Chrysler Group LLC

Sharon WeatherspoonMGT 556 Organizational DesignMarch 16, 2012

Chrysler Group LLC (Chrysler) headquartered in Auburn Hills, Michigan is the focus of my research project. Chrysler is a manufacturer of Chrysler, Jeep, Dodge, Ram, and more recently, Fiat brand vehicles and trucks, as well as Mopar parts and accessories. Its vehicle customers include their dealers and their retail customers, commercial fleet and rental car companies, leasing companies and government entities. In addition, their Mopar division which sells component parts and accessories to the dealer network also sells many of their products directly to the public further expanding the corporate customer base.

Its current product line consists of the following:

Chrysler Brand - the 200, 300 and Town & CountryDodge Brand - the Avenger, Charger, Charger Police Vehicle, Durango, Grand Caravan, Grand Caravan Cargo Van and JourneyJeep Brand - the Compass, the Patriot and the Grand CherokeeFiat Brand - the Fiat 500, the Abarth Ram Brand - the 3500, 4500 and 5500 Chassis Cab truck modelsCommercial trucks and government vehiclesMopar parts for Chrysler’s current and past vehicle linesMopar accessories

Chrysler Corporation was founded in 1925 by Walter P. Chrysler after spending the first 37 years of his life in the railroad industry. He was a self-taught, intuitive engineer and self-made man. His hands-on work in the railroad industry gave him the foundation to be a reliable, efficient and skilled laborer at Buick where he worked his way up to President of the company. Walter P. Chrysler was recognized as the “go-to guy” whether on the assembly line or in his executive office and he surrounded himself with creative and innovative teams who strived to produce cars that blended style, performance and affordability.

Chrysler teamed up with three ex-Studebaker engineers, Fred Zeder, Owen Skelton and Carl Breer, to design a revolutionary new car. They defined what the products of the Chrysler brand would be - affordable "luxury" vehicles known for innovative, top-flight engineering.

The first Chrysler vehicle was the 1924 Chrysler Six, an all-new car priced at $1,565 that featured two significant innovations - a light, powerful, high-compression six-cylinder engine and the first time four-wheel hydraulic brakes were standard on a passenger car. The well-equipped Chrysler Six also featured aluminum pistons, replaceable oil and air filters, full-pressure lubrication, tubular front axles, shock absorbers and indirect interior lighting.

With the purchase of Dodge Brothers, Inc. (founded in 1914), and the introduction of Plymouth in 1928, the Chrysler Corporation became a major presence in the American automotive industry. Within a decade of its founding, Chrysler Corporation's leadership in innovation had earned it the label of Detroit's "engineering company." Over the years, Chrysler continued to focus on manufacturing vehicles that appealed to the public and by many accounts, they led the pack.

During World War II, Chrysler played a key role in supporting the U.S. military effort. Unfortunately, their automotive activities were disrupted when their manufacturing facilities were required to produce military vehicles and components during World War II. Between 1942 and 1945 virtually all civilian car production was suspended, as the automotive industry turned its factories to the task of filling defense contracts. Under the leadership of company president K.T. Keller, Chrysler built more than 25,000 Sherman and Pershing tanks during the course of the War.

Following the War, Chrysler returned to manufacturing vehicles and, due to its size, market share, etc., was known as the smallest of the Big 3 automotive companies, following General Motors and Ford. The 1950s and 1960s marked a period of growth and innovation at Chrysler. The company pioneered the “muscle car,” beginning with the 1955 C-300, featuring a 300-horsepower hemi V-8 engine, and following with the outstanding 1960 Chrysler 300 F. Popular high-performance cars of the 1960s included the Chrysler 300 coupes, the Chrysler Imperial LeBaron, the Dodge Charger, and the Dodge Coronet.

In the late 1970's Chrysler's market share was declining as a result of poor vehicle quality, lack of innovation, lack of design, high gas prices, competition, etc. and the impact was the potential bankruptcy of the company. By the time the oil crisis of 1973 ended, Chrysler found itself unable to compete in a market in which consumers were demanding smaller, fuel efficient vehicles. The decline in their business resulted in serious financial difficulties. Following the second oil crisis in 1979, Chrysler was near death until Lee Iacocca convinced the U.S. Government to guarantee loans which would allow the company to regroup and regain its place in the U.S. automotive industry. This government support to Chrysler became known as one of the first major bailouts of an "investor-owned company."

This government assistance allowed Chrysler to remain in business and provided them the resources to develop new products. Chrysler was eventually able to sustain itself and continued to be a part of the Big 3. In 1998, Chrysler merged with Daimler-Benz in what was anticipated to be the solution to Chrysler's sustainability and emergence as a global player. The merger turned out to be a disaster for both companies and was subsequently dissolved in 2007 when Daimler sold the majority of its ownership to a private equity firm, Ceberus Capital Management. Fast forward to 2009, the U.S. economy is tanking, auto sales are almost non-existent and the entire U.S. automotive industry is in jeopardy of failing. Chrysler, along with General Motors, file bankruptcy in 2009, receives government loans and Fiat steps in to partner with Chrysler creating Chrysler Group LLC.

