Daimler chrysler merger a cultural


Published on

Published in: Economy & Finance, Business
  • Be the first to comment

Daimler chrysler merger a cultural

  1. 1. ` 1 | P a g e s o c i a l b l o o p . c o m Contents 1 Introduction 2 1.1 Merger 2 1.2 Importance of post-merger Organizational Change 2 1.3 Reasons for failure of organizational changes. 2 2 Daimler–Chrysler Merger: a Cultural Mismatch 3 2.1 Q1 3 2.2 Q2 4 2.3 Recommendations and action plan 4 3 Renault Enters India with a Joint Venture 5 3.1 Q3 5 3.2 Q4 5 3.3 Recommendations and action plan 6 REFERENCES 7
  2. 2. ` 2 | P a g e s o c i a l b l o o p . c o m 1. Introduction 1.1 Merger A merger is the combination of operations of two companies. Merger generally happen with the acquiring company giving its stocks to the shareholders of the target company in an exchange for the shares of the target company. It could also be done with partial cash and partial stocks or complete cash. Mergers are as important in the growth of a company as organic growth. Mergers can happen to consolidate a market by the combination of more than one firms in the same industry. A company can look to expand in new geographies or acquire competencies of another company such as its distribution channel. Mergers create shareholder‟s value for the acquiring companies by creating cost and revenue synergies. 1.2 Importance of post-merger Organizational Change A merger is said to be successful if the expected synergies are realized after the merger. For the expected synergies to be realized, integration of the two companies is essential. One of the most important aspect of post-merger integration is the integration of the cultures of the two companies. Cultural integration means addressing the differences in basic management styles and values. The potential causes of differences could be addressed in a way that it becomes a positive experience for the acquired company. It will depict the acquiring firm‟s respect for the employees of the acquired company and convey a message that they are interested in running the two businesses together. Restructuring is essential to realize the cost synergies. Organizational change is also needed for improving the efficiency of the acquired company and to match cultures of the two organization. 1.3 Reasons for failure of organizational changes. The decisions about management structure, roles and responsibilities, hierarchical relationships, layoffs and restructuring should be made as fast as possible after the merger. Slow changes lead to discontent and uncertainty. This has severe effects on the expected synergy and value is not realized from the acquisition. For ex. GE has learned that doing restructuring fast makes the integration process smooth and easy. Just after the mergers, the acquired company expects changes and layoffs. They readily accept the decisions immediately after the merger. It removes uncertainty and ambiguity at the start. So that the employees could focus on growth and performance. Many organizations fail to implement changes after merger. Some of the reasons are: Delay in Organizational changes: The acquiring company may think that early layoffs would portray them as “bad guys”. So, they intend to postpone the layoffs till the right time comes. They also worry that it would send bad signals and would tarnish the company‟s image. This delay adds to uncertainty and anxiety of the employees. Insecurity leads to frustration and motivation level of the whole organization would go down leading more opposition to changes in future.
  3. 3. ` 3 | P a g e s o c i a l b l o o p . c o m Restructure with respect and dignity: The acquiring company should understand the stress and emotions after being laid off. The employees should be let go with dignity and respect. Also, employees could be conveyed that they would be laid off in near future without giving exact date. So that they would start looking for new jobs. This uplifts the motivation level of rest of the employees. Lack of information: Seamless information exchange through forums and at all levels removes ambiguity and insecurity. Cultural issues are not dealt with:Cultural differences between the organizations make restructuring difficult as it leads to ambiguity regarding the intentions. A policy decision could have an unexpected response from the newly acquired company simply because they misinterpreted the decisions. If the merging companies are of different nationalities then it becomes more challenging because of communication gap arising out of language barrier. 2. Daimler–Chrysler Merger: a Cultural Mismatch 2.1 Mergers and acquisitions take place to realize the synergies between the two or more companies involved. Using Cultural theories, explain why do you think the Daimler-Chrysler merger failed to realize the synergies that were expected from it? Ans. Daimler-Chrysler had planned for synergies by reaching to global automotive market through geographical reach and product segment coverage. But these synergies were not realized. Daimler-Chrysler failed to integrate the two organizations after the merger. Thus, expected synergies could not be realized. This failure could be attributed to the difference in corporate cultures. The management style:German and American styles of management were totally different.They had different decision making process. One followed methodical process whereas other valued creativity. Similarly, Demler-Benz had bureaucratic culture whereas Chrysler has an egalitarian culture. To avoid the clash of culture it was decided to let the two companies continue with their existing management styles. But when Chrysler performed badly in 2000, its senior managers were replaced. The German style of management were being imposed on Chrysler. This drove the morale of employees down. Difference in nationalities: This lead to language barrier between the organizations. Though, they tried to bridge this gap, there post-merger integration efforts were not fruitful as it was authoritarian in nature. Delay in Restructuring and layoffs: DCX fired two presidents of Chrysler after 2000. Further, three CEOs were fired. But these changes took place after 6 months to 12 months. According to GE, one of the most successful acquirers, once a company has decided to restructure, it should be done as fast as possible. Also, the employees, if laid-off should be treated with respect and dignity. A slow restructuring as followed by DCX hampered
