Strategic Management Practices of Siemens - Case Study Example

Strategic Management Practices of Siemens Name: Tutor: Course: Date: EXECUTIVE SUMMARY The strategic analysis of Siemens has established that it is easier to command a greater market share with long history, pioneer strategies and massive investment in innovation, research and development. Siemens is represented in more than 190 countries with stakes in energy, healthcare and industrial applications. The goals, values and mission of the company is responsibility, innovativeness and creativity which is demonstrated in the budgetary allocation of R&D annually. The employee base is more than 420,000 globally showing a diverse workforce though the top management has not reflected this aspect. The company has higher bargaining power over its buyers and suppliers in the oil and gas industry though facing competition in healthcare. The political and economic environment is slowly favoring Siemens which was undercut by the recession of 2009 (Siemens, 2008). The company is also investing in corporate social responsibility and is determined to pursue noble business ethics if it is to remain competitive and valuable in the market. Major competitors are Philips, ABB, and General Electric which command more than 35% of the market share in oil and gas. Siemens has taken advantage of massive resources and capital base to invest in progressive and newer technologies that boosts the reputation and continued interaction with its customers. The core competencies are in employee skills, specialization in core areas and offering training and promotional opportunities to employees around the world (Siemens, 2007). Siemens is set to become a strong contender in all its sectors of interest like energy, healthcare and industrial applications by 2015. Siemens strategic leaders have stabilized oil and gas generation and are now on Hydro and wind energy as a way of entering the unexploited wind energy but partnering with like-minded firms in host countries is mandatory. In gaining competitive advantage, Siemens has the needed technology in the wind and hydro sector becoming the first mover in renewable energy market (Jeffs, 2009). Table of Contents EXECUTIVE SUMMARY 1 Table of Contents 2 1. Introduction to the study 4 1.1 Background of Siemens Inc. 4 1.2 Industry Siemens Competes 4 1.3 Market Position 4 2. MISSION STATEMENT OF SIEMENS 5 2.3 Values 5 2.4 Goals 5 3. EXTERNAL ANALYSIS OF SIEMENS 6 3.1 Porters Five Forces 6 3.1.1 Competitor Rivalry 6 3.1.2 Barriers of Entry 7 3.1.3 Bargaining Power of Customers 7 3.1.4 Bargaining Power of Suppliers 8 3.1.5 Threats of Substitutes 8 3.2 Opportunities 8 3.3 Threats 9 4. INTERNAL ANALYSIS OF SIEMENS 10 4.1 Resource and Capabilities of Siemens 10 4.2 Competencies of Siemens 11 4.3 Competition advantage of Siemens 13 4.4 Strengths 14 4.5 Weaknesses 14 5. SWOT ANALYSIS 15 6. Conclusion 16 References 18 1. Introduction to the study 1.1 Background of Siemens Inc. Established in 1847 by Bauanstalt von Siemens &Halske, Siemens has been specializing in lighting, power systems, motion pictures, and radio. The firm at present is developing diverse electrical coal power plants, engineering applications, alternative energies, hydroelectric plants, and nuclear reactors (Gatgens, 2011). Undoubtedly, Siemens is a leader in the energy resource proliferation. 1.2 Industry Siemens Competes By the end of 2008, the company had specialized and consolidated in health care and energy industry (Federal Ministry of Economics and Technology, 2013). Based on this fact, Siemens has the required human and capital resources to provide and diversify green energy which prevails the existing in the current climate change discourse. The firm is under immense growth owing to expansion and acquisitions in the recent decade (Arthur 2009). The key exploits of Siemens are electric power systems from coal, nuclear reactors, hydropower, wind and photovoltaic cells. Siemens has succeeded thanks to its enormous and effective leadership and corporate structure. 1.3 Market Position The company has consolidated on major managerial decisions in its operations specifically in healthcare, energy and industrial applications. The industry applications involve drive, automation, and building technologies. The energy sub sector (5.8% market share) comprises power generation, distribution, transmission, service, and exploits on renewable energy, gas and oil (Davenport & Probst 2002). The health sub sector constitutes diagnostics, workflow, imaging and IT solutions has 11% market share. The firm and its subsidiaries have an employee base of more than 420, 000 spanning more than 190 countries (Rothaermel 2013). It is listed in Franfurt Stock Exchange with over 76billion euros global revenue as at 2009. Key competitors are GE Healthcare, Cerner, Philips, Toshiba, and General Electric among others. 2. MISSION STATEMENT OF SIEMENS 2.1 Mission The mission statement of Siemens is pegged on the basis of forward-looking solutions and technology that is able to respond to current challenging issues in Industrial applications, Healthcare and Energy sectors. The diversity of solutions and products are developed to engage with the subject of climate change and have the environment in mind. 2.2 Vision Vision is to pioneer in industrial productivity, energy efficiency, intelligent infrastructure solutions and personalized and affordable healthcare. A globe of delivering breakthrough innovations, proven talent, providing customers a special competitive edge, harnessing societies in mastering their  highly critical challenges and developing sustainable value (Siemens, 2007). 