IMD International Institute for Management Development

Perspectives for Managers

Paul Strebel, SandozFamily Foundation

Professor ofManagement.

Director of theBreakthrough

Programm for SeniorExecutives

clichés. And when they break the clichés,we’re disturbed, because something strangeseems to be going on. Since we know culturesonly change slowly, we perceive ourselves tobe separated from them by permanent cul-tural differences. In the worst cases, this leadsto dangerous myths about others, resulting inviolence and bloodshed. In the businessworld, it may make it impossible for people towork across boundaries and doom someorganizational arrangements, like particularmergers, to failure before they are even con-summated.

For practical business purposes, it is essentialto go beyond the clichés and come to gripswith the different contexts.Awareness of thebehavior represented by national clichés mayhelp to sensitize you to what to expect in dif-ferent cultural settings. But, usually, this aware-ness reflects an average stereotype andignores the specifics. By contrast, with a cor-porate culture and business model perspec-tive, we can more objectively understand thespecific differences in values, beliefs, andbehavior between the people on the twosides of a cross-border merger.

Corporate Specifics in theDaimlerChrysler Merger

Consider how differences in corporate cul-ture and business models have affectedDaimlerChrysler1 and how these differ fromthe prevailing national cultural clichés. A mis-leading cliché at that first DaimlerChryslerget-together of top managers was thatAmericans are more socially relaxed thanGermans. The apparent informality in thewidespread use of first names in the US,accompanied by the use of titles and the dis-

To avoid the pitfalls incross border mergers,it is essential to focusnot on clichés aboutthe other side’snational culture, buton the specifics of thecorporate contextsinvolved. To mobilizepeople across coun-tries behind our

objectives, we have to avoid cultural stereo-typing and recognize the differences in thecorporate contexts. This Perspectives forManagers illustrates the dangers inherent innational clichés and the importance of busi-ness models, corporate culture, personalities,and national institutions in cross-border merg-ers, with the experience on both sides of theDaimler-Chrysler merger.

One of the first significant events aimed atintegrating the Daimler and Chrysler cultureswas a dinner between the top managers ofthe two companies.After dinner, the GermanCEO, Jürgen Schrempp, led the singing aroundthe piano.The Americans were surprised that,rather than being a stiff German businessman,apparently he was part of the wine and songstereotype. Schrempp, on his side, was sur-prised at the reticence of the Chrysler exec-utives to let their hair down and especially athow early most of them went to bed.Wherewas that American “cowboy spirit”, the reput-ed hallmark of Chrysler’s daring culture?

When we see people of other backgroundsbehaving differently, we often say to ourselves:“Why can’t they be like us?”We look at themthrough the lens of cultural stereotypes, ourview of their typical behavior, in effect, cultural

No. 93, June 2002

Real World. Real LearningReal World. Real Learning™™

Focus On Corporate SpecificsNot National Clichés:Cross-Border Lessons from the DaimlerChrysler Merger

For the Daimler people, the most misleadingcliché was that of American flexibility, embod-ied at Chrysler in the free form discussion,cross-functional product launch teams, muchleaner staffs, personal expenses and broaderresponsibilities of top managers.The Daimlerpeople discovered that flexibility can meanvery different things depending on the busi-ness model and the way it responds to fluc-tuations in market demand. Chrysler’s lowcost model is based on very high fixed relativeto variable costs: Its factories are rather inflex-ible, tailored to make single products in highvolumes at low cost; its managers have littleinternational experience and are not keen tomove around; its unions are less cooperativethan German unions with their experience of“Mitbestimmung”; its product portfolio ishighly concentrated on the Ram pickups, theminivans and the Jeep SUVs, and more than90% of its sales are in North America.

Prior to the merger, Chrysler had its highestprofits ever and so much cash on hand thatits major private shareholder, Kirk Kekorian,had been pushing for more dividends forseveral years already and Daimler paid a pre-mium of 28% over the then share price.Barely two years after the merger, in the faceof weakening demand, Chrysler was bleedingred ink and a subject of radical restructuring.When the differences in business model aretaken into account it is not surprising, but tobe expected that Chrysler’s earnings wouldbe highly sensitive to demand fluctuations inthe middle-income US market and, therefore,extremely volatile over a business cycle.

Another cliché is that Germans are morehierarchical than Americans, as is apparent inthe German system of corporate governancewith its two-tier board structure and formallabor representation.Yet, the Chrysler execu-tives were surprised by the power of the topmanagers on Schrempp’s team, while theDaimler executives were surprised by thelack of management depth on the Chryslerside. This is much less surprising when onetakes into account the details of the Germansystem of corporate governance thatrequires a cumbersome, collective form ofdecision-making. Even on the managementboard, the CEO has to get the votes of histop managers for key decisions. The dilutedpower of the CEO puts a much greater pre-

tinction between the formal and informal“you” in German, reinforces this view. Withthe cliché in mind, the Chrysler executivesnaturally expected their Daimler counterpartsto be at least as socially reserved as they are,while the Germans expected the Americansto be more socially relaxed. However, if theChrysler people had taken into account thefact that Jürgen Schrempp is a political inde-pendent, strongly influenced by his stay inSouth Africa, they too would have been muchless surprised after that first dinner together.

