In Focus:  The ROI of Cultural Understanding

Do you remember how Chrysler looked in the year 2000? That tired, underperforming behemoth, with its aging products that simply weren’t good enough to keep it from bleeding rivers of money?  Quite a change between then and now, don’t you think?

After the painful “merger of equals” with Daimler-Benz, with huge power conflicts and much cultural friction, and with several years of struggling and suffering behind it, Chrysler today sure looks prettier.  It has started making decent profits again and is showcasing long lines of attractive new models.  While many people played a role in this astounding turnaround, one person deserves much of the credit: Dieter Zetsche.

A German by passport and culture, Turkey-born Zetsche, who has also lived and worked in Argentina, Brazil, and elsewhere in the U.S. before taking the helm at Chrysler, demonstrated the value of cultural understanding.  After taking over at a time when Daimler-Chrysler chairman Juergen Schrempp’s attitude had almost everyone at Chrysler turned against “those Germans”, Zetsche managed to revitalize employee relations by showing a can-do attitude coupled with much-appreciated humility, unleashing developers’ creativity, or bonding with Chrysler’s loyal dealers.  At the same time, he slashed payroll by more than 20 percent, overhauled and accelerated programs, cost-reduced manu- facturing, outsourced nonessential processes, established companywide benchmarking, juiced up marketing, and shook up his senior management team.  Dieter Zetsche, now destined to become the next chairman of DaimlerChrysler, is living proof for the importance of cultural understanding.

Why does knowing this “culture stuff” matter?  What’s the incentive for learning about it?  Or, in CFO speak: what is the return-on-investment (ROI) of cultural understanding?

Four Examples

Let us take a look at some areas where the ROI of cultural understanding can be substantial:

1. Communicating with Foreign Company Employees

Studies have shown that oral communication between people within the same culture is usually only 40 to 60 percent effective. About half of the message gets lost.  This becomes even more challenging in international interactions. Communicating with foreigners not only introduces language pitfalls but also cultural barriers.  For instance, people in many countries may not openly reveal personal opinions or flag problems. It usually takes subtle questioning in culturally compatible ways to find out what they really think.  Body language can also be hard to read.  Under- standing such cultural aspects pays huge dividends: error rates drop, redundancies and unnecessary rework can be prevented, and companies are able to maximize their success by aligning their international workforce.

2. International Negotiations

Experienced negotiators know that when the bargaining begins, the party which is better prepared will usually end up with the better deal.  Nowhere does this apply more than in international settings.  Negotiators who do not understand that arguing may not mean disagreeing, that silence may not signal rejection, or that signing a contract may not cause the bargaining to stop in a given culture inevitably end up with unfavorable terms.  Worst case, there may be no deal at all.  As a matter of fact, experts list cultural hurdles as the primary show-stopper in more than 25 percent of all failed international business negotiations.  Simply put, cultural understanding frequently translates to negotiation success.

3. Cross-Cultural Project Management

A recent IT survey on offshore outsourcing found average savings of only 10 percent, while more than a quarter of the participants reported that their project cost had actually increased.  Other surveys have shown cultural factors contributing significantly to such disappointments.  This should be no surprise, since project success depends on several culture-specific factors, such as communication, planning, risk-taking, responsiveness, or team motivation.  Each of these needs to be managed effectively.  Ample evidence suggests that culturally savvy project managers drive substantially higher success rates.

4. Intercultural Partnering

Collaborating effectively with international partners requires trust. Countless examples exist where mistrust got in the way of cross-cultural partnerships, reducing or destroying their strategic value to both sides.  In many such cases, the reason given for the failure is “incompatibility between the partners”, which often indicates cultural friction.  Indeed, managing international alliances has become one of the biggest challenges for global companies, and alliance managers who can work productively across cultures are much sought after.  The financial incentives for companies to manage their partnerships in culturally effective ways are obvious and significant.

The Bottom Line

Let's face it: a hard nosed, bean-counting CFO may still not be convinced.  It is indeed difficult if not impossible to assign accurate numbers to the financial rewards of learning how to work across cultures. As the fine print usually says, “results may vary.”

But there can be no doubt that the benefits of understanding cultural differences and knowing how to overcome them are significant and often substantial.  In contrast, the required effort is not.  Time to take a lesson from Dieter Zetsche?

(The above is an excerpt from an in-depth article available on our web page)
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Lothar Katz is the founder of Leadership Crossroads.  He has a wealth of experience in achieving productive coopera-tion across cultures and driving business success on a global scale.
A seasoned former executive of a For­tune 500 company, he regularly interacted with employees, cus­tomers, out-sourcing partners, and third parties in more than 25 countries around the world.


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Global Business Practices:
Ten Tips For Doing Business in Germany

  • German dialects can be hard to understand. Don't get too frustrated should your high-school German fail you.
  • Punctuality is highly valued. Don't be late for meetings.
  • Don't introduce yourself using only your first name. Don't call Germans by their first names either, unless they explicitly invite you to.
  • Companies tend to be very hierarchical in Germany. Decisions may require several levels of approval.
  • People's initial reaction to changes or new proposals is often negative. Give them time for a detailed analysis.
  • Be prepared to discuss things in much greater detail than you may be used to. Prepare backup information whereever appropriate.
  • Don't mix positives and negatives in one and the same statement. Germans often take this as 'indicisiveness.'
  • Many Germans pride themselves with being more efficient than others. This is best left unchallenged.
  • Germans can be amazingly direct. Don't confuse that style with aggressiveness, though. They usually mean well.
  • Eye contact with Germans should be frequent as this conveys sincerity.

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