Online Extra: Staying a Jump Ahead at Siemens

A culture of innovation starts at the top, says Claus Weyrich, head of corporate technology at the electronics and engineering giant

Munich-based electronics and engineering giant Siemens (SI ) spends some $6 billion a year on research and development, an effort that employs 45,000 people worldwide. That spending is essential to remain competitive, but how can a global company ensure that this massive commitment of resources is well-spent?

Claus Weyrich, a member of the managing board of Siemens and head of Siemens Corporate Technology, is the person charged with addressing that question every day. Recently, in an e-mail exchange with BusinessWeek European Regional Editor Jack Ewing, Weyrich described how Siemens tries to stay ahead of the curve. Edited excerpts follow:

How has your approach to innovation changed in the last 5 or 10 years? For example, is it more customer-driven than it used to be?

What has changed most in the last 5 to 10 years is the increasing capability and performance of all products and systems, the price pressure as a result of global competition, and the fact that innovation cycles have steadily shortened.

These three main trends present a huge challenge for companies. For example, in 1985 we realized about 55% of our sales from products and systems that were younger than five years old. Today that figure is more than 75%.

Put another way, by 2010, Siemens will realize 75% of its sales from products and systems that have not yet been developed. That requires very systematic and flexible planning of innovation and technology.

Today we look at innovation more holistically than we once did. We consider not only technologies but also their associated business processes. And that in turn demands determined orientation toward the desires and needs of our customers.

How do you measure innovation?

The most important measure for the success of innovation is without doubt success in the market -- in other words, profitability. [But] there are many indicators and success factors that determine the degree to which a company is innovative.

One indicator is human resources. At Siemens we have some 45,000 employees worldwide who work in research and development. The second indicator is strong technology positioning in comparison to the competition, especially in key technologies and pace-setting technologies that create competitive advantages today and in the future. Take for example our Piezo fuel-injection technology, which Siemens VDO Automotive introduced to the market in 2000, creating a technological trend. Our first patent in this area was in 1980.

Another indicator is the number of patents a company files. We have over 48,000 patents worldwide, and we are among the world leaders in granted patents.

The fourth indicator of innovative strength is the degree to which we use corporate synergies, such as platform strategies and cross-divisional technologies.

The most important success factor is, of course, a highly developed innovation culture with uncompromising customer orientation, a high level of management attention to innovation activities, and a climate that rewards success and risk-taking. Last but not least is the excellence of our employees.

What criteria do you use when deciding whether to continue funding a project and when to cut off funding?

We have developed a process to identify both the markets that will be relevant in the future and the technologies that will play a key role. We call this process Pictures of the Future. The idea is to systematically address the future. This process promotes the agility necessary to seize new technologies and adapt existing competencies as soon as trends, circumstances, or prognoses change.

When we assess project ideas, we analyze on the one hand the attractiveness of the market in terms of its sales and growth potential. At the same time we examine how much the projects fit our strategy, what value-added potential they have and whether we need to build up new competencies.

The result is a kind of business plan with clear goals, costs, and time frame. Consistent project controlling is also important. When the underlying premise no longer applies or the technology is not a success, one must cancel the project as early as possible. But early-stage projects also require good judgment and a high degree of flexibility. You must be farsighted but also realistic.

Does innovation take place just in the lab, or do important innovations come from other parts of the company not directly responsible for research and development?

The primary trend is that innovation is increasingly driven by the market demands. With this in mind, our research and development divisions work closely with marketing and sales people from the business groups and regional units.

An example of innovation that originated at the country level is the TD-SCDMA mobile communication standard that was developed jointly by Siemens and researchers at the Datang Telecom Technology & Industry Group, whose parent company is the China Academy of Telecommunication Technology. Other examples are the multi-biometric card from Siemens India and the new postal automation systems for the U.S. Postal Service.

In China, the U.S., and Germany we also maintain User Interface Laboratories, where we develop new, interactive concepts in collaboration with our customers in the regions. Furthermore, the trend is that innovation increasingly requires the integration of numerous advanced technologies and is becoming increasingly interdisciplinary.