2.3 Values Siemens values entail the highest performance founded on highest ethics. It also desires to be responsible by committing to responsible and ethical actions. Excellence through attaining excellent results and high performance and innovativeness by being creative to a sustainable value 2.4 Goals The Siemens global network of strong local presence and innovation involves developing and pooling competencies and knowledge in a high performance environment, purposed to develop outstanding value for its employees, clients, shareholders and society. The goal of Siemens is to become a leader in electrical infrastructure supplier globally in the sector of industrial applications, energy and healthcare. These goals are achieved through a mission that provides for a state-of-art-technology to global customers that meets or exceed their expectations. Maximizing Siemens business success is through developing an employee balanced partnership (Siemens, 2008). Establishing the most suitable compensation, performance, career opportunities, and development for global and local talents is a priority. From the strategy of Siemens, it can be obtained that it adopts a pioneer strategy in which all the competitors compete for a greater market share. Being a pioneer, Siemens aspires to lead in innovation, creativity and modern designs of industrial applications. The company has all the material and human resources needed in winning a sizeable proportion of customers. 3. EXTERNAL ANALYSIS OF SIEMENS 3.1 Porters Five Forces The industry of Siemens integrates and produces electro-technical into projects and solutions of gas and oil offshore, onshore pipeline and waste water industry. Siemens OCW has a market of oil, gas companies and equipment manufacturers. 3.1.1 Competitor Rivalry Siemens perceives all its competitors as equally better placed in the business field. The company has an advantage of quantum leap when projected alongside the competitors. In the industry, the companies are of relative small amounts hence customers will have a better chance of comparing them easily. Customers who consider bids in energy, healthcare and industrial applications have Siemens in the list of preferred suppliers (Siemens, 2007). These sectors have few direct suppliers hence the winner should have a good image and reference. The difference in the market share of companies in gas and oil industry is quite huge. Siemens is third in Onshore and Pipelines after ABB and Foxboro. It is also third in Offshore after ABB and General Electric. It is also ties with ABB in the third place after General Electric and Groupe SChneider with regard to water (Federal Ministry of Economics and Technology, 2013). The competitiveness in the industry is leveraged owing to major players acting as coordinators (Siemens, 2008). Competition in Oil and Gas is high since few big projects are rare and intensely competitive. 3.1.2 Barriers of Entry New entrants in oil and gas are held back by huge financial considerations. Company image is critical as many customers demand references. Advancing technologies requires time, skilled labor and great financial capability. The lower priced part of the market is for those buying only single products from Siemens (Siemens, 2007). Here, local firms have a potential for market share which is insignificant for Siemens Automation, Drives and OCW delivering products and not solutions. Water industry is locally based and highly fragmented providing a lower entry barrier. The market share of the biggest competitor in water sub-sector is 1.3% as opposed to 0.9% of Siemens OCW. Water entry barriers are lower since regional and domestic companies can establish such businesses easily (Siemens, 2008). Know-how and investment barriers exist but firms working in similar technical sectors can come into the market. 3.1.3 Bargaining Power of Customers The power of customers in oil, gas, and industrial applications is very big because of the project size carried out by Siemens. Majority of the customers are multinationals with multiple projects which cannot be easily lost. Good reference in the industry of Siemens is a strong indication of relevance of customer power (Siemens, 2008). A project with huge challenges can have them communicated in a traditional style of the gas and oil industry players who act as partners. Water and healthcare customers are mostly local companies recently privatized or publicly owned. This market has many small buyers which weakens their negotiating power (Thompson &Martin, 2010). Privatization of many initially state-owned companies is a development as it increases customer bargaining power. The power in customers in oil and gas pressurizes suppliers to conform to certain conditions like joining a preferred market place and supply chain processes. Siemens will have a limited option but to integrate products, suppliers and processes. 3.1.4 Bargaining Power of Suppliers Here, suppliers of specialized products and those of standard material are distinguished. Siemens has immense power on suppliers of standardized materials such as cables procured from wholesalers. Some customers may order standardized materials to lower inventory in cases where they demand certain products like sensors and switches (Cole, 2003). Products have to be distributed by many wholesalers if power of suppliers based on these products is to be increased. Some suppliers providing specialized products have greater bargaining power over Siemens and affect its business strategy. Standard data on products have been enhanced by Siemens adoption of Materials Management System which delivers digitized formats (Jeffs, 2008). Automation and Drives (A&D) are one of the external suppliers with more power since most products utilized in solutions are provided by A&D. 3.1.5 Threats of Substitutes Oil and gas just like water industry have market places focusing on equipment procurement for gas, oil and water firms. The substitutes for oil and gas are nuclear, wind and hydro power which makes the market place complementary (Hitt, Ireland, & Hoskisson, 2011). Oil and gas have not been entirely outpaced by the other energy sources hence still dominant to nuclear, coal and wind energy. Oil and hydro are equally competitive for use in power generation but oil is highly available and reliable that hydro and geothermal. 