Siemens Leadership, Strategy and Change - Case Study Example

SIEMENS LEADERSHIP, STRATEGY AND CHANGE By Student’s Name Code + Course Name Professor’s Name College/University City, State Date Introduction As much as managerial practice and theory may experience various trends in the international scope, regional conditions define the differences in practice. In the current era, where acquisitions and mergers are the order of the day, it is vital for organizations to be fully aware of the potential repulsion and conflict that such differences may bear. The management system in organizations varies from one country to the next as defined by their legislative, socio-economic, and most importantly cultural particulars. Germany is an exclusive country in the world of business, being the manufacturing hub of Europe. The managerial approaches of the Germans could be a major contributory factor to the high skill development in technology and product quality as compared to other countries. Being a German company, Siemens stamped its position in the technology and electronics industry for over a century ago. Nevertheless, the country has experienced difficulties especially in the age of globalization, with its current profit margin being low as compared to its competitors. Such could be attributed to various factors. This paper shall embark on a case analysis of Siemens as a global electronics giant and a review of their management in the past and currently, and what aspects may be used to define the company’s poor performance. German management style The German managers have been known to concentrate more on two major objectives including product service and product quality. As such, the primary elements that define the management culture of the Germans and the preferred management styles are all connected to the desire to manufacture and design products of high quality and to offer consumers extraordinary dedication and responsiveness. Contrary to the US management approach, as much as German managers may be concerned with the financial performance of their organizations’ product lines, they follow the methods of products keenly and prioritize maintenance of good relationships with employees in view of establishing a culture of communication and cooperation, which is deemed a prerequisite in the continuous production of good products (Yamazaki viii). The increased interest in production could be attributed to the employment of technicians and engineers in the management positions. Such individuals link their manufacturing, service, and design backgrounds to their duties in management. In fact, it was only until recently that the Germans deterred from their previously held notion that management and production are to be treated as one notion, and they started embracing the style of MBA programs same as that of the US in the training of prospective managers (Yamazaki 32). German managers also establish a high level of loyalty to their company as they have a tendency of remaining with a single firm all through their career (Ghuman and Aswathappa 629). As such, they make decisions in line with the prospective long-term benefits to the firm. The strong emphasis placed on quality and product in German firms is given a great boost by the increased advocacy for vocational training systems, employment of formalized procedures and systems of production management, and respect for competence. In the selection of managerial positions candidates in Germany, experience, quality of skills, and knowledge and expertise gained from vocational training are the used criteria. Thus, in Germany, managers are required to be technically capable of exhibiting high performance in their areas and clear, strong leadership (Ghuman and Aswathappa 630). Subordinates respect the technical abilities of the managers, an aspect that influences their willingness to embrace and implement the provided instruction. Managers delegate responsibility to the team member that is technically competent to handle the task. After delegation, it is expected that the manager will leave the member of the team to carry out the task without supervision or interference that is undue. As such, managers are expected to give precise, clear, and unambiguous instructions. A major advantage of the German management style is that it allows for increased employee autonomy, whereby the employee is left to carry out a given task after it has been delegated to them without interference from the management (Yamazaki 34). In addition, the focus on quality allows for the development of products that meet the needs of the consumers and embracement of a market-based approach to product design and development. This promotes consumer satisfaction and subsequently, increased product sales. Nevertheless, the increased need for consensus and consultation in every decision made turns out to be one of the main disadvantages of the German management style. Before a German manager makes any decision, they consult their colleagues to seek an optimal decision and share the responsibility. This is an aspect that slows down organizational development and the operational process (Anghel 189). Also, as much as the employees have autonomy, the German management style is still formalized, meaning that the employees are expected to follow the instructions from above precisely and are left with little room to embrace other approaches that deviate from the instructions. This rigidity impedes innovation among employees and further slows down the operational process within the organizations as employees have to wait for clear instructions on any given task from the management. Contrary to the German management style, the American management style is more individualistic, where managers are left with the responsibility of making decisions in their specific areas. As such, unlike German managers, American managers would rarely consult other managers before they make decisions (Day 90). Besides, American managers do not necessarily consider the opinions of their subordinates. Underlying factors for Siemens’s low-profit margin Various factors could be attributed to Siemens slump in profits for the past decade, as compared to its competitors. Among such factors is the impact that the bribery scandal at Siemens in the 2006 ruling had on the image of the company, and the trust that not only the investors and shareholders but also the consumers had in it (Sanyal and Samanta 152). The management seemed to tolerate the bribery practices among the employees, which were directed at winning contracts. When an organization’s reputation is dented with such allegations, the sales are bound to drop and investments to reduce. This happened at Siemens, with a sharp reduction experienced in new purchases and an increase in tension between the shareholder and investors, and the management of the company. All the company’s efforts were thus directed towards winning back the public’s trust as opposed to growth, an