Failed cross-border mergers: What we can learn from the Daimler-Chrysler case

Daimler-Benz and Chrysler hoped to be able to combine their strengths in order to strengthen their position amid the car industry's economically challenging times. As a result, in 1998, the two businesses decided to merge. But not even ten years later, Daimler-Benz sold all of its Chrysler division stock again. The aspiration to overtake General Motors and Ford as the third-largest automaker in the world was dashed. Particularly challenging is the merging of several corporate cultures in so-called "mergers of equals," such as the one in question. The organizational culture of the acquiring company is not imposed on the acquired counterpart because it is a merger of equals. By doing a “mergers of equals," the idea is to combine the cultures involved, to integrate them and generate a new shared corporate culture between both companies. It is questionable whether both parties set the wrong goals and took the wrong approach. However, it can be said, that many M&A teams today are smarter and take an effort to set up separated Culture Workstreams that work on cultural matters before, during, and after the deal. Best practice teams even use dedicated playbooks that help them to ask the right questions at the right time. 

Cultural differences may be difficult to understand, if not looking at explicit examples. Let us look at one example concerning the cultural differences between Daimler and Chrysler.  A German executive at DaimlerChrysler recounted a discussion from earlier this year as an example of the stark culture differences between the erstwhile Daimler-Benz and Chrysler. We are paraphrasing the discussion here. "But we have already agreed on this in a previous session," a German counterpart responded when one of the Americans from Chrysler raised what he believed to be a new concern. Everything is detailed in the protocol.

"The American asked, "What protocol? " as he appeared perplexed. I recall that you recently sent me some documents and took some notes, but I didn't consider them to be particularly significant. The next time, I'll look.". 

This is a great example that shows us how small differences in cultures can make a big difference in management styles. Consequently, the merger has been threatened by the new parties' divergent approaches to doing things. Both companies have underestimated the impact that the different cultures can have to the deal. 

Best in class M&A teams nowadays do not leave cultural questions to chance. Best in class M&A teams use integrated digital frameworks and M&A tools that are embedded into a system that guides the teams, that maintains and develops all relevant information for the involved parties. Such systems often include detailed guidance in the form of playbooks that helps the team to avoid common mistakes. 

Different working cultures can lead to conflicts. Conflict leads to tensions and drops in productivity, and deal synergies. And sometimes even the distinctions go beyond a simple style difference. One top product development executive in Stuttgart claimed that "each party thought its components or processes were the finest." Such an early example occurred when American and German engineers talked over the price of producing a Mercedes-Benz E-class seat. A Mercedes-Benz designer recalled, "They told us that the Chrysler 300M seat was a fraction of the price and that we should employ either Chrysler seat components or come up with suggestions on how to considerably lower the cost of our seat." Our engineers were totally out of their minds. Then, our benchmarking division purchased a 300M seat and disassembled it. He claimed that the Mercedes experts were horrified by what they discovered. They had to tell the purchasing department that they pay far too much for what they get. 

This is a case when expectations and communication can really go wrong. When planning a merger it is important to clearly assess the expectations from both parties and all involved stakeholders. When finding large differences in the expectations for a certain topic from both parties, it may be needed to balance those expectations to find a new median. Be aware that you will only be able to spot those differences if you have a very good plan and a system that stores all your collected information and lets you access it when you need it. It’s 2022, yet the majority of M&A teams works with tools that are not designed for M&A and consequently run into issues that can be avoided.  

Can you overcome cultural difference in a merger? Drop us your thoughts.