Since Chrysler Group LLC is not currently a public company, they are not required to issue an annual report; however, the following is a direct excerpt from their website: www.Chrysler.com.

"Chrysler was founded on the philosophy of design with purpose. To build revolutionary new cars - affordable luxury vehicles known for their innovative, forward-thinking engineering. And it is our purpose today and for tomorrow. Our alliance with Fiat® Group now gives us the competitive advantage of access to new technologies and advanced engineering solutions that further our mission. Our beautiful purpose. To create the type of exciting, efficient, reliable, safe vehicles you expect and deserve."

Chrysler Group LLC creates value by manufacturing and bringing to market quality vehicles and component parts and accessories. Its inputs include: human resources, machinery and equipment, raw materials (steel, fabric, plastics, etc.), money and capital, information and knowledge, and customers. Its throughputs include operating machinery and equipment, cutting and stamping materials, sewing, assembling parts, welding, testing and cleaning the vehicles. All of these throughputs require human skills and abilities. The outputs are cars, trucks and component parts and accessories, as well as value for the ownership and salaries to the employees.

Their environment includes its dealer network which translates to retail customers, organizational customers such as rental car companies, government agencies, and fleet sales but also the various government entities, competitors, ownership, unions and their many suppliers of goods and services.

Historically, a major problem affecting Chrysler has been its organizational structure. It was unintentionally, yet traditionally structured as an empire that operates in silos preventing key departments and other internal organizations from communicating with each other. Much of this was driven by their culture of internal competitiveness which prevented them from combining their talents to address their external competitors.

While many changes are occurring within the organization to eliminate the silos and forge stronger internal communications, there is much work to be done to accomplish this. Further adding to the problem is the need to completely divorce itself of the organizational culture and structure that resulted from the merger with Daimler-Benz and the subsequent purchase by Ceberus Capital Management and to reorganize to reflect the merger with Fiat Group. All of this change in a very short period of time has created in its employees, a sense of anxiety, a lack of job security and a lack of trust in Chrysler leadership. (Under the leadership of Sergio Marchionne, we are beginning to see some very positive changes in employee attitudes and perceptions and hopefully that will continue.)

Of equal importance is the perception of the customer base. The strong performance of the transplants (i.e. Honda, Toyota, Hyundai), have brought new attention to Chrysler's product quality, design and innovation thereby creating additional challenges to be addressed in order to ensure its sustainability. Chrysler must create products that people want to purchase and those products have to be affordable, visually appealing and dependable. Clearly, to accomplish this, Chrysler must look internally to increase its productivity and improve efficiency, while reducing costs to become more competitive. Looking at the most recent union negotiations, there appears to be significant focus placed on all of these areas; however, improvement will not be immediate and will require extensive evaluation of the organization's current structure, design and culture.

In order for such an evaluation to provide value to the organization, leadership must be willing to make any necessary and appropriate changes, communicate such to its stakeholders, and commit to evaluating the organization as part of its normal, perhaps annual, activities.

The top management team consists of Sergio Marchionne as CEO and 29 highly experienced executives, many of whom have spent much of their careers in the automotive industry. Of this group, 23 report directly to Marchionne and they are responsible for their respective brands or corporate support functions. All management team members operate under the notion that team work and a disciplined management process are at the core of Chrysler’s success.

Robert Kidder – Chairman of the Board Sergio Marchionne – Chief Executive Officer Barbara Pilarski – EVP Business Development Nancy Rae – EVP Human Resources Tim Kuniskis – Head of Fiat Brand North America, Chrysler Group LLC Stephen Bartoli – Head of International Product Planning, Business Development and

Integration, Chrysler Group LLC Saad Chehab – Head of Lancia and Chrysler Brands, President and CEO, Chrysler

Brands Mark Chernoby – Head of Vehicle Engineering Oliver Francois – President and CEO, Chrysler Brand, Chrysler Group LLC and Lancia

Brand, Fiat Group Automobiles Lead Executive for Marketing Reid Bigland – President and CEO, Chrysler Canada Joseph Chamasrour – President and CEO, Chrysler Mexico Ralph Giles – President and CEO, Dodge Car Brand, Chrysler Group LLC, Senior Vice

President Product Design, Chrysler Michael Manley – President and CEO, Jeep Brand, Lead Executive for International

Organization Pietro Gorlier – President and CEO, Mopar Service & Parts and Customer Services Fred Diaz, President and CEO, Ram Truck Brand and Lead Executive for U.S. Sales Gualberto Ranieri – Senior Vice President of Communication Joseph Trapasso – Senior Vice President – External Affairs, Chrysler Group LLC Richard Palmer – Senior Vice President, Chief Financial Officer Paolo Ferrero – Senior Vice President, Chrysler Powertrain Scott Kunselman – Senior Vice President, Engineering Stephen Williams – Head of Advanced Engineering, Planning and Regulatory Affairs,

Chrysler Group LLC Doug Betts – Senior Vice President, Quality Michael Keegan – Senior Vice President, Supply Chain Management Laurie Macaddino – Vice President, Audit Peter Grady – Vice President, Network Development and Fleet Joseph Veltri – Vice President, Product Planning Holly Leese – Senior Vice President, General Counsel Scott Garberding – Senior Vice President Manufacturing and World Class Manufacturing Don Knott – Senior Vice President, Purchasing and Supplier Quality Scott Sandschafer – Vice President and Chief Information Officer Mircea Gradu – Vice President and Head of Transmission, Powertrain and Driveline

Engineering

Robert Kidder is the Chairman of the Board of Directors and Sergio Marchionne is the CEO and he is supported by a rather large management team. The organizational structure is divided by brand (Chrysler, Lancia, Jeep, Ram and Fiat, etc.) and each brand has one individual that serves as president and CEO. The functional groups (Purchasing, Engineering, Human Resources, Marketing, etc.) are responsible for providing support to all of the brands.

