Analyzing the failure of the DaimlerChrysler merger from a project management perspective

Developed by Camille Goure

Abstract

In the late 90´s, German Daimler-Benz AG and American Chrysler Corporation announced their intention to combine their strengths within a so-called `merger of equals´ . Becoming the fifth largest automaker in the world, both companies hoped to overcome together the automotive industry crisis. However, nothing worked out as planned, so much so that in 2007 Daimler-Benz sold all its shares of the Chrysler division.

Could the use of a norm have guaranteed the success of the DaimlerChrysler merger ? This question will be answered with regard to the ISO 21500:2012 guideline for project management.

According to the latter, a definition of project management and the processes it involves will be provided.Then, an analysis of the origin of DaimlerChrysler project will be carried out. It will also be shown to what extent this fusion was mismanaged with regard to the subject groups defined in the ISO 21500:2012. Last but not least the benefits of using this standard to successfully conduct a complex project will be discussed.

Introduction

In the early 21st century, no comprehensive standard on project management was accepted despite the substantial demand for project management skills. However, in 2006, the need for a unifying international approach was recognized by the International Organization for Standard (ISO). The work of over hundreds experts in project management from around the globe resulted in ISO 21500: 2012 -Guidance on project management. This norm defines universal project management terminologies, as well as the principles and processes it involves. It provides a basic guide against which any organization can compare its current project management practices and determine areas in need of improvement. But how to practically apply it to a project? A specific example of project failure prior to introducing ISO 21500 will be provided to analyze which project management processes were disregarded. More particularly, the merger of the German automaker Daimler-Benz with the American Chrysler Corporation will be examined with the perspective of subject group.

ISO 21500 : 2012, a focus on processes

What is a project? A definition is provided by the ISO 21500: “A unique set of processes consisting of coordinated and controlled activities with start and end dates, performed to achieve project objectives.” The concept of processes seems to be at the crux of project management issues. The definition of how to manage a project stresses this point: “Project management is performed through processes”.

Specifically, the norm splits the method of managing a project into 39 elementary processes. Depending on the perspective, the latter are grouped into five process groups (Initiating, Planning, Controlling and Closing) or into ten subject groups (Integration, Stakeholder, Scope, Resource, Time, Cost, Risk, Quality, Procurement and Communication). The classification of these processes is provided in the following table.

Table 1 : Project management cross-referenced to process and subject groups (ISO 21500 : 2012)

SUBJECT GROUPS	PROCESS GROUPS
	Initiating	Planning	Implementing	Controlling	Closing
Integration	4.3.2 Develop project chart	4.3.3. Develop project plans	4.3.4 Direct project work	4.3.5 Control project work 4.3.6 Control changes	4.3.7 Close project or phase 4.3.8 Collect lessons learned
Stakeholder	4.3.9 Identify stakeholders		4.3.10 Manage stakeholders
Scope		4.3.11 Define scope 4.3.12 Create work breakdown structure 4.3.13 Define activities		4.3.14 Control scope
Resource	4.3.15 Establish project team	4.3.16 Estimate resources 4.3.17 Define project organization	4.3.18 Develop project team	4.3.19 Control resources 4.3.20 Manage project team
Time		4.3.21 Sequence activities 4.3.22 Estimate activity durations 4.3.23 Develop schedule		4.3.24 Control schedule
Cost		4.3.25 Estimate costs 4.3.26 Develop budget		4.3.27 Control costs
Risk		4.3.28 Identify risks 4.3.29 Asses risks	4.3.30 Treat risks	4.3.31 Control risks
Quality		4.3.32 Plan quality	4.3.33 Perform quality assurance	4.3.34 Perform quality control
Procurement		4.3.35 Plan procurements	4.3.36 Select suppliers	4.3.37 Administer procurements
Communication		4.3.38 Plan communications	4.3.39 Distribute information	4.3.40 Manage communications

The perspective of subject groups will be adopted to consider the management of DaimlerChrysler project. A subject is a theme in which processes are classified according to its related activities.

But before that, the project of DaimlerChrysler merger is regarded.

