition has pushed vehicle manufacturers to achieve big cost reductions by rethinking car design, assembly and production techniques” (PriceWaterhouseCoopers, Global Automotive Deal Survey, 1998, p.5). In the future, global overcapacity and declining profitability are going to challenge the market participants and the process of concentration will probably continue. Other aspects which got increasingly important for car manufacturer were environmental issues, the use of alternative energy sources and high- standard electronic system implementation (PriceWaterhouseCoopers, 1998).

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1.5. Reader’s map

In the following chapters I am going to analyse Daimler Chrysler’s strategic position and their way of managing strategic change. In chapter 2, Daimler Chrysler’s strategic position is evaluated for two different periods of time, namely the eras of Edzard Reuter (1987 until 1995) and Juergen E. Schrempp (1995 until today), dealing with the macro-environment and step by step the micro-environment, namely the car manufacturing industry in Europe, the different market segments Daimler Chrysler is serving and their competitors like, GM (www.gm.com, 13.08.2003), Ford (www.ford.com, 13.08.2003), Toyota

(www.toyota.com, 14.08.2003) or VW (www.volkswagen.de, 14.08.2003). The resulting chances and potential threats occurring in this market will be explored and analysed. In order to get a complete picture of Daimler Chrysler’s position in the market, their internal strengths and existing weaknesses are subject to investigation. By evaluating relevant resources and capabilities the competitive advantage for Daimler Chrysler will be analysed which gives them an edge over their actual rivals.

In chapter 3, the dynamic factors influencing the way of implementing different levers of strategy as well as the strategy itself are subject to investigation. Here, I will focus on the different aspects of change. Daimler Chrysler was and still is heavily influenced by charismatic and strong leaders in the top management (Edzard Reuter and Juergen E. Schrempp are the most relevant examples and the impact on competitive action will be analysed in detail later in this dissertation). Their personal styles and effective implementation of control systems, ideologies and communication influenced Daimler Chrysler’s performance and shaped the overall company picture and performance. In the last chapter (chapter 4), a discussion of the analytical outcome gained in the previous chapters will let me come to a conclusion of how good and in what way Daimler Chrysler performed over the past years, what its position is today and what implications this has for the future. A general trend in the car manufacturing industry is required to come to reasonable predictions for the forthcoming years.

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Chapter 2

2. Evaluating the strategic position

2.1. Environmental analysis

2.1.1. Macro Environment

For evaluating the macro-environment I will take a closer look at the different forces the PESTEL analysis (Johnson & Scholes, 2002) uses in order to filter out relevant external influences the company has to deal with (for details see graph 2). It is crucial to consider a possible future impact on the

company compared to the past development.

2.1.1.1. Situation in the 80’s

Political forces were reflected by a growing emphasis on environmental protection, for example, restrictions concerning air- and waterpollution or the increasing orientation towards waste

reduction, both, in production and consumption. For more details go to www.europarl.eu.int. These issues were implemented quicker and in a more consequent way in Europe than in the United States due to the fact that Europe was and still is much more densely populated than the US and solving environmental issues was and is crucial. Increasing attention was also paid to the aerospace industry sector due to the facts that, firstly, the east-west conflict still existed, though improving and relaxing in the endeighties (fall of the Berlin wall) and secondly, that the aerospace industry was an important sector to gain advantage over international competitors (nations). One example for this

14

situation was Ronald Reagan’s Star Wars program in 1983 for protection against enemies (e.g. Soviet Union and other communist countries; he also mentioned potential threat from existing aliens, which is absolutely debatable!). The growing importance of gaining the edge over other nations in this industry was always very important. Furthermore, not only military purposes but also scientific reasons dealing with technology, biology/ biotechnology and geography were motives for the aerospace industry. Concerning market accretion and the development of trade it is to say that at that time a trend towards a slow down of economic growth occurred and an respective cyclic volatility of the automobile industry which could have been observed in the early 80’s (1982/84) where the trend of demand was retrogressive (Blotevogel, 2002, chapter 10). The decreased pace of economic growth was represented by national GDP trends, interest and inflation rates. Unemployment figures showed a turnaround point compared to the positive trend of the last years(see appendix, graph 3). That development changed in the late 80’s (1985/88) when the relevant figures improved again (Blotevogel, 2002, chapter 10). When also taking into consideration the real wage level developments in Europe and the US (unit labour costs minus deflator of GDP) at that time, the volatility comes out clear and backs up the foregoing statement. The slope of the curves (graph 4) reflect the up’s and down’s in the economy at that time.