  4. 4. ` 4 | P a g e s o c i a l b l o o p . c o m employees‟ sense of security and made them anxious. This hampered there performance as they were obsessed with self-survival rather than focusing on their work. Lack of Information and Anxiety: Daimler-Chrysler merger did not have a well laid out plan for post-merger restructuring. When they failed to run the two companies as separate cultures, they started laying off people. The employees got confused and worried. They felt disgusted and punished. Loss of identity: In the Daimler-Chrysler merger, employees of Chrysler felt out of place in the new changing culture of DCX. Some of senior executives were laid off. The rest of the employees could not find the pride in working for the firm. They felt disgusted and frustrated. This feeling of loss of identity and purpose occurs as there was lack of a plan for cultural integration 2.2 Many cross-cultural mergers have failed because proper attention was not given to the difference in cultures between the two companies. What issues should be addressed to make cross-cultural merger a success? Include an Action Plan in your recommendation section. Ans. Like Daimler-Chrysler, many cross cultural mergers have failed. The reason being failure to integrate the culture of the companies. Differences would always be there between two companies but the merging companies should have an integration plan right from the due diligence phase. The various issues that need to be addressed to make cross-cultural merger a success are: a) Loss of Identity: All the employees of new entity created after the merger should be treated with dignity and respect. They should see sense of purpose and feel proud about being the member of the new company created. b) Lack of communication and anxiety: Lack of information about the reason for the merger, strategy and the way forward, the number of employees to be terminated and the basis on which they would be laid off could lead to confusion and anxiety. This leads to drop in employee motivation and he becomes more obsessed with survival rather than performance. c) There should not be any delay in restructuring if it is planned: Delay in restructuring creates confusion and anxiousness. The merger was never a merger of equals. Chrysler was acquired and had to undergo restructuring. If this strategy would have been conveyed properly then the employees going out would have felt informed and well aware. They would not have feel cheated and disgusted with the sudden turn of events. 2.3 Recommendation A well laid out plan for restructuring and integration is essential. The integration plan should contain the following:
  5. 5. ` 5 | P a g e s o c i a l b l o o p . c o m a. Proper Due diligence before the merger b. Planning for cultural integration right from the due-diligence phase: The planning of merging the two cultures should be done right from the due diligence phase rather than starting it after mergers. c. Appointing an integration manager: The integration manager should be wholly responsible for the integration of the two companies. The integration manager would be responsible for the creation and delivery of an integration plan. The acquired company should report to integration manager. They can ask all sorts of questions regarding the new culture which the acquired company has to adopt to. d. Restructure as fast as possible and layoff the employees with respect and dignity e. Get the people from two organizations to solve problems and hold them responsible for results: Small teams containing members from both the organizations should be given responsibility to solve business problems and given targets to achieve. 3. Renault Enters India withaJoint Venture 3.1 Examine the factors that influenced Renault's Decision to choose a joint venture entry mode as opposed to Green Field entry mode to enter the Indian market. Include in your answer an explanation of how has the characteristics of India affected this decision. Ans. There are various factors which a company considers before deciding on the growth strategy into new markets like policy framework regarding FDI in auto sector, political risk, risk of loss of technology, degree of market uncertainty and level of competition. Renault decided to choose a joint venture with Mahindra as Mahindra had a strong brand in Tractor and SUV market. They had strong distribution channel and after sales service which could be leveraged by Renault via a joint venture. A Greenfield entry into India would mean establishing manufacturing facilities and distribution channels in India from scrap. When a market is risky or future demand is uncertain, companies prefer to have a Joint Venture as it limits the risk of the company. Renault was uncertain about the demand of Low cost cars like Logan in future. So, it entered via JV. If the market for Logan would take off well, they could always increase their stake in the company. Maruti Suzuki was the most preferred car in India. It was uncertain whether Logan would be able to grab market share from Maruti. 3.2 Discuss the main advantages and disadvantages for Renault of using a Joint Venture mode compared to a Green Field entry mode. In your answer, explain the main differences also between the two modes in terms of control, risk, and flexibility. Include an action plan in your recommendation section which includes some steps to portray Renault as a good corporate citizen and to reduce its political risk Ans. It was advantageous for Renault to enter into a JV with Mahindra. Some of them are: 1. Renault could use the brand image of Renault among the Indian people. Mahindra was already an established in tractors and SUV markets.
