Organizational Structural Change Siemens AG - Essay Example

?Organizational Structural Change: Siemens AG Introduction Siemens AG was established by Werner von Siemens in the year 1847 in Germany. The company has successfully expanded its operations for all these 166 years. Head quartered in Berlin and Munich, Siemens is one of the largest multinational engineering companies. The company operates in many industries, but the principal activities of Siemens are in automation industry, energy industry, building technology, transportation related technology, financial solutions, health care industry and other consumer products (Siemens, 2013a). Some of the key products of the company are pointer telegraph, electric train, electron microscope, automation system, the most powerful gas turbine of the world as well as cardiac pacemaker. Siemens has been named the largest electronics company in the Europe by Bloomberg (Thiel, 2007). Strong labour resource acts as one of the major strengths for the company and it heavily depends on its workforce. The structure of the organization has undergone a major change in the last decade. Initially, the company was segmented into five primary divisions, such as Industry, Energy, Infrastructure and Cities, Healthcare and Siemens Financial Services (SFS) (Siemens, 2013b). All these divisions were administered by the CEO of the company. Each of the primary divisions has a large number of subsidiaries operating in nearly 190 countries in the world, both developed nations and underdeveloped nations. The global presence of the company is the basis of its competitiveness in the industry (Siemens, 2013c). Siemens has maintained organizational value on the grounds of quality standard of the products offered by the company, technological excellence of the production process, reliability and trust on the employees and its undeviating focus on international expansion. With expansion of business organizational structure had become complex due to long hierarchies and large number of corporate units under each of the five segments of the company. In the last decade, the company has come across a rough business terrain. During 2007 Siemens was accused of a huge bribery case. Corruption was rooted deep into the transactions of the company. This has given rise to considerable public scrutiny on the company and drew the company into controversies. It hampered the smooth functioning of the company which led the organizational leaders to adopt a major structural change in the organization. The new organizational structure has been aimed at making the organizational framework lean and flexible. This paper presents a detailed study of the new organizational structure of the company and the positive and negative impacts this change has cast on the company’s strategic management, its corporate culture and functional aspects. Methodology This paper looks into the effects of organizational structural change on the management of the company and its long term performance. The study has focussed on the structural change made by Germany based multinational Siemens. This is a qualitative study made on information collected through review of existing literature as well as information available on company website. Only secondary sources of information have been used for this study. Sources of information include books, articles published in journals and working papers and online sources of information. The changes made in the organizational structure have been presented at first followed by the investigation of positive and negative aspects of these changes on different factors affecting organizational performance. Main Findings Siemens has brought about major changes in the company and has adopted an altogether new structure. The management of the company has decided to maintain prime focus on three sectors. These are the industrial sector, the energy sector and the healthcare sector (Siemens, 2007). The company aims at staying close to the customers and acknowledge customers’ feedback at all levels of decision making of the company. The strategy focuses on making the organization lean and flexible. According to the new structure, three different CEOs would be administering the three most focussed sectors chosen by the managing board of the company. The illustration given below explains the new organizational structure. Figure: New organization structure of Siemens (Source: Siemens, 2007) As of the new corporate structure, there is a supervisory board that administers the entire operations of the company. The next hierarchical position is occupied by the managing board of the company. The CEOs of the three sectors are part of this managing board. This makes the organizational structure leaner and increases ease of communication between the operations and the management. Under each sector there would be three further segments, corporate units, cross sector services and strategic equity investments. Finally the cross sector businesses would be taken care of by the regional units in different countries. The lean structure strengthens the business process by allowing the company to rapidly adapt to the changing trends of the world. These trends are mainly found in the pattern of urbanization in the medium term and the demographic pattern as well as the climate in the long run. The development of a less complex organization creates the opportunity to become more flexible and thereby respond to these changes faster. This would reduce long chain of hierarchies within the organization, which in turn would make communications more transparent amongst employees and also between the management and the staff. Chances of miscommunication are reduced and failure of proper financial transactions would be easily noticed by the immediate higher management (Siemens, 2007). Higher level of interaction between the management and the employees helps in resolving any dispute with a much informal undertone. There is use of higher level of synergy among all the members of the organization. Since assignments and responsibilities are defined clearly, it ensures better quality of the task assigned. Efficiency of sales and administration department would also be increased. This would enhance