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Executive Summary
Mercedes Benz is one of the worlds most recognizable automotive brands. Founded in the 1800s, the German company has evolved from a small makeshift firm specializing in the production of four-stroke gasoline power engines into a market leader in the production of luxury cars. Its global market outreach stretches across four continents and is supported by more than 170,000 employees. Rapid technological advancements in the development of environmentally friendly engines threaten the companys dominance in its core market segments. This is true in the electric car division, where customers are increasingly demanding sustainable car models while shunning those that are propelled by gasoline.
This report highlights the need for change in the company to better adapt to these market needs. A strategy is proposed to undertake a complete transition of the companys production process from developing gasoline-powered engines to electric ones. To effect this change, there is a need to understand the effects of the companys internal and external forces in influencing this transformation. Consequently, SWOT and PESTLE analyses will be conducted in this report to achieve this goal. Additionally, key sections of this document will highlight the importance of involving key stakeholders in the change management process and addressing any resistance to change that may emerge. Lewin and McKinseys 7S change models are employed to guide this change management plan. Their involvement in the process relies on developing a robust and existing innovative culture that has characterized Mercedes Benzs corporate strategy for close to a century.
Introduction
Organizational Background
Mercedes Benz AG is a German car automaker that is part of the Daimler AG group of companies. Its history traces back to the 1800s and early 1900s when notable founders, such as Carl Benz and Gottlieb Daimler, conducted experiments to develop a four-stroke internal combustion engine (Mercedes-Benz., 2021a). This model is regarded as a self-propelled cars pioneer internal combustion engine (Mercedes-Benz., 2021a). Over the years, the company has developed this engine and built a company around it. Today, Mercedes Benz AG is a parent firm that also owns two other companies Daimler Truck AG and Daimler Mobility AG (Mercedes-Benz, 2021b). Mercedes Benz AG specializes in the production of luxury cars, including sedans, trucks, hatchbacks, and vans. The company has a global presence with more than 170,000 employees and 35 production sites that are domiciled on four continents (Mercedes-Benz, 2021b). This market outreach highlights its dominance in the automotive industry.
Mercedes Benzs corporate strategy is hinged on six pillars, which include focus, think, expand, embrace, lead, and lower. The think part of the strategy is associated with a philosophical approach to product development, which is fixated on the development of luxury products (Mercedes-Benz, 2021b). Alternatively, the focus part of the plan is associated with improved profitability and the expansion part is linked with the growth of its customer base through the development of new brands and sub-brands (Pavlínek, 2022). Embrace and Lead aspects of its corporate strategy are associated with the alignment of customer needs for revenue growth and the development of electric drives and car software, respectively (Mercedes-Benz, 2021b). Similarly, the lower segment is linked with reducing operating costs and improving its industrial footprint.
Factors Promoting Change
Recently, changes in the market, which have been occasioned by rapid technological changes, have forced Mercedes Benz to rethink its corporate strategy to remain competitive in the fast-paced car industry. Technological change is one of the key driving forces affecting the global economy alongside changing consumer demographic and tastes (World Economic Forum, 2021). Part of the challenge has been the slow response by Mercedes to these developments, such as the electric car division, which is set to change how people commute (Shah et al., 2021). The company has committed itself to promote change to align itself with current market dynamics.
At the core of the companys change management strategy is the adoption of new technologies to develop better products and services for its customers. Additionally, given the increasingly uncertain nature of the market, the companys change management plan is supported by flexibility as one of its core management pillars (Mercedes-Benz, 2021b). This setup is consistent with the views of Kanaane. et al. (2015), which suggests that change management is one of the key success factors for most firms. This report proposes a change management strategy that will help the company to complete its transformation.
Evaluation of Need for Change
For purposes of this review, the need for change at Mercedes Benz will be evaluated by analyzing its internal and external environments. The internal environment is affected by intrinsic factors within the organization that prompt the need for change. To undertake this analysis, the strengths, weaknesses, opportunities, and threats characterizing the firm will be investigated using the SWOT analysis. Comparatively, an analysis of the external environment will be done by understanding extrinsic factors creating the need for change in the firm. These issues will be explored using the PESTEL model and it focuses on the political, economic, social, technological, environmental, and legal forces influencing the business.
