Siemens

Time to fix Siemens

Jul 8th 2008
From Economist.com

Peter Löscher is remodelling the engineering giant

AFP

PETER LÖSCHER’S task, when he took over as the chief executive of Siemens a year ago, was two-fold: remodel the engineering giant to boost efficiency and clean up after one of the biggest scandals in corporate history. He is now attempting to complete both jobs by purging the company from top to bottom. On Tuesday July 8th the firm officially announced its latest gambit. What had been mooted in private a couple of weeks beforehand was made public: Siemens would axe 16,750 employees, some 4% of its global workforce of 400,000.

The cuts, mainly of administrative staff, come after a clear out of top management and a restructuring which is supposed to streamline the way the German firm does business. Most of the supervisory board, management board and senior executives are new. The eight divisions that used to make up Siemens have been crunched into three—energy, health care and industry—and extraneous businesses have been off-loaded, all with the aim of saving cash. All these reorganisations and job cuts are intended to slice €1.2 billion ($1.9 billion) from total costs by 2010.

By chance this is close to the amount reckoned to have been spent illegally around the world over the past few years to win business at the expense of competitors—some €1.3 billion. Investigators probing the charges claim that a culture of bribery, endorsed by top mangers, existed at Siemens. Shareholders, after discovering that the firm was using graft to win contracts, forced the departure of the previous chief executive and chairman, although both deny any knowledge of corruption. European Union watchdogs imposed a fine of €660m on the firm. An investigation by America’s Securities and Exchange Commission is still going on. Siemens can expect a huge fine when the American regulators finally impose their sanctions.

Mr Löscher is keen that the taint of the bribery scandal is washed away as rapidly as possible. He wants to devote himself fully to preparations for an economic downturn and to make the German giant as competitive as GE, its greatest rival and a company that he once worked for. German unions, appalled at the proposed job cuts, may yet elect to strike. Promises that the lay-offs will be carried out as sensitively as possible, with jobs reassigned and early retirements where possible, are unlikely to dampen union anger.

One of Mr Löscher’s tactics for revitalising Seimens is to change its culture: making it less German. Mr Löscher, an Austrian, is the first non-German boss in the company’s 161-year history. He has insisted that all-important meetings are conducted in English. And he has even admitted to making a mistake: Siemens failed to build power stations on time, which resulted in a profit warning earlier this year. In the past, before Mr Löscher’s arrival, the bosses responsible would have been found comfortable jobs elsewhere in the firm. But in this case those responsible quit. Other managers who failed to live up to expectations have also left.

A leaner, less German, less corrupt firm will still hope to exploit the strategy that Mr Löscher inherited from his predecessors: taking advantage of demographic trends that are sweeping the world. Ageing populations are boosting the demand for the type of health-care equipment that Siemens produces; rapid urbanisation in Asia means that its power, water and transport businesses should thrive, even as Western economies feel the pinch.

Siemens’s shares have fallen by 36% this year as doubtful investors voted with their cash. Mr Löscher has a tricky task winning back their confidence by running a collection of businesses that live up to the German reputation for engineering excellence while operating in nearly every country on the planet.