Organizational Culture as the success factor in company mergers. An analysis of the Daimler Chrisler merger in 1998

Essay, 2012

17 Pages


Table of Content

1 Introduction

2 Background of Daimler

3 Central Issue - DaimlerChrysler M&A

4 Theoretical Frameworks - Geert Hofstede
4.1 Geert Hofstede's 5 dimensions
4.2 Cultural issues of DaimlerChrysler under the Hofstede's framework

5 Theoretical Frameworks - Schein
5.1 Edgar Schein's Levels of Culture
5.2 Cultural issues of DaimlerChrysler under the Schein's framework

6 Conclusion

7. References

This text was written by a non-native English speaker. Please excuse any errors or inconsistencies.

1 Introduction

International trade and investment has undergone a vast growth over the past 30 years. (Lasserre, 2007) According to Lank (2006), many organizations have recognized that "No organization is an island" due to the threats and opportunities of globalization. This means that organizations will work together with others to brings the right combination of skills, experience and resources to the job at hand is becoming necessity in a world that moves as quickly and demands as much, as ours does today. (Lank, 2006)

The organizations aim to get collaborative advantages by establishing relationships with other, often foreign organizations due to stay competitive in an increasingly globalised environment. (Lank, 2006; Moran et. al., 2007) Badrtalei and Bates (2007) state that partnerships, of any form, be they mergers, acquisitions or joint ventures are a viable strategic option to achieve the objectives of growth, diversification, economics of scale, synergy of a global presence. The expenditure of cross-broader mergers and acquisitions (M&A) had increased from 25 billion US dollar in 1982 to 716 billion US dollar in 2005 (Lasserre, 2007)
Many of these collaborations surprisingly fail to achieve the intended benefits. Clemente and Greenspan (1999) argue that more than half of the mergers and acquisitions fail. Moss Kanter (1994) argues that potential partners are often only screened in financial terms rather than paying more attention to the human terms of the relationship.

Gail (2004) emphasises that most organizations mishandle the people and culture side of mergers and acquisitions which can radically reduce a merger's chances of success. While it is generally agreed, that the cultural compatibility is the greatest barrier to successful partnership integration, investigation of cultural factors is least likely to be conducted during the critical due diligence stage. (Horwitzn et. al., 2002) According to Clemente and Greenspan (1999), the key success is understanding the components of culture and achieving cultural alignment. Regarding the importance of organizational culture on the success of mergers and acquisitions (M&A), this paper aims to provide an analysis of the famous DaimlerChrysler merger in 1998. The analysis will be conducted by applied the theoretical frameworks of Hofstede (2001) and Schein (1984).

2 Background of Daimler

Gottlieb Daimler and Carl Benz, Daimler's founders, made history with the invention of the automobile in the year 1886. (Daimler, 2011) As of 31 December, 2010, the Daimler Group employed 260,100 employees worldwide. (Annual Report, 2010) Being a producer of premier market vehicles, the ultra conservative Daimler Benz was virtually synonymous with luxury and excellently engineered cars which enjoyed a global reputation. (Gomes et. al., 2010)

3 Central Issue - DaimlerChrysler M&A

The German Daimler-Benz AG and the American Chrysler Corporation announced that the two organizations would merge to form the DaimlerChrysler AG in May 1998. (Lasserre, 2007) Daimler Benz and Chrysler both had long histories, but were two very different entitles and their merger shocked the industry. (Gomes et. al., 2010)

Daimler-Benz, on the contrary, was specialised in luxury cars and this sector had to face serious pressure from new competitors such as Toyota's Lexus division. (Lasserre, 2007) Chrysler was a firm which seemed to oscillate between bankruptcy and profitability. Chrysler's hallmark was a capacity to turn out low-cost production trucks, minivans, sports utility vehicles and passenger cars under the Dodge, Plymouth and Chrysler brands, aimed primarily at the US market.

The merger was considered to be the largest industrial merger ever, with a market value of 92 billion US dollar, 421,000 employees and annual revenues of 130 billion US dollar. (Shelton et. al., 2003) The major reasons for the merger were to save costs, expected savings of 3.5 billion US dollar, and to increase sales by 13 percent as well as to achieve fast growth in the home markets and emerging markets such as Asia (Lasserre, 2007) In academic literature there is consensus about the fact that cultural issues had a major impact on the merger's failure, in following section, an analysis would be conducted to such cultural issues.