With the exception of Bob Nardelli who served as Chairman and CEO of Chrysler for a period of about 18 months (August 2007 through April 2009), the company has been led by “car” guys. (Nardelli spent the majority of his career at GE and later Home Depot so it was no surprise that his appointment at Chrysler was met with a lot of skepticism.) The company was founded by Walter P. Chrysler, a “car” guy and has traditionally been led by individuals that grew up in the automotive industry.

Under the leadership of Lynn A. Townsend and his successor John J. Riccardo, Chrysler’s organizational structure was based on product divisions. The division managers would be responsible for obtaining the inputs of the various functions within the organization and those functions made their contributions in a sequential order. This structure proved very costly and resulted in high priced, low quality vehicles that would take as long as eight years to bring to market. Operating under this model was a very tall structure that far exceeded what would be considered effective height limitations and the degree of bureaucracy within the company was evidence of that.

When Lee Iacocca took over control of the company in the 1980’s he was quick to point out the ineffectiveness of the product division structure and worked to replace it with platform teams. Under this model, the platform team would consist of members from all of the functions required and the team itself had full responsibility for designing and getting the car to the consumer. There were platform teams dedicated to the small car, large car, minivan and Jeep/truck. While this structure was certainly more effective than the previous structure, the company continued to have a tall structure with significant bureaucracy and major communication issues. Unfortunately, the company’s leadership did not want to admit this so the platform teams continued to operate as silos which negatively impacted the company’s ability to benefit from a collaborative environment. Aside from occasional and minor changes in the structure, Chrysler continued to operate under the platform team model until 2009 when the company came under the leadership of Sergio Marchionne.

Marchionne created a structure that was lean and flat and based on a global brand-focus comprised of the Chrysler, Jeep, Dodge and Mopar brands. Common commercial, industrial and corporate functions were put in place to support the development, manufacture, distribution and sale of their products by the brand organizations. Corporate support functions have responsibility for providing systems, processes, knowledge and tools to sustain the business requirements. They also ensure consistency across the company as well as compliance to applicable laws and regulations worldwide. This new structure is designed to focus on external competition, avoiding product overlap while maintaining the highest possible level of industrial optimization. According to Marchionne, “With a flattened organization designed to give leaders broad spans of control, the company has been able to increase the speed of decision-making and

improve communication flow, ultimately bringing Chrysler Group management and employees closer to their customers.”

Chrysler’s flattened hierarchy of authority was implemented in mid to late-2009 and represented a major paradigm shift for those members of the management team that had been around during the product and platform team days. The current structure isn’t perfect and Marchionne has clearly indicated he will continue to make adjustments until the structure is functioning at its highest possible level and the right individuals are holding those positions of authority. Given the company’s performance over the past year, I do believe the organization is doing a good job of managing its hierarchy and, I suspect, the best is yet to come. As a Tier 1 supplier to Chrysler, I’ve certainly noticed an increase in energy, commitment, excitement and cooperation among those management team members with whom I have the opportunity to interface and I’m confident that Marchionne’s management style is the driving force behind that.

Under the leadership of its current management team, there has been significant improvement in the performance of Chrysler. They are producing quality vehicles that are affordable and people actually want to buy them as evidenced by the significant increase in sales they realized this past calendar year. In fact, just last week the company reported a net income of $183 million for 2011, its first since 1997. Marchionne is actively involved in the operations of the business while at the same time giving authority and empowering his management team to use their authority to manage their respective brands. Moreover, there is clear evidence that the new team concept is very much in play and collaboration among the various brands is strengthening.

These results are made possible by the company’s adoption of a multidivisional matrix structure which according to Jones, “provides for more integration between corporate and divisional managers and between divisional managers.” He further states “The multidivisional matrix structure makes it much easier for top managers from the divisions and corporate headquarters to cooperate and coordinate organizational activities jointly.” Under this structure, people and resources are grouped in two ways simultaneously: by function and by brand and a lot of coordination between brands is required making this type of structure appropriate to support that requirement.

Advantages of this type of structure include:

1) It allows the company to keep its hierarchy flat 2) Their leaders have broad spans of control3) They are able to increase the speed of decision making4) It should allow for improved communication5) It facilitates collaboration among the brands6) The brands can focus on their external competition7) They can avoid product overlap8) Products are brought to market in a shorter period of time

Disadvantages include:

1) Potential still exists for communication problems

2) Determining transfer pricing3) Higher bureaucratic costs4) Centralizing or decentralizing authority between the corporate level and the brand level5) Competition between brands for resources

Chrysler Group has an Integrity Code and a Standards of Conduct, both of which are applicable to all employees in all locations and are available in several languages on the company’s online employer portal. Each year, all salaried Chrysler Group employees are required to complete Ethics and Integrity Code web-based awareness training and acknowledge they have read the code, understand it and know who to contact for questions or concerns. Completion of the training is documented and reported to the senior leadership team members.