aspect that is clearly reflected in their low profitability as compared to other companies (Sanyal and Samanta 154). Another important factor that has been cited by the company as a challenge to its profitability is the difficult market environment in which the needs of the consumer are constantly changing. Siemens has been criticized ever since the era of Pierer as the CEO, where the company was slow in adjustment to the demands of globalization, an aspect that left it behind its competitors (Barjot 292). This trend has carried on in the company with successive Chief Executive Officers showing increased efforts towards revamping the company’s wheel-power amidst globalization, but their efforts remaining below the bar as compared to their competitors such as General Electric Company. Siemens has been less responsive to consumer demands with most of their products left less suitable for the market, an aspect that has reduced their general sales in commodity and thus profits. Case in point, the company showed a slow pace towards replacing its large oil turbines with smaller ones as demanded by the consumers, an aspect that left it with large production capacity but reduced sales. Consequently, the company has had to reconsider reducing its workforce as the cost incurred in maintaining such a workforce is not reflected in the sales. With high costs and low sales, the company has experienced reduced profits. It is difficult to ignore the impact of the German management style on the low profitability at Siemens as it is clear that the approaches of the management have greatly influenced the company’s outcomes regarding embracing change and promoting sales. One impact of the German management style on the profitability of Siemens is the tendency of managers staying long with one organization such that they tend to make decisions based on the long-term benefits of such decisions ion the company (Gillespie and Hennessey 468). Most of the managers who assume the top positions at Siemens, including the Chief Executive Position, have been in the company for almost their entire career lives. This type of culture impedes the introduction of a new force that would propel the company through a new age of market demands. This has defined the company’s slow adjustment to the needs of the consumers and thus reduced profitability. It only changed with the hiring of Peter Loscher after the bribery scandal, with the intention of using his expertise to restore the company’s position and reputation. On the other hand, being in an individualistic culture, general electric is more concerned with the performance of individuals and thus, managers are employed based on their capabilities as opposed to their loyalty to the company, an aspect that brings in new ideas to the company with every change of a manger and promotes sales and profitability. Another salient factor of the German management style that could have contributed to the low profitability at Siemens is the centralized structure (Gillespie and Hennessey 467). As such, with most of the decisions being made based on consultations and directions from the top management, managers within the company are left with less accountability. GE has embraced a decentralized system whereby the managers are left with the responsibility of overseeing performance in their areas of management. At a point, a former head of GE, Jack Welch, introduced a system where ten percent of the managers who failed to measure up to the expectations in terms of their success were fired each year, an aspect that promoted competition among the managers, enhancing profitability. Lastly, unlike German managers at Siemens who are more interested in product service and product quality, American managers at GE have always been more interested in the company’s profitability, making market value their driving force. This has ensured the establishment of strategies directed towards promoting profitability, including cost competition at GE. On the contrary, managers at Siemens hardly think of embracing such approaches as cost competition in promoting sales and profitability (Gillespie and Hennessey 469). Political and Economic Challenges faced by Siemens Prior 1992 Prior to von Pierer's takeover as the CEO of Siemens in 1992, the company had been hit by major economic and political changes that constituted its problems. The effects of the Second World War were significantly felt by Siemens, whereby the company was completely erased from zones controlled by the Soviet Union and the German Democratic Republic (GDR) (Crowe 289). The company’s major production facilities had been expropriated, the Soviets forcefully taking from them technical bureaus and thus destroying the company's sales within Soviet-occupied zones. Branch offices and factories that were previously owned by the company were declared publicly owned enterprises, embedded into the socialist planned economic system. Being a company from East Germany, the tension between the East Germany states and GDR states compromised the company’s operations in GDR. Nevertheless, the collapse of the GDR government and the subsequent opening of the border between the two Germany territories provided Siemens with a clear opportunity to restore its position as a world-leading company in electronics and technology. The tension created by the world war and the image that the world had of Germany about the war formed great stumbling blocks for Siemens expansion into the global market, forty years after the war (Crowe 300). On the other hand, the global recessions of 1982 and 1991 also caused major problems for Siemens. With recessions comes a decline in the purchasing power parity. Liquidity issues involving banks make it risky for such banks to lend funds to individuals and businesses (Dyer and Gross 362). This narrowed Siemens access to financial markets and sources, an aspect that impeded growth. With globalization, the economies between countries became interdependent. As such, being a major exporter of manufactured engineering products, Siemens was largely affected by the recession in the foreign countries to which it exports its goods. Recession also leads to deficits within the public finances. As a result, increased corporate taxation could be termed as one of the economic problems that negatively impacted Siemens during this period. On the other hand, such deficits in public finances led to an increase in the individual taxation levels, which led to a decrease in demand for services and goods from consumers, thus affecting Siemens’ sales. With the public sector forming part of Siemens’ consumers, the recession led to reduced public sector procurement and thus reduced sales (Stanat). These are some of the major economic and political problems that faced Siemens before 1992 and the takeover of Heinrich von Pierer as the CEO. Strategies used by von Pierer to restructure Siemens Von Pierer came under intense criticism from investors during the