  6. 6. ` 6 | P a g e s o c i a l b l o o p . c o m 2. Renault could use the distribution channel of Mahindra. They could also take advantage of extensive after sales service of Mahindra 3. It was a risky market as the future demand for Logan was uncertain. This JV decreased the risk of Renault entering into an unexplored market. 4. Mahindra knew the Indian market extensively. They were aware of the needs of Indian people and existing gaps in the market. Renault could take advantage of Mahindra‟s local knowledge. Disadvantages for Renault of using a Joint Venture mode compared to a Green Field entry mode: a) Research tells that 40%-50% alliances breakdown before the expected alliance period and lead to financial damage for both the partners. Most probably the joint venture would break down and company would have to sell its stake at low price. The cause of the future break down could be potential conflict between partners. b) Joint development of Logan for the Indian market would involve technology transfer to Mahindra. If the joint venture breaks in future, Mahindra would already have acquired the technology for low cost car and could develop car on its own. This in turn would go agaist Renault‟s future prospects in India c) Neither partner has full performance incentives: In a JV, the efforts put by one partner brings return to both the partners. One partner may be reluctant to put the promised resources such as technology, market knowledge and sales strategy. d) Neither partner has full control: Neither partner is independent to take its own decision. It has to be discussed. As a JV matures, these small issues lead to discontent among partners and JV breaks. In Joint ventures, both partners have low risks, less control and less flexibility as compared to a Greenfield company. 3.3 Recommendation and action plan Steps to portray Renault as a good corporate citizen and to reduce its political risk: a) Follow the Indian regulations regarding FDI in India. b) Renault should not enter in the Indian Car market with a wholly owned subsidiary till it has a joint venture with Mahindra c) Government structure of India and its political environment should be considered before entering. A sudden policy change should not take place effecting the company‟s prospects in the country. d) Renault should endeavor to conduct their activities in a politically acceptable manner. e) Governments are interested to protect the national interest. Renault‟s activities should not hamper the sovereignty of India Socialbloop.com
  7. 7. ` 7 | P a g e s o c i a l b l o o p . c o m References: 1. Executive actions for managing human resources Before And After Acquisition by Schweiger, David M; Ivancevich, John M.; Power, Frank R.Academy of Management Executive,May1987, Vol. 1 Issue 2, p127. 2. Anslinger, P. L. & Copeland T.E., 1996. Growth through Acquisitions: A Fresh Look. Harvard Business Review, 74(1): 126-135. 3. Adding cultural fit to your diligence checklist. Marks, Mitchell Lee // Mergers & Acquisitions: The Dealermaker's Journal;Nov/Dec99, Vol. 34 Issue 3, p14 4. Employee Resistance to Organizational Change: Managerial Influence Tactics and Leader- Member Exchange. Furst, Stacie A.; Cable, Daniel M. // Journal of Applied Psychology;Mar2008, Vol. 93 Issue 2, p453 5. Collan, Mikael; Kinnunen Jani (2011). "A Procedure for the Rapid Pre-acquisition Screening of Target Companies Using the Pay-off Method for Real Option Valuation". Journal of Real Options and Strategy 4 (1): 117-141 6. Dana B. Minbaeva, „HRM practices affecting extrinsic and intrinsic motivation of knowledge receiversand their effect on intra-MNC knowledge transfer‟, International Business Review, 2008, 17(6),pp. 703–13. 7. J. Johanson and J.E. Vahlne, „The Internationalisation Process of the Firm: a model of KnowledgeDevelopment and Increasing Foreign Market Commitments‟, Journal of International Business Studies,1977, 8(1), 23–32. 8. King, D. R.; Slotegraaf, R.; Kesner, I. (2008). "Performance implications of firm resource interactions in the acquisition of R&D-intensive firms". Organization Science 19 (2): 327– 340 9. Root, R.F. (1994), Entry Strategies for International Markets. Jossey-Bass, Inc., Publishers, SanFrancisco, California. 10. Buono, Anthony F., James L. Bowditch, and John L. Lewis. 1985. When cultures collide: Theanatomy of a merger. Human Relations 38(5):477-500. 11. Collan, Mikael; Kinnunen Jani (2011). "A Procedure for the Rapid Pre-acquisition Screening of Target Companies Using the Pay-off Method for Real Option Valuation". Journal of Real Options and Strategy 4 (1): 117–141 12. Larsson Rikard, "Organisational Integration of Mergers and Acquisitions: Acase survey of Realisation of Synergy Potentials", 1989, Lund University Press 13. Cartwright Sue & Cooper Cary L., "Managing Mergers, Acquisitions andStrategic Alliances: Integrating people and Cultures", 1996, ButterworthHeinemann. Visit the website for latest stuff in Social Media Marketing: www.SocialBloop.com