Business Model of Siemens

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Siemens is a worldwide giant conglomerate that makes anything from toasters and irons to gas turbines, transformers and medical imaging equipment. In this article, we will look at 1) introduction, 2) the business model, 3) corporate culture, and 4) controversies and issues.

INTRODUCTION TO SIEMENS

Siemens AG is the biggest engineering company in Europe and was created in 1847. The company is a German multinational conglomerate and the main divisions it operates in include industry, energy, healthcare and infrastructure and cities. The company is headquartered in Berlin and Munich. The huge company has close to 349,000 employees in as many as 190 countries worldwide. Global revenue was reported to be 75 billion Euros in 2013. The highest revenue generating unit for the company is the industrial automation division. This is followed by the medical healthcare unit which produces medical diagnostics equipment. The medical unit brings in about 12 percent of the company’s total profit.

In 2014, the company announced plans to reduce bulk by cutting as many as 16,000 jobs. This could help the company cut as much as 1 billion euros in cost. The cuts represent about 3 percent of the workforce. The jobs will be cut from both the simplification of regional operations and a leaner divisional structure.

History

Since its inception in 1847, the company has been through many transformations. A brief history is given below:

1847 – 1901

  • Siemens began as Siemens and Halske and was founded in October of 1847. The founders, Werner von Siemens and Johann Georg Halske, launched their invention based on the Telegraph. The invention used a needle to point to a series of letters instead of the Morse code. By 1848, the company had successfully created a long distance telegraph line within Europe. A first of its kind, this line ran from Berlin to Frankfurt for about 500km. One Siemens brother began the London office in 1858 while another created a presence in Russia in 1955 both following the expansion of the telegraph line to these areas. The company achieved a landmark by completing the telegraph line from Calcutta to London in 1867. Other achievements during this period included the production of a dynamo without permanent magnets as well as the Siemens AC Alternator powered by a watermill. The practical application of this was seen in the world’s first electric street lights in the UK. The company further grew to expand into light bulbs and even electric trains. In 1887, the company expanded to Japan.

1901 – 1933

  • In 1897, the company was incorporated and following this some units were merged with Schuckert & Co. This led to the company becoming Siemens-Schuckert. By 1907, the company has reached 34,324 employees and became the 7th largest German company based on employee numbers. The company collaborated with two other companies in 1919 to form the Osram Lightbulb Company and during the 1920s and 1930s the company branched out into the production of radios, televisions and electron microscopes. It also constructed the first of its kind Ardnacrusha Hydro Power Station in the Irish Free State. The company made the move to consolidate with a few other companies in 1932 to form Siemens-Reiniger-Werke AG.

1933 – 1945

  • Through the end of World War II, factories and facilities in major German cities were destroyed by air raids. To preserve assets and continue production, manufacturing was relocated to alternate locations and regions. By doing this, war related and every goods continued to be supplied.

1945 – 2001

  • Following the war, the company moved to a new base in Bavaria and in the 1950s began the production of computers, semiconductor devices, washing machines and pacemakers. By 1966, several elements of the company namely Siemens & Halske, Siemens-SchuckertWerke and Siemens-Reiniger Werke combined to create Siemens AG. In the same period, the company continued its history of collaboration by forming Kraftwerk Union with AEG to join the nuclear power business. This unit was later reintegrated into the company. The company made its first telephone exchange in 1980 and acquired a UK based defence and technology company called Plessy in 1988. Siemens retained control of the company’s avionics, radar and traffic control businesses. This was later sold to British Aerospace and a German aerospace company. The company continued to acquire interests in technology, energy and industry to expand the business further. The company also created a Siemens Financial Services unit in 1997. The aim was to help financing issues and manage financial risk for the giant company.

2001 – 2011

  • A major development during this time was the 50/50 joint venture of the Fixed Networks, Mobile Networks and Carrier Services Division with Nokia’s Network Business to form a new company called Nokia Siemens Networks. The merger was delayed because of ongoing bribery investigations against Siemens. This was not the first controversy to hit the company with other incidents in the past. The company admitted to the allegations and a fine of 201 million euros was levied on the company. Contracts with the Nigerian Government were cancelled as a result of this incident.
  • The company continued its growth in the 2000s by incorporating Chemtech Group from Brazil into the Siemens Group. The company brought in expertise in the fields of industrial process optimization, consultancy and engineering services. Some other acquisitions during this time included companies in the fields of Automation and Drives, data organization and presentation, small and industrial gas turbines and phones, wind energy, broadband network equipment, CCTV systems, water and waste water treatment systems and medical solutions among others. It also expanded business in Afghanistan, the US and China.

2011 – Present

  • In 2011, the company made the decision to list Osram on the stock market but while retaining long term interest in it. In the same year, the company announced its exit from the nuclear sector following the Fukushima Nuclear Disaster. This disaster led to changes in the German energy policy which directed more focus towards renewable sources of energy. The company acquired a rail company in 2012 and in 2013, sold its stake in Nokia Siemens Networks to Nokia, ending the company’s presence in the telecommunications sector. The company successfully bid for a substantial order for power plant components in August 2013 from a Saudi oil firm. There are also plans to set up a facility to create offshore wind turbines in England, in keeping with the increased use of wind to generate energy.

BUSINESS MODEL

Business Segments, Products and Services

The company divides itself into the following four main sectors and 19 divisions. Briefly, these are:

Industry

This sector includes Industry Automation, Drive Technologies and Customer Services divisions.

  • Products and Services
    • Products in this category include building automation equipment and systems, building operations equipment and systems, building fire safety equipment and systems, building security equipment and systems, motors and drives for conveyor belts, pumps and compressors, heavy duty motors and drivers for rolling steel mills, compressors for oil and gas pipelines, mechanical components, automation equipment and systems for production machinery and tools and industrial plants for water and raw material processing.

