The New Generation At SiemensGail E. Schares
The bus plunged ahead aimlessly in the darkness of a forest near the German-Czech border. As an aide struggled to read a map, the dinner outing for Siemens managers and reporters was turning into a fiasco. Taking charge, energy chief Heinrich von Pierer marched to the front, fired the fumbling aide, and guided the bus to the restaurant. Onlookers were stunned: Von Pierer's swift punishment broke sharply with tradition at paternalistic Siemens. Next morning, he rehired the man. But the message was clear: Von Pierer was breaking the mold.
That's just what Siemens' supervisory board ordered when it chose von Pierer to take over as chief executive of the $45.6 billion electronics giant this September. As head of a company with 402,000 employees, von Pierer will have a challenge every bit as great as the one that confronted John F. Welch Jr. when he took over and subjected General Electric Co. to shock therapy. Von Pierer says he admires Welch but won't resort to mass dismissals. His style will be tailored to Germany's consensus-style corporate culture. "Good management is the art of making change painless," says von Pierer.
LAST BEST HOPE. The 51-year-old lawyer and economist--and former tennis champion of Bavaria--is catapulting to the top of the German giant in the midst of a critical transition. CEO Karlheinz Kaske, 64, launched a reorganization two years ago designed to whip Siemens into shape for the 1990s and beyond. Under mandatory retirement rules, however, Kaske must step down--and the job isn't finished.
This changing of the guard represents a broader transformation under way in Germany as companies gird for more intense competition from the Japanese in particular. Beating them will require a management revolution. "European companies take longer to react," says Hermann Franz, board member in charge of strategic planning. "So you have to do something before the catastrophe hits."
If von Pierer can complete what Kaske started, Siemens has a shot at carrying the banner for Europe in high technology. Indeed, with national champions such as France's Groupe Bull and Thomson and Italy's Olivetti floundering and Britain's ICL already sold to the Japanese, even the French agree the German company is Europe's best high-tech hope. "Siemens must stay strong for the good of Europe," says Groupe Bull Chairman Francis Lorentz.
Von Pierer is well aware of that. He is at the cutting edge of a new generation of executives moving into power at Siemens. For these younger managers, rigid hierarchy is out, and entrepreneurial drive is in. No longer smitten with technology alone, they'll attempt to capitalize on the company's technical strengths. And as the second nonengineer to run Siemens in its 150-year history, von Pierer will rank marketing muscle and sales as top priorities. "Technology can't be a goal in itself, we have to earn money," he says.
`LETHARGY.' Top management knows change is urgent. The red ink in many Siemens divisions would sink most companies. Although the manufacturer eked out a $1.1 billion profit in 1991, that was only 2.5% of sales, and about half those earnings came from investing its $11.3 billion cash hoard.
Even with an infusion of fresh thinking, Siemens may not be able to stem its losses in manufacturing soon. "There is still an astonishingly high degree of lethargy," says Adrian Brundrett, electronics analyst at Bank in Liechtenstein. The biggest problems are looming in the computer division, where losses following the takeover of troubled German rival Nixdorf jumped last year to $583 million.
Kaske began attacking Siemens' competitiveness problem by investing billions in acquisitions and new technologies. He also began to transform the old management structure that required young candidates to wait years to move up the ranks. To break Siemens into smaller, nimbler units headed by entrepreneurial managers, Kaske's team began culling and recruiting the new bosses. He put 500 of them on a fast track, so they could assume senior posts by age 35 to 45, instead of 50 to 60. Although most are in their late 20s and 30s, a few in their 40s made the list, including von Pierer.
Throughout the German corporate landscape, those who built the postwar economic miracle are giving way to this younger breed. "The older generation feels it's their right to finally slow down," says 34-year-old Dirk Lupberger, one of the fast-trackers. "They don't see the urgent need for change the way we do." Lupberger helped Siemens take part with GEC in the hostile takeover of Britain's Plessey Co. in 1989 and now works in Siemens' Defense Systems Div.
But everyone knows it will take more than youthful enthusiasm to turn around Siemens Nixdorf Information Systems Inc. (SNI). The takeover of Nixdorf Computer in 1990 bought Siemens market share. It is now the No. 1 European-owned computer maker. But that masks a critical weakness: Some 55% of SNI's sales come from Germany and 95% from Europe, leaving it dangerously weak elsewhere. Worse, traditional markets for Siemens mainframes and Nixdorf minis are rapidly eroding. That means von Pierer must conduct a radical overhaul in the midst of an industry slump battering even the best players. "If he's a genius, maybe he can do it," says Compaq Computer Corp. Chief Executive Eckhard Pfeiffer.
PEOPLE SKILLS. Von Pierer does have a track record. As chief of Siemens' $3.2 billion energy unit, Kraftwerk Union (KWU), he foresaw trouble in the nuclear-power-plant business during the late 1980s and sped up conventional gas-and-steam turbine production just as the market shifted. As a result, he reduced the division's dependence on nuclear-power-plant contracts by more than half, and he helped prod sales into export markets.
