Business / Daimler Chrysler
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Autor: anton 26 May 2011
Words: 3298 | Pages: 14
Table of Contents
Organizational Size, Life-cycle and Control 3
Organizational Structure 7
Cross-functional teams 9
Recent Product Innovations 10
Innovation Process 11
In 1998, the merger between US-based Chrysler German-based Daimler Mercedes formed the company known today as DaimlerChrysler. The merger caused rapid growth as well as numerous challenges that the company still needs to overcome. Currently, the organization is in the elaboration phase of organizational growth, marked by the need for revitalization, more efficient decision making, and reducing redundancies in the organizational hierarchy. As it faces merciless competition of the automotive industry, the company is implementing structural changes geared towards making the company more efficient in its day-to-day operations, and allowing it to produce innovative products, thus setting it apart from the competition.
This paper starts out with a discussion of DaimlerChryslerâ€™s current phase of organizational development and some of the key challenges that the company is facing today, followed by a discussion of recent organizational structure changes aimed at overcoming these challenges. Next, we describe the use of cross-functional or â€œinnovationâ€ teams and how this approach can reduce organizational deficiencies at DaimlerChrysler. Finally, we conclude with a description of cutting-edge, innovative products that the company has produced recently, and the process of managing innovation and creativity at DaimlerChrysler.
Organizational Size, Life-cycle and Control
In 1998, DaimlerChrysler was formed as a result of the merger between Chrysler and Daimler-Benz, even though many stockholders did not wanted the merger to take place because Chrysler was not meeting its financial goals with its line of vehicles. These stockholders believed that the merger will further devaluate the stock. So Chrysler was faced with the internal problem of meeting profitability goals and not going out of business, as well as the external problem of many of the companyâ€™s stockholders opposing the proposed merger (Wikipedia.org, 2006).
Right after the Daimler-Benz and Chrysler merger, the organizational growth was stable; yet the company went into a financial disaster soon after the merger, â€œgreatly depressing the stock price of the merged firm and causing serious alarm at headquarters in Germany, which sent new CEO Jurgen Schremp to take chargeâ€ (Wikipedia.org, 2006).
In 2000, DaimlerChrysler was facing stiff competition and an incentive war which was forcing them to discount their vehicles. The large part of the companyâ€™s competition, Japanese automakers, were able to obtain the competitive edge in production efficiency and ability to deliver innovative products to market in record time (Kano, Levinstein, 2006). In order to maintain its market share, DaimlerChrysler needed to revitalize the company by implementing a series of organizational and cultural changes.
In January 2001 the company has announced the biggest restructuring plan due to the high pressure of European and Asian auto makers. They planned to cut auto production by 15%, lay off 26,000 workers and idle six factories in North and South America hoping that cutting capacity will relieve the profit draining discounts (Ball, 2001). These changes were designed to primarily â€œstop the bleedingâ€ of profit losses. Similar drastic measures have been implemented by other major automakers, namely Ford and GM, in order to compete with Japanese automakers (Loomis, 2006).
Despite the weak demand in many important markets of 2002, DaimlerChrysler achieved unit sales of 4.54 million passenger cars and commercial vehicles. The Mercedes car group had sales of 1.23 million vehicles and Chrysler car groupâ€™s unit sales of 2.82 million vehicles gave DaimlerChrysler a good start towards financial well-being (DaimlerChrysler media services, 2006).
In the first half of 2004, DaimlerChrysler considerably expanded its business activities in the rapidly growing Chinese market posting record sales of 22,200 passenger cars (DaimlerChrysler media services). Throughout 2004, the sales of DaimlerChrysler passenger cars rose by 2.1 percent to 3,897,800 units, compared to 3,816,700 units in 2003. Although the group continued to face intense competition, the division was very successful in maintaining its strong position in the United States, where its sales grew faster than the passenger automobile market as a whole (DaimlerChrysler media services, 2006).
In 2005, DaimlerChrysler has reported a 3.8% rise in global car sales, with increases for both its Chrysler and Mercedes-Benz divisions. The increase is attributed to updating the product portfolio with the total of 17 new car models by both divisions and provides a foundation for â€œprofitable growth into the futureâ€ (Rise in sales for DaimlerChrysler, 2005).
