When Things goes wrong: Mercedes

This case discusses about the merger of two symbolic brands- American Chrysler & German Daimler
Benz . Currently Mercedes is going through a tough time as sales along with the profits have plunged
down and is lagging behind its arch rivals like BMW, Audi.
The problems have become worse for Mercedes from year 2001 since it had to recall 1.3 million cars
having problems with their batteries or brakes leading to a tarnished image
If analysts to be believed, the main issue of Mercedes poor performance was of change management
as there was a cultural clash between two companies & the management even took eyes off Mercedes
business & majorly focussed on building up Chrysler.
Seeing the ongoing poor performance by Mercedes many question were raised whether the highly
technologically sophisticated gadgetry on its latest top of the range Sclass cars can be trusted to perform. They feared that if any electronic malfunction would
further damage the entire porch image and further push away its customers.
Newly appointed CEO-Dieter Zetsche sensed the problem & assured that the firm is determined to
retain Mercedes position as the worlds most successful luxury brand.
QUESTIONS
1) What has been the source of Mercedes competitive advantage?
The major source of Mercedes competitive advantage lies in their quality & reliability. It
uses differentiation strategy to seek competitive advantage in the market. It gives
customers high end quality luxury products and customized as per their needs
But currently Mercedes is in a crisis position as it is losing its market share to its
arch rivals BMW & Audi in the luxury segment as Mercedes has grown 0.18% in
last few years as compared to its competitors who have achieved 4% & 6%
respectively.
2) What seems to be the cause of its recent problems in operations?
The main issue with Mercedes operations has been lack of focus on its main brand
Mercedes and trying too many things like launching a small car division which were not its
core competency which resulted in poor quality in its operations. Also, due to its merger with
Chrysler, it tried to repeat economies of scale model of Chrysler , and failed miserably.
3) Is it possible for the firm to simultaneously improve its performance in both
productivity and quality?
Yes, it is possible for firm to improve its performance in both productivity & quality.
In order to build collective and lasting manufacturing capability, management should focus on:
- Enhancing quality
- Improving Dependability
- Flexibility
- Cost Efficiency

4) Where would you position Mercedes Benz on the Hayes and Wheelwright four-stage
model? Give your reasons?
The Hayes & Wheelwright 4 stage model describe four stages of manufacturing competitiveness:

Stage I
In Stage I companies consider their manufacturing organisation to be internally neutral, in that its role
is simply to "make the stuff". Such companies believe that their product designs are so unusual that if
the product can simply be delivered to customers, as advertised, the company will be successful.
Stage II
Stage II companies look outward and ask their manufacturing organisation to be externally neutral,
that is, able to meet the standards imposed by their major competitors. Such companies tend to adhere
to industry practice and industry standards.
Stage III
Stage III companies have a manufacturing organisation that is internally supportive of other parts of
the company, with a co-ordinated set of manufacturing structural and infrastructural decisions tailored
to their specific competitive strategy.
Stage IV
Stage IV companies regard their manufacturing organisation as externally supportive, that is, playing
a key role in helping the whole company achieve an edge over its competitors. They seek to be as
good as anybody in the world at the things they have chosen to be good at - that is, world-class.

According to the model, Mercedes Benz can be placed in Stage 4