Chrysler’s Supplier Code of Conduct is distributed to all suppliers and is also available on Chrysler’s online supplier portal. Chrysler suppliers are required and expected to adhere to this Code of Conduct and to ensure that any subcontractors they engage to support the company are also aware of the Code and their expected adherence to it as well.

Some of the issues addressed in the various codes include:

Corruption and Ethics (Extortion, Conflicts of Interest, Bribery, etc.) Human Rights (Forced Labor, Child Labor, Harassment and Discrimination, Freedom of

Association) Working Conditions (Protection of Health and Safety, Compensation, Working Hours) Environment (Stewardship of our Natural Resources)

The Supplier Code of Conduct indicates that the principles addressed in their Code “are consistent with and in some cases derived from such foundational treatises as:

• The United Nations Global Compact• The Universal Declaration of Human Rights• The Global Sullivan Principles of Social Responsibility• The International Labour Organization’s Declaration on Fundamental Principles and

Rights at Work• The United Nations Convention Against Corruption

In searching for information regarding ethical or unethical behavior of Chrysler managers, I did not come across any specific situations; however, I was reminded of several situations surrounding the company itself that had a negative impact on the public’s perception of the company’s ethics. Several of these instances occurred in recent years and include the following:

1) The merger with Daimler-Chrysler which was called a “merger of equals” turned out to be more of a takeover on the part of Daimler Benz. Many Chrysler stakeholders questioned whether the company entered into the merger with that knowledge and simply kept it hidden. Upon further investigation, it was revealed that Chrysler management did in fact enter into what it thought would be a merger of equals and was not aware of Daimler Benz’ ulterior motives.

Many stakeholders were hurt by the merger and even though there was subsequent clarification, the stain remained with Chrysler for quite some time.

2) When Chrysler filed for bankruptcy in 2009, it walked away from a significant amount of debt which created financial hardship for many suppliers, employees, retirees, stockholders and Chrysler vehicle dealers. At the same time, the company accepted billions of dollars in loans from the Federal Government. Many people questioned the ethics of the company at that time but now that the majority of Chrysler is owned by Fiat, the company has begun to repay the government, and they have demonstrated their commitment to fully repay that debt and remain a viable company within the U.S. automotive industry, there doesn’t seem to be much focus on their sins of the past.

On a positive note, Chrysler Group LLC of today is known as the “new” Chrysler and, as such, they have been able to shed much of the negativity that was generated during the Daimler-Chrysler and bankruptcy days. Further, under the leadership of CEO Sergio Marchionne, the company has been more forthright in its communications with its stakeholders which includes a message of “intolerance” for any behavior that might be perceived as damaging to the marketplace, the company or the environment. This type of leadership will serve to strengthen the image of the company provided there are no major surprises that would tarnish its reputation and serve as a reminder of times past.

In addition to addressing the ethical and code of conduct issues, Chrysler publishes a Corporate Responsibility Statement that addresses human rights, working conditions, the environment, corruption and ethics. An excerpt from this Statement is as follows:

“Chrysler LLC acknowledges its social responsibility in the global marketplace. That responsibility demands adherence to principles that protect the well-being of employees throughout our Supply Chain. These principles span the areas of human rights, labor, the environment and anti-corruption and are accepted world-wide. They are consistent with and in some cases derived from such foundational treatises as:

The United Nations Global Compact The Universal Declaration of Human Rights The Global Sullivan Principles of Social Responsibility The International Labour Organization’s Declaration on Fundamental Principles and

Rights at Work The United Nations Convention Against Corruption

This documentation of Corporate Responsibility beliefs and expectations notifies every organization and individual in our Supply Chain that they must share in the adherence to these practices.”

When considering Grenier’s Model, Chrysler has passed through the stages as follows:

Stage 1: Growth through Creativity

The company was founded and developed the skills to produce vehicles that consumers wanted; however, during World War II, consumer vehicle production came to a halt as the company had to utilize its resources to produce military vehicles.

Stage 2: Growth through Direction

Following the oil crisis of 1973 and 1979, the company was facing major financial difficulties. The company hired Lee Iacocca who created a strong top management team to lead the organization through the next state of organizational growth.

Stage 3: Growth through Delegation

This stage also started under the leadership of Iacocca as he restructured the organization by platform teams. Under this model, the platform team would consist of members from all of the functions required and the team itself had full responsibility for designing and getting the car to the consumer.

Marchionne later created a structure that was lean and flat and based on a global brand-focus comprised of the Chrysler, Jeep, Dodge and Mopar brands. Common commercial, industrial and corporate functions were put in place to support the development, manufacture, distribution and sale of their products by the brand organizations.