SWOT Analysis
Strengths: Mercedes Benz has been a leader in the automotive industry for decades. This position has allowed it to gain useful insights into the car industry regarding developing new products and meeting customer expectations (Mercedes-Benz, 2021b). It has reliably used this position to develop strategies for managing change in the company. The firms strong brand name is also a significant strength for the corporation because it allows customers to trust its products based on the legacy of success it has had in the past. This goodwill is based on the superior engineering technology that the company has used to become a market leader in the global automotive space (Kanaane. et al., 2015). Consequently, Mercedes Benz is one of the worlds most recognizable brands in the luxury car segment. Therefore, consumers are likely to embrace new products based on this perception.
Weaknesses: Mercedes Benz suffers from lengthy development cycles for most of its products and brands. This challenge makes it difficult for the company to introduce new products in the market in a timely manner, thereby giving the competition an opportunity to capture the attention of its customers (Sága et al., 2020). At the same time, the company has low data management capabilities, which have inhibited its ability to expand its services into the mobility division. The same problem has made it critical for the company to collaborate with its rivals to develop these competencies. However, doing so has come at a cost because it exposes itself to intellectual capital theft.
Opportunities: Mercedes Benz has used partnerships as an opportunity to improve its core processes and remain competitive. Its relationship with some of its rivals, such as Volkswagen and BMW, is based on this objective (Mercedes-Benz., 2021a). These collaborative efforts have been productive in the short term by providing production linkages across different levels of the companys value chain (Mercedes-Benz., 2021a). More opportunities for collaboration can be sought with government authorities and regulatory agencies to improve the companys future mobility services (Rajhans, 2018). The company also needs to seek new opportunities for growth in new markets, such as China and India (Kumar and Modgil, 2020). However, to succeed in this endeavor, the company needs to study other emerging markets and understand the volatility and associated challenges. Additionally, Mercedes Benz could leverage its technological leadership position to provide newer and better products in the market.
Threats: The COVID-19 pandemic is a major threat to Mercedes Benz because lockdowns, layoffs, and disruptions to supply chain processes have severely affected the companys business. Given that the firm is in the transportation sector, government restrictions on movement have forced many people to stop using cars or moving at all (Lund Dean and Forray, 2020). This development erodes the need for new car purchases, thereby leading to a slump in sales for most of its product divisions. Changing trends among consumers are also a threat to the sustainability of the companys business because of increased access to information. For example, concerns about climate change and the role played by companies in aiding the same has created a negative perception among sections of its customers regarding cars. The push toward electric vehicles is fuelled by this development and regulatory authorities are vigilant (Fu and Fu, 2021). Consequently, in some countries, cars are becoming obsolete as people are looking for newer and more efficient ways of travel.
PESTEL Analysis
Political: Political forces characterizing a country or jurisdiction often affect the operations of Mercedes Benz. Given that the company is a multinational organization, differences in political systems across different countries and governments significantly impact its operations. For example, in 2018, the trade war between the US and China negatively affected its profitability (Business Insurance Holdings, 2019). This was occasioned by investments made in the US because the firm is one of the biggest exporters of automobiles to the country (Business Insurance Holdings, 2019). However, during the Trump administration, the government imposed tariffs on all cars imported to the country. This action negatively affected the companys sales numbers and profitability.
Economic: The automobile industry is a capital-intensive sector of the economy, thereby highlighting the importance of understanding forces affecting the economic viability of Mercedes Benzs investments. New entrants in the market are changing how the company operates because they have introduced a seamless service for customers to get automobile services across all modes of transport (Mercedes-Benz, 2021b). This development is a threat to the viability of the companys business model because it lacks the efficiency to match the same level of service delivery without negatively affecting its profitability. In response to these market changes, Mercedes-Benz has partnered with BMW to provide customers with car-sharing services across all modes of transport in the same manner as its competition is doing (Mercedes-Benz, 2021b). In this partnership, the company is providing its customers with taxi-sharing services, parking options and charging solutions for those who have electric vehicles. These developments are likely to decrease the automobile inventory in most of its key market segments.
Social: Social forces affecting Mercedes Benzs operations are centered on understanding the quality of interactions the company has with its customers. Notably, the increased use of social media to communicate and air grievances proves to be a significant threat to the business because negative reviews could spread quickly and damage the companys brand (van der Vlist and Helmond, 2021). Consequently, there is a need to monitor the firms social media pages to make sure that all customer concerns are addressed before they become viral. Consumers are also increasingly aware of automobile companies impact on the environment and society (van der Vlist and Helmond, 2021). Consequently, Mercedes Benz has developed plans to contribute towards societal development in various fields and issues affecting societies.