4 Theoretical Frameworks - Geert Hofstede

4.1 Geert Hofstede's 5 dimensions

According to Hofstede (2001), culture is the collective programming of the mind which can been seen in values, symbols, rituals and heroes of a certain group such as nation. The theoretical framework of Hofstede is based upon the assumption that every human being has a mental program. This software of mind is rather unconscious. (Hofstede, 2001)

Hofstede furthermore investigated the constant differences in the behavior and attitudes of employees within the same multinational organization. His findings showed that these differences in organizational cultures could be attributed to the differences in national cultures. (Alder, 2008) Hofstede had identified five differences/dimensions in organizational culture which show in the following three could apply for the cultural issues for the case:

(1)Power Distanceis the extent to which inequalities of power distribution in organizations are tolerated and how much weight is put on status symbols. This can been seen best within the relationship between a boss and the employees. (Hofstede, 2001)
(2)Uncertainty Avoidancemeans how people cope with uncertainty and instability. It should not be mixed with risk avoidance. Rather meant are the ways how future events are tried to be made predictable and interpretable. (Hofstede, 2001)
(3)Masculinity and Flemininityis connected to the work goals within an organization. "Masculine" work goals are for example career and money whereas "fleminine" cultures rather stress social goals like relationship, friendly working atmosphere, etc. (Hofstede, 2001)

Although Hofstede's theory has been adopted in a large range of academic literature, textbooks and included in intercultural training programs also criticism exists within organizational studies. (Hofstede, 2001) Scholars critically evaluate the research methodology of Hofstede. According to McSweeney (2002) states that Hofstede's claims are excessive and unbalanced and there is a clear need to further investigate the richness and diversity of national practices and institutions.

Hofstede's approach to national culture, as well as similar of other authors (like Schwartz, 1999; Trompenaars, 1993) are criticized in general for being oversimplified, static and for not providing a basis for judging whether two cultures are different. (Huczynski and Buchanan, 2007)

Nevertheless, Hofstede's approach helps to develop an awareness and understanding of cultural differences. (Huczynski and Buchanan, 2007) The objectives of this paper aims to provide an analysis of the cultural differences at the organization that had impact on the failure of the DaimlerChrysler merger, but NOT comparing differences of 2 nation cultures such as Germans and the Amercians regarding to their cultural distinctions. Thus, the author consider Hofstede's model to be an appropriate instrument for the analysis.

4.2 Cultural issues of DaimlerChrysler under the Hofstede's framework

Power Distance Index (PDI) was derived from country mean scores or percentage on three survey questions that dealt with perceptions of subordinates' fear of disagreeing with supervisors and of supervisors' actual decision-making styles, and with the decision-making style that subordinates preferred in their bosses. (Hofstede, 2001)

The table shows below (Exhibit 1) is the Hofstede's dimension analysis for the Germany and United States:

Exhibit 1Hofstede's dimension table for Germany and Unit States

Abbildung in dieser Leseprobe nicht enthalten

PD: Power Distance Index UA: Uncertainty of Avoidance MAS: Masculinity

The PDI show that the USA obtained similar scores with Germany with score 40 and 35 respectively, but the management styles of the corporation indicated that German Daimler-Benz was characterized by higher PD and American Chrysler was characterized by lower PD.

As usual in countries with high PD, Daimler conducted a hierarchical and top-down management style. (Shelton et. al., 2003) Daimler was a firm that revelled in hierarchy and formality, had delicately structured decision-making procedures, had a suit, shirt and tie dress code and a Teutonic respect for titles and proper names. (Gomes et. al., 2010) Decisions were taken by the upper management and work their way through the organization through formal channels. Daimler emphasized the boss-subordinate relationship and status symbols which could be observed through the strict dress code and use of appropriate titles and names.


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Organizational Culture as the success factor in company mergers. An analysis of the Daimler Chrisler merger in 1998
Northumbria University
Bachelor of Arts in Human Resources Management
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This text was written by a non-native English speaker. Please excuse any errors or inconsistencies.
Daimler Chrisler, mergers, acquistion, globalization
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Fu On Lui (Author), 2012, Organizational Culture as the success factor in company mergers. An analysis of the Daimler Chrisler merger in 1998, Munich, GRIN Verlag,


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