performance of the company and it would be able to stay more focussed on satisfying its customers. This change in the structure of the organization casts significant impact on the Strategic management of the company, its Organizational developmental issues, integration of the functional strategies of the business, corporate culture of the business and the challenges faced by the company while acquiring competitive advantage in future. Strategic management of the company Organizational structure cannot be studied separately from organizational strategy. Therefore, when a company revises its structural framework it most often affects the level of effectiveness of the strategies implemented by the management for the achievement of certain predetermined goals. The structural change in Siemens has been able to act as an engine to drive efficiency among the employees, create synergistic force among them and encourage them to indulge in teamwork. All these have created a positive impact on the operations of the company. This has led to reduction of cost for the company. Siemens has used the process of scenario analysis, brainstorming and strategic issue analysis as a part of its environmental scanning in order to reach the right decision regarding the strategies to be adopted by the company. All these three techniques would help the company to involve the top management as well the employees belonging to the lowers orders of the hierarchy. As the organization changes its own structure, it has to modify its strategies accordingly. If the strategy does not change accordingly, it might reduce effectiveness of the new structure and bring the results of the change back to the old level. Siemens has also made some strategy modifications according to the organizational structural change. The total performance of the organization is a summation of the effective functioning of the organizational structure and proper implementation of the strategies undertaken. The new structure of Siemens has brought about changes in the strategic management of the company. Siemens has sort out its strategies carefully so that the strategies that are implemented would act in sync with the new structure. This would create improvements in the performance of the company such that it creates long term impact. This is because on reconsidering the organizational strategies the management of the organization helps the employees to focus on the vision of the company and follow the right path to achieve company goals. The daily activities of the employees integrate with one another to support the strategy development so that these are sustained over a long period of time. Only a combination of the right structure with the right strategy influences the daily workings of the organization thereby paving the way to success. Organizational developmental issues Organizational structural change creates several organizational developmental issues. Organizational development refers to the continuous process that organizations follow to achieve efficiency, better financial performance, higher employee engagement and higher levels of satisfaction of the customer (McLean, 2005). When an organization changes its structural framework, issues arise in all these spheres of business. Cultural and communication issues arise within the organization since any type of change is reciprocated with resistance (Cummings and Worley, 2008; Dobriansky, 2005). Siemens has been able to improve its talent management strategies through organizational change. While making the change the company has made an audit of the capabilities of its talent pool and has identified the weak links that arise due to capability gaps. Siemens has emphasised on workforce development and organizational motivation in order to receive the most desired benefits of structural change (Voelpel, et at., n.d.). Integration of the functional strategies of the business Siemens is the largest company in the European continent in the electronics and engineering industry. The company boasts of a strong employee force and it depends heavily on its employees for the long term growth of the company. During 2007-2008 the company faced issues with its financial activities; illegal and unethical actions of a few employees defamed the company. Issues regarding “phoney consultants’ contracts” (Lietz and Gillespie, 2012) and other unscrupulous activities became public. In 2008 the company made a major structural change. One of the several purposes of this change is to influence the functional strategies of this business. Human resource management The human resource management is one of the key that affect the regular functioning of the business. The change in organizational structure has created more emphasis on the process of selection and training of new employees. The management has taken initiatives to impart proper training to the employees so that they adapt with the corporate culture of the organization and recognize the business’ values and missions. They would be capable of adapting to the differences of cultural and linguistic variations that appear within the organizations and would be prepared to learn on a continual basis. Employees are encouraged to participate in the training and development programs. Regular participation in these programs help the employees to become more competent and stay updated to the new technologies. This increases efficiency of the workers. Besides, such programs further encourage the employees to indulge in teamwork. It makes the work easy, enhances the work atmosphere and also helps is making progress towards achieving the organizational goals collectively. Lack of coordination Since the company currently focuses on three sectors separately, these sectors are supervised by different chief executive officers. This creates a problem of coordination among these leaders. Each of the departments is run by separate CEOs. They run their departments following the ideas of their own departmental managers. This gives rise to lack of similarity in the manner each department is managed. It also gives rise to conflicts when the level of performance of the company in these sectors is compared by the managing board. Due to differences in