Stage 4: Growth through Coordination

When Fiat took over leadership of Chrysler Group LLC, we began to see very strong coordination of activities, especially at the functional level, between the two companies. The level of coordination continues today.

Stage 5: Growth through Collaboration

Although attempts were made under the partnership with Daimler Benz and the subsequent ownership of Ceberus Capital Management, it wasn’t until Fiat came onboard that through growth through collaboration became evident. Under Marchionne, the company uses a matrix structure which they use to improve their ability to respond to customer needs and introduce new vehicles quickly.

Chrysler is currently at Stage 5, Growth Through Collaboration as it experiences good success with the ownership of Fiat. The two companies have transformed to the point where they pretty much operate as one company (i.e. functional groups serve both companies and many of the Chrysler manufacturing facilities are being re-tooled to accommodate production of Fiat vehicles).

While the integration of the two companies has been far better than that achieved when Chrysler merged with Daimler Benz, it has not been without its problems. Some of the internal problems they continue to encounter include language, culture, change in leadership, and differences in philosophy. Externally, some of the problems they encounter include high gasoline prices,

government pressure to find alternative fuel sources, pressure from environmental groups, competition, pressure to bring small, hybrid, and electrical vehicles to market, the state of the economy and the lack of a global strategy.

Under the leadership of Sergio Marchionne, the managers are actually working together to address both the internal and external issues. Training in such areas as cultural differences, sensitivity, diversity, team-building, etc., has been provided to managers of both Chrysler and Fiat and the managers have spent time in each country getting a first-hand look at how the other company operates. These interactions have resulted in a lot of benchmarking to determine what practices and procedures are best for implementation in the new company.

Chrysler, being the smaller of the Detroit Three, is fighting for a competitive advantage. Some observations regarding advantages:

Their recent union negotiations aided in reducing the overall cost to produce a vehicle giving them some level of an advantage (unfortunately GM and Ford have successfully done the same).

Walking away from significant amounts of debt during the bankruptcy as well as gaining the ability to amass large amounts of cash in the past couple of years is certainly an advantage.

Flexible automation technology now allows them to produce multiple products on the same assembly line.

They have a solid, seemingly committed workforce Their relationship with Fiat gives them the opportunity to share technology/resources/

components, etc.

I think Chrysler is operating its technology effectively and evidence appears in the form of improved worker efficiency, improved product quality, and the introduction of new technology in their vehicles. Specific examples of their new technology include:

Front Active Head Restraints Keyless Entry Uconnect Touch System Harman Kardon Audio Beats by Dre` Blind Spot Monitoring Park Sense (Rear Park Assist) Multistage and Supplemental Airbags

While they have made great strides to stay up with the competition, there are clearly opportunities for improvement and they include the following:

Corporate-wide implementation of flexible automation which would allow them to manufacture different vehicles on the same assembly line (something that the transplants have been doing successfully for years)

Additional integration of Fiat technology (especially with regard to their small car platform)

Implementation of optimal material flow practices. Chrysler continues to be challenged by the movement of materials within their manufacturing plants. It’s not uncommon to see fork truck drivers scrambling to get materials to an operator just in time to prevent line shut-down (although they have gotten much better at this thanks to companies like mine, more improvement is needed).

Identifying opportunities for more commonality among parts and vehicle platforms Improving engine technology toward better fuel efficiency Further developing its hybrid and electric vehicle technology Listening to the consumer so they will produce vehicles that people want to buy Finding ways of improving quality

Three innovations currently being used in Chrysler Group LLC are:1) Flexible Manufacturing2) Alternative Fuel Vehicles3) Empowered Work Teams

Flexible manufacturing is the capability of making different vehicles on the same assembly line without long delays to change tooling. It is now possible to make completely different vehicles on the same line with no delays to change between vehicles — as is the case in Chrysler's Brampton, Ontario plant, where the 300, Charger and Challenger are manufactured interchangeably. Of interest is the fact they the three vehicles share very few parts aside from standard items like radios and speakers.

Advantages enjoyed by implementing this technology include: Reduced manufacturing time Lower cost per unit produced

Greater labor productivity

Greater machine efficiency

Improved quality

Increased system reliability

Reduced parts inventories

Adaptability to CAD/CAM operations

Shorter lead times

Disadvantages include:

Cost to implement Substantial pre-planning required

Alternative Fuel Vehicles – Chrysler, like all major automotive manufacturers, is increasing its offering of alternative fuel vehicles. Their product line-up already includes electric and hybrid technology. One of their more innovative technologies is seen in their Ram 2500 heavy duty CNG pickup. This truck, sold only to fleet and commercial customers, can run on either compressed natural gas (CNG) or gasoline. It starts up using gasoline, switches immediately to CNG, and, if CNG is exhausted, switches back to gasoline and this transition takes place without any need for driver input. Since natural gas is usually sourced in the United States and Canada, a primary benefit is that it reduces dependence on imported oil.

Empowered Work Teams - In automotive assembly, where vehicles are produced on immense, expensive lines, empowered work teams build cars with higher quality than people without any control over their work. There are also side benefits, including lower turnover; less sabotage; and healthier, less fatigued employees who can work a longer part of their lives, delaying retirement costs.

