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 427000 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 it’s 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 company’s structure.
Kleinfeld’s 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 Kleinfeld’s 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 Germany’s main industrial union.
Due to this and other allegations Kleinfeld was forced out in June 2007 and replaced by Peter Lscher. Lscher has found the same tensions between inertia and the need for restructuring. Only a month after becoming CEO Lscher was faced with a decision whether to spin off the firm’s 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 VDO’s 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 Lscher decided to sell VDO to German tire giant Continental Corporation Continental promptly began to downsize and restructure the unit’s operations.
Lscher has continued to restructure Siemens. In mid-2008 he announced elimination of nearly 17000 jobs worldwide. He also announced plans to consolidate more business units and reorganize the company’s operations geographically. The speed at which business is changing worldwide has increased considerably and we’re orienting Siemens accordingly Lscher said.
Since the switch from Kleinfeld to Lscher 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 France’s 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 Lscher’s restructuring efforts have generated far less controversy than Kleinfeld’s that doesn’t 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 Lscher retorted I couldn’t care less how it’s portrayed. He paused a moment then added Maybe that’s the wrong term. I do care.
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