Siemens' Tough Guy Gets Going

CEO Kleinfeld's first big move was to sell the troubled handset biz. That leaves just 13 other big problems to solve

Siemens CEO Klaus Kleinfeld has always been known as a hard worker, but since becoming boss he seems to have shifted to warp speed. The change started just before he took over the $91 billion German engineering and electronics giant on Jan. 27. Kleinfeld spent a weekend at his Munich home writing letters to the company's 450 biggest customers. Then he decided to visit the top 100 himself, an odyssey that took him to Britain to meet with BT Group PLC (BT ) Chairman Christopher Bland and to China for face time with top managers of steelmaker Baosteel. Kleinfeld, who likes to compete in marathons, makes it sound as though he barely broke a sweat as he managed to visit all 100 key accounts in his first 100 days as CEO. "It was very ambitious, but once you set the goal you realize how easy it is to reach it," he told BusinessWeek.

Kleinfeld has already achieved another goal that eluded his predecessor, Heinrich von Pierer, ending the struggle to turn around the mobile-phone business. On June 7 he unloaded Siemens' (SI ) money-losing cellular handset unit to Taiwan's BenQ Corp. The deal, which will cost Siemens $425 million in write-offs, integration costs, and payments to BenQ, surprised some who thought Kleinfeld would find a less radical solution. He could have put the business into a joint venture, retaining some control. Instead, the deal showed that Kleinfeld isn't kidding when he says problem businesses will be fixed, sold, or closed. Sure, von Pierer said that, too, and spun off Siemens' semiconductor and components businesses in the late 1990s because of their volatile earnings. But selling the whole mobile handset business, headquartered in the middle of Siemens' sprawling corporate campus outside Munich, was something new. "He's willing to take action, and he's willing to take risks," says Peter Schneidewind, a principal at Munich's Roland Berger Strategy Consultants, who deals with Siemens. It's already paying off. Since early May, when rumors started to circulate that Siemens would exit mobile handsets, the share price has risen 8%, to $74. By contrast, BenQ's stock price fell as investors looked askance at the deal.

One goal achieved, many others to meet. In April the 47-year-old Kleinfeld vowed that all 13 Siemens business divisions will meet their profit targets within two years. That was a brash statement, considering that only rarely has Siemens managed to get all divisions humming at once. Siemens Transportation Systems, which makes trains, subways, and streetcars, is aiming for a profit margin of 5% to 7%. But in the most recent quarter it barely broke even, reporting operating profit of just $5 million on sales of $1.1 billion. Some think Kleinfeld could be setting himself up for failure by setting such ambitious milestones, but he disagrees. "I would not call it a risk. It's just a question of consistency," he says, pointing out that the targets were set in 2000 under von Pierer but never met. Siemens' overall profit also leaves something to be desired. Net profit slipped 3% in the quarter ended Mar. 31, to $945 million on sales of $22.5 billion.


The sale to BenQ rids Siemens of its most visible problem area. But there are plenty of other headaches. Siemens Business Services (SBS), the company's IT outsourcing arm, lost $156 million in the quarter ended Mar. 31. Analysts expect Siemens to sell a piece of SBS if it can find a buyer. (A spokesman for SBS declined to comment.) Other groups are only marginally profitable, such as Siemens Building Technologies, which provides systems to manage temperature and security for large buildings. It reported a profit of $27 million in the quarter ended Mar. 31 on sales of $1.25 billion.

Such uneven performance has dogged Siemens for years. Time and again, impressive quarterly numbers at places such as Erlangen, Germany-based Siemens Medical Solutions, which provides equipment and services for hospitals, have been canceled out by crises at other groups, such as last year's $350 million recall of defective streetcars. The inconsistency is one reason why Siemens still suffers a so-called conglomerate discount. Merrill Lynch & Co. (MER ) estimates the company is worth about 15% less as a group than it would be broken up.

As Kleinfeld pushes harder to fix the problems, resistance from the rank and file is bound to stiffen. Already, there is grumbling that Kleinfeld is too demanding, too critical, and too quick to punish perceived incompetence. "He is very impatient," says one executive who left voluntarily as his unit faced downsizing. Asked whether this it true, Kleinfeld says: "I've always believed in high-performance organizations."

No doubt Kleinfeld will face foot-dragging from people reluctant to change. But he can probably also count on the support of many executives and engineers keen to be more competitive with the likes of General Electric Co. (GE ). "Managers can already see results," says Matthias Bellmann, former group vice-president for human resources at Siemens Information & Communication Networks in Munich. Bellmann, who worked closely with Kleinfeld, is now a member of the management board of Essen-based retailer KarstadtQuelle.

How will Siemens get all cylinders firing? Part of Kleinfeld's plan, which he calls Fit 4 More, calls for boosting revenues via acquisitions. Siemens has already bought companies worth $3.6 billion this year, including Austrian engineering firm VA Tech and CTI Molecular Imaging Inc. (CTMI ), a Knoxville (Tenn.) maker of diagnostic equipment. Kleinfeld says such purchases will help the company latch on to big global trends such as increased spending on medical care in developing countries or the growing use of wind power. "We are surfing big-time on a number of megatrends," he says.


Kleinfeld's toughest task may be to remold the mind-set of Siemens' managers and employees so that they can keep up with the accelerating pace of technological change as well as the emergence of new economic powers such as India and China. "The landscape of our customers and competitors is changing drastically, and you have to adapt to that," he says. Kleinfeld is leading by example, documenting his frenetic schedule on a daily internal quasi-blog. "Spent a few days in Mumbai, Kalwa, and Delhi," he wrote during trip to India in April. "The energy and sheer potential in this region are tremendous."

People who know Kleinfeld say he prefers to get along with people, not crack down on them. "You have to be hard in the beginning in order to be soft later on," says Hermann Simon, chairman of Bonn consulting firm Simon-Kucher & Partners, paraphrasing General Electric Co. ex-CEO Jack Welch. Kleinfeld still has plenty of problems to solve before he gets to play nice.

By Jack Ewing in Frankfurt

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