Challenges and Future Strategy for Siemens Corporation

I. Introduction

 The goal of this paper is to analyze the overall performance Siemens Corporation. We will show how they are currently operating and the issues associated with the current structure of the company and offer alternative methods in order to increase the performance of the company. Siemens is a German conglomerate founded in 1847 by Werner von Siemens and Johann Georg Halske as a telegraph company. By 2012 Siemens employed more than 370,000 people in more than 190 countries around the globe. Their business structure involves for major business sectors, which are: Energy; Healthcare; Industry; and Infrastructure and cities. These sectors are further divided into eighteen divisions, which in their turn are composed of a plurality of business units. Each of these entities is considered as a global entrepreneur and is responsible for its own profits and losses. It helped to inspire entrepreneurial spirit and opportunities among employees, but due to decentralization, coordination and communication between these units, Siemens faced challenges. In this paper we will attempt to recognize these challenges and give alternative solutions for Siemens future strategy.

II. Current Situation/Issues/Problems

A. Current Situation

In 1998 Siemens shareholders expressed concerns during the Annual Shareholder’s Meeting about the lack of growth in profits to coincide with the growth in sales. This was a considerable concern with the Shareholders especially with outside factors becoming more of a concern with the profitability of the company such as higher environmental uncertainty and increased global competition. In response to these concerns of the shareholders, the company developed an initiative entitled top+that focused on innovation, customer focus and global competitiveness. Throughout the 10-year period of 1997-2007 Siemens implemented several strategies in addition to top+to try and restructure the corporate environment at Siemens.

B. Problems/Issues

A big issue was initially Siemens had Group Presidents that were also members of the overall firm’s managing board, which can present a conflict of interest. It is not customary for firms to have members of the board that are also sitting in positions of power within the company. It can make it difficult to be able to provide an un-bias opinion on controversial issues or decisions to be made at a corporate level.

There seemed to be a lack of structure within the corporate departments within the company. There were far too many groups and sub-groups in the corporate center. There were five corporate centers, as well as five sub-corporate centers. This is seemingly an excessive number of departments within departments that can cause immense communication disconnects.

Siemens profit was stagnant for a period, despite a significant increase in sales. This was a major concern of shareholders. There usually is a problem if a business plan consists of improvements in sales, but not much improvement in profit over a prolonged period of time.

The top+program, while effective, was still missing something to help with the corporate environment of Siemens. Siemens still had somewhat of an unstable environment as a whole on the corporate level. Although the top+ program was implemented, there still were gaps in which Siemens could improve.

A more inclusive program needed to be developed, to still include the initial base of top+but also detailing additional necessary strategies. This was part of Siemens’ projected plans throughout the 10-year period. However, many of the developed programs did not succeed as the initial program did. Therefore, they were constantly changing and not providing a stable plan for the company.

III. Alternatives for Each Issue/Problem

 An alternative for the first issue Siemens was faced with is to follow a functional structure to implement the differentiation strategy, instead of a matrix organizational structure. A company’s structure helps to determine and specify the decisions that are to be made and the work that is to be completed by all employees within the organization as a result of the decisions. How a company is structured is critical for the company’s overall success and increased value. Currently Siemens follows a matrix organizational structure, which consists of a dual structure combining both functional specialization and business product of project specialization. The issue Siemens is facing of having their Group Presidents also serving as members of the overall firm’s managing board is a direct result of the organizational structure the company has chosen. The matrix organizational structure includes structural integration devices that create tight links among all divisions. A feasible alternative for Siemens is to restructure their organization in a functional structure. A functional structure consists of a Chief Executive Officer (CEO) and a limited corporate staff, with functional line managers in dominant organizational areas. This alternative provides Siemens a few advantages, the first being that the company would have a structure where Group Presidents are not members of the overall firm’s managing board and eliminates the possibility of conflict of interest. A second advantage to this alternative is that it allows for functional specialization, including the active sharing of knowledge among each functional area. With advantages, comes disadvantages as well, the first one being that the company has already faced multiple re-organizational changes and this would just be another one the company would be faced with. A second disadvantage is that it could have negative impacts affecting communication and coordination among the different organizational functions.

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 Siemens second issue related to lack of structure within the corporate departments in the company was due to Siemens not appropriately following the matrix organizational structure. An alternative for this issue is to implement changes in leadership to provide an appropriate and effective structure for the company. A matrix organizational structure unites organizational structures to give them balance. Usually in this structure, there are two chains of command, where team members have two managers. Looking at Siemens corporate structure, they have sections for Managing Board of Siemens AG, Corporate Departments, Corporate Centers and Operations. Within the Managing Board of Siemens AG and Corporate Departments, the same managers are listed in both sections. This does not follow the matrix organizational structure, so a change should be made to have different managers leading each department. This change would help define some structure to the corporate departments. An advantage to this alternative is that it can lead to improved coordination among the firm’s divisions. Yet, a disadvantage to this alternative is that a change in leadership can cause disruption for the organization and departments affected by the change.