Consider for example the Sensation 64 Computed Tomography scanner from Siemens Medical Solutions that allows visualizations of the heart with a resolution of less than 0.4 millimeters and with 190 cross-sectional images per second. The prerequisites for the technical capabilities of this machine are extremely fast and efficient detectors based on so-called ultrafast ceramics, as well as very smart image processing algorithms. The progress in imaging technologies allows physicians to continuously improve the accuracy of their diagnoses with the help of moving, three-dimensional pictures of the heart.

Another trend is that innovation is being created increasingly in multicultural teams. Innovation requires creative inventors as well as people who can translate ideas into marketable products -- and then make them a success in the market. These teams are globally networked, with each other, with customers, with suppliers and with public research centers.

How do you motivate individuals to do excellent work and produce results? What incentives do you use? Or are incentives unnecessary if you have hired talented individuals in the first place?

The excellence of employees is an essential pillar of our success. And excellence is not simply a matter of superior qualifications in the subject area, but also strong personal qualities such as motivation and entrepreneurial thinking. But we also need sound experts, "deep drillers" who are able to solve complex technological problems.

I worked in research for many years, and there is nothing more motivating than a work environment that allows you to realize your ideas, as well as colleagues who are excited about new visions and who are willing to put them into action together. The task of research-and-development managers is to set demanding goals, to create a climate that promotes innovative ideas, and to delegate responsibility in order to create entrepreneurial freedom. In addition, should problems arise, managers must provide help to researchers.

Above all, achievements must be visible and must be recognized. In short, innovation and a culture of innovation have to be stimulated and driven also from the top.

Are there cases where you might have doubts about a project, but allow it to go forward simply because you have great faith in the people involved?

Certainly. Take for example our Piezo fuel-injection technology. When we began working with injector valves for motor vehicles, we realized that actuators made of Piezo ceramics could reach a higher injection speed and precision. But first we had to overcome the hurdle of creating a Piezo actuator. To achieve the necessary extension length, 50,000 volts had to be applied to 5-centimeter long ceramic blocks. That is not possible in an automobile.

We solved the problem by creating an activator made of some 400 layers, each of which required only 150 volts. Then we had to make this multilayer ceramic usable in an automobile. That meant the actuators had to endure temperatures of minus 40 degrees Celsius to plus 150 degrees. They also had to be able to withstand vibration.... And they had to be able to deliver a billion injection cycles over the life of the vehicle.

In the beginning, no one believed it would be possible to fulfill these conditions with a Piezo ceramic in a motor vehicle. But we trusted our team, which had a great deal of experience in this area. And they succeeded. Our first patent was in 1980. In 2000 we introduced the first injector for common-rail diesel on the market. In short, we pioneered a technology that is used today by many automobile manufacturers.

Siemens is a big company. How do you encourage people involved in research and development to exchange ideas? How do you foster cooperation across internal corporate lines? Are you satisfied with the degree of internal cooperation?

We have very good intranet-based information and communication processes that report worldwide on the most successful projects and best practices as well as the people to contact for more information. Anyone who needs support for a project is able to determine very quickly what expertise and people he or she can access in the company. In addition, there are communities in which there is a very lively interdisciplinary exchange about specific topics.

In recent years we have naturally profited from new communication tools that allow employees very fast access to information regardless of time or location. But the decisive point for the exchange of ideas is above all the anthropogenic component -- in other words, personal or social networks. As a manager, all you can do is offer encouragement and support. Open exchange of ideas takes place when the desire for cooperation is there and when everyone realizes that they profit from knowledge exchange.

How do you foresee your approach to innovation changing in the future? How is it evolving now? Do you expect spending on research and development to increase in the future? What is the trend in terms of allocating resources?

Innovations are -- and this won't change -- the most important lever for better productivity and growth, and therefore to increase the value of the company. That's true for national economies as well as for companies.

Value creation and, therefore, research and development will, however, always be drawn to growth markets and to wherever the best minds are to be found. That means that the cost disadvantages of high-wage countries must be offset by outstanding results and quality, extremely efficient innovation processes and a high degree of flexibility.

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