Business Models of Mercedes and Chrysler - Essay Example

? DAIMLER CHRYSLER Question1: What were the main differences between the Mercedes and Chrysler business models inthe car sector before the merger? The merger between German based Daimler-Benz AG Company and American based Chrysler Company took place in May 1998, with each company taking an equal share of the new corporation DaimlerChrysler (Kohler, 2005, p.311). However, due to prevailing economic crisis and technological developments in America the merger did not yield the anticipated results. This study will explore the differences of the products models of Chrysler and Daimler before the conclusion of the merger. The differences between Daimler and Chrysler provided the two companies a good opportunity for merger in order to streamline their operations. Daimler-Benz had specialized in production of luxury cars for sale in the upper market segments. The company had invested heavily in research and development and had long term technological experience that positioned it well in the industry above its competitors. According to Maielli (2005, p. 251), Daimler practiced mass production and focused on strengthening its technology to achieve a higher level of creativity. Although the company had an international market for its car models, it focused on a particular market segment hence the produced quantity did not enable the company to realize economies of scale. As a result of specialization in production of luxury cars the company was not able to utilize its technological capacity fully. Furthermore, the company had a lot of bureaucracy in its management that slowed down decision making processes hence limiting the company’s potential for expansion (Slack, Stuart & Robert, 2007, p. 164). Daimler had a capacity of producing one million units of its products while Chrysler had a capacity of three million units. This created an impression that one time the company would exhaust its market for its car models and lose the market to its competitors like Chrysler who offered a variety of car model in different market segments. Daimler had centralized operations with each of the employees having a specific duty to perform in the organization. It took the time to make a decision because this required a particular process to be followed (Kohler, 2005, p. 316). The company had flexible work and time management that enabled employees to work even during the weekend and overtime in order to increase output. The company introduced a performance based rewarding system that recognized each individuals input in the company in order to motivate the workers. In addition, the company advocated teamwork with stakeholders in order to streamline their operations. For example, the company collaborated with its suppliers in order to reach the international market efficiently. Chrysler was less bureaucratic in nature (Kohler, 2005, p.314). Individual workers were allowed to make decisions on their own without having to consult senior managers. This managerial flexibility nurtured creativity in the company and simplified decision making process. The company engaged in developing new product designs for different market niches. The efficient and flexible management of Chrysler company enabled the company to come up with new car designs hence increased its market share (Maielli, 2005, p.258). The company had not focused much on research and innovations although it was producing different varieties of car models for various market segments. This created a potential risk of losing creativity and becoming technologically obsolete (Slack, Stuart & Robert, 2007, p. 197). The company lacked good base for foreign market since it focused on production for the domestic market, especially North America. However, the company enjoyed economies of scale due to large scale production for local market. The company had efficient manufacturing process that Maielli (2005, p. 251) describes as lean production. 2. What were the main differences between the Mercedes and Chrysler production processes and how did these differences affect the strategic outcomes of the merger? The merger of Daimler and Chrysler automobile companies gave birth to a new company known as DaimlerChrysler. This corporation was initially promising before the eruption of wrangles that led to constant changes of its managers (Maielli, 2007, p. 275). The corporation also engaged new strategies such focusing to improve the performance of the business. The two companies were unable to consolidate Chrysler and Mercedes models to produce common models because of differences in the image and model series. Mercedes models are very costly compared to Chrysler models. Also, Mercedes models are rear-wheel driven while Chrysler models have powertrains in their front wheels. Another difference in the models of cars produced by the two companies emerged as Chrysler produced large passenger cars while Mercedes continued to produce small passenger cars (Maielli, 2007, p. 277). Mercedes group started focusing on cost reduction strategies in order to increase profitability. Mainly Mercedes models manufactured produced with the target market, but when this strategy bore no fruits the company reverted to mass production (Kohler, 2005, p. 