Operations Management at Daimler-Chrysler - Essay Example

Operations Management at Daimler-Chrysler Introduction Daimler-Chrysler (DC) is one of the leading car manufacturing companies in the world. Increasing competition and shrinking profit margins forced the managements of both Daimler and Chrysler to join hands and efforts to work towards a common objective. The merger was to pool the resources and manage the operations in such a manner that the company could take up the competition from other companies. But, after the merger there appeared some gaps in managing the HR, IT, working culture etc. which necessitated making extra efforts only to bridge those gaps. These developments seem to have taken good amount of time and resources of DC, as is apparent from the case study. Operations Management-the heart of an organisation Operations management in an organisation is concerned with the management of people, processes, technology and other related resources in order to produce quality goods and services. In general Operations Management is concerned with the following four interrelated modules; i. Process analysis: This involves the production floor as well as the flow of information and communication amongst different departments of the company ii. Supply chain modelling: Supply chain forms the backbone of any company and for a production company in particular, the implementation of TQM policies can only be carried out if the supply chain is reliable and quality conscious iii. World class production systems: This aspect can be very well taken care of by the individual company. But the rapid pace with which technological advancements is taking place calls for regular updates on production requirements as well. iv. Operations strategy: How the management implements the ground rules and keeps motivating the workforce to deliver the goods forms another key component of the operations management. Lowering the production costs is indeed one of the tried and tested formula for achieving break even and promising profitability for any organisation. But under the globalization regime costs is not the prime factor for the long term survival of the business prospects. Small (1998) contends that, "Over the past two decades there has been a shift in the basis of competition in manufactured product markets. Firms that previously focused almost exclusively on lower costs have adjusted to a focus that places just as high and often higher premiums on quality and flexibility." Therefore managing the operations of an organisation requires it to adjust to these changes. Advanced Manufacturing Technologies (AMT) is the name given by industry experts to the technological advancements being implanted in the production sector. Managing Diversity Liberalization and globalization has opened up newer vistas of trade and business all around the globe. The car market in particular has become very competitive with major players like GM, Ford, Toyota, Audi, BMW, VW etc. besides the local players in some markets. With technology playing a major role in advancement of the features in a car, IT/ICT's help in making the car more intelligent has become very crucial. Besides adding features into the car itself, IT plays an important role in coordinating different aspects related to other departments. Developing effective marketing communication techniques is another such area requiring contribution of IT. Therefore, it appears from the case study that Daimler-Chrysler (DC) has its hands full. The company has not only to take care of the merger after-effects, but it has to keep the company ready to take on the competition from other car makers. As of now the wide culture gap between Stuttgart and Auburn Hills appears to be causing too many problems for the company. The global economy has made it almost mandatory for international corporations that an effective strategy is adopted for managing the diversity. Companies are moving towards flatter organisational structures, and the global economy is allowing the movement of the workforce across national boundaries, effective interaction amongst diverse workers becomes more critical for the smooth organisational functioning. The difference in cultures becomes more glaring with instances like; i. CRM policies ii. Database application software solutions oracle datapase Vs IBM DB2 iii. The language differences The merger of Chrysler and Daimler-Benz is stated to be the biggest between enterprises in industrial history in 19981. But the later events point out towards lack of a well coordinated strategy in dealing with the functioning and resources of the new company. Thomas (2000) argued that, with the growing number of mergers and acquisitions, workforce diversity will become more of a priority for organisations and, therefore, in the future, people will become clearer on what diversity is and how to manage it. But the differences that are coming in the way of effective functioning are not allowing DC to move progressively towards the stated goals. Immediately after the merger, the company brought about a number of lay-offs with the stated objective of cutting the costs, but that created an image about the company that it works with a biased attitude, favouring German prospects. These developments further widened the gaps between the German culture versus the American culture. Dickens (2004) contends that the business case for managing diversity offers a way to operate equal opportunities as a strategic issue, a core value linked to organisational competitiveness. Diversity not only comes in the form of culture and values, but it also consists of several other visible and non-visible factors, which include personal characteristics such as sex, race, age, background, culture, disability, personality and work-style. Harnessing these differences is bound to create a productive environment in which everybody feels valued, their talents are fully utilized and organisational goals are met. The merger of American car giant, Chrysler, with Germany's largest industrial group, Daimler-Benz did hit the media headlines during the middle of the year 1998, but there appeared some indications suggesting that not everything is going smoothly with the merger proposal. While coming out with the stories of 'significant progress' towards the merger, media stories also suggested that negotiations foundered on couple of