Using empowered teams is relatively easy because people usually prefer to work together; it relieves boredom from repetitive jobs, and lets people support each other when needed. However, when times get tough, most people naturally seize control as an immediate reaction, so keeping the teams empowered over the long term requires considerable discipline. There are other potential problems, as well: teams seem to prefer high quality to high production, and have to be (but often aren’t) set up with proper training, power, and information.

Chrysler started pushing power to the shop floor in the late 1980s, resulting in greater quality and efficiency, when they were structured by vehicle platform. Though that work was sometimes discredited due to design flaws and supplier mistakes, the company made rapid progress towards quality, shared responsibility, and cost reduction. The acquisition by Daimler-Benz resulted in an interlude of backsliding and quality inspectors, but empowered teams have been making progress in recent years. Unions have aided the company by dropping the complex work rules instituted decades ago, and dropping down to two job classifications, on a plant by plant basis – sometimes with enthusiasm, sometimes with trepidation.

In Chrysler, I see examples of both quantum and incremental innovation. Unfortunately, Chrysler, like the rest of the automotive industry is still hampered by incremental technology thinking and, as a result, that’s the type of innovation with which they are most involved. As stated in our text, “quantum innovations are relatively uncommon” and I suspect the size, existing bureaucracy, nature of their product line, etc., will cause Chrysler to continue its focus on incremental innovation.

Our text specifically calls out the automotive industry as one in which incremental innovation is pursued when it states, “every time a carmaker redesigns and introduces the new version of one of its cars, it is engaged in incremental product innovation…” and we’re seeing that today as automobile manufacturers scramble to introduce the latest and greatest in alternative fuel vehicles.

One of the key ways in which Chrysler has sought to manage the innovation process is by utilizing a multidivisional matrix structure which makes it much easier for top managers from the

divisions and corporate headquarters to cooperate and coordinate organizational activities jointly. Under this structure, people and resources are grouped in two ways simultaneously: by function and by brand and a lot of coordination between brands is required making this type of structure appropriate to support that requirement. Corporate support functions have responsibility for providing systems, processes, knowledge and tools to sustain the business requirements.

In addition, Chrysler leadership has instilled a culture that relies on a “team spirit” which has in turn allowed employees to be comfortable knowing that they can bring to management ideas for improving processes, product improvements and product quality. Chrysler, like the GM and Ford, is getting a new lease on life as a result of its openness to solutions from wherever and whoever can offer them -- a strategy known as open innovation.

While Chrysler has experienced quite an evolution over past decades, in recent years, I see their transition as more of a revolutionary one. With the Fiat partnership and under the leadership of Sergio Marchionne, Chrysler has made significant changes in the way they do business. Marchionne is very much involved in the activities of the business yet he has granted the authority and empowered his management team to use that authority to manage their brands. The internal competition is all but gone and a spirit of one team with a common goal is very much evident. Moreover, the relationship between Chrysler and Fiat is one of cooperation and one in which best practices are being sought that can provide benefit to both organizations. Further, we have seen an overall change in Chrysler’s relationships within its management ranks, with its employees, unions, suppliers and even its competitors. These relationships have allowed them to eliminate some of the bureaucracy that had traditionally been in place.

Under the leadership of Sergio Marchionne, I see Chrysler beginning to evolve as a learning organization and anticipate this evolution to continue. Traditionally, decisions were made in a vacuum by upper management and those decisions were passed down the chain to the employees. No reason was given as to why certain decisions were made, they just were. The current management has demonstrated its commitment to organizational learning which Jones defines as “improving the team’s desire and ability to understand and manage the organization and its environment so they can make decisions that continuously raise organizational effectiveness.”

Jones further states, “Managers must strive to develop new and improved core competences that can give them a competitive advantage and fight off the competitive challenge from low-cost overseas competitors.” This is clearly a challenge in the automotive industry as the transplants are able to produce vehicles both in the U.S. and abroad at a lower cost and, as a result, are rapidly increasing their market share. Chrysler gets this and in an effort to be competitive, they have worked to reduce their production costs and, of equal importance, are in the process of developing a global strategy.

Chrysler has been and continues to adapt itself to the environment by: Developing electric and other alternative fuel source vehicles Increasing their small and mid-sized product offerings to appeal to the needs of

consumers wanting more fuel efficiency Incorporating higher quality materials in their vehicles

Focusing on improving their safety standards through such features as additional airbags, accident prevention technology, etc.

Unfortunately, Chrysler is a small fish in the big pond of automobile manufacturing and I don’t really see them, at this point, having the capacity to modify the external environment. They have, however, made many modifications to their internal environment which are positioning them to adapt to the changing external environment.

When considering how Chrysler management makes decisions, I can pinpoint some cognitive biases that have affected or influenced those decisions. Specifically, illusion of control, ego defensiveness and escalation of commitment are present within the organization.

Illusion of Control – There are those within the organization that have been promoted into the higher management positions as a result of seniority, etc. Unfortunately, not all of them had the skills and abilities to manage at that level; however, in their own minds they were convinced they were the best individuals to ensure success. Further, they believed they had control over various circumstances and acted accordingly by not seeking the support of more senior management as they were in control (Alexander Haig syndrome). Some of them are getting weeded out and are being replaced by individuals that truly do have the capability but, more importantly, have the understanding that they can’t control every situation.

