How Siemens Got Its Mojo BackBy
Siemens (SI) Chief Executive Officer Peter Löscher still recalls the blank stares he received when he asked about the company's green strategy after his arrival three years ago. The former top executive at General Electric (GE) and Merck was brought in to clean house after a global bribery scandal almost toppled the German engineering giant.
Löscher knew that Siemens had world-class researchers and lots of promising products in the pipeline. However, the company was so traumatized by the bribery firestorm that it failed to see opportunities that could power Siemens' growth in the years ahead. Löscher's solution: "We very early focused on mega-trends" such as green business to assure the company's future.
While jettisoning the telecommunications and information technology businesses, Löscher has increased the chunk of Siemens that sells sustainability-focused customers everything from light bulbs to high-speed trains to factory control systems. The Munich-based company today generates more than $38 billion in sales from wind power, solar energy, and energy-conserving electricity grids. Siemens also claims the lead in offshore wind turbines, a market that has doubled in size in just the past two years. And about one quarter of its roughly 400,000 employees today are what Siemens calls green-collar workers, those who produce or market its portfolio of resource-efficient products.
"Siemens is reaping the rewards from its restructuring but also from its prescient strategy," says Jutta Rosenbaum, an investment manager at insurer Allianz's Aequitas unit. "Siemens is very well positioned to achieve above-average growth."
The transformation has given a boost to Siemens' finances. Profits are at an all-time high, and shareholders are pocketing record dividends. Löscher, however, exhorts his team not to get cocky. "Being good today means you have to be better tomorrow, and even better the day after tomorrow," he says. "The biggest risk is complacency."
Figuring out how to better manage its success is a dramatic turnabout for Siemens, which five years ago became enmeshed in Germany's biggest corruption scandal since World War II. Securities regulators found that Siemens for years had paid bribes to win government infrastructure contracts in countries including Iraq and Russia. Although it has settled with U.S. regulators, the flap continues to dog the company: Greek Prime Minister George A. Papandreou on Jan. 25 said his country wants to seek damages from Siemens over past bribes to officials in Greece.
Even worse than the $2.5 billion in fines and fees slapped on Siemens so far, management feared that a weak response could result in governments barring it from receiving future contracts. So Siemens Chairman Gerhard Cromme was emboldened to cross the Atlantic to tap the first outsider to lead Siemens in its history. Löscher, an Austrian, was little known in Corporate Germany, he had considerable experience as a senior manager at GE, a big engineering-based organization similar to Siemens.
The choice of a former GE executive held particular significance for Siemens employees because of the historical connection between the two companies. Thomas Edison traveled to Berlin in the late 19th century to see if Werner von Siemens would invest in his company, which later became known as General Electric. Siemens accepted and in part was responsible for getting GE off the ground.
Löscher wasted little time showing his tenure wouldn't be business as usual. A big mobile-phone business, once the company's most prized unit, was given away and eventually shuttered. And Siemens in December 2010 agreed to sell its cash-bleeding computer services unit to France's Atos Origin.
The new CEO hasn't been afraid to make equally wrenching changes to Siemens's management. He has replaced almost the company's entire executive suite, and even 50 percent of middle managers have been switched since his arrival. Löscher calls the bribery scandal "a catalytic event" for Siemens. "It would not have been possible to achieve what we achieved at this speed without this event, which made us question how to do things," he says. "In hindsight, it is an extremely positive caesura point."
That state of crisis also allowed Löscher to chip away at Siemens's inbred culture, adding to it some GE-style management discipline. "The one thing GE does better than anybody is execution," said Peter Y. Solmssen, who joined Löscher from GE to oversee the German company's compliance. "They set a target, and they achieve it. That's it." Solmssen says that kind of consistent, performance-based management wasn't the norm across Siemens. "Processes were incredibly formal," he said. "When I first got here, I felt I was in the Kremlin."
Löscher has moved quickly to do away with the German company's traditional fiefdoms. Gone are the days when country chiefs could single-handedly buy a business, where divisional leaders had little accountability for their units' profitability, and where the CEO had to rely on the office grapevine for information. Löscher streamlined the portfolio of businesses, added managers with international experience, and held board meetings abroad to shake off the cobwebs of the stiff German conglomerate.
The transformation has positioned Siemens to go head-to-head against rival GE. The two companies compete in health-care technology, power turbines, transportation, and eco-friendly energy generation.
A key part of Siemens's strategy, like that of GE, is a big bet that increasing green consciousness will fuel future sales. So far it seems to be working. Wind-energy sales in the most recent quarter surged 81 percent, to €868 million ($1.2 billion), the biggest increase among Siemens's divisions, the company said on Jan. 25. It built its wind-power business from scratch with the acquisition of Denmark's Bonus Energy in 2004, a business that has mushroomed tenfold into more than 7,000 employees since.
Another 2,000 jobs will be added this year, predicts René Umlauft, CEO of the renewable energy division at Siemens. GE and Denmark's Vestas Wind Systems are still the two largest makers of wind turbines. However, sixth-ranked Siemens has vowed to crack the top three by 2012. Promises Umlauft: "We are going to spend a lot of money."
Löscher doesn't even need words to explain his progress since coming on board. Asked what he has achieved since taking over at Siemens, he silently holds up a chart showing his company's stock performance vs. competitors. Siemens has surged 48 percent in a year, almost twice as much as GE's gain. ABB (ABB), run by another former GE veteran, Joseph M. Hogan, is even further behind, with a 17 percent gain.
The bottom line: After a bribery scandal, Siemens has remade itself into a more disciplined company targeting "mega-trends" such as green business.