Contingency Approach to Conflict Management

(Situation Analysis – Daimler Chrysler)

The approaches to conflict management are often demonstrated by a continuum

of flight (moving away from the conflict) and fight (being confrontational) at the
extremes. Both extremes are inappropriate with a win-lose orientation to conflict,
which often lead to prolonged conflicts and negotiation for the parties involved.
As the contingency approach lies somewhere between these extremes, it is seen
as a more effective way to conflict resolution. The contingency approach takes
the view that "one" best way of managing conflict under all conditions does not
exist, but that there are optimal ways of managing conflict under certain
conditions (Owens, 1987).

According to Thomas (1976), he utilized the contingency approach to diagnose

conflicts and identified five styles of conflict management. These management
styles are identified as:

• Avoidance is often a form of flight suggesting indifference, evasion,

withdrawal, or isolation. Avoidance is usually used when the issue is
trivial or when the costs outweigh the benefits of resolution.

• Compromise/sharing involves splitting the difference or giving up

something to get something. This may be appropriate when the objectives
are important, or when potential disruptions are likely to result from
assertive behavior.

• Accommodation means a submission to others at one’s own expense. On

occasion, it can represent generosity, while at other times; it might mean
conserving energy and resources by giving up a few battles in order to
win the war. This is usually when an individual wants to build good will
for more important matters and/or to minimize losses when defeat is
inevitable.

• Collaboration represents a desire to fully satisfy the interests of both

parties. It is a mutually beneficial stance based on trust and problem
 solving. A common practice in circumstances when both sets of concerns
are so important that only an integrative solution is acceptable.

• Competition frequently means a desire to win at the other's expense. It is

a win-lose power struggle where the opinions and interests of others are
of little concern. This is practiced in situations when quick, decisive action
is essential, as in emergencies or when critical issues require unpopular
action, as in cost cutting.

In the case of Daimler Chrysler, the competition approach seems to be the

path chosen by the Daimler team. The merger went off with a good start with
announcement of an integration team under John Stallkamp from Chrysler.
However, as discussed earlier, differences arose and the attitude to resolving
those differences was more towards suppression than resolution. This
resulted in a flight of officials from Chrysler as mentioned before. The
situation did not require any quick decisive action plan. On the contrary it
required ‘jaw, jaw and more jaw’. It would have been optimal to adopt a mix
of collaborative, compromise and accommodating approaches.

Areas of conflict –

• Cultural – As described in the earlier study, Daimler and Chrysler had

vast differences in culture, from compensation structure to idea
generation/discussion to organizational structure. Chrysler employees
used to a relaxed and open structure of conduct with lesser hierarchies
were left stifled. To resolve cultural complexities, Daimler should have
clearly adopted an accommodating approach. Chrysler’s managers
enjoyed a high degree of latitude in their functioning. The culture change
should have been implemented over a larger time horizon after
deliberation with Chrysler management whether such a change was
required if at all.

• Strategic – Chrysler hoped to penetrate the European market while

reaping economies of scale in the US operations to achieve cost cutting.
Chrysler on the other hand had global ambitions which appeared over-
stretched. Jurgen Schrempp went on to explore further acquisitions in the
Japanese segment (talks had been held with Honda, Mitsubishi and
Nissan). He finally ended up with minority stakes in South Korean and
Japanese entities. On the other hand Chrysler’s plans of penetrating in
Europe were thwarted! The market did not support Schrempp’s ideas with
 a lot of auto sector experts and shareholders questioning the decision.
Even after ignoring the business and financial rationale of his decisions,
we still find that his approach on resolving strategic and business goals of
Chrysler with Daimler was flawed. He swung from a complete avoidance
approach where he let Chrysler run as an independent group to a
competing approach where top American officials were fired with
German managers as replacement. The German managers went ahead
with over 16000 job cuts and restructuring the plants to use German
components in Chrysler models.

In any merger leadership is critical to success. Under Lorsch’s contingency

approach the leader’s relationship with followers is central. Followers’ values and
expectations must align with the goals set by the leader, communication between
the parties must be strong, and the leader must draw effectively on power as a
function of position (a directive approach) and on influence through perceived
competence and charisma (a participative approach).

The optimal path would be a mix of directive and participative approach

contingent on the situational context. Lorsch lays down the following
contingencies as having a bearing on the right mix -

1) Leader’s chosen goals and available sources of power and influence

Jurgen Shrempp as CEO of Daimler was easily accepted as CEO of the merged
entity. Initially he followed a participative approach with Chrysler CEO Bob
Eaton and himself appointed as co Chairmen. However on the ground his
approach was not participative and the approach of his lieutenants was
combative when it came to resolving any conflict. This did not yield the desired
results. With benefit of hindsight it can be claimed that Jurgen Schrempp should
have followed a more participative approach, especially in an atmosphere where
many senior Chrysler executives left the company.

2) Followers’ expectations

There was a visible disconnect between Schrempp’s plans and Chrysler’s

expectations from the merger. Later, Schrempp also declared to the media that
the ‘merger of equals’ was a façade he deployed for media consumption. At no
point was he looking at the merger from

3) Complexity of the organization

Both the firms on a standalone basis themselves will classify as highly complex
organizations. A merged entity with cultural differences and a much wider
global presence would see organizational complexity rise manifold. Under such
situation, till a stable mixed culture is established, adopting a participative
approach in leadership might be the optimal path. Daimler CEO swung from
highly participative approach where he let Chrysler work independently as
‘Chrysler group’ to a highly directive approach where he fired President of
American operations and appointed his managers followed with massive job
cuts.

4) Certainty or uncertainty of the task

Any merger is bound to create situations with high degree of uncertainty. Under
such circumstances I would argue that a leader should draw upon his charisma
to follow a participative approach. However in certain critical situations a
directive approach with centralized decision making might be required. Veering
towards one approach can be detrimental especially when workforce is gripped
with job uncertainty. Probably an initial participative approach to chalk out the
combined strategy followed up with a directive approach in operations would
have been optimal. Juren Schrempp and his lieutenants followed a highly
directive approach leading to disaster.

Conclusion –

The merger was a disaster for both business and organizational issues. Jugren
Schrempp and his team followed a highly aggressive competitive approach
towards conflict resolutions. Jurgen Schrempp known for his flamboyance and
king size ego failed on his leadership deliverance. As a leader, he followed a high
handed directive approach when the situation demanded a toned down
approach and curbing his personality instincts. Both companies today as separate
entities are in dire situations with Chrysler facing existential threats. The so
called merger of equals was a disaster and leadership failure became the Achilles
heel as is seen so often in megamergers.