occasions and doubts were also being expressed on the future of the merger (BBC, 1998). Considering these factors, the underlying philosophy of managing diversity tends to imply that an organisation can gain massive competitive advantage, resulting in enhanced performance with the help of a satisfied human capital. It rests on the premise that the organisation will be able to serve increasingly diverse customers, meet increasingly complex business and management problems by actively seeking and managing a diverse workforce (Stephenson and Lewis, 1996). That's exactly where the merger seems to have gone wrong. The Chief Information Officer of DaimlerChrysler, Susan Unger, appeared to be one of the few survivors who have been able to prove themselves before the German bosses. Susan Unger has an industry experience of 29 years in the fields of finance and technology. So far, she has proved that her efforts do not go waste. Her efforts and team management skills are being lauded by the management and other departments for saving $200 million so far. Challenges for implementing IT initiatives The Chief Information Officer, Susan Unger has a crucial role to play for the operations to go on smoothly. Her involvement in the process of merger since the initial stages makes her roles all the more important. It is a good sign for her that she has strong support of the top bosses, but that does help in solving all her problems. Since she has been working with Chrysler for a long time and most of IT initiatives has a stamp of Unger in one form or the other. Therefore, the immediate challenge for her is to bridge the differences that have cropped up over the issue of database application software solutions. Though she is the one who's responsible for implementing these policies, but the fact that the issue has graduated to become a problem indicates the extent of differences that are in existence amongst different users of the erstwhile two business entities. In fact today's car industry is no more a mechanical engineering dominated field; it requires IT from the conception stage itself. Techniques like Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM) are the techniques which are the guiding force behind the concept. CAD helps in embedding software and electronic systems in the car while CAM guides through the manufacturing process. DC too seems to recognise the important of IT and Unger too has appreciated the approach of German bosses in accepting the value system in place at Chrysler, as far as IT initiatives are concerned. IT initiatives were being implemented at Chrysler to enhance the value proposition of their products. A company can acquire competitive advantage on its rivals on account of marketing efforts, brand building, value creation, innovation, operational efficiencies etc. But more important is to sustain the advantage. The value configuration describes how value is created in a company for its customers, how the most important business processes function to create value for customers and the way a particular company/ organisation conducts its business. Some of the value addition gradually takes the form of threshold competencies for the organisation, and the consumer starts expecting these value additions from the company. The process of value creation encompasses managing quality in the entire chain of processes leading to the production of final product or service. Quality in essence is delivering superior value to the customer. The value phenomenon is complicated and multifaceted. Porter's value chain framework (1985) in general is accepted as the language for representing as well as analyzing the logic of firm-level value creation. The customer will prefer to deal with the company which values its association with the customer. This will help in retaining the customer base. And loyal customers happen to be good brand ambassadors for a company/ product, which will ultimately help the company in sustaining its competitive advantage. For a customer, value proposition include, Access to products, need fulfilment, desire fulfilment, increased choice, new consumption patterns, Problem solving features, and interactivity. In the value chain, value is created in the goods or services through efficient production of goods and services based on a variety of resources. The company is considered as a series or chain of activities. Primary activities in the value chain include; Inbound logistics: These include the raw material supplies, knowledge sources, consultancies, supplier management etc. Production: After planning out the strategies, the inbound logistics are put in use to give out a finished product or a full-fledged service component. Outbound logistics: Outbound logistics include taking care of distribution network, inspecting the quality of finished goods and services, planning out marketing and sales strategies etc. Marketing and sales: Marketing and sales forms an important component of the value chain as it is the main interface between the company and the customer. Service: Once the product or service is delivered to the customer, then comes taking a feedback from the customer. This has become very important in order to establish the company's brand equity and customer's loyalty. Futuristic needs are also projected by way of accepting regular inputs from the customer. Optimum value configuration is achieved by the company with active support from; Infrastructure: Company's infrastructure decides the number of customers it can cater at a given time and the kind of workload it can take on. Human resources: It is said that the strength of a chain is as good as the weakest link. Therefore every element in a value chain has a crucial role to play. To come out with a value product the human resources need to be made quality and value conscious. Technology development and procurement: Today technology plays an important role in almost every part of the business process. Be it the e-procurement, IT enabled services, e-business etc. technology has a say everywhere. Therefore a company will have to be technology savvy for being valued as a quality conscious company. Managing the Supply Chain It is quite clear from the Porter's effective and efficient management supply chain forms a core component of implementing the value proposition. In order to adapt quickly to the increasingly unpredictable shifts