management, differences exist in performance level. Resistance from employees The structural change in the organization has brought about changes in the strategy of managing the company’s work force. Since the company had an established policy of employee management for a long period of time, the recent changes are often refuted by the employees. The new structure provokes the employees to create resistance. The management faces resistance while translating the new strategies related to human resource management into practice. Research and development The company has a strong stand in the field of research and innovation and it makes constant investment on research and development projects. This enables them to combine visionary ideas of the scientists and researchers of the company with innovative concepts developed by the engineers. The new structure of the company allows the researchers and the engineers to develop new ideas and propose new designs to materialize them on one hand and provides space to the management to develop new strategies to accommodate these changes within the managerial and financial framework of the company. The new strategies gives rise to various types of entrepreneurial risks and simultaneously it also creates many opportunity for the company to make developmental moves towards the future. Certain risks are calculable while other risks cannot be estimated before the task is performed. Siemens is growth oriented company and therefore it makes cost benefit analysis of the risks that it might take in the long run. A balance between the costs of risk and the gains obtained as a result of the risks undertaken, leads the company in the growth path, bringing long term success for the company. It enables the company to make new achievements and add new feathers to its cap. Technological lock-in The company has undergone a structural change which implies that the established method of managing the company has been changed. Previously the research and development departments in each of the sectors were overseen by the central supervisory board of the company. However, due to long chain of hierarchy there were gaps in supervision. Under the new system the research and developmental activities are undertaken under the guidance and supervision of the each supervisory unit of each of the sub sections under the industry, energy and healthcare industries. This causes difference in the method that each of the divisions in the three sectors follow. The extent of innovation in these units varies. The level of technological advancement for the entire sector depends on the level of technological adaptations that each of the sub units of the operations divisions of the sector makes. Technological change is a significant part of the transition process. But the company might face some major technological lock in if advancements are not implemented uniformly in the operational level of the entire sector. In the energy sector, modern technologies have been implemented in the process power generation. However, if the process of power distribution is not made in an equally efficient way, the amount of power generated would not be properly distributed. This would create problems in the process of further power generation. Similarly, in the healthcare department the new developments in medicines and other services have to be properly packaged and reached to the customers. This requires uniform advancement of the IT department, the workflow and solutions department and the diagnostics department. Failure to respond to these changes by any of the units would lead to improper functioning of the entire sector. It would affect level of performance of the company and its competitiveness in the industry. Financial strategy The global economy has faced the biggest financial crisis during 2008 and 2009 after the Great Depression of the 1930s. During this period Siemens hit the headlines on account of illegal financial transactions and accounting abnormalities. As a result of this the company was charged a large sum of money as fine. Simultaneously the global economy faced the financial crunch, the effect of which also influenced Siemens considerably (Dowling, 2012). Under the new organizational structure, the company is divided into three different sectors and the supervisory teams of each sector would specifically look after their financial decisions. This has been successful in removing loopholes in monetary decision making and making all financial transactions transparent. Lack of uniformity in financial support However, since the different sectors are supervised separately, the managing board has to make different financial strategies for each of these sectors. Allocation of funds also varies between the sectors. Budget for all these sectors that are presented to the managing board by the three sectors are prepared separately. Since the level of financial support varies, it leads to different levels of financial activities by the organization in these sectors. Due to the austere global financial environment the company faces challenges in almost all the countries in which it operates. Hence the level of performance within the same company is not consistent for all the sectors (Henry, 2011). Corporate culture of the business The culture of an organisation is the holistic manner in which the business is governed and operated. It relates to the behavioural patterns of the employees and the relationships maintained with the stakeholders of the organization, such as the customers, government and community. Organisational culture of Siemens has developed over a long period of time. It depends upon the training imparted to employees on joining the company and the manner in which knowledge is applied by the employees as well as the management to realise the long term objectives of the organisation. Culture of any growth oriented organization is dynamic; it changes over the course of time. Therefore, the organizational structural change casts momentous influence on the corporate culture of the organization. However, it depends on the values of the organisation (i.e., what it stands for) and the vision it holds. In Siemens organisational culture has strong relation with the level