Energy

This sector includes Fossil Power Generation, Wind Power, Solar and Hydro, Oil and Gas, Energy Service and Power Transmission divisions. The company earned 26.6 billion Euros in Revenue in 2013. At present it employs about 83,500 employees.

  • Competitors
    • The company faces major competition from GE Energy. Different competitors exist for product lines such as Aldstorm Grid and ABB for smart grids.
  • Products and Services
    • Some of the products in this sector include large scale gas and steam turbine generators, fossil fueled power plants, power plant modernizations and upgrades, wind power turbines and wind farms, substations, high voltage circuit breakers, voltage regulators, surge arrestors, transformers, process control, power management systems and decision support tools for plant and network operators, air pollution control equipment, turbocompressors for petrochemical, refining, oil and gas and chemical uses and training and consulting services.
  • Key Challenges
    • The key challenges faced by the company in this area include resource efficiency, climate protection, economic efficiency and reliable power supply.

Healthcare

This sector includes Imaging and Therapy Systems, Clinical Product, Diagnostics and Customer Solutions divisions. The business unit is based in Erlangen, Germany with regional presence in different areas around the world. The company formally became Siemens Medical Solutions in 2001 and Siemens Healthcare in 2008. The company employs 49,000 employees with a larger concentration based in Germany.

  • Competitors
    • Major competitors for Siemens Healthcare include GE Healthcare, Philips, Toshiba and Cerner.
  • Products and Services
    • Major products include Healthcare IT and Infrastructure, Hearing Instruments, Laboratory Diagnistics, Medical Imaging, therapy systems, Accessories and OEM Equipment, Refurbished Systems, Education and Training and other services.
  • USP
    • Some key areas that help Siemens Healthcare stay ahead of its competition include:
      • Innovation – the company has a large number of patents and spend a considerable amount in R&D. This helps meet and anticipate customer needs.
      • Service Delivery – the company uses expert local service, training and logistics for service delivery. The idea is to combine personalized care and advanced services that may be located remotely.
      • Lifestyle Value Program – this is an integrated and comprehensive customer care plan to help customers gain the most from their investments by offering programs and support to further develop their skills, productivity and capabilities to ensure that patient care continues to become better.
      • Customer Focus – the company focuses on continuous improvement, customers and quality. There are customer outreach programs to communicate with them.

Infrastructure and Cities

This sector comprises of the Rail Systems, Mobility and Logistics, Low and Medium Voltage, Smart Grid, Building Technologies and OSRAM. This sector works towards solutions for urban mobility, environmental protection and energy conservation. The company employs close to 87,000 employees.

  • Competitors
    • In the rail division, the company faces competition from many companies including Bombardier, Hitachi, Alstom and CAF.
  • Products and Services
    • Major products for this sector include rail systems, rail automation, infrastructure logistics, intelligent traffic and transportation systems, electric mobility infrastructure, smart grids and building technologies.
  • USP
    • There is constant innovation and a concentrated focus on the customer itself.

Apart from these, there are also the Siemens IT Solutions and Services, Siemens Financial Services and the Research and Development unit. The company invested nearly 4 billion Euros in R&D in 2011. This was equal to 5.3 percent of the Group’s revenue. The company has 11,800 R&D employees in Germany and close to 16,000 globally. Some of the countries where these people are based include India, Mexico, Slovakia, Sweden, Switzerland, Austria, China, Denmark, Croatia, France the United Kingdom and the United States.

CORPORATE CULTURE

According to the company, the culture is friendly and open. There are also competitive salaries and performance related bonuses. The company also offers some flextime plans such as part-time work. There are also well staffed daycares for children to help parents along their career path.

 The company has been exposed in the past for having a culture that supports bribery to get things done. With massive international contracts as the target, employees had been siphoning off millions of euros into false contracts, bills and shell corporations to pay these bribes. This has changed now and there has been work done to weed out this attitude from the company.

The company also offers a graduate program. This was created in 1922 and the first of its kind at Siemens. The program is a two year international development program for Masters holders and PHDs. The program is available in many regions including Germany, Denmark, the UK, Belgium, France, Spain, Switzerland, Russia, China, India, the UAE, Saudi Arabia, Kuwait, Egypt, Brazil and the USA. The program has three major work assignments. One is an assignment abroad for 8 months within a Siemens sector.

The company has remained the employer of choice for engineering students in Europe. According to CNN, the company beat out BMW group for the top slot in 2012. The ranking is compiled by independent body Universum. According to this body, students look for employers who provide the opportunity to innovate, gain international experience, get job security and receive opportunities for leadership development. The global director for Universum, Claudia Tattenelli said that Siemens provides all of the above along with very competitive and attractive starting salaries.

CONTROVERSIES AND ISSUES

Throughout its life, the company has faced criticism for some of its controversial actions and decisions. Three major controversies include:

World War II and Nazi Collaboration

The company was accused of working with the Nazi’s to use forced labor in concentration camps in WW2.

Price Fixing

In 2007, the company was fined by the European Commission for fixing prices in electricity markets around the European Union. The company was accused of being part of a cartel of 11 companies that included competitors such as ABB, Alstom, Fuji and Hitachi among others. The companies were accused of rigging bids related to contracts for procurements, fixing prices and giving projects to each other. They were also accused of sharing confidential information.

Bribery

The company was also fined in 2008 after an investigation into bribery accusations. Among other incidents, there was one where 6 million euros were paid to help the company win contracts win Enel, an Italian Energy company for gas turbine contracts. The company was also accused of bribery in Greece, Nigeria and other countries.

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