318). For example, Mercedes started producing A-class models intended for middle class people. However, the target group did not respond to this model hence the company stopped its production, and in 2001, they started opened C-class CKD in North American overseas market. The main aim of this strategy was to utilize the full production capacity of the company. The Mercedes group engaged in outsourcing strategy that compromised the quality of Mercedes models. This forced the Mercedes group to start contracting electronic experts to solve the issue of poor quality (Maielli, 2007, p. 278). The other problem arose when some engineers from Germany were sent to North America to solve issues with Chrysler models hence their input was missing in Mercedes group. DaimlerChrysler group decided to carry out a number of technological changes intended to improve the quality of their products and increase the profitability of the corporation (Kohler, 2005, p.321). Through research and development, the corporation invested in “powertrain technologies, alternative propulsion systems and electronic vehicle systems.” This resulted to the development of the most hygienic diesel passenger car known as new E320 BlueTec that was launched in 2006. The other innovative electric model was BlueZERO in 2009. After the launch of several innovative models for DaimlerChrysler several crisis arose either caused by the suppliers of or as a result of financial constraints. This led to sale or closure of several divisions. The crisis in DaimlerChrysler has reverted to focused on automotive venture changing from initial plans of diversifying technology and integrating mobility and transportation business. The company is presently experiencing recovery due to expansion of activities and earnings from growing financial market interests (Maielli, 2007, p. 279). Since 2005, the corporation started investing heavily in automotive expansion. For example, they financed vehicle in china and had a share in Toll Collect consortium. Apart from political challenges and wrangles, the company is progressing very well financial and technologically. 3. What were the main differences between labour politics at Mercedes and Chrysler and how did they affect the process design in the two companies? After the formation of merger the new corporation engaged in cost cutting strategies while focusing on the strengthening of research and innovations to increase business profitability. This strategy resulted to change in top management and workers laying-off (Kohler, 2005, p.323). For example, Zetsches strategies of restructuring Chrysler Company resulted to serious loss of jobs, adjustments of wages and deductions in the health care expenditure. However, his strategies received support from the vice president of (American United Workers (UAW). Other compromises made for United Sates workers included healthcare allowances and pension deductions (Maielli, 2005, p.270). Therefore, restructuring strategies labour cost in United States resulted to conflicts among the workers and the unions with some union leaders advocating for adjustments of wages and allowances. In Germany, the workers council and the management entered into an accord in 2004 known as “safeguarding the future 2012.” This agreement was part of the uniform communal agreement that applied to hourly and salaried employees in Germany (ERA) initiated in 2007 (Maielli, 2007, p. 283). In this accord, the workers council conceded on fair wage rate and labour adjustments that resulted to annual labour cost saving of five hundred million euro, but in return they got an assurance that no German worker would be sent home against his or her will before the end of 20102. Therefore, job rescaling strategies have to be properly planned by deliberate leave and early retirement plans. Also, according to “Safeguarding the Future 2012” the workers council and DaimlerChrysler came into consensus that after the implementation of ERA at DaimlerChrysler, the salary increment agreed upon in the in the collective bargaining accord would not be fully implemented (Kohler, 2005, p.325). As part of the agreement of ERA, the salaries of the DaimlerChrysler workers would be deducted by 2.79% in 2006 and that top managers would suffer a further 10% deductions on valuable compensation for 2006 besides the 2.79% imposed on salaries. In 2002, the World Employee Committee (WEC) was established to address the growing crisis between workers and employers (Maielli, 2007, p. 285). WEC has managed to formulate a code of conduct for DaimlerChrysler, and the company has agreed to implement those codes both in the company and on its suppliers. Several others associations have been formed to restore cordial relationship between the workers and employers. In Germany, the Mercedes model continues to dominate the market. Although there are well established professional council of workers in Germany, people have continued to protests against job cuts, dismissal of professional workers their replacement with unemployed line workers at subsidized wages from the government despite tactical refusal by DaimlerChrysler to pay taxes to the government (Kohler, 2005, p.326). Another issue of contention between unionists and the company is the decision of the company to retrench 3,500 apprentices in 2005 despite apprenticeship being of high significance in Germany industrial relations. DaimlerChrysler has received a lot of support from humanitarian groups and other organizations apart from labour unions (Maielli, 2005, p.271). On the other hand, Mercedes has continued to contract workers who have attained vocational degree training hence enabling the company to maintain its technology competence in the automobile industry. 