early years of his tenure as the CEO of Siemens, with allegations that he was too cautious and slow in the establishment of the company as a major competitor in the international front. Nevertheless, his approach paid off later when he was able to lead the company into an outstanding performer in the industry, above major players such as the Swiss-Swedish ABB and Philips Group from Netherlands (Daft, Kendrick and Vershinina 257). Von Pierer’s takeover as the CEO came at a time of significant change for both Siemens’ and Germany at large. After Germany had been separated for more than forty years, it had only been reunified two years before his appointment. On the other hand, cultural realignment had occurred at Siemens in 1989, with the large business units of the company having been further broken down into smaller units to allow for a more effective approach towards the global markets changing competitive challenges. An approaches embraced by von Pierer was to continue with the expansion of the company into the international environment, though at a more tentative and slow pace for the sake of some of the investors of the company. Siemens heavily invested in a new facility for semiconductor manufacturing in the UK by mid-1990s (George 81). During the same period, von Pierer also initiated aggressive expansion into China. The investors were not contented and continually called for the termination of businesses that hampered the company’s competitiveness in the international market. The company’s shares dropped significantly during early 1997, owing to projections of stagnant profits from the previous year. Von Pierer took on another approach to reorganization of Siemens in 1998, where he divested some business units and quit the semiconductor business that had led to massive losses for the chips unit the previous year. Von Pierer also led a massive acquisition campaign in the US as from the late 1990’s (Lucks 139). Previously, the company was not well recognized in the US, and this entry into a new market was a major move. This move led to the US unit becoming the largest operation center for the company and the US forming its largest market accounting for almost 23% of the company’s total sales in the fiscal year of 2000. The CEO also embraced a campaign to cut down the company’s costs in 2003, a move that greatly promoted an increase in the company’s profits. Von Pierer then increased Siemens presence in China as from 2004, allowing for increased profitability resulting from the growth of the Chinese market and the supply of its products from its partnership with Ningbo Bird Company all over the world (Lucks 162). Kleinfeld's approach to restructuring Siemens Unlike Heinrich von Pierer whose approach was more German-centric, Klaus Kleinfeld embraced a more American style approach the moment he was placed at the helm of Siemens (Robbins and Judge 515). Clearly putting it across that Jack Welch, the former GE CEO, was his role model, Klaus Kleinfeld embraced approaches that focused on improving Siemens profits and competitiveness in the market place. His efforts proved fruitful when the company registered a significant increase in profit gained and penetration of new markets than GE had done during Welch’s era. Drawing on GE’s playbook, Kleinfeld directed his efforts towards increasing Siemens business in infrastructures such as power plants, airports, and medical equipment. He also promoted increased employee autonomy, pushing the 475,000 employees of the company across the globe to make decisions and increase their focus on both the technology and the customer (Ungson and Wong 373). He cut off the telecommunication-gear business for its underperformance and made the company’s structure simpler. Unlike von Pierer, who was conservative of the German management style, Kleinfeld challenged managers to independently embrace responsibility for their divisions with aims of increasing accountability (Onkvisit and Shaw 143). As such, in cases where a set of managers failed to meet expectations, their entire division would be broken up. Like von Pierer, Kleinfeld also increasingly invested in acquisitions, expanding more in medical equipment, and focused significant energy on cutting down the company's costs. His embracement of an individualistic culture, as opposed to the collectivist culture upheld by von Pierer, was a great source of resentment from some members of the Board at Siemens, employee councils and representatives, and a section of shareholders who thought his method as harsh and heartless (Ungson and Wong 381). Conclusion It is clear that national culture has a great influence on the managerial approaches that are adopted by organizations within a country. Culture defines interpersonal relationships, values, and norms, which play a critical role in business relationships. As such, managers may find it difficult working across borders, in countries whose national cultures completely differ from that of their origin countries. In Germany, being a collectivist country, managers are more aligned with the general development of the organization, regardless of the pace, and the establishment of loyalty towards the organization in the view of facilitating long-term success. As much as this may be an effective approach to the long-term sustainability of the organization, it is a highly challenged approach in the current global environment, where the consumer demands are changing each day, calling for organizations to respond quickly to such changes. Siemens, being a company borne within the German culture, has faced profitability challenges as a result of, among other factors, the German management system, which is dominant within its premises. The centralized structure, for a long time, reduced accountability among managers in the country as they shared responsibility among themselves in decision making, making it difficult to establish a competitive spirit within the organization and in the marketplace. The collectivist culture also influenced the focus of the company’s managers on the quality of the products and the less focus on profitability, which has come to haunt the company with it lagging behind other players in the industry in terms of profitability. The new management ought to focus its efforts towards upholding both quality and profitability through establishing a competitive environment within the company, as this will allow all the managers to exercise autonomy in making decisions and facilitate increased innovation. Works cited Anghel, Ghenadie. Doomed to Internationalization and Modernization of Corporate Culture: The Russian Experience of German Firms. Berlin: Springer Science & Business Media, 2012. Print. Barjot, Dominique. Catching Up with America: Productivity Missions and the Diffusion of American Economic and Technological Influence After the Second World War. Paris: Presses Paris Sorbonne, 2002. Print. Crowe, David. 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