No. 28

Siemens Has The Power to Regenerate

Manfred Hoefle and Armin Sorg

Siemens has already proved it can do it. In 1984, the Siemens CEO, Karlheinz Kaske, and the Head of Technology, Karl Heinz Beckurts, decided upon a highly ambitious program: the Mega Project. Their aim was to close the huge gap and catch up with microelectronics competitors from Japan and the USA. By 1987, the first 1-megabit storage chip was already in series production ― right on schedule. During the 1990s, the Medical Systems Group, with a new leader, Erich Reinhardt, successfully standardized and networked its products with the Syngo program. At the same time, the Automation Group, under the auspices of boss Klaus Wucherer, formed small specialist teams to develop new system platforms, Sinumerik and Simatic, which made Siemens the number one worldwide.

Later on, a new corporate leadership at Siemens decided to radically refocus the company on so-called 'megatrends': demographic change, urbanization, climate change and globalization. Since then, technological breakthroughs have become rare and weaknesses in innovation more apparent. More recently, Siemens has become stifled by bureaucracy due to demands made by the US stock exchange supervisory authority SEC (keyword: compliance) as well as by 'process optimization' projects of all shapes and sizes, and repeated 'reorganizations'. Workforce demotivation has spread and despite a peak year for profitability in 2011, Siemens has turned into a Managerist organization.

The time has now come for a regeneration of Siemens. Recently, the company was freed from it subordination to SEC rules. Siemens must now determine its own future and not be nose-led by capital markets. Employees and the Siemens family, as core shareholders, can and must support this new goal.

So where and how should this regeneration begin?

Three pillars of regeneration

1. Strengthening the corporate culture

Siemens must once again learn to appreciate it own strengths. That means, stop trying to be a carbon copy of GE or an amalgamation of 'capital-market favorites' ― less externally driven, and more inner strength and integrity.

Siemens was and still is an electrical engineering company that stands for electrification ― the application of electricity to all spheres of life wherever possible and desirable. This philosophy should be the source of a new and deeper appreciation of the art of creative engineering and innovation, reflected at the highest corporate level and extending through the entire company. Future appointments to Operating Management and Corporate Management, Managing Board and Supervisory Board must reflect this core idea more than in recent years. The surplus of MBAs and lawyers must be reduced. Countless 'consultants' and numerous in-house 'teams' can be easily dispensed with.

What is needed is once again a true sense of belonging: feeling part of and identifying with a global Siemens family, with its roots in Germany. As a credible statement of belief in such a community, the pay of senior management must be readjusted; this means that gaps between levels and differences in pay must be narrowed. The Managing Board and Supervisory Board must set an example; they must practise the good co-operation they preach. Note the following: any attempt to encourage staff to be pro-active, take the initiative or be innovative will (without reasonable job security and a culture of transparency and open discussion) be certain to fail.

2. Toward a new company philosophy

Siemens must develop its own company 'philosophy' or way of thinking; namely those common features already found in the best German Mittelstand enterprises: agility, innovation, moral values, prudency, caution on acquisitions, sustainability; combined with an attitude that is a characteristic of all enduring enterprises: conservative financing, sensibility to changes in markets and technology, a strong company identity, and always open to new ideas.

This way of thinking includes the understanding that growth cannot be the sole objective; and neither can size, which is obvious enough. The growth of an enterprise should derive more from its inherent strengths, and less from acquisitions. Siemens, despite its variety and size, is not a business portfolio to be repeatedly reshuffled like shares in a fund: it is an organism whose natural growth must be cared for; like a tree that grows organically ― unless it is repeatedly transplanted and has its branches amputated.

Siemens was and still is a plant and systems provider ― from its beginnings operating in the field of communications technology with today's focus on electricity and electronics. The core idea should be to offer customers comprehensive solutions. When the loop from planning to disposal and back to new orders is complete, to the mutual benefit of Siemens and customers, this will create lasting business relations and partnerships. Due to the complex issues now emerging, for example in power generation, automation, or the integration of power networks, there is also an obvious need and central role for Siemens in project management and systems engineering.

A prerequisite for excellence in value creation is a thorough understanding of production. This is essential to enable manufacturing of critical components and innovative products that are unavailable from other companies. Management consulting solutions such as 'global patchworking, orchestrating & sourcing' are simply obstacles to such a forward-looking business philosophy. It should be apparent that Siemens, as a plant and systems provider, in the widest possible sense, should also be the most competent integrator of its own hardware and software, and a master of embedded systems, as an integral part of its business model. This will make Siemens both unique and indispensible for customers.

Innovation is a never-ending aspiration for Siemens today as it was during (most of) its great past. Experience teaches us this requires both patience and engineering ambition. Unique technology arises in the minds of motivated and professional employees in laboratories, at workbenches and software foundries ― and not in central innovation agencies and 'innovation transfer units'. Today's great opportunities for Siemens were predicted in Pictures of the Future: their future realization calls for their determined implementation in numerous small steps.

3. Simplified leadership

Repeated complaints about excessive corporate complexity must be answered once and for all. Simplifying things has become an urgent priority. This means: continual reorganizations have to stop, systems and compliance must be kept to a minimum, the self-imposed Taylorism in administration and operating processes must cease, duplicated reporting paths must be closed, and tasks must be coordinated locally. Only those actions which serve effective leadership and therefore the customer are justified. The chronic problem of poor coordination between Sectors, Regions, and Headquarters must be replaced by good co-operation. That requires the will to act and discipline, which is what corporate leadership must demand and insist upon.

Instead of supposed 'efficient' systems, the employee as an individual must be the focus of attention. Better human relations and more direct communication will promote a greater sense of community and shared goals. More freedom of action will encourage people to take the initiative and also help an entrepreneurial spirit to develop. Greater motivation is good for everyone involved ― also indirectly for partners and families. Leadership methods recently adopted (keyword: ready to develop) have generally done more harm than good. Employees should be deployed wherever they most benefit the enterprise and themselves. Management trainees from within units should be preferred as far as possible.

Simplification alone is not enough. Siemens must become smaller, to get bigger and robust again.

This is not a contradiction. A first step has already been made with Osram. The next candidate for independence is Medical Systems, which has less in common than other units with the electrification theme. The core of Siemens would then be the former Schuckert fields: Power Generation, Power Transmission, Power Distribution, Drive Technology, Automation, Networking of Industry & Infrastructure and Transportation Systems. Siemens would still be enormous. The Power Generation business alone, with sales of 28 billion euros, is big enough to be a Dax 30 company and an industrial heavyweight on the German stock exchange landscape ― otherwise biased toward automotive firms.

The regeneration of Siemens calls for decisive action. This means rebuilding the self-confidence of employees and their pride in Siemens. The company has all the tools needed to do the job.