Ego Defensiveness is alive and well at Chrysler! With the new leadership and consolidation with Fiat, the existing team has had reason to feel threatened in their positions. As a result, they will interpret events in such a way that their decisions have a favorable explanation even though the results of those decisions may not appear so. I suspect in several cases this has backfired as these individuals would be considered ill-equipped to handle major responsibility and, instead, they were demoted or worse, terminated.

Escalation of Commitment – This cognitive bias was very strong in Chrysler prior to 2008. Managers simply refused to admit they had made a mistake, primarily out of fear of losing his job or looking bad to his manager and/or team. Unfortunately, this proves quite costly because the company continues down this path longer than it should rather than acknowledging the mistake and defining an alternate solution. Further, it can negatively affect profitability and the company’s image both internally and externally. With the circle configuration team structure, we’re seeing less of this as the managers are given the opportunity to be creative and are not punished when the outcome of their decisions aren’t exactly as anticipated. As Chrysler continues to grow as a learning organization and the members become more comfortable with the open communication, the degree of this cognitive bias should decrease.

Chrysler Group LLC has truly made significant changes to its strategy and structure over time with the most recent partnership in 2009 with Fiat resulting in an extensive overhaul both in terms of top leadership and processes. Their top management team is structured in the circle configuration and the managers are encouraged to interact with each other and the CEO, Sergio Marchionne. For the first time in many years, Chrysler’s managers really seem to be functioning as a team which, according to Jones, promotes team and organizational learning.

The Rational Model of decision making best characterizes the way they make decisions. They identify and define the problem, generate alternative solutions to the problem and select what they collectively agree is the best solution and implement it. Of equal importance, decision making appears to be more inclusive than I’ve previously witnessed. In this regard, the team of individuals involved in the decision making process has been extended to include all managers that have a stake in the decision (that was not always the case in past years). In my dealings with Chrysler senior management, I have also noticed more effort on their part to review decisions periodically which, according to Peter Drucker in an article he wrote for the Harvard Business Review in 2004, is as important as making them carefully from the start. These reviews can cover anything from the results to the assumptions underlying the decision and they give them the opportunity to correct a poor decision before it does real damage.

Since Chrysler is in the automobile manufacturing industry, their assembly facilities rely very heavily on programmed decision making as their activities are generally easy, repetitive and routine. To some extent, the plant facility management (i.e. General Manager/Plant Manager) can make some non-programmed decisions when the impact of such decisions is limited to their facility. When non-programmed decision making involves more than one facility or the corporation as a whole, those decisions are made at the very top of the hierarchy (Sr. Vice President and above). In this environment, it’s important that this type of decision making authority is allowed at the manufacturing facility level because they have their own goals and objectives to achieve and they have to be able to make decisions designed to ensure success.

Although Chrysler’s management team is structured in the circle configuration to facilitate more interaction within the circle, often times human factors come into play that negatively impact the effectiveness of the team’s ability to make decisions. For example, resources continue to be limited and when decisions have to be made regarding allocation of resources between two or more divisions, personal agendas can create interference. In addition, Chrysler continues to face issues that arise as a result of cultural differences, language barriers and efforts to consolidate its activities with those of Fiat. These issues clearly affect decision making; however, the impact seems to be decreasing as the two companies become more entrenched.

Under the leadership of Sergio Marchionne, I see Chrysler beginning to evolve as a learning organization and anticipate this evolution to continue. Traditionally, decisions were made in a vacuum by upper management and those decisions were passed down the chain to the employees. No reason was given as to why certain decisions were made, they just were. The current management has demonstrated its commitment to organizational learning which Jones defines as “improving the team’s desire and ability to understand and manage the organization and its environment so they can make decisions that continuously raise organizational effectiveness.”

Jones further states, “Managers must strive to develop new and improved core competences that can give them a competitive advantage and fight off the competitive challenge from low-cost overseas competitors.” This is clearly a challenge in the automotive industry as the transplants are able to produce vehicles both in the U.S. and abroad at a lower cost and, as a result, are rapidly increasing their market share. Chrysler gets this and in an effort to be competitive, they

have worked to reduce their production costs and, of equal importance, are in the process of developing a global strategy.

Chrysler has been and continues to adapt itself to the environment by: Developing electric and other alternative fuel source vehicles Increasing their small and mid-sized product offerings to appeal to the needs of

consumers wanting more fuel efficiency Incorporating higher quality materials in their vehicles Focusing on improving their safety standards through such features as additional airbags,

accident prevention technology, etc.

Unfortunately, Chrysler is a small fish in the big pond of automobile manufacturing and I don’t really see them, at this point, having the capacity to modify the external environment. They have, however, made many modifications to their internal environment which are positioning them to adapt to the changing external environment.

The Chrysler Group website provides this description of Chrysler Group LLC:

“The current organization, Chrysler Group LLC, was formed in 2009 from a global strategic alliance with Fiat S.p.A. and produces Chrysler, Jeep, Dodge, Ram, SRT, Fiat and Mopar vehicles and products. With the resources, technology and worldwide distribution network required to compete on a global scale, the alliance builds on Chrysler Group’s culture of innovation, first established by Walter P. Chrysler in 1925, and Fiat’s complementary technology that dates back to its founding in 1899.”

