Siemens Shapes Up

For Wolfgang Knupfer and his 11 subordinates, it was a nerve-racking ordeal. Seated at a conference table, the 52-year-old Siemens manager listened for two hours while staffers critiqued his performance. Shaking off their fear of offending their boss, they urged him to make decisions faster and improve his rapport with employees. Says Knupfer, who runs X-ray tube production and development: "I realized they thought I was a bit authoritarian."

It was hardly a typical encounter between a German executive and his employees. But Knupfer survived. Now, after a session with the company psychologist, he's learning how to manage differently. He gives more positive feedback and acts more decisively. His 11 staffers have since been critiqued by their employees, and soon, such bottom-up reviews will be expanded throughout the $60.4 billion company. It's all part of an upheaval in Siemens' stolid, hierarchical, and very German corporate culture.

Step inside the new Siemens. After nearly a decade of hit-or-miss efforts to speed product development and restructure, Siemens has finally shed its plodding perfectionism. Gone are the endless meetings, the aimless research, the fear of taking risks. Now, a new generation of managers is fostering cooperation across the company: They are setting up teams to develop products and attack new markets. They are trying hiking expeditions and weekend workshops to spur ideas and new work methods.

Siemens' brass call it a cultural revolution. There's a new emphasis on revving up innovation and pleasing the customer. "It's a completely different way of thinking," says Siemens Chief Executive Heinrich von Pierer, 54. The result: a different approach to producing everything from hearing aids to power plants. "This is exactly what we need," he says. "People are no longer afraid to speak out with an idea."

Von Pierer is clearly the guiding force (table). Since taking the helm in 1992, he has shuttered factories, slashed payroll, and forced Euro-centric managers into high-growth Asian markets. He has also opened up Siemens for a financial airing. In 1994, he began disclosing profits for Siemens' eight divisions, making managers answerable for the bottom line.

His most critical challenge has been to break with entrenched management practices. By trying to change the Siemens mind-set, he has gone beyond the cost-cutting of most of corporate Germany and of Siemens' European rivals. This gives Siemens its best chance yet to compete against big global competitors such as General Electric Co. and ABB Asea Brown Boveri (Holding) Ltd.

"CAN'T STOP." Von Pierer's task is all the more demanding now. The 10% rise in the mark against the dollar this year is slamming German exports. Hefty pay raises won by IG Metall workers in March hiked Germany's wage costs, already the world's highest. To keep up the momentum, von Pierer has a two-pronged strategy: evermore cost-cutting, coupled with reaping the rewards of the cultural revolution.

In two years, von Pierer has cut Siemens' workforce by 7.5%, to 382,000. He will slice 12,000 more jobs and $3.6 billion in operating expenses by the fiscal yearend on Sept. 30. Says Peter Roe, electronics analyst for Banque Paribas in London: "Siemens has turned the corner, but they can't stop now."

More important than slashing, however, is von Pierer's drive to keep managers on top of innovation. He champions such successes as the Siemens automation group. It developed a new machine-tool control system in two years--a third the usual time--for one-third the cost of previous systems.

Back in 1992, Siemens automation manager Klaus Wucherer hand-picked a dozen engineers to develop the system. He rented a house down the road from headquarters, set them loose in jeans, and tapped Kurt Krause, a marathon runner with a competitive spirit, as captain. Last fall, just as the machine-tool market began to recover, Wucherer's team unveiled a state-of-the-art system. Sales boomed.

Such successes weren't that easy to achieve. When von Pierer started his shake-up of Siemens, he won the support of senior managers. He hit a brick wall, though, when he failed to prepare the rest of the company. The attempt to recast thousands of bureaucrats into entrepreneurs sparked confusion and resistance.

So von Pierer turned to board member Walter Kunerth, who had won kudos for a turnaround at Siemens' automotive unit. Kunerth incorporated the company's hodgepodge of projects into a new program called TOP--time-optimized processes. The program encourages creativity, speed, and a keen focus

on the market. Last year, Kunerth launched a high-profile educational campaign aimed at employees at all levels.

Under TOP, Siemens has taken radical measures to force managers to adapt to stern market demands. The company called in blue-ribbon customers such as Opel, Ford, and Sony. At one workshop, Sony Corp. blasted chip managers for rotten service and erratic delivery. "There were plenty of shocked faces," recalls David Vicker, deputy manufacturing chief of Sony's TV plant in Wales. "It was brutal," admits a Siemens manager. The unit got the message.

Von Pierer's whole campaign is aimed at getting Siemens into new high-growth markets, especially in Asia. Siemens has historic ties--it sold China its first power generator in 1872--but it has not kept up with the Americans and Japanese. Now, von Pierer plans to invest $3.4 billion by the year 2000 in Asia and to double sales, to $14.3 billion.

Power generation is one growth area. Siemens formed a "Taiwan Team" to break into a market dominated by GE and won the bidding for its first two projects: $715 million power stations in southern Taiwan. "We are fighting ferociously over there," says Robert W. Schubert Jr., director of marketing for ABB's power business, which is vying with Siemens in Asia.

PAYOFFS. Perhaps the single largest sore point left is computer division SNI, the last unit still posting losses. Gerhard Schulmeyer, former chief of ABB's U.S. operations, has been cleaning house since taking over the $8.4 billion unit last spring. Sales are up 8%, and Schulmeyer expects SNI, which bled an estimated $1.4 billion in the past four years, to post an operating profit this year.

Even with SNI still lagging, the cultural revolution at Siemens is starting to pay off. While net profits slipped 17%, to $1.18 billion, in the year ended last September, earnings jumped 8% in the three months to December, and analysts see a 20% increase for the year. Siemens' share price has risen 10.3% since mid-December, even as the Frankfurt market stayed flat.

With lower margins than global rivals GE and ABB, Siemens still has a ways to go. Its pretax return on sales was just 2.5% in 1994, compared with 4.9% for ABB and 14.4% for GE. But "Siemens is now on the right track," says management consultant Roland Berger.

Even so, von Pierer knows that he can't let up. "We have to keep asking ourselves: Are we flexible enough? Are we changing enough?" he says. Recently, he included self-addressed postcards in the company magazine, urging employees to keep sending him their ideas. He expects a torrent of responses. Only with that kind of attitude can von Pierer keep Siemens in fighting form.


CULTURE Replaced hierarchical structure and engineering focus with new emphasis on innovation and service. Set up special teams to develop products and markets faster. Appointed new generation of managers in their 40s.

NEW STRUCTURE Slashed two layers of middle management. Gave managers in local markets free rein to cut costs and bid for projects. Required research labs to work directly with product divisions.

DOWNSIZING Slashed workforce by 7.5% through early retirement. Sold $2 billion in noncore businesses. Cut operating expenses. Plans further layoffs and asset sales.

GLOBAL REACH Setting up facilities in Asia and Eastern Europe to lower costs and reach new customers. Bought telecommunications units in U.S. and Italy. Plans further acquisitions to move more production out of Germany.

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