Practical Applications of Organizational Development in Organizations Today, Research Paper Example

Introduction

This paper examines two case studies relating to how Organizational Development has been used in modern organizations today.  The first case study looks at the car giant Toyota and how it went through a major organizational development program in order to become one of the most respected and reliable automobile manufacturers today.  The second case study looks at the merger between Daimler Benz Car Manufacturing Company in Germany and that of the Chrysler Corporation in the USA.  An organizational development of two giants in the industry.  The paper considers how major business corporations are applying organizational development techniques in order to make performance improvement and obtain competitive advantage in the market place.

Case Study 1 | Toyota

Amongst the key characteristics that customers value concerning the Toyota automobile products are that of: 1) A strong sense of customer satisfaction with the cars 2) A high level of quality in the finished product  3) Consistency in the level of quality over time and 4) The ability to fulfil delivery orders faster than their American rivals ( turnaround).  The Toyota manufacturing plant in Cambridge Ontario scored the highest level on quality compared to their other North American counterparts. The Company has worked hard in building long term customer relationships and developing a loyal customer base. The quality aspect has been related to superiority in engineering and design techniques in manufacturing.  Toyota also had a market strategy at aiming towards the small car sector of the market building high quality cars with good fuel consumption. This made them very attractive economical cares appealing to a wide market sector.  Toyota also marketed its cars very competitively against its nearest rivals.

Toyota’s operational strategy moved away from the traditional model like that of Ford where they used mass production lines in order to churn out cars in massive quantities and as such achieve the maximum economies of scale. The Head of mechanical engineering Ohno Taiichi considered that these North American methods were flawed and identified a number of serious problems with the approach. As such Ohno looked at a new approach for automobile production. He streamlined the operational procedures making them more efficient and optimizing the time of the workers getting rid of idle time and increasing efficiencies. This enabled Toyota to make small economic batches and as such eliminating the need to tie up capital by holding large inventories or stock piles of automobiles.  This enabled the spare capital to be re-invested in other areas. Ohno was instrumental in building the group dynamics of workers collaborating in small teams and as such optimizing performance and streamlining processes.

Toyota also managed to penetrate the luxury car market with its Lexus division and provided serious competition to the likes of Mercedes Benz, BMW and Jaguar cars.  This boosted its confidence in the US car market and in 2001 Lexus was the top selling luxury car having sold over 200,000 in the North American car market.  One of the downsides of North American production is that a number of parts are extremely expensive to make in North America and as such they had to revert to importing them from Japan.

One of the strategies employed by Toyota is to outsource the majority of the components required for the car. As such they come from many different locations and make the final configuration of the car difficult to replicate or copy, as opposed to most of the North American car manufacturers that reportedly manufacture up to 70 % of the components within their own manufacturing plants. The Company is also very innovative and quick to challenge existing markets once it recognises an opportunity. An example being the Toyota Tundra and the attack on the US pickup truck market becoming one of the bestselling trucks in North America. Despite the success of Toyota in North America and other overseas markets the Company has declined in sales in its own domestic market.  The recent earthquakes in Japan have also rocked investor confidence in terms of the rate of recovery and how this might impact the automobile market place.

Case Study 2 | Daimler Benz / Chrysler Corporation

The Daimler Corporation has been responsible for the manufacture of cars and trucks in Germany since the late 1800’s. The Daimler-Benz Corporation is famous for its flagship automobile the Mercedes Benz, recognized as a high end Executive car with a hallmark of quality German engineering.  In May 1998 it was announced that the biggest merger of all time would take place between that of Daimler-Benz and the American car giant Chrysler Corporation.  The objective being to make a global car manufacturing firm with the capability of delivering both luxury high end vehicles and cars suited for large-scale production in the mass market requirement. The $36 billion merger was heralded as the dawn of a new era.  The Daimler head ‘Jurgen Schremp’ stated that it would become the world’s largest automobile manufacturer