After the DaimlerChrysler merger in 1998, the company experienced many symptoms of organizational decline, which characterizes the elaboration stage of organizational development. As described in the â€œOrganization Theory and Designâ€ textbook, the organization shifts out of its original position with the environment, becomes slow-moving and less able to respond to competitive challenges. In addition, a company in the elaboration stage is typically over-bureaucratized and reformation and revitalization. DaimlerChrysler can be considered over-bureaucratized because many of its existing organizational structure are the legacy of the two companies and have been established long before the merger took place. DaimlerChrysler is dealing with the crisis of not meeting profitability goals and are currently looking to improve their position by cutting expenses and â€œoffshoringâ€ their assembly to India and China.
However, some of the cost-cutting measures are backfiring because they cause a decline in car quality, which hurts DaimlerChrysler brand reputation. An example of this would be when Mercedes Benz recalled nearly 24,000 S-class sedans in China to fix potential cracking in fuel tanks of cars produced between October 1998 and March 2005. In another occurrence, Mercedes Benz
recalled 1.3 million E-class and CLS-class sedans globally to fix electrical and braking system defects, including nearly 5,350 cars in China (Cape Argus, 2006). Even though safety recalls are common in automobile industry, these two widely publicized recalls do not help DaimlerChrysler while it is trying to maintain its brand recognition and reputation of a quality automaker in order to achieve and exceed its sales goals.
DaimlerChrysler can be called over-structured because many similar hierarchical structures have been established in both Daimler and Chrysler before the merger, resulting in redundancies, inefficiencies and red tape, all of which often prevent making efficient decisions. These organizational structures were necessary for both companies in order to support core administrative as well as technical core structure activities required by companies of such caliber. In order to streamline decision making process, improve production efficiency and economies of scale when using company resources, DaimlerChrysler is implementing a series of organizational changes and expanding the use of cross-functional teams to support product development activities.
Among DaimlerChrysler structural changes is consolidation and incorporation of general and administrative functions, such as finance, controlling, and human resources. These areas will be centralized to report to the respective head of that function throughout the entire company. â€œRedundancies between staff functions at the corporate and operating levels will be eliminated, thereby reducing the complexity of the organization. A more integrated [General and Administrative] organization will result in more consistent processes, and reporting and decision-making will become shorter, faster and more efficientâ€ (DaimlerChrysler creates new management model, 2006). The goal of these changes is to enable DaimlerChrysler divisions to concentrate on â€œautomotive core functions â€“ development, production, and salesâ€. As a result of eliminating redundancies in organizational structures, the company plans to reduce the headcount of administrative employees by about 6000, which represents about 20 percent of general and administrative employees (DaimlerChrysler creates new management model, 2006).
The number of Board of Management members will be reduced from 12 to 9 by having some members serve dual roles. Dieter Zetsche will serve as the Chairman of the Board of Management and concurrently as Head of the Mercedes Car Group; Bodo Uebber will head Finance and Controlling as well as DaimlerChrysler Financial Services; Ruediger Grube will head Corporate Development (including Information Technology) and DaimlerChryslerâ€™s participation in EADS (European Aeronautic Defense and Space company). In addition, German board members are relocating their departments to Stuttgart-Untertuerkheim, closer to production facilities (DaimlerChrysler creates new management model, 2006).
There will be closer collaboration between Chrysler and Mercedes car groups in order to reuse resources and achieve economies of scale. The organizational change will also aid in knowledge transfer, process standardization, and improved collaboration between the two teams. One of such examples of increased collaboration is DaimlerChryslerâ€™s increasing use of â€˜project housesâ€™ that allow engineers from different divisions to â€œwork together for the benefit of the whole companyâ€. The project house approach is already used by Mercedes-Benz and Chrysler engineers in development of hybrid cars together with engineers form General Motors and BMW, and is the companyâ€™s answer to the competition from hybrid cars produced by Japanese automakers (DaimlerChrysler creates new management model, 2006).
Research and technology will be merged with product development of Mercedes car group. The new structure will continue to operate as the research center for the entire company. Within this realignment, the new function will take on more responsibility for advanced engineering activities of all automotive divisions (DaimlerChrysler creates new management model, 2006). This change is designed to reduce time-to-market for new car models to make DaimlerChrysler more competitive.
