The following paper deals with the topic “Cultural Due Diligence and Cultural Clash” using the example of Daimler and Chrysler’s merger in 1998.
The paper is therefore dealing with the corporate culture in a company and the importance of its consideration. It will define corporate culture and illustrate different views of measuring it and looking at it. Further a closer look on Daimler’s and Chrysler’s corporate culture will be given and the challenge of merging these two cultures will be clarified.
This paper is going to accentuate the need for a Cultural Due Diligence and familiarize the whole process of it. It will therefore prove that the analyses of a company’s cooperate culture with the Cultural Due Diligence is majorly important in order to successfully merge two companies. In detail the term paper therefore indicate tools that are being used to get to know the culture of a company and introduce theoretical as well as practical approaches. Whenever it is possible a connection to DaimlerChrysler and their Cultural Due Diligence is given.
An analyze why DaimlerChrysler’s merger failed to realize the synergies will be given in the last chapter and are being underlined with statements of personalities that have been involved in the merger process or that were engaged in the fusion.
Index
Table of figures
Abstract
1. Introduction
2. Corporate Culture and Culture Differences
2.1 Crltrre in economics
2.2 Corporate Crltrre
2.3 Measrrement of Crltrre
2.3.1 Deal and Kennedy
2.3.2 Charles Handy
2.4 Theories on corntry-specific crltrral characteristics
2.5 Corporate Crltrre at Daimler before 1998
2.6 Corporate Strrctrre of Chrysler before the merger
2.7 The challenge of creating DaimlerChrysler's Corporate Crltrre
3. Cultural Due Diligence
3.1 Dre Diligence
3.2 The Crltrral Dre Diligence
3.2 Concept of Crltrral Dre Diligence
3.3 Tools of Crltrral Dre Diligence
3.3.1 Analyses of open data
3.3.2 Critical Event analyses
3.3.3 Observation
3.3.4 Single person interview
3.3.5 Group interview or group discussion
3.3.6 Simulation
3.3.7 Questionnaire
3.4 Theoretical approaches of Dre Diligence procebrres
3.4.1 Theoretical approach by Clarke (1987)
3.4.2 Theoretical approach by Carlton (1997)
3.4.3 Theoretical approach by Weidinger/Mündemann (1999)
3.4.4 Theoretical approach by Bouchard/Pellet (2000)
3.4.5 Theoretical approach by Scott (2001)
3.4.6 Theoretical approach by Zimmer (2001)
3.5 Practical Crltrral Dre Diligence processes anb analyses
3.5.1 Bickmann & Collegen Consultancy
3.5.2 Accenture
3.5.3 Practical approach of A.T. Kearney
3.5.4 Comparison of all three models
4. DaimlerChrysler failed to realize the synergies
5. Conclusion
I Bibliography
Printeb sorrces
Web- sorrces:
II Appendix:
1. Daimler Benz Organization
2. Platform Team Organization
3. Crltrral Dre Diligence as a whole process vizralizeb by Schneck
Table of figures
Figure 1: Levels of Cultures by Schein
Figure 2: Corporate Cultures by Deal/Kennedy
Figure 3: High Context/Low Context Culture
Figure 4: Development of an M&A process
Figure 5: Culture Web from Clarke
Figure 6: Accenture Cultural Distance Score Calculation
Figure 7: Accenture visulazation of cultural differences with model of Goffee/Jones
Figure 8: Organizational Culture Model from Cameron/ Quinn
Figure 9: Comparison of all three practical Due Diligence approaches
Abstract
The following paper deals with the topic “Cultural Due Diligence and Cultural Clash” using the example of Daimler and Chrysler’s merger in 1998.
The paper is therefore dealing with the corporate culture in a company and the importance of its consideration. It will define corporate culture and illustrate different views of measuring it and looking at it. Further a closer look on Daimler’s and Chrysler’s corporate culture will be given and the challenge of merging these two cultures will be clarified.
This paper is going to accentuate the need for a Cultural Due Diligence and familiarize the whole process of it. It will therefore prove that the analyses of a company’s cooperate culture with the Cultural Due Diligence is majorly important in order to successfully merge two companies. In detail the term paper therefore indicate tools that are being used to get to know the culture of a company and introduce theoretical as well as practical approaches. Whenever it is possible a connection to DaimlerChrysler and their Cultural Due Diligence is given.
An analyze why DaimlerChrysler’s merger failed to realize the synergies will be given in the last chapter and are being underlined with statements of personalities that have been involved in the merger process or that were engaged in the fusion.