3.2 Opportunities Siemens being committed to innovation is in a good position to compete given the dynamic nature of technology and designs. For instance, the OSRAM division of the company recently adopted long-life and extremely efficient light emitting diodes winning the German Future Prize (Siemens, 2008). The company continues to develop innovative new products that enter into new markets not envisaged before hence providing growth opportunities for the firm. Siemens will gain a lot in legislations by many countries to increase power sources and free markets through privatization. It can benefit from mergers and acquisitions in various projects in China, Sweden, Saudi Arabia and Brazil. The opportunity of carbon trading as provided a platform for Siemens to trade carbon and invest in renewable energy sources especially electricity to the globally emerging markets like China and Taiwan (Amason, 2010). It is committed to lowering CO2 emissions to lower level anticipated through low tax regimes on green energy materials. Reduced trade tariffs by the Eurozone and Asian century trading will see Siemens produce complex, but personalized, products for clients with reduced costs. 3.3 Threats Siemens is among the high-tech industries but vulnerable to adverse economic conditions such as inflation and currency fluctuations where its products may fail to hit the profit margin (Schafer & Williamson, 2008). This susceptibility predicts market conditions that continue to be ‘tough’ for the difficult bilateral trading owing to political difference between countries especially US and Iran. Though now picking up, the economic crisis of 2009 had a negative effect on stock price of Siemens’ over the previous months as depicted in Figure 1. Siemens is a potential liability despite its large size. It may not feasible economically to entirely focus in limited specialized areas. Hence, this opens the gates for a strategy focused competitor to leap into a specialized market and undercut its market share through differentiated product or charging a lower price (Davenport, & Probst, 2002). Mitigating this threat is only possible when Siemens regularly monitor the competitor activities and maintain its innovation core competency. 4. INTERNAL ANALYSIS OF SIEMENS Siemens is a very complex and huge firm; hence, a broad SWOT analysis may be beyond the scope of this analysis. 4.1 Resource and Capabilities of Siemens Siemens has material, human and financial capability to undertake major capital investment in energy, healthcare and industrial applications. Recently, the firm has heavily invested in wind and hydro energy seen as more reliable and conforms to the present thinking on green and renewable energy. These are enormous investment demanding huge allocation of human and capital resources. Financial capability has made many Siemens projects to be viable and diversified into other sources hence gripping on specialty and innovation in wind energy. It has invested in R&D just like some competitors such as General electric with home advantage of being a US grown firm. The company is investing in low carbon energy generation geared to full exploitation by 2050 and is possible through identifying a single renewable energy type, less risky and viable economically. The company capital expenses are mainly in distribution and power storage though correction mechanisms obsolete. The 420,000 employee base and increased investment in ‘smart grids’ has offered a self regulating and correcting mechanism boosting the alternative energies. Siemens is debating on contributing over $250 million in support of Grid-points and Silver Spring networks (Jeffs 2008). The company is capable of winning the wind and hydro power market through building formidable alternative ways of building both On and Off-shore turbines. The company success is through installation of wind turbine power and increased functions in healthcare and industrial applications, turbine development, maintenance and R&D (Thompson &Martin 2010). Siemens has made immense returns of about 19billion in 2008 boosting its revenue further to 20billion in 2011. The company also acquired a 3.6-megawatt wind turbine which harnesses offshore power generation. Winning the turbulent energy and healthcare market requires building higher stakes where the company monitors market trends and stays on the watch for smaller companies as its operation mode. These firms could be having innovative technologies in formidable market segments. Siemens mainly acquires target firms and integrates them to its portfolio as a determination to build a sustainable business opportunity. These investment are bound to pay off in the long-run despite failures in previous gains not be made under Siemens name. Siemens is a driver of principal changes in political, economic, socio-cultural, technological, environmental and legal spheres when seeking for better reflection in complex management and increasing the market share. Achieving various legal successes, winning from rivaled competitors and dominating over buyers and suppliers is what the company is geared to implementing. The measures recognize a big return on investment. The firm has registered as the United Nations Global Impact member. It has also prevailed on major suppliers to comply with fundamental employment rights stipulated by the International Labour Organization (ILO). Renewable energy success will boost the stakes of Siemens if world leaders concede to addressing issues affecting development of sustainable energy sources (Witcher & Chau, 2010). The issue of climate change and the obvious case of renewable energy are big issues on a global scale. 