Business strategy case

8/13/2019 Business strategy case

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Chanter t has helped ;,'ou look ai companies' decisions io become more rliver-sified, io become multibusiness companies, Dr to narrow their scope to fewerbusinesses.Dairnler Benz is an interesling conpany for you ro eranine in the BaslnessI4/eel. Discussicn Case because it has had such a varied diversification e.,peri-ence ill the decade just ended. -1bu mighr say thar this last decarie has been Dailrr-Ier Benz's decade-long dcutce 'ith tlte di,ersificetion deyil.So Brisirress lVeet reporters John Templeton" tsill Vlasic, Kathleen lierwin.David \4/oodruff. Thane Pelerson, {-eah }Tathars. and -neff Garten iake youthtough Dainler's Diversilication Dance to illustrate some of the concepts aboutstrategic analysis and choice involving multibusiness companies. They eramineit in three phases, or dance sieps, endirg with the Daimler-Chrysler waltz, whichthey eramine in the greatest detail.Daimler Benz has "danced" an incredible aad varied dance with diversification i,rthe 1990s. You could say there were tfuee segments, steps, or eias to ihe dance:

ODsessdora with Divensiflicatiom-lEe a we can possihly he-in tlae decade's firsthalfftelt /sr'om witln Diversificattion-Be omny whatl we lhave to lle-in ilh mirdL-decadeSiwtple related Divensiflcation-Be ttne glolral car cornpany we lnave to hr-decade's end

Daimler Eenz spent billions ofdollars on acquisitions in the early 1990s to try to trars-form itself from an auto naker into a high tech conglomerate excelling at eve44hingfrom telecommunications to jet planes. trn perhaps the most critical step toward thatgoal. CEO Edzard Reuter laid out an additional $1.9 billion-and even billions morelater-in a bid to succeed in al industry where his European rivals have failed and be-come a global heavyweight in microelectronics.Reuter thought he didn't have much choice. Whether in aerospace or autos, Daim-ler needs to become a leader in microelectronics if it hopes to stay competitive withthe U.S. and Japan, Daimler's new venture would steer clear of standard memorychips, which have led to huge losses. Instead, it will make specialized chips that arecustom-designed to conftol ever)'thing from automobile engines to computerized pro-duction lines. Daimler executives worried that if they don't make their own chips theySource: Errtress llret November 16, 1998j July 20, 1998; September 2 t , 1995 r Juty ,1, 1994j and June 22, 1992.


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sTit.\TEcii: .\n rt-YSI5 \rlD Cl lo(E 1,' ilE hii L:f lBL SlliFs:i L arNlPl: i i i::litrl iulned oul iliai Schrempp whiie Lr:airirg unelei diveisificaticn charrpiln F.e'-tlei"

had beer spending lris final year ol groorning io become CEO prepai'irlg a very difter--eirt, ant;-diversific aticr strategy ior Dainler. r 11 ihat year, Schiernpp prepaleci irissilategy. and once in power. he e.,iecuted ii u'ith ellactillg slviitless. The goal; io re-verse hi; foimei ilentor'r giaild schenre of blilding ail irrtegiatecl technologT clilt-pany. First. he sLreamlined iread-olTice hiererichy. cuiting sfafi by inoi ihaii 7576. " Irotrhave to sweep ihe siairs froin tl-re top dcwn." he says. Then he elamined each busi-ness unit, grilling tiightened managers nearly to iears and ser a 127o i-eturn-or-capitaltarget tbr each unil. h,/heil the dusi had settled, Dain er uras dc$'n to 2i units from i5and crrried 53.000 fewer pecple on the payroll within si;,: months after SchreirepPDecame EU.

Thar year observers described his lcng:t:irn sirategy 3s:. Malce a ilecisive break with failed diverslfication strategy, Focus on core autorootive and truck businesses. which piovide inosi of the group'spiofiis. Close the moneyJosing Daimler Belz nndustrie unit with sell-offs and fiansfers ofprorilable operaiions io olhcr divi\;on\. Slm down DASA Daimler tsenz aerospaceJ reducing its worldbrce of 40'000 by upro 50%, and step up sourcing of parts fton dollar and other weak-cufienc:tr axeas. Speed up globatization of manufaciuring by locating big-tlcirei plant invesimentsoutside GermanyEy 1997" focus had started to pay off and the "'swaggei" was back at Mercedes'

tlake the U.S. market for exzrir-Iple nt has been a rernalkable tumaround for the Gemrancompany, wtlose U.S. sales hit rock bottom in 199i in the face of a successful oo-slaught by Japanese luxury brands. Bui they have since left rivals behind ir the slowlane. Bolstered by a stable ofnew products and aggressive marketing campaigns, &4er-cedes (and tsMW) again rank as the hottest luxury brands in the U.S. They ended 1997in a dead heat for preeminence among luxury import brands, with BMW's sales of122,500 vehicles edgirg out Mercedes' 122,417. And in a luxury-car rnarhet that grewjust 60lo from 1991 to 1997, BM\l/ sales soared 1307o, while Mercedes rnse 837o Thathas allowed the German brands to leapfrog past their top two Japanese rivals, Lexusand Acura. nf EMW and Mercedes keep accelerating, they could roar past the falteringtl.S. market leaders. General Motors'Cadillac Div. and Ford's f-incoln mit, widrin thenext five yea$.Competitors now hold Mercedes and EMW up as the standard to beat. "They haveclearly reframed the luxury market," says John F. Smith, general manager of GM'sCadillac Div. "tr lhink they've been much more responsive to a variety of consumertastes." That's just the opPosite of the reputations tsMW and l4ercedes canied at their1ow point in 1 99 1 . Back then, the pair admittedly lost touch with consumers llhey paidthe price: Sales bottomed out at 53,343 vehicles for BMW and 58,859 for lV{ercedes-down 45Va and 41Va, respectiYely, from their high five years earlier' "The key issuethen was to survive," says Michael Jackson, president of Mercedes-lBenz of NorthAmerica.:[he bottomline was a resounding rejection of the prior diversification strategychoosing instead to focus on stablizing ttre business around core competencies and ca-pabilitiei relative to automotive ard key fiansPortation products, and to globalize iisoperations where cost benefits were derived.


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; r-rlir roliiiaailJr -ripir:iri"- r.-:isi,ilr rri :ii ? ll iaii- aloli i'lrr Il :it:-']''i alr-rir l:: lli . b:l i.i:aq .lrneirica ar,l Grmallr n/ 'len,-j,lti./ -i;i.il-rg i)ac''ira faazl:t:a: i ilr' : '.l l'l rl i,ltie global auio indusu-y.

One final iikel;; ouicoirre iioir iills lllEi.gar. teli befc're aa;,,i'lr.= l:l,r'';": ii Dair-ill;i-Chlisitr is a succes::-iis vei/ e:iisience cauld r.shape ihe inrjurirt'. n-,loL fcr ll'-r-tor-ra( ers io scraml,le fbr pai'inels io eirsure sur'o'iva.l as oi- e of the 1 i .t centilry 10. l {ov'tirai plals our is ariyhody's guess.'"The odd man oui here seeins lo be ihe Ja-panese-.'says Pliillippi of Lehman Brothei's. "uissatr ;rnd F{onda rr irariicitlar have onil two legsro siand on: llorth America ai.rd Japan." That \,/oit"i ile enc,Llgl) n lhis iace.

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