in customer demands, companies must be able to have effective management and control of the supply chain (Meredith and Roth, 1998). Adopting measured steps for managing supply chains do not have adverse impacts on the morale of the workforce in the company. In fact, now a days, in order to squeeze costs out of the supply chains many companies are resorting to outsourcing of a number of support functions, like information services, software development, process technologies, distribution etc. The Asia pacific region in general and the South Asian region in particular is being discussed and debated at almost all international forums for the huge size of their markets, IT sector competencies, quality manufacturing at cheaper labour costs, impressive GDP growth figures and of course the growing influence in international affairs are some of the factors which are attracting investors from all over the world. The huge pool of English language speaking people in India and the strength of its IT-ITES sector in particular, are the factors which have made India a much desired destinations for BPO and IT related services. India and China are the two countries taking lead in providing quality services for MNCs. An inclination towards this trend is apparent in the company's strategy. Therefore Susan Unger will help in cutting some more costs, if she is able to analyze the availability of such destinations in a country like India where labour costs are comparatively cheaper yet quality of the job is stated to be at par with international standards. In view of revalidation of the Indian Information Technology - Business Process Outsourcing (IT-BPO) growth story, driven by a maturing appreciation of India's role and growing importance in global services trade, the country aspires to attain an export target of USD 60 billion 2010 (NASSCOM, 2007). DC's China Sojourn The importance of China in realising the economies of scale can be gauged from the fact that, immediately after taking over the reigns of DC in 2005, Tom LaSorda, the President and CEO of Chrysler Group started reviewing the plans of the company in China. The Company came out with three investment plans amounting to $350 million. China has indeed seen a remarkable growth in its economy and the living standards of its citizens since it adopted a more open and liberal stance under the premiership of Chairman Deng Xiao Ping. Subsequently China's membership of the World Trade Organisation (WTO) made it possible for companies like DC to operate in China in an era of free trade. Hoguet, (2004) figures out that Chinese economy has shown a growth rate of 9.3% per annum, with a per capita income that is growing at about 10% per annum. Therefore, with cheaper labour costs, access to a vast market of South Asian region many of the production works including that from car industry are moving towards China. Therefore for DC too China appears to be the best place for the company to put into effect a global strategy involving cost cutting as well as diversification. If the merged entity DC is able to achieve cost cutting and effective management of its supply chains, then perhaps the company will be somewhere near to the confidence expressed by Juergen Schrempp, the strong-willed Daimler-Benz's chairman while taking the merger idea to Robert Eaton, Chrysler chairman and chief executive officer. Schrempp said, "This is much more than a merger. Today we are creating the world's leading automotive company for the 21st century. We are combining the two most innovative car companies in the world (CNN, 1998)". Conclusion Merger and acquisitions are indeed, the growth oriented steps which help in consolidating the strengths and averting the potential risks of more than two companies. While it is true that the combined strengths could make provide the new entity more strength, it is equally true that the workforce and a section of the management keeps viewing such an arrangement an exercise aimed towards retrenching the people. Therefore, addressing the HR concerns is the key for the success of any M&A exercise. There are other issues as well, like finance, accounting, technology implementation, marketing, supply and distribution chains etc. but it is the human aspect which requires maximum efforts. In this case as well, it appears the monetary considerations were accorded a priority over the HR concerns while carrying out the merger, which seems to be affecting Daimler-Benz's performance. Having realised the difficulties, the company is now making efforts to placate the concerns of the employees while trying to bridge the cultural differences between German and US working environments. References: 1. BBC (1998). Daimler and Chrysler 'to merge'. Available online at http://news.bbc.co.uk/1/hi/business/88873.stm (Dec 22, 2007) 2. CNN (1998). 'DaimlerChrysler dawns'. Available online at http://money.cnn.com/1998/05/07/deals/benz/ (Dec 22, 2007) 3. Daimler- Chrysler (2007). The Merger of Daimler-Benz and Chrysler. Available online at http://www.daimlerchrysler.com/dccom/0,,0-5-7199-1-58959-1-0-0-0-0-0-243-7145-0-0-0-0-0-0-0,00.html (Dec 21, 2007) 4. Daimler- Chrysler (2005). Chrysler Group Unveils China Strategy. Available online at http://www.daimlerchrysler.com/dccom/0-5-7153-1-542409-1-0-0-0-0-0-8-7145-0-0-0-0-0-0-1.html (Dec 25, 2007) 5. Dickens, L. (1994). 'The business case for women's equality: is the carrot better than the stick Employee Relations 16 (8). 6. Hoguet, George R. (2004). How Best to Benefit from China. State Street Global Advisors, Boston 2004. 7. Meredith, Jack and Roth, Aleda (1998). 'Operations management in the USA'. International Journal of Operations & Production Management, Vol. 18 No. 7. 8. NASSCOM (2007). NASSCOM Strategic Review 2007. National Association of Software and Service Companies in India. http://www.indiadaily.com/editorial/12-18a-04.asp (Dec 21, 2007) 9. Small, Michael H. (1998). 'Objectives for adopting advanced manufacturing systems: promise and performance'. Industrial Management & Data Systems 98/3. 10. Stephenson, K. and Lewis, D. (1996). 'Managing Workforce diversity, macro and micro level HR implications of network analyses'. International Journal of Manpower 17 (4). 11. Thomas, R. Jr. (2000). 'Profiles of managing diversity', American Institute of Managing Diversity. Human Resource Development International; Dec2000, Vol. 3 Issue 4 Read More