Yet, just a couple of years ago, Chrysler was described as having one foot in the grave and the other on a banana peel. Clearly, had it not been for the financial support of the U.S. government, the banana peel would have won. During this very gloomy period in the company’s history, the employees noticeably exhibited high levels of stress, impatience, fear of losing their jobs and a sense of “the end.” All of this began to change when Sergio Marchionne took over the reigns as CEO. Marchionne instilled in the troops a sense of commitment, “can-do and will do” attitude, and a desire to demonstrate to the American people that the government’s decision to bail them out was a good one. Marchionne, through his leadership style (which has earned him numerous leadership awards), made the employees feel like they were in a position to be part of something big. He communicated his willingness to rid the company of any employees that were not committed to doing their part and putting forth their best effort to help return the company to profitability. He was firm and direct yet he had a way of rallying the troops and giving them reason to follow his lead.

Following are just a few of the comments the media has made about him:

The principles of his management style are simple: He values merit over rank, excellence over mediocrity, competition over insularity, and accountability over promises.

"Mr. Marchionne's bold approach and can-do mindset are exemplary characteristics of a visionary business leader," said Peter Tichansky, President and Chief Executive Officer, BCIU.

"His accomplishments at Chrysler Group and Fiat are testament to a CEO who can meet a company's biggest challenges while paying attention to the tiniest details and quality of

its products. His determination has fueled the transformation of legendary brands and put them firmly on the road to recovery."

“It is a fascinating performance to watch because Marchionne has created an image for himself that is unique in the auto industry. What other CEO can you think of who likes to characterize himself as a "simple, homeless, ever-wandering metal basher?" The image consists in equal measure of disarming humor, laser-like clarity, and brutal honesty.”

In his own humble way, Marchionne responds: "The essence of leadership, when all is said and done, is the personal assumption of the moral duty to be proactive in building our future. It is this that makes leadership a privilege and a sacred trust."

Regarding Chrysler employees, Marchionne uses statements such as:

“You have been to hell and back, and you defied predictions of our demise. Your efforts rewrote the history that so many naysayers had forecast."

"It took an incredible team effort to bring about such remarkable results, and you should be proud," he said in a message to the United Auto Workers.

"Significant progress can be accomplished when we work together and our goals are aligned."

"I ask that you continue to demonstrate the strength and courage you have shown to challenge our destiny and revitalize this great company." The future holds enormous opportunity, and it's a challenge that calls for our continued, shared commitment. As you go about your jobs in 2012, bring your determination and passion to the task at hand and have faith in your leadership and each other to create a great future."

We are proud of the work we’ve done. Now we greet a new year of high expectations with our heads down, forging ahead and focused on executing the goals we’ve set for ourselves as a company.”

Words that come to mind when we think of Chrysler employees include team, dedication, commitment, and resilient. Obviously, not all employees have engaged this new way of thinking but I do sense the majority of them recognize the challenges and opportunities ahead and value the concept of working together as a team to accomplish them.

A statement from the Chrysler website describes them as:

A company redefining the level of luxury that every American deserves. The beating heart of a city in resurgence. Proving grounds for the belief that hard work pays off.

This is Who We Are. This is Chrysler.

This assignment is my own work. Any assistance I received in its preparation is acknowledged within the assignment in accordance with academic practice. If I used data, ideas, words, diagrams, pictures, or other information from any source, I have cited the source(s). I understand that copying text work for word from other sources without placing it in quotation marks is considered plagiarism and not acceptable even if I cite the source where the material

was copied from. I certify that this assignment was prepared specifically for this class and has not been submitted, in whole or in part, to any other class at Walsh College or elsewhere.

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References:

www.Chrysler.com

www.Chryslergroupllc.com

http://www.allpar.com/corporate/flexible-manufacturing.html

http://www.openinnovation.net/open-innovation/what-gm-ford-and-chrysler-learned-from-google/What GM, Ford and Chrysler Learned from GoogleBy OIC Editor • on July 21, 2011

http://www.britannica.com/EBchecked/topic/1360859/Chrysler

http://www.chryslerhistory.com/WalterPChrysler/Content.aspx?topic=Walter-P-Chrysler

http://www.prnewswire.com/news-releases/chrysler-group-chairman-and-ceo-sergio-marchionne-awarded-global-leadership-award-by-business-council-for-international-understanding-135086163.html

http://www.detroitnews.com/article/20120208/AUTO01/202080320/1121/AUTO01/Marchionne--Chrysler-s-hourly-employees-to-get-bonuses-Friday

Levin, Doron P. Behind the Wheel at Chrysler: The Iacocca Legacy. 1995. Harcourt Brace & Company, Orlando, Florida.

Collins, David R. Wizards of Business. Lee Iacocca: Chrysler’s Good Fortune. June 1992. Garrett Educational Corp.

Iacocca, Lee (with Sonny Kleinfield). Lee Iacocca’s Talking Straight. July 1989. Bantam Publishing.

www.freep.com