1. Introduction
Sarah Walter
Whether after mergers or takeovers the two corporate cultures quickly grow into a new one or whether a culture clash happens is less a question of the seminaries or differences as in fact a question of the integration process. Only if the members of both companies feel that they are a part of the whole and feel accepted, a new joint “we” can be established. The merger 1998 was definitely the stunning $36 billion merger announced by Daimler Benz, the German manufacturer of Mercedes-Benz luxury cars, and Chrysler, the all-American maker of minivans and Jeeps. The marriage of Daimler and Chrysler promised to be the leader of the global auto industry and provide a blueprint for international consolidation on an epic scale.
Nevertheless, there are factors that are difficult to arrange, arising from and out of values, beliefs and habits. Former Chrysler President Robert Lutz even stated, that “managing the cultural issues will indeed be the toughest part of making this marriage work.”
In order to avoid a Cultural Clash and to be able to speak about a “successful merger” more and more consulting firms suggest a Cultural Due Diligence before an M&A acquisition processes. With other words they suggest a careful consideration of the integrating corporate culture. Behind this stands the idea that not only financial data must be analyzed, like it is the major task of a classic due diligence, but also the corporate culture must be checked for their compatibility. Indeed, numerous studies have shown that many M&As fail, due to the intolerance of the varieties of corporate cultures. A data collection carried out by Daimler itself found out that 70 percent of transatlantic M&As had failed in the past and in fact the union didn't turn out to be a merger made in heaven. When the dust settled, Daimler was firmly in control of Chrysler, and the shock waves were reverberating on both sides of the Atlantic. The elevated expectations of management, employees, and shareholders would be dashed in DaimlerChrysler's first year.
2. Corporate Culture and Culture Differences
Sarah Walter
The following chapter will discuss the term ‘corporate culture’ as well as its origin and importance. It will further introduce different ways of measuring culture in order to understand how a Cultural Due Diligence is being executed. To establish a better understanding this section will illustrate different point of views and therefore dwell on two methods that have been used to classify corporate culture.
2.1 Culture in economics
Sarah Walter
Many years, cultural questions have been ignored in business (Kutschker/ Schmidt; 2002, pp. 664). Not until the seventies, in consequence of the internationalization of many companies, country studies and different management styles have been taken into account. In the eighties the term corporate culture reached the object of researchers and became an important indicator for studies on company’s success (Blöcher/ Glaum; 2005, p. 296). Berkel and Herzog (1997, p. 9) even name it as the most important variable for a company’s business success. The interest on corporate culture was triggered by a study of Peters and Waterman, also known under the 7-S Framework by McKinsey. When introduced in the late 1970s, the framework was a watershed in thinking about organizational effectiveness (Rasiel/Friga, 2001, p.18). The previous focus of managers was on organization as structure - who does what, who reports to whom etc. But the McKinsey study from 1978 considered besides hard skills like systems and structure further soft skills like shared values, staff, skills, style and strategy. Rasiel and Friga (2001, p.19) state that as organizations grew in size and complexity, the more critical question became one of coordination.
The former McKinsey consultants Thomas J. Peters and Robert H. Waterman (1980, pp. 14-26) state that interrelated factors influence an organization's ability to change. They specify the 7-S Framework as a management model that describes seven factors to organize a company in a holistic and effective way. Together these factors determine the way in which a corporation operates. Managers should take all seven of these factors into account, to be sure of successful implementation of a strategy- large or small (ibid). Moreover the researchers illustrate that during the interviews with the employees and managers, they were depicting long and great stories, trying to explain the characteristics of their own great institutions. Stories, myths and legends appeared to be very important, because they conveyed the organization’s shared value, or culture. Without exceptions, the dominance and coherence of culture proved to be an essential quality of an excellent company (Peters/ Waterman, 1982, p.75).
Without question the subject corporate crltrre became a very important indicator in economics. Referring to a statement by Annette Blöcher (2005), Senior Consultant at Deloitte & Touche, the importance and even the consideration of corporate culture might increase according to the fact that combinations of two or more companies form large empire. As mentioned before such a combination could be the $36 billion merger (Cruickshank, 2000) announced by Daimler and Chrysler in 1998.
2.2 Corporate Culture
Sarah Walter
One of the most famous models to explain the term corporate culture is the one of psychologist Edgar Schein, a Professor of Management who is considered as one of the 'founders' of organizational psychology. Schein (1985, p.9) defines culture“ as a pattern of basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, feel in relation to those problems.” Hofstede (2001, p. 9) on the other, defines culture as a “collective programming of the mind that distinguishes the members of a group or category of people from another.” In Hofstede's view culture is made up of two main elements: the internal values of culture - which are invisible - and external elements of culture - which are more visible- and are known as practices. These external elements include rituals (like e.g. as greetings), heroes (such as people or superiors) and symbols (such as words or even gestures). Cultures of different organizations can be distinguished by their practices, while national cultures can be differentiated by their values (Hofstede, 2001, p. 9ff.).
