Question 1: What were the main differences between the Mercedes and Chrysler business models in the car sector before the merger?

Question 1: What were the main differences between the Mercedes and Chrysler business models in the car sector before the merger?

Daimler-Benz and Chrysler had very different stories prior to the merger and this have resulted in different company cultures and business models within firms.
Daimler Benz were the first company in the German automobile industry though they have always wanted to become maximum internationalized, become distant from traditional German export model and establish global independence. Chrysler was not intending internationalization – they were based in America and were not longing much to expand worldwide. In 1995 Jurgen Schrempp has pursued a new strategy which consisted: “conversion into a full-sortiment producer, (re-)opening of the US market and the emerging markets, globalization, and productivity and process improvement” (Freyssenet 2009, p.310). In support to their strategy of internationalization Daimler have opened a number of plants worldwide: Tuscaloosa, USA, Juiz de Fora, Brazil as well as assembling a number of models’ production in Vietnam, Mexico, Indonesia, India and South Africa. New plants assist shorter delivery times in the new and emerging markets and easiness of dealers’ supply. On the other hand Chrysler have tried to internationalize the company in early 1980 and have failed, followed by downsizing – 75,000 workers were dismissed and 21 plants closed down. After that they never tried to internationalize and were based in America. The merger with Daimler was a chance for Chrysler to achieve European markets, and for Daimler an opportunity to strengthen their position in America.
Another difference between two companies was that Daimler is classified as luxurious brand and had excellence in every aspect, when Chrysler only specialized on multipurpose car and not on other vehicles, which they offered in the model range. They mainly survived because of innovations and trendsetting. Before the merger, Mercedes’ production was big proportion of BTO, as they had to meet needs and wants of their more demanding customers. Chrysler produced more BTF because of the low variety of choice for the customers and the cost-effectiveness of this way of production.
In order to produce BTO more efficiently the management of Daimler had to embed the architectural knowledge within the laborers. Architectural knowledge means that laborers are not only familiar with the components but also know how they relate to the product: this makes labor flexible and supports cell layout that is essential for the BTO production. Mercedes cars have a brand image of high quality cars, which became possible to achieve because of successful implementation of the BTO and labor’s flexibility.
On the other hand, Chrysler are more focused on innovation and cost reduction. The market segment they produce for implies that they produce cost efficiently (that is why they use more BTF) and attract customers not by luxury and quality but by innovations. They produce higher volumes than Mercedes and that is why BTF is more suitable for Chrysler.
When companies merge, it is essential that they have to adjust their production strategies in order to achieve synergies. Mercedes’ production was more efficient but due to the inflexibility of Chrysler, they failed to integrate, as Chrysler was unable to amend the production. The reason for that was the lack of knowledge and worker flexibility, as they never needed it in mass production, when Mercedes’ had architectural knowledge within the firm due to BTO production and quality status.

Question 2: What were the main differences between Mercedes and Chrysler production processes and how did these differences affected the strategic outcomes of the merger?

The main differences between Mercedes and Chrysler that determined their production processes were that they have targeted different market segments. Different market segments demand different products and expect different time for a product to be delivered therefore companies need to have different proportions of build-to-order. As Holweg&Pil have mentioned in their study in 2004, American and German automobile markets have very different demands. American customers demand much more less of a luxury and fast-delivered cars, their preferences are cost and convenience driven. Mercedes’ and Chrysler’s customers differed by many criteria before the merger and the company’s one of the main targets is to keep customer satisfied. Satisfying customers is an everyday routine that builds up a culture of a company. They had different ranking and understanding of performance objective because their targets were completely different, therefore they had different meta-routines and cultures were incompatible. This have resulted in slow integration between companies, poor understanding of each other’s aims and lack of mutual understanding between the workers. These problems have all resulted in a big culture clash in the DaimlerChrysler and in inability to work smoothly with one another.

Question 3 :What were the main differences between labor politics at Mercedes and Chrysler and how did they affect process design in the two companies?

Prior to the merger it was obvious that although the merger was called the “marriage of equals” in the market terms, the cultures within the companies were very different mainly due to the different employees’ attitudes. The nationality cultures between Eastern Culture of Daimler-Benz and Western Culture of Chrysler had clashes in organization, working style and compensation.
“Daimler was a German company, which could be described as “conservative, efficient and safe”, while Chrysler was known as “daring, diverse and creating” (Appelbaum et al. 2009, p.44). The companies challenged significant cultural clash after the merger. Daimler had hierarchical structure when Chrysler’s structure was much flatter and team-oriented. At Daimler decisions took a long time and responsibilities were strictly separated. All managers had equal stake and received high compensation, times more than did managers at Chrysler. The politics at Daimler was to work late hours. On the other hand Chrysler did not at all follow luxury principles, they were design trendsetters and decision-making time was short. The culture within company was relaxed and informal, teams were self-responsible. They had strict cost-management as opposed to Daimler, therefore they felt unequal after the merger and strong tension appeared. This tension led to the mutual dislike between companies’ employees. Daimler business culture was to give commands and Chrysler obeyed, therefore the “marriage of the equals” turned into the “adoption” of Chrysler by Daimler. “Daimler was much more imposing and tried to dictate the terms on which the new company should work” (Appelbaum et al, 2009, p. 44).