For example, it has contributed to discussion about gender equality in the workplace and immigration at a global level. Similar contributions have been made towards highlighting the importance of increasing access to education among underprivileged members of society among other social issues affecting society (Mercedes-Benz, 2021b). In line with this vision, the company has adopted an open line of communication among all stakeholders who are willing to help it address some of these issues.
Technological: The car industry is reliant on technological advancements to develop products that appeal to customers based on their functionality and relevance. In this regard, companies such as Mercedes Benz have developed a competitive edge in the industry by developing the latest software and robotics to differentiate themselves from the competition (Sága et al., 2020). However, these advancements are not only unique to the car company because robotics and artificial intelligence have become increasingly common in the automotive space and are responsible for some of the current changes happening in the sector, including the development of electric cars and self-driving automobiles (Khurana, Kumar and Sidhpuria, 2020). Additionally, employees are increasingly relying on the latest software to promote connectivity in the workplace and to merge the operations of different departments (Yao and Feng, 2018). The use of these technologies has had its advantages and disadvantages, with privacy and security concerns being the most poignant. Subject to these challenges, Mercedes Benz has chosen to use scalable technologies in its product development plan. It has collaborated with some of its rivals in the luxury car segment of the market, including BMW, to develop some of these technologies.
Environmental: Heightened awareness of the automotive industrys impact on the environment has characterized consumer concerns in recent decades. Particularly, the use of fossil fuels and environmental waste produced by cars are top concerns for critics who are worried that the sector is contributing to the hazardous emission of waste in the environment (van Dijk, Farsi and Weber, 2021). These issues have forced car companies to look for more energy-efficient ways of powering their machines using energy-efficient technologies. Regulators are also forcing these car companies to hasten the trend towards promoting environmentally friendly habits in production through intensified restrictions. For example, in 2017, authorities investigated Mercedes Benz for suspected noncompliance with existing restrictions (Cheryl and Jensen, 2018). The probe had an effect on the companys brand as it had to defend its record in court. These developments suggest that environmental conservation is a formidable factor in the evolution of the car industry.
Legal: As highlighted in this report, Mercedes Benz operates in a multinational market with various legal systems. Consequently, it has to address challenges that may emerge from differences in the application of the law. For example, litigations on patent rights have been commonly addressed through the pursuit of strategies that protect the intellectual property of the company in its car production processes (Zhang et al., 2019). Additionally, technological advancements that have not been supported by changes in law are also impeding the companys ability to release new products in the market in a timely fashion. At the same time, the company has avoided markets or countries which have unfavorable or unstable legal regimes (Mercedes-Benz, 2021b). Other macroeconomic trends in the industry, such as artificial intelligence and the growth of a car-sharing culture, are likely to disrupt the legal environment (Chiloane-Tsoka, 2013). These industry trends are likely to affect the operations of Mercedes Benz AG but the company has experienced them in the past and is likely to do so again in the future.
Implications of not responding to Changes
The above-mentioned issues highlight the need for Mercedes Benz to initiate changes in its organizational processes to better adapt to an increasingly agile market. Failing to do so has several implications for its market positioning and brand. The company could suffer from three implications if it does not adopt change management in the company. The first one is the loss of competitive appeal among customers. Mercedes Benz has many rivals who offer substitute products in the market, including BMW and Volkswagen, which are German-based. Failing to change could lead to a loss of market share to these rivals because it would be failing to meet the markets ever-changing needs. At the same time, increased levels of competition from other car automakers, such as Tesla, threaten the dominance of the vibrant car automaker in the electric car division.
The second implication of failing to adopt new changes in the marketplace would be missed growth opportunities, especially brought by rapidly advancing technologies in the marketplace. For example, employees will miss opportunities to learn skills that are associated with new business processes. This observation is made from corporate experiences, which have shown that change allows employees to exercise their creativity and explore new opportunities of engagement that would be beneficial to their career growth prospects and the attainment of organizational goals (Errida and Lotfi, 2021). Therefore, failing to embrace change in the company would lead to the loss of creativity and productivity, which would have been harnessed if management were open to change. At the same time, the company will miss out on new experiences that would help it to tweak its strategies to respond to the market.
The third implication of failing to embrace change in the company is the loss of relevance. This could happen because failing to adapt to market changes could lead to the loss of touch of the business with market needs and challenges affecting customers (Errida and Lotfi, 2021). This process would have a psychological implication on customers who are likely to believe that Mercedes Benz has given up on its clients by failing to keep up with market changes or demands. This act of omission would make them unable to consider the companys products as an option in their purchasing choices. Therefore, it is important to make sure Mercedes embraces change at different levels of operation.