 To understand why Siemens profit was stagnant for a period of time, an alternative that Siemens should investigate further is the conduction of a value chain analysis in order to understand what part of their operations is creating value, earning profit, and what is not. A value chain analysis includes a firm determining their value chain activities and their support functions. Value chain activities are tasks that the firms must complete in order to produce products, sell, distribute, and service the products in order to create value for their customers. Some examples of value chain activities are Supply-Chain Management, Operations, Distribution, Marketing (Including Sales), and Follow-up Service. Support functions are tasks the firm must complete in order to support the work that is done in order to produce, sell, distribute, and service the products the firm is producing. Some examples of support functions are Finance, Human Resources, and Management Information Systems. An advantage for Siemens in choosing the alternative of conducting a value chain analysis is that it creates or strengthens a competitive advantage for the company. Another advantage in facilitating a value chain analysis is that it will provide an in-depth understanding of why sales is increasing, while profit is stagnant. A disadvantage in choosing this alternative is that the company’s overall strategy/vision could be lost during the value chain analysis exercise. Also, the value chain analysis isn’t good at linking each activity together, so another disadvantage of this alternative is that it is easy to lose sight of how the activities relate to each other.

 An alternative for Siemens fourth issue is to incorporate a diversification strategy into their corporate strategy in order to increase value within the corporate environment. A diversification strategy can increase the company’s value by improving their overall performance. Diversification strategies create value through economies of scope, market power, and financial economies. Economies of scope allows the firm to share activities and transfer core competencies. Market power allows the firm to block competitors through multipoint competition and vertical integration. Financial economies allows the firm to have efficient internal capital allocation and business restructuring. A few advantages to the alternative of implementing a diversification strategy is that it reduces the variability in the firm’s profitability and it provides flexibility to shift investments to markets with greatest returns rather than depending on only one market. On the other hand, there are large disadvantages to using a diversification strategy, such as that diversification incurs development, sales and marketing costs. If these costs exceed revenue and profit gains, this can be a huge negative for the company. Another disadvantage is that it requires additional management and operational resources.

 In order to develop a more inclusive program detailing Siemens additional necessary strategies, an alternative Siemens could look into is to enhance the top program to help strengthen their efforts in management innovation and operational excellence. A way that Siemens can achieve this is to ensure that their roles, responsibilities and work are aligned with their best performers, decision makers and problem solvers. Siemens should make an effort to invest in their employees to develop the most qualified, capable and flexible workforce for their company. As a part of their innovation strategy, focusing on operational excellence, organizational agility, product and service leadership and customer loyalty will help Siemens achieve their additional necessary strategies. An advantage to this alternative is that it allows the company to accomplish their additional necessary strategies. A disadvantage to their alternative though is that if changes are presented for the top program, there will be a period of time for the organization to adjust and adapt to the new procedures that are in effect.

IV. Selection of, and Justification for, Selected Alternative

 Throughout the years, Siemens encountered several issues that affected their organization; however, opportunities were present to adjust their current process in order to better serve the needs of the organization.   Siemens had followed the matrix organizational structure that involved dual involvement in functional and project specialization as they implemented new processes and initiatives.  To better meet their needs for their organization to achieve success, it is recommended Siemens restructure their organization to follow the functional structure as it would produce more benefits for them in the long run.

 By implementing the functional structure focusing on a differentiation strategy would streamline their processes more efficiently and effectively.  Rather than having their president also serving on the board for each of the departments, the functional structure allows for the Siemen’s President to work closely with a limited team to oversee the different departmental areas and to achieve highest success in the products and services being offered in those departments.  Not only would it help streamline their process, this team formation would allow each individual to obtain the same relevant information to focus on product innovations, creativity, and opportunities to meet the high demands. 

Along with the collaboration of the leadership team and the departments, the functional structure also places an emphasis on separating the research and development (R&D) and marketing department from the other specialized departments.  This allows for the Siemen’s leadership team to relay information with the R&D and marketing department to determine focus areas for future growth.  It makes the communication process more smoothly due to limited keyholders in the process rather than having a large number of individuals participate creating potential conflicts and disagreements. 

V. Conclusion

  Siemens possess many resources and capabilities which are necessary for survival. The company’s history has created some unique resources and core competences, which differentiate Siemens from other companies, which is crucial for the company’s success. Implementation of our recommendations and alternatives will aid to add more value to each process in the organization and therefore reduce costs and increase performance. The provided analysis helped to gain a better understanding of Siemens current structure and the benefits of implementing a new structure.