DaimlerChrysler merger project

The genesis of the project

In the late 90´s, the automotive industry had to face multiples challenges due to the excess manufacturing capacity, the growth of ecological awareness, and the retail revolution that empowered buyers. To strengthen their position during this crisis, the automakers Daimler-Benz and Chrysler Corporation decided to merge. This project aimed to combine each other´s product designs, manufacturing resources and distribution systems. The following table shows the complementary of the two companies, which wanted to unit their knowledge and their market in order to gain a competitive advantage.

Table 2 : The complementary of the two companies

	Daimler-Benz AG	Chrysler Corporation
Head office location	Germany	United States
Geographical reach	European market	U.S. American market
Product ranges	Uncompromising quality products	Car models that meet the American demand for adventurousness

Both synergies and economies of scale were likely to proliferate.

How the project was set up is explained in the following paragraph. However, its detailed description falls outside the scope of this article.

The execution of the project

On May 7th, 1998 the signing of the combination agreement between Daimler-Benz and Chrysler was publicly announced. Daimler-Benz CEO Jürgen Schrempp described the union as "a merger of equals, a merger of growth, and a merger of unprecedented strength". The equal status of the two organizations was reflected in the newly established entity name, DaimlerChrysler, as well as in the combination of the two former boards of management to form the one of DaimlerChrysler. Furthermore, it was agreed that Schrempp and Eaton, former CEO of the Chrysler Corporation, would jointly led the entity as co-chairmen and co-CEOs. It was also decided that Eaton would stay up to three years. The two following tables provide more data about DaimlerChrysler right after the merger and the expected results of this project.

Table 3 : Characteristics of DaimlerChrysler right after the merger

Number of employees	442,000 employees ½ in Germany 1/3 in North America 1/6 spread across 200 countries around the world
Daimler-Benz AG Market capitalization	$ 92 billion

Table 4 : Expected results

Annual revenues of the combined company	$ 132 billion
Increase in sales	13%
Cost savings brought within 2 or 3 years	$ 3,5 billion a year

So far, this fusion appears to be very beneficial for all parties involved. However the wish for synergy effects never came true and the project drove Chrysler into chaos. In May 2007, the merger of Chrysler and Daimler-Benz was dissolved. Can this failure be ascribed to mismanagement?

The purpose of this article is now to point out which processes, related to the different subject groups definied in ISO 21500:2012 were disregarded and may have led to the project failure.

The mismanagement of some subject groups

Four subject groups will successively be considered : Integration, Time, Communication and Stakeholders. A mismanagement of some processes related to these four specific subject groups is namely to be seen.

Integration

The Integration subject group includes the processes required to identify, define, combine, unify, coordinate, control and close the various activities and processes related to the project (ISO 21500:2012 - 4.2.3.2).

Within this merger, the unification and combination of all operations within the established entity needed to be achieved. To meet this target, a newly corporate culture had to be defined to align working styles. The latter namely radically differ due to major cultural differences, as shown in the following table.

Table 5 : Comparison between the German and the American working styles

	Germany	United States
Employee working style	Work in a team-oriented environment	Work individually
Writing report	Lengthy reports	Little paper
Decision-making process	Methodical, based on very detailed plans	Using creativity, based on trial-and-error method
Meeting	Extended discussions	Short meeting
Organizational structure	Pronounced hierarchy based on top-down-management	Flat organizational hierarchy stimulating empowerment of the employees
Risk appetite	Risk adverse culture	Risk takers

Due to the fact that this merger was a so-called `merger of equals´, the integration of the two cultures was to combine them to generate a new shared corporate one. It was namely vital that both organizations learn from each other to generate synergy effects. Managers have here a central role to play to define and coordinate the development of this new culture.

Eaton affirmed that it was at the top of the agenda and Thomas Stallkamp, Chrysler President during the negotiation phase, was charged with overseeing this integration process. Some effort went into harmonizing the two corporate cultures. Many seminars and workshops were organized to sensitizing the employees for working with new colleagues with diverging working methods. Furthermore, German was taught to many American managers.

However, given the large gap between the two organizations, it would appear that managers should have undertaken more activities and CEOs should have allocated more resources to bridge the chasm of cultural differences.