Clichés aside, there are wide variations in thesocial behavior preferred by, say, the mem-bers of different political parties in bothcountries. In the US, there is a divide betweenRepublicans and Democrats, with the formerfavoring a more conservative approach tosocial behavior. In Germany, the divide onsocial behavior between Christian and SocialDemocrats is not as wide as it is with theGreens.Most German managers identify withthe main political parties and have a center-right leaning somewhere between the USDemocrats than the Republicans. If theDaimler executives had focused on the factthat many American managers are sociallyconservative Republicans, they would nothave been surprised by the latter’s reservedbehavior. Not to mention the fact that manywere jetlagged and a needed a break fromtrying to cross the cultural divide!

The most misleading cliché of them all for theChrysler people was that the Germans arestraightforward, not much inclined to subtletyand subterfuge. Jürgen Schrempp claimedlong and loud that the union of the two com-panies was a merger of equals. He went togreat lengths to treat Bob Eaton, the CEO ofChrysler, as an equal in terms of the protocolat meetings and conferences and in the initialorganizational design. But he insisted that thehead office be in Germany, not theNetherlands as some had suggested, and thatDaimler comes before Chrysler in the name.In addition, it was agreed that Eaton wouldstep down after a maximum of three years.By all accounts right from the beginning, theDaimler people never intended it to be amerger of equals, except in a public relationssense. Not that they intended to impose theMercedes culture on Chrysler, but rather thatMercedes would be the dominant partner.

Focus On Corporate Specifics Not National Clichés:Cross-Border Lessons from the DaimlerChrysler Merger

2

“The most mislead-ing cliché of themall for the Chrysler

people was that theGermans are

straightforward, notmuch inclined to

subtlety andsubterfuge.”

“ The Daimlerpeople discoveredthat flexibility can

mean very differentthings depending onthe business model

and the way itresponds to fluctua-

tions in marketdemand.”

Business ModelsDaimler and Chrysler had fundamentally dif-ferent business models at the most basic levelthat had little to do with national culture.TheMercedes model is a classic example of aHigh Perceived Value approach to the indus-try. Its target segment of customers is thehigh end of each price category in which itsells cars. Its value proposition is the drivingimage and experience associated with thehighest quality of automobile engineeringavailable in the market, with a price to match.Its value chain puts a corresponding empha-sis on engineering, design, quality and aftersales service.

Chrysler, by contrast, had a classic LowDelivered Cost approach to the market. Itsvalue proposition was attractive, eye-catchingdesign at a very competitive price. Its targetwas the mass market for the specialty seg-ments of pickups, minivans, and sports utilityvehicles.And its value chain was designed forhigh volume, low cost manufacturing anddistribution.

Mixing such radically different business modelscan be disastrous; the loss of focus on bothsides could bring them both down.The trickfor Daimler will be to enhance the Chryslermodel with better engineering, while keepingit separate enough to maintain its focus.

Corporate CulturesDaimler’s culture was consistent with itsbusiness model. It is most simply describedin terms of Quinn’s Internal Process Model:an emphasis on the management processesof planning, organizing and controlling.Functional managers were powerful andsupporting staff necessary to man theprocesses. In addition, Daimler’s culture wasshaped by the German system of distrib-uted power in the dual boards at the topwith strong worker influence. The naturalleadership style would have been that of achairman/orchestrator ;

Chrysler’s culture corresponded to Quinn’sRational Goal Model: setting goals, directingand monitoring implementation. Chryslerhad a tradition of charismatic commandertype CEOs who dealt directly with their lieu-tenants lower down in the hierarchy. Themanagement hierarchy was lean reflecting

mium on persuasion than in an Americancompany, where the CEO has the option ofa more directive, top-down style at the top.

In the presence of dominant CEOs, orCOOs, like the charismatic Lee Iacocca andBob Lutz at Chrysler, there is the danger ofless management depth. In Chrysler’s case,this style together with lean managementwas part also of the company’s low costmodel.The Daimler people saw the problemafter the top Chrysler people, Bob Lutz,TomGale and Tom Stallkamp were gone.

More attention to the behavior associatedwith institutional market differences wouldhave avoided the gaffe made byDaimlerChrysler’s financial team when itmade its first quarterly earnings announce-ment. Despite warnings from the Chryslerside about the earnings sensitivity of the ana-lysts and institutional investors who drive theAmerican financial markets, the Daimler staffwent ahead with its low key German styleearnings announcement. DaimlerChryslersurprised the US markets with flat earningsway below expectations, and paid for it witha sharply plunging share price and loss ofinvestor confidence in the company.

