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Management Consulting/International Case : The Restructuring of Daimler-Benz

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QUESTION: International Case : The Restructuring of Daimler-Benz
In a 1996 address to stockholders and friends of Daimler-Benz, CEO Jurgen Schrempp reviewed the position
of the diversified company. He started by saying "1995 was a dramatic year in the history of Daimler-Benz." It
was also a year that the board of management made a major break with the past.
Daimler-Benz, with more than 300,000 employees worldwide, consisted of four major groups: The first, by far
the biggest and most successful group, was Mercedes-Benz with about 200,000 employees. It is best known
for its passenger cars and commercial vehicles. The second was the AEG Daimler-Benz industries in the
business of rail systems, microelectronics, heavy diesel engines, energy systems technology, and automation.
The third was the Aerospace Group in the business of aircraft (the company has a more than one-third interest
in the Airbus consortium), space systems, defense and civil systems, and propulsion systems. Finally, there
was the Inter Services Group consisting of systemshaus, financial services, insurance brokerage, trading,
marketing services, mobile communications services, and real
estate management.
Daimler-Benz went through various development phases. From 1985 to 1990, it diversified into aerospace and
electrical engineering. The aim was to become an integrated high-tech group. This diversification was further
consolidated in the next phase that extended from 1990 to 1995. Under the leadership of Schrempp, the core
business was redefined and the strategy refocused.
A 1995-96 portfolio review showed the need for refocusing on what the company could do best. Top
management reevaluated its strategies and its core businesses based on economic criteria and the strategic fit
of the various activities. It became clear that the company's strengths were in car manufacturing, the truck
business, and the railroad sector. Mercedes Benz, for example, had a strong competitive position with its cars
and trucks in Europe, North America, and Latin America. Vans were also relatively strong in Europe, and
buses had a good competitive position in Latin America. Based on this analysis, the strategies for potential
growth were through globalization and the development of new product segments.
In 1996, top management reassessed the company's position and its 1995 unsatisfactory results from its
operations. It was discovered that the company was exposed to currency fluctuations that affected profitability.
The company's image was also blurred because of the ventures into many different kinds of industries. The
management board decided to cut its losses and chart a new direction for the company, with greater emphasis
on profitability. The organization structure was tightened and certain businesses were divested. In fact, policy
decision from an earlier period were reversed. The unprofitable AEG Group and the Dutch aircraft
manufacturer Fokker did not receive financial support. Since both the Dutch government and Daimler-Benz
withdrew support, Fokker filed for bankruptcy. Although these and other drastic decisions helped reduce the
1995 financial losses, the company's goal was not to emphasize maximizing short-term profitability but to
work toward medium- and long-term profitability.
A number of other managerial decisions were made to achieve the ambitious goals of reducing costs and
improving profitability. Employees close to the operations were empowered to make decisions necessary to
carry out their tasks. The organization structure was simplified and decentralized so that organizational units
could respond faster to environmental changes. Moreover, the new organization structure was designed to
promote an entrepreneurial spirit. Control was exercised through a goal-driven, performance-based reward
system. At the same time, the new structure was designed to promote cooperation. In 1997, the board of
management restructured and integrated the Mercedes-Benz Group into Daimler-Benz. Consequently,
Mercedes-Benz's chief, Helmut Werner, who had been given credit for a successful model policy, resigned
from the company.
Questions:
1) What is your assessment of Daimler-Benz's operations in many different fields?
2) Should the various groups operate autonomously? What kinds of activities should be centralized?
3) Daimler-Benz is best known for its Mercedes-Benz cars. Why do you think Daimler bought AEG in the first
place and why did it venture into the Aerospace and Inter Services businesses?
4) Given the apparent mistakes in acquiring non-automotive businesses, what should Jurgen Schrempp do
now?

ANSWER: 1)  What is your assessment of Daimler-Benz's operations in many different fields?


Daimler-Benz, with more than 300,000 employees worldwide, consisted of four major groups: The first, by far the biggest and most successful group, was Mercedes-Benz with about 200,000 employees. It is best known for its passenger cars and commercial vehicles.
[THIS  BUSINESS  UNIT  HAS  THE  CORE  COMPETENCE  AND   HENCE  VERY   SUCCESSFUL.
--------------------------------------------------------------
The second was the AEG Daimler-Benz industries in the business of rail systems, microelectronics, heavy diesel engines, energy systems technology, and automation.
[THIS  BUSINESS  UNIT  HAS  TOO MANY SUB-UNITS  AND  WIDE  DIVERSIFICATION  AND  LACKS  CORE  COMPETENCY  IN   SOME  WHICH  AFFECTS  THE  OVERALL  PERFORMANCE.
----------------------------------------------------------------------------

The third was the Aerospace Group in the business of aircraft (the company has a more than one-third interest in the Airbus consortium), space systems, defense and civil systems, and propulsion systems.

[THIS  BUSINESS  UNIT  HAS   MANY SUB-UNITS  AND  ARE  INTEGRATED AND  HAS  THE   CORE  COMPETENCY  /  HENCE  IS   SUCCESSFUL..
----------------------------------------------------------------------------
Finally, there was the Inter Services Group consisting of systemshaus, financial services, insurance brokerage, trading, marketing services, mobile communications services, and real
estate management.

[THIS  BUSINESS  UNIT  HAS  TOO MANY SUB-UNITS  AND  WIDE  DIVERSIFICATION  AND  LACKS  CORE  COMPETENCY  IN   SOME  WHICH  AFFECTS  THE  OVERALL  PERFORMANCE.
=============================================================
2) Should the various groups operate autonomously? What kinds of activities should be centralized?

[THE  BUSINESS  UNITS  SHOULD  OPERATE  AUTONOMOUSLY  . THE   KINDS   OF  ACTIVITIES  THAT  COULD CENTRALIZED   ARE
-IT  SYSTEMS
-HR  SYSTEMS

-FINANCE
============================================
3) Daimler-Benz is best known for its Mercedes-Benz cars. Why do you think Daimler bought AEG in the first place and why did it venture into the Aerospace and Inter Services businesses?

[ BETTER  USE  OF  TECHNOLOGY  AND  COMPETENCE
PLUS  SALES   OPPORTUNITIES.
===========================================
4)  Given the apparent mistakes in acquiring non-automotive businesses, what should Jurgen Schrempp do now?

[ RE-ORGANIZE / RESTRUCTURE  THE  BUSINESS   UNIT  AND  HIRE  COMPETENT   TALENTS  TO  RUN  THE  SHOW]

##################################################################################



---------- FOLLOW-UP ----------

QUESTION: Dear Sir

4th Answer is not cleared Please make it clear

Answer
4) Given the apparent mistakes in acquiring non-automotive businesses, what should Jurgen Schrempp do now?

[ RE-ORGANIZE / RESTRUCTURE THE BUSINESS UNIT AND HIRE COMPETENT TALENTS TO RUN THE SHOW]
THE MISTAKES  ‘’DAILMER ‘’  MADE  IN ACQUIRING  NON-AUTOMOTIVE   BUSINESS
IS
-treat  the  business  as  an automotive  business.

-the talents  who  ran the  business  did  not  have  the  right  competence  for  the  business

-this  affected  the  performance.

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