of performance of the company and culture is manifested as the members of the organisation share trust and motto and put value to the contribution of every individual within the organization (Businesscasestudies, 2013). However, the negative issues created as a result of the structural change among employee makes it a hurdle in maintaining a trustworthy and peaceful working atmosphere in the organization. The management has to listen to employee grievances and make efforts to imbibe the changes in the minds of the employees gradually and not forcefully. Challenges faced by the company The company faced serious challenges owing to the loss of faith of its stakeholders. The structural change of the organization led to the creation of a supervisory board. Under the supervisor of this board a stringent act of ‘trustworthiness demonstration’ has been launched. The purpose of this act is to rebuild the corporate culture in the organization that has been damaged by the illegal activities of some of its employees. This culture would re-establish the faith of shareholders and stakeholders. A new set of compliance and anti-corruption rule has been framed that would impose restraints on the global proceedings of the company. The keystones of the compliance program are “preventing, detecting, responding” (Lietz and Gillespie, 2012). Non-compliance with the ethical standard of the company’s operations is a result of lack of efficient leadership. Developing proper leadership skills is another challenge for the organization. The new structure of Siemens has made provisions for a more compact management team under the leadership of new CEO Joe Kaeser (Siemens, 2013d). The new structure has influenced strategy management policies as well as functional integration. More emphasis has been placed on the aspects of proper nurturing of the employees, development of trustworthy employee relations and a robust ethical culture. The company has implemented a new employee management technique that includes a mandatory training program for new employees as well as review sessions for the existing employees in which their performance is evaluated and the required training is offered to upgrade their knowledge base and improve their performance. All these would help in enhancing productivity, increasing profitability, eliminating major cases of undercover illegal financial transactions and help in reverting the company’s image in the eyes of its stakeholders. Besides, the financial crisis of 2008 has thrown challenges in the path of its recovery. Higher competitive pressure faced by the firm arising from the environmental changes (Dietrich, 2009). Improvements in employee management, strategic decision making, financial strategy making and corporate culture would allow the company to maintain its competitive advantage over other firms in the long run. Conclusion Structural change in an organization has a complicated and intimate relationship with the growth of the organization. While structural changes are being made by companies to make a big lurch towards prosperity, it is imperative to take note of both the positive and negative sides of these changes in order to assess the effectiveness of these changes on company performance. Structural organizational change of Siemens has been aimed at making the organization flexible to the needs of the changing business environment, making the structure of the organization leaner and more compact and updating the management to the opinions and preferences of customers. The company has been successful in implementing the new global business structure. The changes have helped the firm to increase its revenue and improve its competitive positioning in the industry. As Siemens has made changes in its organizational structure it has undertaken new risks and accepted new challenges towards development. Issues have arisen due to decentralization of the management system. The new set of regulations has to be implemented cohesively to avoid functional anomalies potential conflicts among the different levels of operations. Efficient overseeing of the changes occurring as a result of structural change is essential for the long term development of the firm. Recommendations Organizations need to evolve with time and respond to the needs of the environment in order to remain competitive and profitable. However, as this discussion shows, there are various negative aspects of such a major shift within organization. The market proactively responds to the changes in organizational structure, which implies that it is imperative for the managing board to take steps to balance the negative aspect of structural change (Kim, Woojin and Kyung, 2011). Although the company would implement modern technology for its operations, for long term success it has to depend on its workforce and be driven by its people (UDEL, 2013). The company has to improve supervision over the different activities within the same sector. Each sector should have a supervisory body that would look after the conducts of each department in that sector. The three supervisory bodies should collaborate with one another on regular basis to update each other about their activities. This would allow easy flow of information and ensure smooth channel of conversation across horizontally within the organization. The supervisory bodies for every country would have representatives in the managing board. It is important that the supervisory bodies consist of two divisions; one technological supervisory division and the other looking after the budgetary allocations for the sector. Besides, the management of the company has to make efforts to assess the effectiveness of employee training activities. It should take time to develop the atmosphere of trust within the organization, the good effects of which would ultimately reflect in overall employee performance. Good connectivity across its networks of employees and other stakeholders is essential to make the structural change holistically successful. Reference List Businesscasestudies, 2013. Creating a High Performance Culture. [online] Available at: [Accessed 6 August 2013]. Cummings, T. G. and Worley, C. G., 2008. 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