Chrysler used product process design because they were using build-to-forecast whereas Mercedes mainly used cell layout as they were using build-to-order. Mercedes engineers are hierarchy top rank managers with technical qualifications in process design. Their workers contribute in the analysis of the process and have a word when the company is deciding how the company should be carried out. Workers are given a right to say because at Mercedes they have high-skilled, autonomous, empowered workers with architectural knowledge – they are familiar not only with the components of the process but with the relation of those components to the outcome. These workers can contribute to the quality of the process and process re-design in order to ensure continuous development. We know that because Mercedes industrial relations are based on co-integration. This has never happened in Chrysler. It is impossible to take the Mercedes productive model and implant that in Chrysler. Before the merger Chrysler had absolutely different trajectory, was more a Fordist company; the merger could have worked if Chrysler would have restructured before merging with Daimler.

The weakness of the Chrysler before the merger was that they only were successful in single market segment – multipurpose vehicles such as Voyagers and minivans. They had inflexible product design – the mostly demanded production line worked overtime, when other car models’ production line were underutilized. Chrysler was a constant innovator, offered a range of products but was not efficient and not flexible. Therefore it failed to acquire the flexibility of Mercedes, because they had to shift to cell layout, employ bottom up knowledge accumulation and co-integration of labor.

Question 4: Assess Fiat’s takeover of Chrysler in terms of operation strategy and market strategy.

Fiat is an Italian automobile manufacturer existing from 1899 and has a very wide model range – from passenger cars to trucks. It is a big company that owns brands of Fiat, Lancia, Alfa-Romeo, super-luxury Maserati and Ferrari and from 2009 it owns Chrysler. Fiat itself is a cheap mass-market brand when Chrysler is a niche market car. Chrysler and Fiat are complementary in terms of model range as they aim at different market segment and are at different price levels. If consider the whole range of the cars that Fiat owns as a company a range of Chrysler successfully supplements and makes the model range more full.

Fiat is mainly producing cars for the Italian market and Chrysler is dependent on American car market. I suppose this circumstance gives Fiat and Chrysler great opportunities in terms of the distribution channels. Chrysler can use Fiat’s distribution channels to Italy and most of the Europe as well as India (as Fiat has a partnership with Tata Motors) and Brazil, and vice versa: before the merger Fiat was only selling Ferrari and Maserati in America and now it has an opportunity to strengthen its position even more globally. An acquisition helps firms to appear in new markets and to domesticate foreign markets.

Fiat has always been more a successful as a down-market brand and “attempted to shift upmarket twice in the 1970s and 1990s, and both attempts were strategy driven”(Maielli 2005, p.259) but both times it have failed to shift. Balancing output mix for Fiat has always been a struggle. Chrysler is more upmarket than Fiat and targets medium-price field. I suppose that other from the opportunity to use each other’s distribution channels, for Fiat an acquisition of Chrysler meant that Fiat will be more close to balancing output mix and to gain competitiveness in other segments than the lowest-priced one.

This merger seems more prosperous in terms of the process design than did the DaimlerChrysler merger. Both companies use product process design in order to be cost and speed efficient. Here their interests match and it will be easier for them to achieve synergies in production. Chrysler was having bad days before the merger and it is an opportunity for them to recover as “Fiat will share with Chrysler its platforms and powertrain technology, including engines, transmissions, and fuel-saving tech” as was written in CarAndDriver magazine in January 2009.

The fact that both companies mostly use product layout, are more Fordist companies and focus on speed- and cost-effectiveness implies that they have compatible internal cultures and compatible meta-routines, which are the ways that companies rank and understand performance objectives. Similar understanding of processes will make integration more friendly, quick and overall efficient.

In general, Fiat and Chrysler merger seems far more promising than Daimler and Chrysler merger did. This is mainly because Fiat and Chrysler have more similar objectives and are overall much more similar than Daimler and Chrysler were. Nevertheless positive sides, there may be some negatives outcomes as some problems are summed up. Both companies are inflexible in production and workers do not have architectural knowledge. They are both in the market segments that they do not wish to be. When merging, both companies wish to achieve synergies but this may not happen in our case because companies do not have knowledge in similar areas. Here comes the concept of absorptive capacity – an ability to absorb external knowledge. Fiat’s main target is to go more upper market but they do not have experience in that area as they have failed going upper-market twice in 1900s. Merging with Chrysler they wish to attain their knowledge in medium market. Absorptive capacity will fail here because if you open your design process to external knowledge you will only absorb knowledge if you already have strong capacity in the area that is developing. And Fiat does not have that. On the other side, if Chrysler’s technology for medium-class cars was good, Daimler would not have sold it. Basing on these assumptions I assume that Fiat is not able to improve Chrysler and vice versa because of the lack of the needed valuable knowledge in both companies.

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