From the outset the German manufacturer assumed control of the Organization and people referred to Chrysler being treated like a subsidiary rather than a partner of equals.  Chrysler continued to remain unprofitable and the potential of having these two markets integrated appeared an impossible dream. The German manufacturer stated that the term of an equal partnership was purely stated to appease the American public but it was never going to be a reality.  This subsequently resulted in a legal action being taken by billionaire shareholder Kirk Kerkorian who indicated that Daimler had misled the investors.  Daimler subsequently settled the legal case for $300 million in the US Courts.  By May 2007 Daimler was ready to sell off its 80.1% stake in the Chrysler Corporation. This was completed in August 2007 to the firm Cerberus Capital Management.  Interestingly enough Cerberus got the Chrysler holding for only $7.4 billion, a huge drop from the $36 billion that Daimler originally paid for it.  In essence Daimler paid over $650 million to dump Chrysler.  The 1990’s witnessed a changing strategic and competitive shift in the environment of the automobile industry. Daimlers objective being “to create a lean, agile structure, with streamlined and stable processes that will unleash Daimler-Chryslers full potential” [Zetsche the new CEO of the merged Corporation].  Zetche further stated that the new firm will be centrally operated from Stuttgart in Germany consolidating Human Resources, Finance, and Administration and as such save the new firm money. Early estimates predicted over 6,000 job cuts, including more than 50% in Germany. (Tierney and Valcourt 2006).

Porters 5 Forces model illustrates that Daimler felt very threatened by Rivalry within the marketplace and the encroachment of other automobile companies into its market space.  The number of rivals had increased and it was starting to lose market share.  Chrysler offered better market penetration in the mass car production market.  The Daimler Benz boss Jurgen Schremp wanted to make Daimler-Benz a global power house and he saw the acquisition of Chrysler as a major step forward in that direction. His logic was based upon that this was a major US automobile manufacturer that had been very profitable in the early 1990’s.  The firm specialised in mid-range cars and small trucks, an area where Daimler had no market penetration and in addition Chrysler had a great market success with its Jeep Grand Cherokee.  Schremp was a good friend of Eaton (CEO at Chrysler) and he believed that the personal chemistry was right to achieve his global ambitions.  Schremp referred to this as a ‘merger of equals’ referring more to the bold aggressive philosophical stance adopted by the Executive of both Companies. He later admitted however that it was always his intention for Daimler-Benz to retain control. (Schrempp, J. 2011).

The Strengths of Chrysler

Chrysler was viewed as an innovative Company that had creative designs and had market penetration in both Europe and South East Asia. It had low production costs and good engineering. Part of the big 3 US Motor Companies with a lean and agile business structure. Its main threat was that of heavy competition from its rivals, particularly from Toyota. It had high research and development costs and did not perform well in European markets.

The Strengths of Daimler Benz

A reputation for producing high end, high quality premium cars that excelled in German technology and engineering.  A strong market presence in Europe and other overseas countries.  It had not tapped into the lucrative Asian and American markets and this meant it was struggling from limited growth potential. It did not have adequate experience in the US market place

The Pre-Acquisition Process

It is considered that was a need for a more lengthy planning process looking at the strategic alignments of the two businesses and determination of how the pieces in the puzzle would be put together.  The business relationship needed to be more transparent, honest and open in the way it was conducted without misleading the investors.  One might argue that the Chrysler Board were somewhat guilty of not completing adequate due diligence, particularly on the German Legal system with regard to Incorporation of Companies.  Both sides were accusatory towards one another in the management handling of the merger, it could be argued that they were both equally irresponsible “executives in Stuttgart must have foreseen those glitches when they did their due diligence on the merger. Similarly, the fact that the boom in the U.S. car market was coming to an end was hardly unexpected. Whatever the faults may be on the U.S. side, it’s hard to believe that they caught Daimler’s top executives by surprise” (Richter, S. 2001).

Problems in Managing the Post Merger Integration

In the management of the merger it is necessary to consider the main objectives from each organization.

Daimler motive: To become a global player in the automobile market place leveraging off the strength of Chrysler in the mid-range vehicle market. To expand beyond its traditional European base into the US and Asian market place.

Chrysler motive: To gain competitive edge in improved technology and engineering and overall improve quality to enable it to compete better in the market place. To expand beyond the North American market.

The combined merger bringing the ability to bring about higher manufacturing volumes whilst not forsaking quality. By pooling the combined knowledge it should enable increased global market penetration combing German Engineering with US Marketing skills.  This to make it a global player in the automobile industry.

