24 Jun Siemens Simple Structure
Siemens Simple Structure
There is perhaps no tougher task for an executive than to restructure a European organization. Ask former Siemens CEO Klaus Kleinfeld.
Siemens, with 77 billion euros in revenue in 2008, some 427,000 employees, and branches in 190 countries, is one of the largest electronics companies in the world. Although the company has long been respected for its engineering prowess, its also derided for its sluggishness and mechanistic structure. So when Kleinfeld took over as CEO, he sought to restructure the company along the lines of what Jack Welch did at General Electric. He has tried to make the structure less bureaucratic so decisions are made more quickly. He spun off underperforming businesses. And he simplified the companys structure.
Kleinfelds efforts drew angry protests from employee groups, with constant picket lines outside his corporate offices. One of the challenges of transforming European organizations is the customary active participation of employees in executive decisions. Half the seats on the Siemens board of directors are allocated to labor representatives. Not surprisingly, the labor groups did not react positively to Kleinfelds GE-like restructuring efforts. In his efforts to speed those efforts, labor groups alleged, Kleinfeld secretly bankrolled a business-friendly workers group to try to undermine Germanys main industrial union.
Due to this and other allegations, Kleinfeld was forced out in June 2007 and replaced by Peter Löscher. Löscher has found the same tensions between inertia and the need for restructuring. Only a month after becoming CEO, Löscher was faced with a decision whether to spin off the firms underperforming 10 billion-euro auto parts unit, VDO. He had to weigh the forces for stability, which want to protect worker interests, against US-style pressures for financial performance. One of VDOs possible buyers is a US company, TRW, the controlling interest of which is held by Blackstone, a US private equity firm. German labor representatives have derided such private equity firms as “locusts.” When Löscher decided to sell VDO to German tire giant Continental Corporation, Continental promptly began to downsize and restructure the units operations.
Löscher has continued to restructure Siemens. In mid-2008, he announced elimination of nearly 17,000 jobs worldwide. He also announced plans to consolidate more business units and reorganize the companys operations geographically. “The speed at which business is changing worldwide has increased considerably, and were orienting Siemens accordingly,” Löscher said.
Since the switch from Kleinfeld to Löscher, Siemens has experienced its ups and downs. Since 2008, its stock price has fallen 26 percent on the European stock exchange and is down 31 percent on the New York Stock Exchange. That is better than some competitors, such as Frances Alcatel-Lucent (down 83 percent) and General Electric (down 69 percent), and worse than others, such as IBM (up 8 percent) and the Swiss/Swedish conglomerate ABB (down 15 percent).
Though Löschers restructuring efforts have generated far less controversy than Kleinfelds, that doesnt mean they went over well with all constituents. Of the 2008 job cuts, Werner Neugebauer, regional director for a union representing many Siemens employees, said, “The planned job cuts are incomprehensible nor acceptable for these reasons, and in this extent, completely exaggerated.”
When asked by a reporter whether the cuts would be controversial, Löscher retorted, “I couldnt care less how its portrayed.” He paused a moment, then added, “Maybe thats the wrong term. I do care.”
Based on the above reading and the knowledge gained from your assigned readings, respond to the following questions:
What do Kleinfelds efforts at Siemens tell you about the difficulties of restructuring organizations?
Why do you think Löschers restructuring decisions have generated less controversy than did Kleinfelds?
Assume a colleague read this case and concluded “This case proves restructuring efforts do not improve a companys financial performance.” How would you respond to this statement?
Do you think a CEO who decides to restructure or downsize a company takes the well-being of employees into account? Should he or she do so? Why or why not?
What were the forces for change?
What were the restraining forces? How would you overcome them?
Use Kotters Eight-Step Plan for implementing change and explain how you would implement this change at Siemens. Be sure to include any organizational development too
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