Change Management Strategy
Change Capsule
Mercedes Benzs strategy is currently focused on avoiding non-core activities to exclusively concentrate on areas that it deems important and relevant to the market and its customers. For example, the electric car division is a new priority area for the company because this product segment will increasingly define the future of the automobile market (Han, Diao and Sun, 2021). At the same time, Mercedes has recognized the importance of improving its proprietary car software as a core business function because of its need to differentiate itself in the market (Daimler AG, 2021). In line with this focus, the company has committed itself to take action to minimize its structural costs to be able to compete from a financial perspective.
The proposed changes will be implemented at the managerial level because it requires a policy and paradigm shift in managing the companys affairs. This level of change management will also include top managers and directors at Daimler AG group because it is the parent company (Daimler AG, 2021). It will be involved in the change management process because its main role is to provide financing, fleet management, and insurance services, which are all important parts of its change management strategy.
The main perspective pursued in the adoption of this strategy is to make Mercedes Benz a fully electric company in the future. This focus aligns with global goals of reducing pollution and emissions by transitioning from manufacturing internal combustion engines that are powered by fossil fuel to those that are propelled by electricity (Smart Energy International, 2021). Europe is estimated to be the biggest market for electric vehicles, surpassing China in new car registrations in the year 2021 (IEA, 2021). Other car manufacturers are also joining this trend, with Jaguar announcing that by 2025, it will only be selling electric vehicles (Smart Energy International, 2021). Volvo also has similar plans of fully transitioning into selling electric vehicles by the year 2030, while Lotus is planning to do the same by the year 2028 (Smart Energy International, 2021).
Application of Change Management Models
The process of implementing proposed changes at Mercedes Benz can be completed by using two models associated with change management McKinsey 7S and Lewins change models. Lewins change model includes three stages of change management unfreezing, change, and refreezing, while McKinseys 7S model involves the recognition of seven key elements of change management strategy, structure, systems, shared values, style, staff, and skills (Burnes, 2020; Helmold, 2021). For the purposes of this report, these two models will be combined to provide a robust understanding of how Mercedes Benz can implement its change management strategy. Lewins change management model is used as the overriding framework of change management because the three stages of the change model are equipped with unique processes and stages that promote change in the organization (Kumar, 2020). Comparatively, McKinseys change management model provides subtle elements of implementation, such as culture and leadership, that are equally essential in implementing the change strategy.
Unfreezing: In this stage of Lewins change model, behaviors and processes that have traditionally underpinned the companys business need to be reviewed to understand how they align with the new direction the company intends to take. This stage of the change management strategy is deemed the most difficult to accomplish because it requires people to change their thinking and abandon old habits they are familiar with. Practically, this challenge may be most impactful on the companys top-level management because they will be required to abandon behaviors, practices, or strategies that have made them successful so far. Common challenges that are associated with this kind of change is the failure of employees at top and middle-level management on why changing their behaviors is important or necessary. In this regard, there is a need to explain the need for change and to gain leadership support in the process. At the same time, there is a need for management to develop a change strategy and communication plan to convey intended goals and the methods that will be used to achieve them (Simoes and Esposito, 2014). Planning is an important process in this stage because it will explain how everyone will transition from the current state of development to the desired future state.
McKinseys 7S change model highlights the importance of leadership and management in implementing changes within an organization. It presupposes that top managers should oversee the first three elements of their change strategy strategy, structure and systems (Helmold, 2021; Kumar, 2020). Stated differently, managers should develop the overall strategy for implementing the change and provide the reporting structure and systems that support its implementation. In this regard, seeking management support is essential in the completion of Mercedes Benzs change management strategy.
Change: The second stage of Lewins change management model is transitional because everyone in the organization needs to be receptive to the idea that the organization is changing and the importance of supporting the process. At this stage, all the plans that have been developed at the unfreezing stage will be actionable. To achieve optimum results, researchers suggest that there should be consistent communication and employee engagement (Blatnický et al., 2020). Additionally, any misinformation that emerges from the change process should be addressed at this stage of development because employee concerns may assume the worst when they are unaddressed. For example, some employees may question why they are not being trained to better adapt to the companys new strategic focus. Failing to answer such questions may make some of them think that they will be fired or demoted once the change is complete.
Employee engagement should be central in implementing the change management process at this stage of Lewins model because they can make or break the change management plan (Heracleous and Bartunek, 2021). This process may involve liaising with key change agents in the organization who should inform managers of any department that is struggling with the process. Alternatively, the engagement could involve receiving feedback about the change management plan to allow for possible tweaks to the overall corporate strategy to hasten the process. According to Lewins change management model, the engagement ensures everyone feels part of the change management process.