In fact, no strong and cohesive organizational culture was created, as illustrated in daily misunderstandings. For instance, the attention Daimler-Benz leaders paid to writing a leaflet sent to employee annoyed Chrysler executives. At the end of 1999, the resignation of Thomas Stallkamp, a 19-year veteran of Chrysler who was highly regarded, might be seen as a failure of the merger integration process after all the effort. Stallkamp is quoted as saying: “The majority of my career has been spent implementing supply chain management. I would like to continue to explore those areas at a less hectic pace”. Were both parties truly willing to cooperate wholeheartedly and to enter compromises to succeed in the numerous integration processes? A negative answer is the root cause of an unachieved integration.

Time

The Time subject group is all about managing the timely completion of the project. Feasible deadlines taking all known constraints into account need to be set. Processes covered by the latter subject group are the development of schedule for project activities estimating each activity duration, the progress monitoring and the schedule control.

One failure in managing time in DaimlerChrysler merger was that too little time was devoted to each activity. Let´s take a concrete example: Daimler-Benz and Chrysler began formal negotiations on January 12, 1998 and only five months later, the merger was announced worldwide. Susan Cartwright – past President of the British Academy Management – asserts that the period of time from the germ of the merger idea till an agreement is reached is estimated to last around two years. Speeding up the pre-merger preparation, the precise objectives of the fusion and the way to achieve them could not have been defined accurately. Furthermore, the merger was completed on November 12, 1998. Time needed by employees to adapt to the new circumstances was not taken into account in the deadlines. One more mismanagement which is added to the others.

Communication

In the standard ISO 21500:2012, three key processes are defined to ensure appropriate exchange of project information: Plan communications, Distribute information and Manage communications. But within DaimlerChrysler project none of them were totally met. In order to appreciate the scale of the problem, it should be point out that even managers and CEOs experienced serious difficulties in discussing solutions and achieving a consensus. According to a Daimler-Benz executive, "Eaton went weeks without speaking with Jürgen [Schrempp]. He preferred to maintain lower-level contact. Jürgen, meanwhile, left Chrysler alone." One would have expected that both CEOs would have shared their different views in order to discover common goal and operate as an effective team at the top. Given the seeming clash of culture described in the first paragraph, it was crucial to start the discussion to create healthy relationship and release the company´s potential. The clearer the communication, the better issues are addressed. But with such a lack of communication among leaders, no far-reaching communication plan could be implemented among all stakeholders involved, not to mention the distribution of the information. Both internal and external communications were chaotic. It is likely that the standard ISO 21500 would have made managers more aware of the processes related to communication which requires to be efficiently tackled.

Stakeholders

The stakeholder subject group is concerned with identifying and managing all parties involved. To classify them, both their expectations and influence on the project need to be analyzed. The table 6 provides a power-interest matrix, which is crucial to draw up appropriate management strategies for effectively engaging with them. The external stakeholders are written in italics, the others are internal.

Table 6 : Power and interest matrix

Level of interest	Level of power
	Low	High
High	Employees Trade Union Clients Suppliers Government Society	Directors Managers Stockholders
Low	Competitors

To analyze the management of all of these stakeholders one by one would be tedious. However it is relevant to focus on several categories according to the table 6. Special focus will be laid on the stakeholders written in bold. Therefore, both high power/high interest and low power/high interest stakeholders will be looked at. Two of them are internal, whereas the other is internal.

It will be shown that all of them were significantly affected by the DaimlerChrysler project due to mismanagement.

Employees

Employees, low-power and high-interest stakeholders, must be kept informed and managers should ensure that no major issues are arising. However, this was not the case in the DaimlerChrysler merger: employees felt overlooked, disregarded and left out of the merger process. But to what extent CEOs and managers were responsible in this climate of distrust and dislike?

First, soon after the merger, it became obvious that Daimler was taking over the whole company´s management. Chrysler President Stallkamp retirement at the end of 1999 was followed by the one of James P. Holdem, top-level executive of the Chrysler Group. They were replaced by two German managers: Dieter Zetsche and Wolfgang Bernhard. Being lowered to divisional status, it is understandable that American´s morale suffered from this German hegemony. Employee felt eclipsed and were disgusted. They also were worried that DaimlerChrysler would dismiss some of them. But the problems were not confined to be here. Indeed, Jürgen Schrempp attitude only made the situation worse. In autumn 2000, DaimlerChrysler CEO acknowledged in the German financial daily Handelsblatt that “The Merger of Equals statement was necessary in order to earn the support of Chrysler's workers and the American public, but it was never reality". Many Americans regarded this statement as a betrayal, since Schrempp intended to deceive them from the outset. It appears clear that it is due to the board of directors´ failure in acting responsibly towards the workers that deep-seated distrust ran deep.

