1. How would you characterize the strategy for competing internationally that Si
ID: 365734 • Letter: 1
Question
1. How would you characterize the strategy for competing internationally that Siemens was pursuing prior to the arrival of Peter Loscher? What were the benefits of this strategy? What were the costs? Why was Siemens pursuing this strategy?
2. What strategy was Peter Loscher trying to get Siemens to pursue with his streamlined “power and accountability” initiative? What are the benefits of this strategy? Can you see any drawbacks?
3. Does the “power and accountability” initiative imply that Siemens will ignore national and regional differences?
4. With the arrival of Joe Kaeser, the focus is much more on apps and websites. How can these individual, customer-based IT features help industrial-based IT companies such as Siemens?
The German company Siemens is one of the world's great engineering conglomerates manufacturing everything from hearing aids and medical scanners to giant power generation turbines, wind systems, and locomotives. By the late 2000s, however, Siemens was struggling with subpar performance relative to its global rivals such as General Electric (GE), Honeywell, and United Technologies. In July 2007, Siemens hired Peter Löscher as CEO, replacing Klaus Kleinfeld, and gave him the task of trying to revitalize the organization. Löscher, an Austrian whose career included major leadership positions at GE and Merck, was the first outsider to run Siemens since the company's establishment in 1847 n 2007, Loscher inherited a global organization of significant complexity. At the time, Siemens had 475,000 employees and revenues of S72 billion, operated in a wide range of industries, and had activities in more than 190 countries. As a comparison, today, Siemens employs about 362,000 people, with revenues of about S79 billion, and covers a similar number of country markets. At the time, Siemens was organized into 12 operating groups, which were further subdivided into 70 business divisions. Although each division had its own product focus, such as wind power or molecular imaging, Siemens worked hard to deliver integrated solutions to customers. This required many of the 70 business divisions to cooperate with each other on large projects. Siemens also had a strong tradition of local responsiveness. The countries where the company was the most active had their own executive manager, known as "Mr.Ms. Siemens." This individual acted as the country manager for all of Siemens businesses in a specific geography and was also the CEO of the respective local company. The operating group and business division structure was often replicated within the local company. This resulted in a matrix organization, with the head of the power generation business in, for example, Argentina, reporting to the local country CEO and to the global head of the business division. It was the responsibility of Mr.Ms. Siemens and his or her staff to manage relations with local customers, develop bids for projects, and ensure that business divisions cooperated on the delivery of a project. Local companies were given significant discretion over product specifications for local clients. Thus, the local company in Argentina might bid on a subway project in Buenos Aires, tailor that bid to meet the needs of the local client, and, if the bid was accepted, make sure that there was sufficient cooperation between the different business divisions in order to successfully complete the project. Löscher could see the virtue in this organization-it tried to meld together global scale at the business level with local responsiveness at the country level-but it was very complex to effectively and efficiently implement. In his view, there were too many direct reports to the corporate headquarters, resulting in significant overload. There was also a serious accountability problem. If the company failed to deliver a project profitably-let's say the subway system in Buenos Aires-who, then, was responsible for that: the local managers or the managers of the business divisions? Löscher believed that country managers had too much power in the structure and the business divisions had too little and were not accountable enough. In 2008, Löscher changed the organizational structure to deal with these power and accountability issues. He consolidated the operating groups into three main sectors: industry energy, and health care. The business divisions were placed within their respective sectors. He then organized the 190 country units into 17 regional clusters and gave them primary responsibility for developing a cost-efficient regional infrastructure, focusing on customers and managing sales organizations. Profit and loss responsibility was assigned to the sectors and business divisions. Previously, each operating group and national subsidiary had maintained its own separate profit and loss accounts. This change was a shock to the Mr/Ms. Siemens around the world, who were told that their goal was to contribute toward the global operating income for a sector and business division. While not doing away with local responsiveness, Löscher had effectively reduced the power of country managers within the Siemens structure, making themExplanation / Answer
I have answered a similar question earlier. Answering it here again for you.
This is a classic case of Organizational Change, or what many organizations now call the Organizational Change Model. Let us see your questions now:
1. Prior to Peter's arrival, Siemens had a strategy that was mostly legacy. While the organization wanted to deliver integrated solutions to its customers, what it did was it maintained both regional and global teams. This leads to two reporting structures - generally one becomes more powerful than the other and this leads to redundancy. This is evident from the fact that the regional executive managers became really powerful while the global team did not have too much accountability other than co-ordination.
While the benefits are that since the delivery is in the region, there is direct accountability and faster delivery if power is given to the leadership, the disadvantages are many:
Siemens was pursuing this strategy due to its focus on integrated solution delivery and it needed a regional + global model at that point in time.
2. What Peter was trying to do was simple - ensure faster delivery while ensuring that the right teams are accountable. The global team, for example, should not be present just for co-ordination - they had a much bigger role: to ensure that any project which is delivered in any of the regions can be scaled if necesary, and it is in line with the global strategies. What Peter did was he ensured people do not work in silos. The regional teams were clearly told that for their line of business, they would be responsible to contribute to the revenues at the global level.
Peter reduced redundant management levels - the earlier structure had redundant management levels and slowed things down. He tried to bring in clear accountability and also empower the right executives The focus came back to the customer.
The only draw back would be the loss of talent that Siemens would have seen through the transition - not every manager would be willing to change ways of working, and as a result there would be stiff resistance and attrition.
3. No, it will not ignore regional and national differences. What it does is it ensures the accountabilities and levels of power delegated are about right so that there is complete focus on delivery and on the customer. This has been explained in detail for you in my answer to question 2.
The regional teams are present to ensure that they take car eof the different regional flavours that each region/country brings.
4. The future of the world is going digital. Apps and websites have multiple advantages:
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