Refreezing: The last stage of Lewins change model is equally important as the first two highlighted above because if managers do not safeguard the gains made in the change management process, employees may revert to their old ways. Therefore, to prevent this from happening, Mercedes Benz should offer training and support to its employees to better adapt to the new systems set up in the workplace. Studies that have investigated successful change management strategies supported by Lewins change management process suggest that reinforcement is necessary to familiarize employees with new systems of operation (Burnes, 2020).
Mercedes Benzs managers should also look for new strategies or methods for sustaining the changes made to the companys systems. For example, they could encourage leaders or departmental heads to model new behaviors so that employees emulate the same. Alternatively, they could create a feedback loop where emerging concerns can be addressed. Similarly, they could introduce a rewards system that promotes employees who adopt the new systems successfully. This strategy could be merged with a supplementary plan of celebrating the wins realized from adopting the new strategies. Collectively, these processes are likely to cement the gains realized from the change management process.
McKinseys 7S model provides a more intricate plan of protecting the gains made from the refreezing stage of the implementation process. It suggests that managers should pay attention to the soft and subtle elements of employee behaviors that could support or scuttle the change management process (Helmold, 2021; Kumar, 2020). These elements include shared values, style, staff and skills. In this regard, it encourages managers to promote shared values that encourage an innovative culture that is receptive to new ideas. It also highlights the importance of adopting leadership styles that encourage employees to embrace new systems and processes (Singh, 2013). The role of leadership in cementing Mercedes Benzs change management process will be further explored in subsequent sections of this study but it is tied to the need to understand the capabilities of staff to embrace and learn new systems. Therefore, these issues need to be factored into the overall change management strategy to ensure its success.
Stakeholder Involvement
Given the importance of protecting the gains made from adopting the change management process, it is important to involve stakeholders in the corporate plan to sustain the changes introduced in the organization. In the context of Mercedes Benzs operations, the main stakeholders that will be involved in the change management plan include employees, customers, and investors. The map below illustrates how these different stakeholder groups will interact with one another.
It will be important to maintain good communication skills to improve engagement among the different stakeholder groups outlined above. Engagements between management and customers will be done online through the companys social media channels. This platform is selected for use because it is fast, inexpensive and can reach a wide audience within a relatively short time (Kwok, Lee and Han, 2021). Furthermore, social media communication is becoming one of the most effective ways for companies to reach their customers because of the rising number of social media users on the platform (Chen et al., 2021). Its ability to provide instant feedback also allows managers to understand how the market will respond to its new products, thereby giving them an opportunity to make improvements.
Comparatively, communication between investors and employees will be done through internal company memos. This plan is selected for use because it maintains the confidentiality of information that will be exchanged between both parties. In this regard, Mercedes Benz will enjoy the privilege of maintaining its trade secrets and providing targeted communications to departments that should act on them. The internal communication plan linking investors and employees will be done via Zoom and Skype. The importance of using these digital communication platforms is to comply with existing government regulations aimed at minimizing the spread of COVID-19 through minimal physical contact (Kwok, Lee and Han, 2021).
How to Overcome Resistance to Change
The process of overcoming resistance to change needs to happen from an understanding of the background that characterizes change in an organization. The change management curve has been used to explain this background and four key processes denial, resistance, acceptance, and commitment, as figure 1 below outlines.
Resistance to change is commonly witnessed in organizations that strive to change their legacy systems for better ones. Such would be the case of Mercedes because it has operated on such systems to remain competitive in the luxury car segment ((Mercedes-Benz., 2021a). Given that employees have invested their resources and time in understanding these systems, some of them may openly or covertly resist change. Such resistance to change may take different forms, including the propagation of misinformation about the change process or sabotaging it altogether because some departments may deem the change unfavorable or threatening their careers (van Marrewijk, 2018).
In some organizations, employees may be unwilling to support the change management process because managers are advocating for it. In others, employees may feel that the change is only going to make things worse for them. Therefore, there is need to counter such strategies by developing robust systems that would protect the gains made. In line with this observation, a democratic leadership style may be employed to include the views of every stakeholder in the change management process. This leadership style is associated with the promotion of equality and the involvement of multiple players in a companys decision-making processes. Therefore, it would accommodate the views of diverse groups of employees in the change management process, thereby providing them with the opportunity of being informed about developments in the change management process.
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