Case Study: Merging IT at DaimlerChrysler - ' Sluggish Acceleration '

Sluggish Acceleration

Unger's new DC IT management team initially faced a global Tower of Babel. The IT network each company had put in place reflected its native corporate origins. While Chrysler was relatively centralized, Daimler-Benz was notoriously decentralized—reflecting a company that functioned like a bunch of semiautonomous fiefdoms. Each Daimler business unit had operated its own IT system; financial and human resources applications, especially on the Daimler side, had evolved regionally.

The network backbones weren't much better off. In theory, each company had one, but again, Daimler's was a patchwork, even in its core European market. "This was a big problem," Unger recalls. "You can imagine how much network bandwidth you needed to send CATIA data from one location to another. With the two companies' old hodge-podge of networks, it would never have worked."

Differences in business processes posed other headaches—not so much in engineering and design, but in manufacturing, where different cars and trucks are still being built in different places—and in different ways. Arguments continue over how— or whether—to use technology to "commonize" certain processes. Says Unger: "Parts come into a plant, they go out, we build the cars and the finished ones go out. Why does that process have to be so different from one plant to the next?"

Unger has had some influence. In the past, DC's warehouses had been unable to fulfill all of the 220,000 orders sent in each day by mechanics seeking replacement parts. That meant customers had to wait to get their cars repaired—or go elsewhere. To improve the balance of supply and demand, Unger brought in software that linked DC's Mopar parts division with many of its suppliers and logistics providers, which allowed Mopar's purchasing and inventory managers to see what was wrong and speed the flow of parts. In 2000, DC says, the system saved it $7.2 million in reduced stock and $10 million through improved order fulfillment.

But Unger says her ROI push has been mostly painful, and getting tougher. "When you get down to the specifics of how a vehicle is made, that's where [cost-cutting] becomes more difficult," she says. In fact, it's still one of DC's biggest internal debates: Should everyone be operating exactly the same hardware and software systems at every level at every location within the DaimlerChrysler system? "We thought at first that there should be one of everything," says CTO Morrotti. But now, he says, it's clear that, amid some fierce local resistance, "one-size-fits-all wouldn't work in this organization." Case in point: The old Daimler and old Chrysler sides of the company still use separate databases to collect and analyze customer information for marketing strategy.

The Germans, though, have also given some ground. "One lesson we learned from our colleagues in Auburn Hills is that the IT backbone needs to be as homogenized as possible around the world," says Helmut Mahler, DC vice president of information technology management. Unger credits "face-to-face meetings" with senior-level executives like Mahler early on "to explain what infrastructure is." Unger also sought to leverage the relationships each former company had with different technology suppliers, using each side's clout to hammer out better prices and contracts.

Yet further progress will be tougher to negotiate. Though Unger estimates that scrapping each duplicate application saves another $2 million to $3 million, the fights over which ones stay and which ones go rage on. A recent battle over whether to drop Daimler's Oracle-based database in favor of Chrysler's IBM DB2, for example, continues. Ditto some CRM applications.

And the stakes just got higher. Chrysler's new German boss, Dieter Zetsche, has ordered another $8 billion in cuts at Chrysler over the next three years—just as additional cost-cutting targets are getting harder to find. To eke out more savings, analysts say, Daimler execs will have to start sharing engineering and design work with their Chrysler counterparts, which, up until now, they've guarded tightly. Is it possible? Nearly one-third of the components in the new Chrysler Crossfire sports car, for example, are being borrowed from Mercedes. "Without a shared IT system," says J Ferron, chief of automotive practice for PricewaterhouseCoopers consulting, "such collaboration would have been culturally difficult, if not altogether impossible, cost-wise."

But analyst Keller wonders how much more "commonizing" Unger can do. "How can you [share] dealer networks and purchasing and distribution systems that are very different across the company and very unique to individual markets, based on different ways people buy cars?" Keller asks. "Can many of these things ever be centralized? At some point you have to start finding ways to use technology to create profits, and that's a whole 'nother ball of wax."