Coming back to Schein (1992, p.18) who adheres to the statement that cultures are deep seated, pervasive and complex and that it can be extremely difficult to bring the assumptions to the surface. Schein (1992, p. 17) has divided organizational culture into different levels:
Artifacts, Espoused Values and Basic Assumptions and Values.
Artifacts are at the surface, those aspects (such as dress) which can be easily discerned, but are hard to understand. Esporseb Valres or beneath artifacts are ‘espoused values’ which are conscious strategies, goals and philosophies. The core, or essence, of culture is represented by the basic rnberlying assrmptions anb valres, which are difficult to discern because they exist at a largely unconscious level. They provide the key to understanding why things happen in a particular way. These basic assumptions formdeeper dimensions of human existence such as the nature of humans, human relationships and activities, reality and truth. He argues that the pattern of basic underlying assumptions can function as a cognitive defense mechanism for individuals and the group, consequently hedescribes culture change as difficult, time consuming and anxiety provoking (ibid). Scheins findings point out the importance and influence of a company’s culture and will later also lead to the point that it plays a role in the Cultural Due Diligence as well.
illustration not visible in this excerpt
Figure 1: Levels of Cultures by Schein
These complex explanations clarify that there is a huge challenge for the board of every company that decides to merge with another. The CEO’s of Daimler as well as Chrysler had to have in mind, with the words of Schein, a bifficrlt, time consrming and anxiety provoking process was in front of them.
2.3 Measurement of Culture
Sarah Walter
As mentioned earlier, managers and researcher have not always been aware of the fact that corporate culture can contribute to a company’s success. However, since researcher ascertained that there are interrelations between these two factors many different individuals are intensely interested in the field of measuring culture:
Therefore typologies[1] are an important instrument for measuring culture. There are numerous theories discussed in pertinent literature about typology, using certain criteria to systematize corporate cultures (Zimmer, 2001, p. 60). In general, the results of such investigation are being visualized and companies are being pictured or represented on axes, fields or squares. By the illustration of such differences a company can be categorized and the varieties of two companies can be point out and will be clearer to the clientele. So, with other words companies get sorted into sectors, to visualize the differences between the different corporate cultures (Schneck 2007 p. 5).
Hence typology- models seem to be suitable for deducing cultural differences between companies and for culling conflict areas at an early stage (Zimmer, 2001, p. 60). Possible conflict areas can be partly predicted and adequately be managed. Zimmer (2006, p.60) further mentions, that it also has been proven that Typologies with additional communication of the corporate culture help employees to better become aware of their own corporate culture.
All of this is very useful during M&A transactions. Due to the fact that employees developed awareness for their own culture and the realization of cultural problems during mergers employees develop a higher sensitivity and a better understanding of each other's differences (Schneck, 2007, p. 5).
Unfortunately, companies like to keep such analyses private and confidential. Even if we were trying to obtain this information through several channels at DaimlerChrysler, we have not been successful to see any chart relating to the comparison of their corporate. However a number of typologies have been published in Western Europe over the past 20 years (Deal/Kennedy, 1982; Handy, 1993 etc.). These studies identify the typical contents of culture from various perspectives, relating it to various aspects of the organization itself or its external environment.
To give an insight of these studies the following sub- chapters will introduce two main typologies, as well as the popular perspective by Hall about the importance and distinction of High- Context- Cultures and Low- Context- Cultures.
2.3.1 Deal and Kennedy
Sarah Walter
According to the famous sentence by Marvin Bower (McKinsey) defining organizational culture “as the way things get done around here”, Deal and Kennedy (1982) measured corporate cultures in respect of Feedback and Risk. The model is based on characterizing different types of organization, based on how quickly they receive feedback and reward after they have done something and the level of risks that they take. These two dimensions form the basis of an organizational culture (Faust, 2003, p.115). Using this model they were able to suggest four classifications of culture:
Tough-Guy Macho Culture: Feedback is quick and the rewards are high. This often applies to fast moving financial activities such as brokerage, but could also apply to a police force, or athletes competing in team sports. This can be a very stressful culture in which to operate, focusing on the present rather than the longer- term future (ibid).
Work HardlPlay Hard Culture: Culture is characterized by few risks being taken, all with rapid feedback. This is typical in large organizations, which strive for high quality customer service. Stress is coming from quantity of work rather than uncertainty. It is often characterized by team meetings, jargon and buzzwords and mainly be found in restaurants or e.g. software companies (ibid).