4.2 Competencies of Siemens Siemens has invested in building employee competencies and development which provides a significant contribution to protecting company’s success. Streamlining the training offerings and gearing closer to actual needs is through merging employee and management competency. The development of programs in a single service unit like Learning Campus (LC) of continuing education has measures based on the unique Siemens’s business needs. In ensuring the performance of this case, the learning organizations are actively involved and of close contact with operating units on design of the training offerings. This way guarantees efficient and effective competency building for all employees of Siemens (Hill & Jones, 2012). There are classical employees training ways like coaching, seminars, and workshops which target teams, departments, specific audiences and organizational units across the Company. For instance, in the form of change management projects, competency management in organizations, custom workshops, or the global rollout of major corporate discourse like e-learning campaigns. A core component of competency development in Siemens workforce is in worldwide Siemens Core Learning Programs. These programs are developed mainly for Siemens activities undertaken by, for example, software architects, sales managers, buyers, and project managers. They are consistent across the globe and erected on each other, hence promoting and supporting logical development of personnel within the firm (Hill & Jones, 2012). All employees at Siemens share similar innovative platform of generating technologically superior solutions and products. The basis of this approach has five universal individual competencies assisting in steering forward the efforts that make Siemens strong. Focus on success: Persistence, perseverance, and a great desire to win. Siemens provides performance-oriented, strong-willed individuals with huge capabilities and space to succeed. Customer orientation: Actual solutions are usually tailor-made to fulfill certain customer requirements. This is why value is placed on the capability to listen, cater and comprehend to unique customer needs. Team building: Presently, there are more than 420,500 employees globally coming from a diverse cultural backgrounds working together as a multi-discipline and multi-cultural team. They contribute to the great worldwide network of innovation and knowledge. Ability to learn: Keeping the pace with the regularly changing business landscape and capable of providing value to the company. One has regular update and grows one’s knowledge. Siemens encourages learning from enriched business experience, processes, competitors, and this knowledge is shared to sustain future growth and quality. Creativity: The capacity to engender unconventional and novel ideas while successfully implementing them is a proper response to the constantly-increasing technological improvement. 4.3 Competition advantage of Siemens Siemens being an electric-motor manufacturer required automated processes and direct the customer through numerous possibilities of pricing and configurations, without the risk of an invalid selection being chosen (Jeffs, 2008). They lead in innovation and creative solutions. The company demonstrates higher levels of consistency across the organization. Siemens evaluates nearly every product-configuration and interactive-selling solution present in the market hence creating systems that meet the specific business challenges. Responsiveness is regarded as a noble issue. Most operations like quotations that took three to five days were to a matter of minutes. Siemens benefits from increased productivity owing to increased volumes of quotations of 300 to 500 quotes per month for every configured product. This was undertaken by Cincom which helped Siemens appeal to customers on a platform of swift service which competitors could not rival (Gatgens, 2011). Siemens AG (SIE) has greater allocation to research and development Europe’s largest engineering company and plans to increase such spending as a way of retaining the competitive advantage. Bigger budget are made despite technologies ending up being commercially successful. In 2011, Siemens spent 5.3 percent of revenue which is about 3.9 billion euros ($5.1 billion) in R&D up from 5.2 percent the previous year. Unfortunately, Siemens has suffered drawbacks on some technologies failing commercially. The company decided to halt sale of equipment where the related charges were $1 billion for its particle therapy technology for treating cancer (Stice, Stice, & Skousen, 2007). Furthermore, Siemens set aside 1.6 billion euros on R&D expenses specifically on industrial operations in 2012, while allocating 1 billion euros in energy units and 1.2 billion euros for health care projects. 