These changes are evolutionary in nature and will take about three years to implement (DaimlerChrysler creates new management model, 2006). In addition to enabling the company to produce innovative products faster, the organizational changes are meant to reduce internal costs, improving profitability.
Cross-functional teams group employees from various functional areas of the organization such as research, engineering, marketing, finance, and operations, and allow them to focus on a specific objective while improving team coordination, enabling sharing of knowledge, and efficient problem resolution (Smart innovation, 2006).
DaimlerChrysler announced changes to its product development organization in 2004, primarily designed to finalize combining its product teams into three basic groups â€œFront-Wheel Drive (combining the Small Car Product Team and the Family Vehicle Product Team), Rear-Wheel Drive (consolidating the Activity Vehicle Product Team and Premium Vehicle Product Team) and Body-on-Frame (previously known as the Truck Product Team)â€ (Chrysler changes product development teams, 2004).
New teams had been formed to provide a greater focus on advanced development of core components and systems, and standardize processes across all product teams. In 2003, DaimlerChrysler increased new product offerings and upgraded the pace of bringing products to the market. Furthermore, the organization began the structuring transformation, arranging cross-functional teams around vehicle design and production (Chrysler changes product development teams, 2004). In this arrangement, the Product Team Vice President has overall responsibility for platform structural design. Below this level, Chief Engineers follow specific programs and make certain that each individual product exceeds the customer expectations and meets all of the demanding functions such as performance, fuel economy, ride and handling, as well as business objectives on cost and investment (Chrysler changes product development teams, 2004).
Without a doubt, cross-functional teams are so vital for continuing innovation that at DaimlerChrysler, these cross-functional teams are often referred to as â€œinnovation teamsâ€. Their use and benefits will be described in the Innovation Process section of this paper.
Recent Product Innovations
DaimlerChryslerâ€™s most recent innovations are in the areas of automotive safety, performance, and fuel economy. A concept car called â€œthe Bionic Carâ€ was inspired and designed after rigid, light-weight, â€œbiologically aerodynamic and space-efficient â€œ boxfish, and powered by diesel engine that significantly reduces emissions and â€œreflects DaimlerChrysler's corporate philosophy, which emphasizes clean diesel technology with hybrids as a bridge to fuel cellsâ€ (Tegler, 2005). Emissions are reduced by 80 percent by spraying a chemical solution called AdBlue in precise quantities into the catalytic converter of the concept vehicle. This produces a chemical reaction that transforms nitrogen oxides into harmless nitrogen and water (Tegler, 2005).
In June 2005, Daimler Chrysler presented its car-to-car communication technology at Innovation Symposium in Washington (Law, 2005). â€œDedicated Short-Range Technologyâ€ builds an ad-hoc â€œinformation bridge from car to carâ€, which allows real-time traffic conditions such as traffic flow, weather, or accident information to be shared among the cars on the road, thus reducing the number of collisions and increasing automotive safety. For example, one car can transmit a brake signal to the cars behind it, â€œgiving drivers early warning that they might soon have to brakeâ€ (Law, 2005). The data transmitted by the roadway and/or other cars can be mapped to GPS units inside the car and help drivers avoid dangerous or congested areas. This innovation is part of the Daimler Chryslerâ€™s vision of â€œaccident-free drivingâ€ (Law, 2005).
As part of DaimlerChryslerâ€™s program aimed at improving fuel efficiency and reducing pollution, it developed hydrogen-powered Mercedes-Benz Citaro buses. More than 100 of these buses are in operation worldwide; they demonstrate â€œreliability and robustness of fuel-cell performance in various climatic zones and topographiesâ€. (DaimlerChrysler Delivers Fuel-Cell Buses to Beijing, 2005). Citaro bus is just one of the twenty fuel-cell vehicles developed by DaimlerChrysler since the 1990s. In another innovative move, DaimlerChrysler has formed an alliance with Ford Motor Company and Ballard Power Systems to better integrate fuel-cell technology into vehicles. (DaimlerChrysler Delivers Fuel-Cell Buses to Beijing, 2005).
To foster innovation and creativity, DaimlerChrysler is implementing internal improvements such as retooling manufacturing facilities to implement â€œsmart manufacturingâ€, encouraging the use of work teams, and offering extensive employee training (Chrysler group to modernize St. Louis plants, 2005).