Von Pierer succeeds by being at once tough and likable. He honed his people skills during 18 years on the city council in his Bavarian hometown of Erlangen, where, friends remember, he picked his fights carefully. "He hides his defense arsenal and seeks harmony," says Gerd Lohwasser, Erlangen's mayor. "When he does have to fight, he choses only the finest of weapons." At Siemens board meetings, he was the first in top management to doff his jacket and roll up his sleeves. Behind this informality, however, is a shrewd listener and smooth-talking consensus-builder.
Von Pierer's skills served him well last fall in the battle for Czechoslovakia's giant Skoda engineering works. He was able to snatch the deal away from archrivals Westinghouse Electric Corp. and Asea Brown Boveri. The contest became so hot that Westinghouse persuaded U.S. Ambassador to Prague Shirley Temple Black to lobby Czech officials, and ABB jetted in Swiss politicians to sweeten their deal.
But von Pierer sensed that the Czechs were put off by the pressure, and he shifted to a charm offensive. He played tennis with prospective partners and joined Skoda managers for a few beers at Pilsen's well-loved pubs. He even toured the town with his wife. After dozens of visits from von Pierer, the Czechs gave Siemens majority stakes in Skoda's locomotive and energy operations. "He's a master tactician," says Jaroslav Taus, managing director for foreign trade at Skoda. "He won our trust."
Injecting this sort of risk-taking into Siemens' civil-service mentality will be gut-wrenching. Thousands of midlevel managers refuse to take personal initiative and undermine others who do. "They are used to tight structures," says one young Siemens manager. "They can only take orders and execute them." Von Pierer's appointment sends a clear signal: Those who are unable to change will be shunted aside and quietly told to seek employment elsewhere.
Von Pierer in fact built his career by dodging bureaucrats. As he rose through the ranks at Siemens' power-engineering division, he willingly circumvented the chain of command and called lower-level managers into his office to get the story. By refusing to adhere to the power structure, "he made a lot of people angry," recalls Corporate Communications Manager Eberhard Posner.
Similarly, Lupberger, who has an MBA from Cornell University, has started a glasnost project with other young managers, called "Number Cruncher." The group's goal is to break down communication barriers between upper and lower managers. Congregating in Munich's beer gardens or pubs after work, they invite board members or top managers to discuss problems in a relaxed setting.
These up-and-coming Siemens managers will have a broader geographic focus than just Europe. And under the new organization, takeovers in faraway lands are getting easier. Both will help make Siemens more global. Wolfram O. Martinsen, 50, once was so discouraged by being buried in the unwieldy energy-and-automation division, he was planning to quit. Now, as head of an autonomous transportation unit, he has turned Siemens into a major force in the world market for high-speed trains. He did it by snapping up eight companies in two years--including California-based Duewag Corp. Neither the acquisitions nor the quick strategic change would have been possible under the old Siemens structure. Says Martinsen: "I'm the entrepreneur now."
The burning question is whether this competitive zeal can take hold in time. The billions spent on acquisitions and technologies have eaten into Siemens' cash hoard. Some 50 of its 300 businesses are losing money, and 150 are near breakeven. Productivity per employee is way below that of U.S. and Japanese competitors. Siemens must narrow the productivity and profit gaps. The board's goal--and von Pierer's task--is to double margins by the year 2000.
TEAMWORK. Von Pierer's new thinking hasn't taken hold at SNI yet. It wasn't until November that Siemens moved beyond its 78% stake and bought the rest. Before that, under German law, Siemens had only arm's-length control. So the real management test is just beginning. "How they handle Nixdorf is the key to whether the new Siemens is any different than the old Siemens," says analyst Brundrett.
Some analysts argue that Siemens should get out of computers altogether and concentrate on its strengths in telecommunications, medical equipment, and factory automation. But Siemens is too proud to do that. The most likely survival tactic will be strategic alliances. Kaske already has steered Siemens into several key technology partnerships, and von Pierer will have to accelerate that trend. Last year, Siemens teamed up with IBM in a 50-50 joint venture to produce 16-megabit memory chips and to do R&D for the 64-megabit chip. The cooperation will trim heavy losses in Siemens' semiconductor division. Despite those losses, top management insists in-house chip technology is critical to remaining competitive in more complex electronic systems.
Indeed, Siemens' strategy is to dominate the global market for electronic systems. "We don't want to be the world champion in PCs or workstations," says board member Franz. "Our goal is to become a systems company." That may be where Siemens can excel. But with computers a weak link, it has a ways to go. "Siemens is trying to vault up to be the biggest electronics company in the world," says John Chessher, an analyst at Paribas Capital Markets in Paris. "But the payback period is 10 years."
Yet compared with a U.S. company, Siemens does have some time. Safeguarded by ample financial reserves and quiescent shareholders, von Pierer and his fast-trackers won't have to cut corners for short-term performance. Not surprisingly, the new boss sees Siemens' overhaul as akin to a lengthy tennis match, where endurance and mental toughness are as important as skill. "The game's not over until the last ball is played," he advises. That's true. But don't rule out scorekeeping from the sidelines.
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