4.4 Strengths Siemens is a large company employing more than 420,000 people with a formidable market presence in more than 190 countries globally especially Europe, Africa, Asia, Oceania, Central America, North America, and South America (Siemens AG, 2008). With a functional organizational structure, the global CEO holds the three sectors of the company function as energy, healthcare and industrial applications. This extensive global presence ensures that the fluctuation in some markets do not ground the company and bring it down (Arthur, 2009). Innovation alongside training, talent recruitment, market research and retention of talent are some of the core competencies of the company. Development of new products demands a huge amount of resources such as managerial willingness, capital, facilities, and workforce compensation. Siemens is robust both physically and financially thus able to commit the resources and time needed in providing new products to the market and guarantee future growth. For instance, in fiscal year of 2007, Siemens had an expenditure of €3,399 million on Research and Development (R&D) which was the greatest after sales, administrative and general expenses. It pays its taxes amounting to over 21.5% of total expenses prior to income tax (Siemens, 2007, p. 201). 4.5 Weaknesses The obvious weakness of Siemens is in overcoming a corporate environment that encourages bribery. In mid 2008, some of the 300 managers were being investigated alongside current Siemens executives linked to alleged malpractices and corrupt dealings (Schafer & Williamson, 2008, p. 17). Those targeted were former CEOs Dr. Klaus Kleinfeld, who resigned in June 30, 2007 after serving for two years, and the immediate predecessor, Dr. Heinrich von Pierer having served for 13 years up to 2005 (Siemens AG, 2008). Siemens is grappling with remedying its ethical challenges such as prosecuting the managers and increasing its transparency within a shorter time period. Another weakness associated with Siemens, however, is lack of management diversity. After taking over from Dr. Kleinfeld, Peter Löscher expressed concern over the management board constituted by entirely white males. He mentioned that the top 600 managers are mainly white German males making it one-dimensional (Milne, 2008, p. 18). A mentor program was instituted by Löscher to remedy this situation by allowing young minority managers assume the chance of being mentored to senior management levels in determination of increasing diversity. 5. SWOT ANALYSIS Strengths The company is has more than 420,000 employees in more than 190 countries meaning that the company is known and well represented globally The organizational structure provides for change of top management in cases of impropriety and end of tenure. Employees take pride with their management due to selection of competencies and better remuneration The company boasts a strong R&D which places the company way ahead in innovation and creativity. The firm is known for massive quality projects in energy, healthcare and industrial applications Weaknesses The firm is battling with corrupt allegations from its employees whom some were dismissed. Corruption taints the image of the company which has been built for nearly two centuries. The firm is yet to win diversity and inclusiveness in its workforce since many top managers are drawn from the headquarters in Germany. The company spends a lot of money in some projects that may be commercially unviable reducing the profits and revenues Opportunities The firm has expanded rapidly due to ongoing changes in host countries like privatization and liberalization of energy and healthcare sectors which makes it easier for Siemens to move in a formidable contender The expansion of the EU with revision of tariffs and trade barriers has allowed the company make a quick entry into the Scandinavian countries and strike mergers or make acquisitions The expansion of Chinese infrastructure and development of large hydro-projects has awarded Siemens the opportunity to make way in the Far east. Threats Many countries have resorted to protectionism as a means of safeguarding the interest of local firms. This includes increasing premium fees and negotiating power of foreign multinationals The increase in taxes on foreign goods especially in healthcare makes it difficult for Siemens to break-even in some investments 6. Conclusion Siemens Operations will be strengthened by partnerships with small companies in host countries they operate. The company has a guiding structure of decision makers to avoid the risk of facing legal bottlenecks of entry and hitting a dead end on commercial viability. Costs are used on feasibility studies, mergers, acquisitions and developing partnerships with local companies which make then retain the market advantage. The company has major stakes in energy, healthcare and industrial applications which have fewer competitors owing to massive financial investments and customer base. German legislation has also helped the company carry on through recession by reducing tax cuts on major applications and products. The firm has been able to weather concerns environmental terrorism, waste byproducts, and risk of accidents posed by upcoming technologies like nuclear power. Siemens has rich history of research and development, awesome employee remuneration and communication to all its stakeholders. Research into renewable energies is boosting its image abroad (Fronz, 2011). Its reputation should be built mainly on green energy known for reduced environmental damage. There are other forms of energy, healthcare and industrial applications worth investing in although diverting a substantial amount of capital resources limits investment in hydro and wind power generation. With bursting global population, huge power generation mechanism will have to be developed to yield the much need power. Siemens strategic leaders have stabilized oil and gas generation and are now on Hydro and wind energy as a way of entering the unexploited wind energy but partnering with like-minded firms in host countries is mandatory. In gaining competitive advantage, Siemens has the needed technology in the wind and hydro sector becoming the first mover in renewable energy market. 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