Case Study—Siemens Read the Siemens case study located in the section titled Case Studies in your textbook concerning the following situation: Siemens is a leading global electrical engineering and el

CASE 15: Siemens: Management Innovation at the Corporate Level

Markus Menz

Günter Müller-Stewens

Institute of Management, University of St. Gallen

Introduction

At the Annual Shareholders’ Meeting in February 1998, Siemens announced disappointing overall results for fiscal 1997. While the firm’s sales growth met shareholder expectations, net income remained largely stable. During the following weeks and months, Siemens’ top management not only faced increased pressure from its shareholders, but also higher environmental uncertainty and stronger global competition than during the early and mid-1990s. The challenge for the top management team was to optimize the business portfolio in a way that promised to add substantial shareholder value over the next years. Hence, the need was to develop and implement a revised and more coherent corporate strategy.

In response to the developments in 1997 and early 1998 and to facilitate the implementation of the corporate strategy, Siemens launched its first comprehensive corporate program in July 1998. A critical part of the so-called Ten-Point Program was the top+ program, which exclusively addressed issues of business excellence and management innovation. How did Siemens design and implement the top+ program and its management innovations? To what extent and how did Siemens benefit from these efforts? These and other related issues will be illustrated in the following.

Company Profile of Siemens

Founded in 1847, Siemens developed into one of the leading global electrical engineering and electronics firms over the past 160 years. At the end of fiscal 2007 (September 30, 2007), Siemens employed nearly 400,000 people at 1,698 locations all over the world. From 1998 to 2007, firm revenues and profits increased almost every year, resulting in revenues of 72.448 billion EUR and net income of 4.038 billion EUR. Headquartered in Munich, Germany, Siemens is publicly listed in Germany at the Frankfurt Stock Exchange and in the US at the New York Stock Exchange (NYSE). By the end of fiscal 2007, Siemens’ market capitalization had reached 88.147 billion EUR.1

During the period from 1998 to 2007, the business portfolio was frequently adjusted (see Exhibits 1 and 2). Examples include the spin-off of the semiconductor business under the name Infineon Technologies by an initial public offering (IPO) in 1999. At the end of 2007, the firm’s portfolio consisted of the following operating groups: Automation & Drives (A&D), Industrial Solutions and Services (I&S), Siemens Building Technologies (SBT), Osram, Transportation Systems (TS), Power Generation (PG), Power Transmission and Distribution (PTD), Medical Solutions (Med), and Siemens IT Solutions and Services (SIS). In addition, Siemens Financial Services (SFS) and Siemens Real Estate Services (SRE) were part of the portfolio.

Exhibit 1: Siemens Corporate Structure 1998

Source: Siemens Annual Report 1998.

Exhibit 2: Siemens Corporate Structure 2007

Source: Siemens Annual Report 2007.

Together with about 180 regional companies in five regions (Germany, Europe other than Germany, Americas, Asia-Pacific, and Africa, Near and Middle and Commonwealth of Independent States), the operating groups were part of a matrix organizational structure (see Exhibit 2). Although the operating groups had profit-and-loss responsibility and were largely autonomous regarding their operative business activities, some influence from the central top management and central organizational functions existed. First, the group presidents were frequently also members of the overall firm’s managing board. Second, although the central entity primarily exercised financial control over the operating groups, some strategic measures that affected the way the businesses operate also existed. For example, the centrally controlled operational excellence initiatives were mandatory for all operating groups.

This case was prepared by Dr. Markus Menz and Professor Dr. Günter Müller-Stewens, Institute of Management, University of St. Gallen, Switzerland. Its objective is to illustrate a corporate-level management innovation program. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. Our information sources included interviews with Siemens management as well as publicly available corporate information (annual reports 1993-2008, presentations, press releases, websites of Siemens AG and its subsidiaries) and press articles. We would like to thank Siemens AG for the support. This case was written with the support of a Philip Law Scholarship by the European Case Clearing House (ECCH).

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