A pointed institutional detail is the differencein speed limits between Germany and the USand the difference in driving cultures that itreflects. Owing to the absence of a speedlimit on many of the autobahns, there is alarge market in Germany for cars that handlewell at 200 kph; On the other hand, owing tothe strictly enforced 55mph limit on U.S. high-ways, Americans look for cars that are com-fortable to drive at moderate speeds. Thismeans that there is less of a mass market inthe US for all of Daimler’s sophisticated engi-neering. A big unanswered question iswhether the Daimler people will respect thedifference in driving cultures as they look forcommonalities across the two companies inthe future? Will Daimler be able to leverageits technology at a lower price point?

Lessons from theDaimlerChrysler Merger

The big lesson is not to allow national clichésto obscure the real differences in businessmodels and corporate cultures.

3

ww

w.im

d.ch

“Daimler’s culturewas shaped by theGerman system ofdistributed power inthe dual boards atthe top with strongworker influence.”

“A pointed institu-tional detail is thedifference in speedlimits betweenGermany and theUS and the differ-ence in drivingcultures that itreflects.”

4

al cultures, personalities and national institu-tions, should one look for general differ-ences in national, or ethnic behavior pat-terns that might create misunderstandingsand integration problems.

The winners in cross-border mergers arethose global managers who understand thedifferences in corporate specifics andrespect other people’s backgrounds, notonly in words, but also in deeds. One of thebiggest challenges for DaimlerChrysler willbe to capitalize in fact on its corporatediversity.This will require walking the globaltalk much more consistently, in the form ofactions that build mutual trust, withoutwhich there can be no global culture. It willinvolve a proactive approach to cross-bor-der management that takes advantage ofthe best practice on both sides, invitesactive management of the risks andexploitation of the opportunities.

the expanded role of the CEOs. Shremppprobably was attracted to the Chrysler tradi-tion of commanders.

Taking advantage of these differences incorporate culture to enrich the decision-making process, rather than letting the dif-ferences get the way, is a central challengein making such a merger work.

PersonalitiesSchrempp with his independent personalityand South African overlay didn’t fit neatlyinto any German stereotype. Moreover,with his driving commander-type leadershipstyle he didn’t fit into the more usualDaimler style of a chairman/orchestrator.On the other side, Robert Eaton, theChrysler CEO at the time of the merger,broke the Chrysler tradition of command-ers. He was more of a chairman, which sur-prised Schrempp.

Those who rise to the top through the pol-itics of large organizations cannot beassumed to fit any easy national stereo-types; their experience and political expert-ise has forged a public persona, shieldingtheir unique, underlying personality that hasto be discovered encounter-by-encounterover time.

National InstitutionsAt least six categories of national institutionwere responsible differences that createdmisunderstandings and surprises in theDaimlerChrysler merger. These were differ-ences in legal, governance, union, accounting,financial market, and car driving practice.

Yet, the differences between national insti-tutions provide a much more objectivebasis than clichés for understanding relateddifferences in cultural behavior. While insti-tutions both reflect and shape national cul-tures, they have the big advantage that theyare a concrete reality that exists in everyday life. Their differences can be observed,documented and described in detail.

The ultimate lesson is that nothing can betaken for granted in any merger or acquisi-tion, least of all national stereotypes. Onlyonce one has taken into account differ-ences due to business models, organization-

Focus On Corporate Specifics Not National Clichés:Cross-Border Lessons from the DaimlerChrysler Merger

IMD is generally regarded as the businessschool in the vanguard of executive edu-cation. Its global outlook is particularlyrelevant to companies and organizationsoperating internationally.The school has aunique range of programs aimed at exec-utives from the upper-middle manage-ment up to and including CEOs and boardmembers. For more information aboutour programs, please contact our pro-gram advisors at the address below:

IMD International Institute for ManagementDevelopmentP. O. Box 915, CH-1001 Lausanne,SwitzerlandTel.: +41 21 618 0342 Fax: +41 21 618 0715info@imd.chhttp://www.imd.ch

Editor: Roger Whittle© IMD,August 2002. No part of this publicationmay be reproduced without written authorization.

Real World. Real LearningReal World. Real Learning™™

“Those who rise tothe top through the

politics of largeorganizations cannot

be assumed to fitany easy national

stereotypes.”

References

iBill Vlasic and Bradley A. Stertz, “Taken for a Ride: How Daimler-

Benz drove off with Chrysler”, (John Wiley & Sons, Ltd., 2000)

IMD Cases:

• DaimlerChrysler Board: After the Deal is Done - Professors

Ulrich Steger & Fred Neubauer

• DaimlerChrysler Merger (A): Gaining Global Competitiveness -

Professor Ulrich Steger

• DaimlerChrysler Merger (B): The Involvement of the Boards -

Professors Fred Neubauer & Ulrich Steger