CASE STUDY: FirstSolutions

LuxDrive: Story of a merger

On August 17, 2017, Drive and LuxAuto shareholders approved the largest corporate merger in history. After months of talks, Mathias E. Richter, chairman of the German-based LuxAuto management board, and John J. West, chairman and chief executive officer (CEO) of the US-based Drive Corporation, were now preparing for the October, 16, 2017, the historic day that LuxDrive would be born, and create one of the largest automobile companies in the world. Richter and West would now be charged with the responsibility of amalgamating two enterprises with very different cultures, market segments, and product lines; they needed to forge a vision on which LuxDrive would base its future.

Drive corporation, incorporated in 1921, was the third largest automobile manufacturer in the United States and was considered the most efficient in America, based on the number of cars produced per employee. Drive was known for its economic priced minivans, pickup trucks and sport utility vehicles, with 90% of its sales in North America. LuxAuto, the oldest automaker in the world, sold only luxury automobiles and commercial vehicles. Its reputation was based on craftsmanship, quality and safety. Sixty-three percent of its sales were in Europe, and 21 percent in North America.

To the investment community, the merger looked like a match made in heaven, with complementary product lines and markets. Other observers, however, were less confident of the merger’s likely success and whether this would be a merger among equals, as Richter had indicated, given that LuxAuto was economically stronger and ultimately had power over all decisions.

LuxAuto employees were proud of the elite image and were concerned about having that tarnished by a ‘third string, mass market American firm’. Drive employees voiced concerns about the ‘Germanisation of America’s automaker’. The business and national culture of the two firms was very different, with LuxAuto conservative managers clashing with the more open-minded culture of Drive. For example, LuxAuto employees referred to each other by their last names, while the Drive referred to each other by their given names. There were also substantial salary differences. West earned US$9.8 million in the year before the merger, while the 10 members of the LuxAuto management board in total earned the equivalent to US$11 million that same year, due to the bonus incentives practiced in America. The highly hierarchical organisational structure of the German company, in which all decisions had ultimately to be approved by a high-ranking manager, also contrasted with the flatter structure of the US company, in which employees had much more power and autonomy.
Aiming to promote collaboration and exchange of expertise between the two companies, Richter and West initiated in the US plant the implementation of a mixed team based working program, with 100 LuxAuto employees joining 25 Drive teams for a six-month pilot.
Three months later, they were stricken by how difficult this proved to be, as the case of the team Engine5.0 illustrates. This team, charged with developing the technology for a new high-quality engine at lower cost, was initially composed by two US engineers, Michael and Lisa, led by Maria Jenkinson. Maria had always been very close to the other team members and they often had drinks after work. She knew them personally and, although she was very focused on the quality of their work, she also took care of the career development of everyone in the team and thought work should be fun. Michael was an ambitious professional and a fun-loving person that enjoyed spending time with his colleagues and was always keen to try new things. He enjoyed learning about new technologies and work methodologies. He was able to adapt to most situations and always knew the right thing to say. Lisa was someone who took comfort in having very clear routines and prided herself for always delivering high-quality work by the expected deadline. She was confident in her abilities but she always thought twice before taking on something new and was careful with her choices. She was somewhat ambivalent about the merger.
Two German engineers, Hans and Kristine, led by Dietmar Burrow, joined the team two months after the announcement of the merger. Hans enjoyed a reputation of excelling in everything he did, and he could sometimes come across as arrogant. He was very excited about proving himself abroad. Kristine had just joined the company so she was unsure about why she had been selected for this team and was wondering if she was being tested. Although the quality of her work was generally very good, she consistently worried about making mistakes and was anxious about how others perceived her.
Although relationships were cordial at the beginning, the expected synergy never occurred, with the German engineers feeling that their input was never taken seriously by Maria, who they accused of giving preferential treatment to the US colleagues. Dietmar, although very formal and directive and not one to develop personal relationships at work, at least treated everyone equally and it was clear what you had to deliver to make him happy, the Germans commented. The relationship between Dietmar and Maria were also strained. They failed to agree on how to best lead the team, with Dietmar trying to establish specific objectives and deadlines and Maria being much more inclined just to leave her people to get on with the job.

The team received confusing messages from the two leaders and the animosity between them was translated to the team members. As Dietmar was hierarchically superior, he always had the final decision but the US workers would rather follow Maria’s orders, whom they recognised as having more expertise. On the other hand, the German workers felt they were misunderstood and were upset that they had not been more welcome, especially when they had always tried to share their knowledge and expertise. Hans thought his idea were not been given attention they deserved and the unfriendly environment made Kristine feel ever more anxious about doing the wrong thing.
The fact that their US counterparts were also earning considerably more money also added to their discontentment. Relationships were tense, there was not a sense team unity, and discussions were not very productive, with most resulting in personal conflict, leading Hans and Kristine at a certain point to just withdraw. At the end of the three months, the team had made little progress in terms of integrating knowledge of both companies.




a) What were the main challenges to the merger of the two organisations and b) in your view, why did team Engine 5 failed to achieve its objectives?


How did the individual characteristics of the US (Maria, Michael and Lisa) and the German (Dietmar, Hans and Kristine) colleagues might have affected team dynamics and the extent to which the team was successful?


What advice would you give Dietmar and Thomas in addressing the present issues?

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