Real wage position in the USA and Europe

Graph 4: Flassbeck, 1999, p.2, The percentage on the vertical axis is cumulated. EWU

means European Economic Union, Deutschland means Germany.

15

Socio-cultural factors were the increasing living costs resulting out of higher living standards and quality requested for personal and public activities. This changing lifestyle went hand in hand with higher social costs for companies and therefore, due to the boost of ancillary wage costs, resulted in an adverse cost structure for companies. For more detailed information about price and wage levels in different European countries see appendix (graph 5 and graph 6).

The enhancement of technological standards developed constantly over the past years was likely to continue with an even faster speed than before. Relevant basic technologies created synergy effects getting more and more important for companies searching for a competitive position in the market.

The protection of the environment, mentioned before under the aspect of political factors, got increasing important resulting out of stronger awareness of the dependence on healthy ecological systems and the growing movement of green parties influencing political and legal areas in several countries (e.g. Germany and Scandinavian countries). Legal factors were basically covered by the political and ecological factors which resulted in different environmental, production and safety laws. Examples were the Article 138 of the Single European Act (1986) which lays down minimum requirements concerning health and safety at work, the resolution from 18 ^th January, 1984 “on the future development of the common transport policy (*4.5.1.), to the vital importance of safety as the main criterion for any action in this area.”

(www.europarl.eu.int/factsheets/4_5_3_en.htm, 08.2003) or the compulsory introduction of unleaded petrol in October 1989 (leaded petrol would virtually disappear from January 2000; Directive 98/70) (www.europarl.eu.int, 08.2003).

2.1.1.2. Situation in the 90’s

At that time, the trend towards big companies and multinationals occurred in nearly every industrialised country. Governments supported this development and dependent on the size and power of a company, mutual influences on administration and legal issues were existent. One can consider the issue of so-called “soft money” (SustainAbility & GPC, 2001) companies donated to different political parties or the involvement in think tanks for different purposes relevant for certain industries. Concrete examples were the situation of

16

the Environmental Industries Commission with less than 200 members and a tiny budget and, in comparison, the established energy and energy use industry in the UK or the Biotechnology Patenting Directive as one of the most lobbied directive of the European Parliament (SustainAbility & GPC, 2001).

The process of opening western countries and economies towards Eastern states (e.g., Eastern and Central European countries) took place and was expected to continue with consequently important influences on national political decisions. However, the economic upturn in some Central European areas slowed down temporarily. To get a better picture of consequential economic outcome graph 7 shows new licences of cars in Middle and East Europe in 1997/ 1998. The change is shown as percentage: New registrations of passenger cars in Middle and East Europe (1997/ 1998)

Graph 7: VDA, Annual report 1999, p.21 (change in percent; 1998/ 1997) ASEAN states were confronted with serious problems resulting out of financial and monetary crises in the late 90’s and Europe and its industries were affected by all these developments in the macro-environment. An example concerning Daimler Chrysler and

17

other internationally orientated automakers would be the development of new licences of cars in that area in 1997/ 1998 (graph 8). The change is shown as percentage: New registrations of passenger cars in the Asian market (1997/ 1998)

Graph 8: VDA, Annual report 1999, p.18 (change in percent; 1998/

1997)

Liberalisation and deregulation was on the way and supported the economic development of globalisation and internationalisation. Because of this process which included financial and legal advantages, it got interesting for foreign companies and investors to go abroad and do business.

Assisted by politics and legal aspects, the process of concentration in certain industries proceeded and the trend towards focussed growth continued and future development was anticipated to strengthen that movement (Potter, 1999). The economic growth in the midnineties was modest with an average of 2% growth from 1995 to 1997 and the synchronisation of larger industries cyclic developments increased. As a result, the process of globalisation and possible large scale operations for companies (geographical and production process-related) got accomplishable (www.wto.org, 07.2003).