As such it is a symbiotic relationship with high organizational autonomy and high strategic independence.

The main failing of the Executive was in the management of the culture of the two companies. Instead of driving through competitive advantage the accelerated pace of the merger drove them both into a deeper crisis situation. There was an atmosphere of mis-trust and this resulted in many of the Chrysler Senior Executives leaving to join rival firms.  Within the concept of a ‘merger of equals’ you would look at combining the best skills and cultures into a combined entity. Instead the merger more portrayed that of a hostile takeover and this resulted in increased rivalry between the two firms instead of creating synergy and working as a team towards common goals. (Hollman J.D. 2010). All of this made it harder to articulate the vision and manage the direction, it created a higher rate of good people leaving to rival firms, it provided the competition with increased market leverage.

Conclusions | Lessons Learned In the Daimler / Chrysler Merger

Daimler Benz had reached its potential capacity in terms of producing luxury cars and the market would not sustain more than 1 million cars per year. Mercedes however wanted to increase its revenue base by 7% and penetrate international markets and it saw Chrysler as the ideal firm to penetrate the US and S.E. Asian markets in the mid-range car delivery service.  Daimler never really wanted a partnership of equals but wanted to control Chrysler and build it in the same organizational framework of Daimler in Germany.  Equally Chrysler was running scared of a hostile take-over in the US market with the increased volatility. The CEO of Chrysler knew that the firm would not survive another financial crisis. He saw where Chrysler might benefit from Daimlers heritage and quality engineering skills. As such providing a valuable entry point to the mid-range European vehicle market.

In many regards both had their eye on the prize without really giving sufficient thought to how two diverse cultures would fit together.  Both firms were motivated by fear. With Daimler it was reaching capacity with no strategy to expand and the possible decline of the luxury car market in difficult financial times.  With Chrysler it was the fear of a hostile takeover in the USA. Both CEO’s had their own different agenda’s but the Daimler CEO (Schrempp) deliberately misled the Chrysler investors in order to gain control over the merged company and oust the Chrysler management team. As such there was a level of mistrust and the Company never launched with a unified strategy that would harmonize the culture of the existing Companies into a new image with a unified management team.

As a result of Schrempps plots he plunged the new company into an immediate decline and he gained a terrible reputation in the USA as being one of the worst CEO’s on record. Despite this the shareholders of the new Company retained him in Germany. Daimler adopted a superiority complex towards Chrysler and thought of itself as the most advanced innovator in the automobile industry with a heritage of quality engineering.  A far cry from the mass produced assembly lines of the US automobile industry but the recognized the profits from producing inexpensive medium range cars that sell.  Chrysler was a trendsetter in new innovative designs but lacked quality in its engineering processes.  The firm had historically faced several bankruptcy situations and was seen as a mainstream rival to Ford and General Motors.

None of the US cars were considered as status symbols for Executives who moved towards Mercedes and BMW.  One of the key lessons is that neither Company embarked upon a new clear organizational structure for the new firm. This particularly in the roles and responsibilities of the Executive team.  The Germans had their own unique hierarchical management structure which they expected to dominate over the cowboy mentality in the USA. They missed the point that the new organization had to work as a unified team.

Works Cited

Hollman, J. D. (2010). The Daimler Chrysler Merger – A cultural mismatch? UFSM Santa Maria V3 N 3, 431-440.

McNamee, B. (1998, 5 7). Daimler & Chrysler: A merger of Equals. Retrieved 4 6, 2011, from http://archives.cbc.ca/version_print.asp?page-1&IDClip=16776&IDDossier

Richter, S. (2001, 2). J’accuse — It’s Always the Others’ Fault – Daimler/Chrysler merger . Retrieved 4 6, 2011, from http://findarticles.com/p/articles/mi_m4070/is_2001_Feb/ai_71579488/

Schrempp, J. (2011). Reference for Business : J.Schrempp biography. New York: Encyclopedia of Business.

Tierney, C., & Valcourt, J. (2006, 1 25). Maximizing the merger – DaimlerChrysler to centralize key corporate units, cut 6000 jobs. The Detroit News.