The Bet your Company Culture: Referring to slow feedback but a high risk. Where big stakes decisions are taken, but it may be years before the results are known. Typically, these might involve development or exploration projects, which take years to come to fruition, such as oil prospecting, military aviation or aircraft manufacturers (ibid).
illustration not visible in this excerpt
Figure 2: Corporate Cultures by DeallKennedy
The Process Culture: Occurs in organizations where there is little or no feedback. People become bogged down with how things are done not with what is to be achieved. This is often associated with bureaucracies but can be seen also as a focus on security of the past and of the future. While it is easy to criticize these cultures for being overly cautious or bogged down in red tape, they do produce consistent results, which are ideal in, for example, public services but also insurance and bank sector (Faust, 2003, p.115).
Source: Deal T. E. and Kennedy, A. A. (1982) Corporate Cultures: The Rites and Rituals of Corporate Life, Harmondsworth, Penguin Books
2.3.2 Charles Handy
Sarah Walter
Charles Handy (1985) popularized the work of Roger Harrison of looking at culture which some scholars have used to link organizational structure with Organizational Culture. He, like Deal and Kennedy, also names four classifications but uses other criteria. He describes Harrison's four types as the following cultures:
The Power culture, which concentrates on power among a few, control radiates from the center. Handy (1993, p.183) interprets that Power Cultures have few rules and little bureaucracy.
Second type is called the Role Culture. People have clearly delegated authorities within a highly defined structure. Typically, these organizations form hierarchical bureaucracies. Power derives from a person's position and little scope exists for expert power (ibid, p.185).
By contrast, in a Task Culture, teams are formed to solve particular problems. Power derives from expertise as long as a team requires expertise. These cultures often feature the multiple reporting lines of a matrix structure (ibid, pp.185ff.).
A Person Culture on the other hand exists when all individuals believe themselves superior to the organization. Handy (1985, p.18) notes that survival can become difficult for such organizations, since the concept of an organization suggests that a group of like-minded individuals pursue the organizational goals. Some professional partnerships can operate as person cultures, because each partner brings a particular expertise and clientele to the firm (Handy, 1993, p.186).
2.4 Theories on country-specific cultural characteristics
Sarah Walter
As corporate culture is, among others, also determined by the environment in which an organization exists, the question arises of whether the typologies developed and identified in Western European countries also describe the typical contents of cultures of organizations from the rest of the world (Blöcher/ Glaum; 2005, p. 297).
This issue becomes particularly acute facing the fact that this term paper is referring to the merger of the world's largest car manufacturer Chrysler and the German car corporation Daimler. It arises the questions if the country can have such a big influence so that it influences the company’s corporate culture and therefore must be considered within the Cultural Due Diligence in order to successfully merge two firms.
Various studies have shown that people in stressful- and unknown- situations fall back to their national cultural behaviors. Apparently these patterns are mostly stronger than the corporate cultural values (Hall, 1989, p. 105ff.). Uncertainties caused by an M&A transaction therefore necessitate the investigation of both country cultures, in this case: the German as well as the US- culture. There are numerous studies on country’s cultural differences. A very famous one, which was already discussed in our course of International Marketing in term 4, is the comparison of High- Context- Cultures and Low- Context- Cultures.
Hall (1976, p.70) considers Germans (Daimlers country of origin) as well as the Americans (Chryslers country of origin) as low- context cultures. Low-context means that "the mass of information is vested in the explicit code" (ibid).
Low-context cultures, like the USA and Germany are considered to be, are orientated on many people of their daily life because they do not differentiate as much as high- context cultures between in- and out-groups (Hall, 1976, p. 98). An “in-group” is being defined as a group that has similar experiences and expectations, from which inferences are drawn (Myers- Scotton, 2005, p.182). So their direction of communication is orientated on personal characters and referred to situations. They mostly communicate within their out-groups in a broad and diffuse way (ibid).
illustration not visible in this excerpt
Figure 3: High ContextlLow Context Culture
Within communication they exchange information just to the necessary extent so that work can be done and they don't discuss or exchange information constantly in their work environment and with colleagues. Much more is explained through words, instead of the context. In contrast, in a high context culture many more things are left unsaid, letting the culture explain (Hall, 1976, p.99).
Due to the fact that Germany and the United States can be categorized as low- context- culture the aspect of the communication process differences in individualistic and collectivistic cultures can be neglected in the Cultural Due Diligence within the case of DaimlerChrysler.
[...]
[1] Typology: methods for the classification of things according to their characteristics
- Arbeit zitieren
- Dirk Hollank (Autor:in), Sarah Walter (Autor:in), 2008, Cultural Clash and Cultural Due Diligence at DaimlerChrysler, München, GRIN Verlag, https://www.grin.com/document/120286
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