Failed Merger of Daimlerchrysler

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Executive Summary

This case study is on the topic ‘DaimlerChrysler-Knowledge Management (KM) Strategy’ from the Harvard Business School case studies. Principally, this case is based on the merger of Daimler, a German automobile company and Chrysler of the USA. We will analyse the KM related issues faced by the company in the post-merger period. These issues include implementation of KM, mismanagement, cultural differences, individual people barriers, etc. Furthermore, there are solutions and also recommendations given as to what the management could have done to save the company from de-merging.

Introduction

Knowledge Management (KM) is a field which is being accepted, taught and practiced in academic institutions as well as organisations. As this is the era of Globalisation, KM has gained importance and is being practiced by almost all successful companies. In fact, it is even offered as a core subject in educational institutions. So, what exactly is KM? “KM draws from existing resources that your organisation may already have in place-good information systems management, organisational change management, and human resource management practices.” (Davenport and Prusak 1998) This definition is an integrated definition of KM and is focused on the integration of information systems and human resources. The case being studied is the merger of the United States automobile company Chrysler and Daimler of Germany. Merger, in general means the unification of two or more companies for certain agreed upon reasons. These two companies merged in 1998. Mr. Jurgen Schrempp was the CEO of German auto giant, Daimler Benz. Schrempp was the man who was the originator of the idea of Daimler’s merger with Chrysler in 1998. He guided the company from massive losses in the mid 1990s to a successful company later. The merger was termed as the ‘merger of equals’ by Mr. Schrempp and also CEO of Chrysler, Mr. Bob Eaton. The reasons for the merger were different for both the companies. Eventually, it was a failure. Times Online gives the following reasons for the failure of the merger: (Times Online 2007)

1.The merger was never fully accomplished
2.DaimlerChrysler suffered a loss of $1.5 billion in 2006 because of Chrysler alone. 3.The U.S. company did tie up with the European company, but, Chrysler did not globalise. 90% of its sales were still coming from the U.S. 4.Chrysler slowed down the process of its main products like minivans, SUVs and pickup trucks. These products made 70% of Chrysler’s output.

Background of the merger

Daimler-Benz was a very successful company is the early 90s. Apart from car manufacturing, they had ventured into electronics and aerospace in the 1980s. But, all of this ended when they induced a loss of DM5.7 billion which was the biggest loss in German history. Competition was eating up Daimler-Benz’s market share and eventually, Daimler felt the pressure to merge. In spite of Chrysler’s record sales of 2.7 million units, Chrysler was still the smallest automobile manufacturer in the U.S. market. Soon, Chrysler’s position in the market was questioned and competition was getting stronger. Chrysler lacked depth in management and lack of products. Even Chrysler felt the pressure to merge and in June 1998, Daimler-Benz and Chrysler merged. They had formed the world’s 5th largest car company with a whooping $132 billion in the form of revenues and about 428,000 employees. The management anticipated that this merger is a perfect merger because it will bring together Chrysler’s innovative skills and Daimler’s engineering skills. Also, Daimler had a strong prevalence in the markets of Asia, Europe and North America (segments in which Chrysler did not). Both the CEOs asserted that the merging would result in a saving of $1.4 billion in its company’s 1st year itself. They also claimed that the assimilation would be complete within 2-3 years time. The merger agreement was signed on 6 May 1998 in...
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