The company organizes design, engineering, manufacturing and marketing functions into â€œinnovation teamsâ€ (Chappell, 2005), allowing the company to capture key innovative ideas and implement them into new products. DaimlerChrysler organizes monthly technology meetings to harvest innovative ideas and uses technology calendar to keep track of new technologies that are available from the companyâ€™s suppliers. Suppliers are asked to participate in technology fairs so that company engineers can discuss existing and future technologies with suppliers and implement these technologies into DaimlerChrysler products. (Chappell, 2005)
DaimlerChryslerâ€™s secret to success seems to be the blend of German attention to detail and â€œAmerican flair for innovationâ€. (Simon, 2005).After the merger, the collaboration of the US and German engineers was overseen by Dieter Zetsche, DaimlerChryslerâ€™s chief executive, who upon arrival in Detroit â€œfound a company with tremendous strength in creativity and innovation but a less brilliant record in executionâ€ (Simon 2005).
Mr. Zetsche sought ways to improve discipline of engineering and manufacturing process to increase the quality of DaimlerChrysler cars. For example, he gathered 100 engineers and executives to inspect â€œthe entrails of three pick-up trucks and three minivans, each with 100,000 miles on the clockâ€. (Simon, 2005). The purpose of this cross-functional team exercise was to â€œcompare the performance of every part in a Chrysler vehicle with those of highly regarded competitorsâ€. (Simon, 2005). He thought that the secret for success is attention to details while maintaining â€œimaginative vehicle designsâ€. (Simon, 2005).
Innovation at DaimlerChrysler is fueled by generous R&D budget: in 2005, Chryslerâ€™s spending on R&D was 7.69 billion dollars. (Schrage, 2005). Research activities are organized along international lines and are carried out in markets that are most important to DaimlerChryslerâ€™s business: Germany, India, China, Japan, Russia, and the United Sates. The global network of research centers allows DaimlerChrysler to achieve an efficient division of labor and â€œhelps scientists more rapidly recognize new trends and utilize the latest research resultsâ€. (Driving innovations for 10 years, 2005).
One of the DaimlerChryslerâ€™s approaches to innovation is the use of mobile research labs, such as F 500 Mind research vehicle â€œfeaturing a hybrid drive unit, an infrared nightview system, a multivision display and a host of other ultra-sophisticated technologiesâ€; the mobile research lab is a â€œhost to research projects with realistic prospects of entering series productionâ€ (Weber, 2004). The idea of a research vehicle has been used by Mercedes-Benz since the 1980s. It allows the automaker to integrate the latest automotive technologies and learn from these results, enabling it to deliver innovative products to market in less time.
Among the new approaches used for innovation, DaimlerChrysler is using digital engineering, which allows it to quickly integrate research findings into production vehicles. DaimlerChrysler was the first manufacturer to build a car using all-digital methods: Mercedes-Benz SLK-Class was digitally designed and its manufacturing process was tested in a â€˜digital factoryâ€™. (Weber, 2004).
DaimlerChrysler is receptive to new methodologies that can help the company improve its processes. While most of product development activities are using traditional project management techniques, some groups within the company have been experimenting with agile methodologies. In agile development circles, the company has become famous for its Chrysler Comprehensive Compensation (C3) project, which is considered the â€œbirth projectâ€ of XP (eXtreme Programming) agile methodology. Kent Keck, considered â€œthe father of XPâ€ first used the agile XP practices on the C3 project. The success of C3 proved to the world that XP can be used successfully on large projects and reduce much of the overhead that is incurred in traditional project management (Fowler).
DaimlerChrysler merger has produced one of the largest automotive corporations in the world that inherited some organizational deficiencies from both Daimler-Benz and Chrysler. As part of its revitalization efforts, the combined company had to remove organizational deficiencies and redundancies in order to stay competitive in the global automobile industry. DaimlerChrysler is currently reducing its costs by moving some production facilities India and China, and reducing the number of management layers and consolidating administrative core functions. In addition to reduced costs, these measures improve collaboration and knowledge transfer, enabling innovative products to come to the market faster. As the primary vehicle for innovation, cross-functional teams will are becoming more common at DaimlerChrysler. As we have seen, the company has a strong track record for innovation; generous R&D funding, state of the art research facilities and personnel, as well as use of new design and development approaches will help the company build on this foundation for innovation and become more profitable and competitive in the future.
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