4. Assess Fiat’s takeover of Chrysler in terms of operation strategy and market strategy. Fiat is an Italian based car manufacturing company and the largest industrial group in Italy established in 1898. It has managed to manufacture various car models, but it mainly specializes in city cars (Henderson & Clark, 1990, p. 11). It focuses on mass production of car models for the lower market segments. The company engaged strategies to reduce operation cost due to small size of the Italian market and declining per capita income in Italy. The designs of Fiats car models focused on improving the quality of the models, reducing the cost, utilization of innovative designs and reduction of the weight of the cars. Fiat continued to enjoy growing demand for its products in the domestic market until 1970, but afterwards the European community integrated resulting to shift in market paradigm. After the integration of European communities, Fiat started facing challenges since the demand for luxury cars increased among the middle and lower market segments (Kohler, 2005, p.317). The demand for luxury commodities is dependent on the level of income rather than the price of the commodity. Fiat has attempted penetrating the middle market segment twice without success. The failure by fiat to enter in the middle and upper market segment was a result of inflexibility of product design because in the upper market segment innovative designs and procedural competency results to attractive models (Henderson & Clark, 1990, p. 13). In this market segment, price is not an issue of concern to the buyers but their focus is the design of the product. On the other hand, Chrysler is a German based automobile company that has continued to focus its production potential on the domestic market (Maielli, 2005, p.274). Much like Fiat, Chrysler has failed to gain access in the middle and upper market segment due to lack of product flexibility. Considering a possibility of merger between these companies presents a question on whether the new merger can successfully manage to penetrate the middle and upper market niche. First we have to consider what the two companies have in general and what each company can offer the other in order to bring the missing potential for penetrating a different market niche. Both companies have detailed knowledge of the domestic market. Also, their products are targeted to lower market segment (Kohler, 2005, p.311). If the two companies forms a merger they will be able to dominate the local market, but they will have a challenge in penetrating international market because one is based in Italy and the other one in Germany both of which are in European community. However, Fiat has intangible specialization that has led it to produce high quality market specific car models. This has prevented Fiat from gaining access to the middle and upper market segment because of lack of innovative designs (Henderson & Clark, 1990, p. 16). On the other hand, Chrysler is an innovative company that engages its engineers in designing various car models for the domestic lower class market segment. It has also failed to penetrate middle and upper class sections of the market because they lack specialized innovation. The company engaged in production of various models for the lower market since it is cost effective and require higher time cycles (Maielli, 2005, p.256). Therefore, if Fiat takes over the Chrysler they can form a good merger that can be able to produce competitive models for the middle and upper market segments though in the domestic market. Fiat can utilize the innovativeness of Chrysler and initiate specialized technology amassed by Fiat employees to design various luxurious models for upper and middle market segments (Kohler, 2005, p.313). By utilizing long term experience in manufacturing of vehicles in both companies, the new corporation have mass production and enjoy economies of scale hence production of inexpensive cars. Bibliography Henderson, R.M. & Clark, K.B. 1990. Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms. Administrative Science Quarterly, vol.35. Cornell University. Pp.9-30 Kohler, H. 2005. From the Marriage in Heaven to the Divorce on Earth: The DaimlerChrysler Trajectory since the Merger. Pp.309-327 Maielli, G. 2007. Counterfactuals, Super Factual and the Problematic Relationship between Business Management and the Past. Sage Management & Organizational History Vol. 2(4): University of London. Pp. 275–294, 275-292 Maielli, G. 2005. The Machine that Never Changed: Intangible Specialization and Output-Mix Optimisation at Fiat, 1960s – 1990s: Competition and Change, vol. 9(3). University of London. Pp. 249-276 Slack, N., Stuart, C. & Robert, J. 2007. Operations Management. Prentice Hall/Financial Times. Pp. 123-236 Read More