Furthermore, such a mismanagement of the employees can lead to far-reaching consequences on the project success itself. Indeed, it could have been that some workers simply did not work as efficiently because they supposed the board of directors did not care about the Chrysler entity – so why should they? Decreased performance would have resulted in it.

It is to notice that even though the standard ISO 21500: 2012 did not exist at that time, the fact that employee influence was of importance to succeed such a process was already known. MaryAnn Keller, founder and managing partner of MaryAnn Keller & Associates LLC, namely stated in June 1998 that “The success of any combination depends on the ability of the new organization to win over the hearts and minds of employees.” The managers of DaimlerChrysler should then be aware that is really a management issue to embrace workers instead to neglect them in order to obtain the best they can offer.

Clients

And what about the customers, low-power and high interest stakeholders?

Once again, one could argue that managers failed to define as well as to meet their needs. One example is given for illustration. At the time, the DaimlerChrysler A-Class was 1.25 to 2 times more expensive than similar vehicles sold by Volkswagen, Renault or Fiat. This higher price was not deterrent since clients were aware that Daimler-Benz primarily asset was quality and safety. However, in 1999, the A-class failed an emergency maneuver test conducted by a Swedish television station. Consequently, customers´ satisfaction suddenly drop off the map. The DaimlerChrysler vehicle was considered as an overpriced car which did not achieve engineering excellence compared to the highly competitive European compact market. The crux of the problem may be that the German entity had tried to implant the American low development costs into its entities, disregarding the high expectations of the clients. This paragraph appears to prove that trying to generate synergy savings, the managers failed in responding the customer´s needs.

Stockholders

Last but not least, the management of both high power and high interest stakeholders needs to be considered. Take the stockholders.

An overwhelming majority of them favored the project of merger in 1998. Approvals ratings reached 99.9% at Daimler-Benz and 97.5% at Chrysler. It may be inferred that, at the outset of the project, managers successfully took into account the processes required to satisfy the shareholders. It did not take long, however, for some of them to express their disappointment. This was the case for Kirk Kerkorian, the third largest proprietor of DailerChrysler stock and largest Chrysler shareholder before the merger. In November 2000, the latter filed a $9 billion lawsuit against DaimlerChrysler for falsifying the terms of the fusion as a “merger of equals”. He was upset with the German hegemony and stated he had voted to turn its shares for stock in DaimlerChrysler without having considered the American entity would be reduced to a mere division. Two months later, he cut his take in the merged company by a third. Even though the managers were not directly involved in this discontent, the lack of acting responsibly of the Board of the director is obvious.

To conclude, the completion of the processes related to each of these three stakeholders lacked efficiency. The managers failed in implementing the required activities to satisfy them and this will become a major hindrance to the project completion.

The benefits of using ISO 21500: 2012

This case study clearly shows the numerous issues than need to be tackled while managing a project. The introduction of a guide that describes processes and methods - whose application would directly enhance the project´s chance of success - would be of great benefit to managers. ISO 21500:2012 appears to be very relevant as highlighted in the previous part since managers can ensure that they are going through all of the processes defined. It namely looks like a “checklist”. Furthermore, transparency in management can be raised using this norm. This is all the more important when different organizations are involved, as in DaimlerChrylser merger case, since the different activities can be coordinated.

It is worth pointed out that the aim of ISO 21500:2012 is to provide a generic and international guideline. Whatever project a manager conducts, it is applicable. But, the downside is that some additional other specific standards may be used to deal with special purposes. Therefore, ISO 21500:2012 must be comprehended as a general norm that should be supplemented with more detailed standards in certain complex cases.

Conclusion

Many factors may affect the failure of the DaimlerChrysler project, but most of them may have been due to its mismanagement. Such a union was notoriously risky, especially due to the opposite companies it combined. To deliver the intent benefits, particular care should then have been taken by managers to tackle all the project management processes.

The use of the standard ISO 21500 : 2012 has been made to group the processes within subject groups. It appears clear that there were some omissions, particularly regarding Integration, Time, Communication and Stakeholders. This standard has proven to be useful to analyze a project management, especially in case of cross-boarders project.