VI. Appendix A – Current Scenario & Analysis – Research

 Siemens is regarded as a top company in the world.  They are at the top of the game with divisions in energy, power and gas, building technology, mobility, financial services, and healthcare and infrastructure markets.  They currently employ approximately 372,000 people are the world with locations in Austria, China, Croatia, Denmark, France, India, Japan, Mexico, the Netherlands, Russia, Slovakia, Sweden, Switzerland, the United Kingdom and the United States.  Their financial profits continue to grow year after year as they continue to invest alternative energy sources and technological advancements.

Siemens’ Current Status

 To stay successful, the energy industry will have to adapt and transform its aging business models and technologies, and develop new ways of thinking.   In an ever more decentralized and diversified energy system, there are no easy answers. Smart Grid partners need a modular set of flexible solutions and a great deal of experience to guarantee constant energy.

Current Issues

Here are some of the greatest issues the energy industry is facing and our Smart Grid solutions to answer them.

 An aging and weak infrastructure; a lot of the present vitality foundation is over 60 years of age, representing a potential danger to security of supply. Crucial modernization is vital. 

The limit on generation and grid capacity; the expansion in cost implies an expansion in potential threats. Brownouts and power outages influence the general economy, saving money, interchanges, movement and security. 

Revenue and non-technical losses; A huge volume of power is lost through specialized wasteful aspects or robbery, presenting genuine and some of the time existential dangers to organizations and entire economies. 

The cost and emissions of the energy supply; as the two costs and outflows have a developing monetary effect, productivity in both age and appropriation is the way to a solid rate of profitability. 

Lastly, the renewable distributed generation; the integration of renewable and distributed generation and traction power networks within existing networks causes particular problems in the control of power flow, power quality and protection.

Alternatives for Current Issues

 Alternatives for an aging and weak infrastructure are automatic outage prevention and restoration.  Smart Grids allow for continuous checking in blend with mechanized interfaces.   Defensive transfers, wires and sensor frameworks naturally foresee over-burdens and disengage parts before harm can happen. Parts are reestablished, security and supply is moved forward.  A disadvantage is that a strong cyber security is needed for the use of Smart Grids.

 Alternatives for the limit on generation and grid capacity are load management and peak avoidance.  Specific load control and load the board applications shave or move crests to guarantee most extreme network steadiness, even during peak times.   However, load management gives less control of the smaller areas.

 Alternatives for revenue and non-technical losses are full transparency on distribution levels and the automation of loss prevention.  Conditions observing interfaces gives utilities a continuous status review of their dispersion frameworks and consequently envision unsettling influences in a self-mending way. As with any automated process, the systems can be complex and you take the risk of system failures.

 Alternatives for cost and emissions of energy supply are efficiencies in generation, transmission, distribution and consumption.  Expelling wasteful aspects through cutting edge computerization, detecting and estimation, and enhanced interfaces from the purpose of vitality age onwards. Vitality stockpiling frameworks and request side administration enhance the general framework productivity at the purpose of utilization. Cooperative energies are essentially expanded, costs significantly cut: propelled framework innovation parallels a value advantage.

 An alternative for renewable distributed generation is the balance of generation and demand.  An advanced parity of age and request (e.g. request reaction, micro grids, virtual power plants) diminishes the general utilization of power by specifically controlling gadgets or affecting customer conduct by offering extraordinary taxes. As a disadvantage, the requirement for expensive peaker plants is additionally decreased. Decentralized, interconnected generators take into consideration more control and exact arranging of supply. Brilliant data advancements and the savvy utilization of financial systems bring down working expenses, guarantee dependability and help build up consistency.

Justification for Alternatives

 Smart Grids provide stability to networks.  They help to increase the efficiency of energy and balance supply and demand through prosumers (buildings and electric cars).  They are necessary to ensure the safety and efficiency with the transmission and distribution of energy.

 Load management is crucial for Siemens to run effectively, which allows them to determine baselines, automate customer billing and accept settlements.

 Full transparency is necessary for the company to maintain their loss prevention.  This gives them the opportunity to increase network strength and stability, as well as keep operational costs down.

 “Energy efficiency is absolutely crucial if you want to remain competitive” (Trage, 2014).  If Siemens wants to remain as one of the top energy providers in the world, they must remain efficient in all aspects of the business.

` The need for balance of generation and demand is a top priority because it regulates devices.  Without the regulation of energy consumers would burn through this resource faster than any other resource.

 Siemens has the ability to maintain is prominent status in the energy market as well as the other markets they have a footprint in, as long as they continue to identify their shortcomings and continue to seek out alternative solutions for the latter.

References

https://www.siemens.com/global/en/home.html

Trage, Sylvia.  Efficient Energy Use: Facts and Forecasts. October 1, 2014.  https://www.siemens.com/innovation/en/home/pictures-of-the-future/energy-and-efficiency/efficient-energy-use-facts-and-forecasts.html