U.S. Expansion

At Siemens, a Change Agent Looks West

SiemensKaeser-IPON
Siemens' chief executive Joe Kaeser embraces the American dream.
  • Why it matters

    Why it matters

    The Siemens CEO, Joe Kaeser, said the United States will play an increasing role in the German company’s overall strategy.

  • Facts

    Facts

    • Siemens’ net profit in the year ending September 30 rose 25% to €5.5 billion.
    • The turnaround initiated by Siemens CEO Joe Kaeser has been largely welcomed as overdue by investors.
    • The Siemens CEO said Europe must dismantle unnecessary regulation to stay competitive with the U.S. and Asia.
  • Audio

    Audio

  • Pdf

Mr. Kaeser, would you classify the past year as a year of new beginnings, of decline or one of breakthrough?

The past year certainly was not a year of decline. We increased our revenues by 25 percent even amidst a time when our company was and is going through many changes. I would describe the past year as one of breakthrough, marked by a new strategic outlook for Siemens.

One second, in the past, there was repeatedly talk of reducing employee numbers at Siemens. That sounds like decline to us.

First of all, we hired more than 33,000 employees worldwide in the past year.  However, certain functions in our company became superfluous – especially when it comes to reducing bureaucracy and being faster altogether. Certain tasks and functions are not essential – it is here that we want to put employees in different positions.

I know that certain analysts think we are moving too slowly in that respect. I tell them that our company isn’t just made to endure the next quarter or the next year. We are getting ready for the next generation.

When it comes to innovations and profitability, you have fallen behind your U.S. competitor, General Electric. That doesn’t sound like breakthrough to us.

From 2007 to 2010, we left our competitor behind when measured against various benchmarks. It is true, however, that from 2010 onwards, we did not succeed in changing our organization’s face, from an orderly company to a company of growth and value-building. We need to catch up on that. In the innovation department, however, Siemens does not have to hide from its competitors.

You constantly say that you want to make Siemens more entrepreneurial. Is that even possible in such a colossal company?

Yes, it is possible. I know that certain analysts think we are moving too slowly in that respect. I tell them that our company isn’t just made to endure the next quarter or the next year. We are getting ready for the next generation. The cycle of innovation in our products and solutions lies between 3 and 8 years. One can’t make a new record in every quarter. One has to plan these carefully and then implement them. What matters is to find the balance between careful consideration and the consistent development of the company.

Is the German trait for long-term planning contributing to Siemens’ success?

A company that doesn’t provide value for society shouldn’t exist. Siemens is allowed to exist because we provide societal value. For example, we add to health provisions, energy efficiency and infrastructure in Germany. One must look beyond capital markets in this respect.

The sentence “The business of business is business” by Milton Friedman is not one you would endorse, correct?

I wouldn’t endorse that sentence if it means that a company is only a tool for increasing capital for third parties and where ownership is just a tool for short-term goals. The shareholders in a company are its owners and fund managers in a wider sense. Their customers are typically not part of longer-term development in the company. The ownership, the share, is therefore a means to increase the assets with which they have been entrusted. This is why an employee who is also a shareholder is so important. An employee is involved in the development of the company and interested in keeping his job.

You once said: “The name Siemens is supposed to be on everything Siemens does.” Wasn’t that the case before?

No, that was not the case in the past few years. The four sectors in which the Simens businesses were organized meant that four different sectors were responsible for different markets and customers at the same time. There was too little Siemens as a singular brand, recognizable to customers and soliciting business under one name.

 

Joe Kaeser Siemens mikes ap
Siemens Chief Executive Joe Kaeser is trying to make Germany’s largest industrial concern more competitive. Source: AP

 

Since taking over as CEO in August 2013, you have turned the company upside down. Some employees weren’t used to such a speed.

Of course it isn’t always easy to take on the whole team in a period of upheaval. That is the balance you have to strike between what you want and what is possible. From September 2013 to May 2014, I took a lot of time to listen to the wishes and ideas of employees. Of course, I wasn’t able to take into account everything. But everyone should have the opportunity to voice their opinion.

You named the conversion of your company “Vision 2020.” Why is it necessary to use such catchy phrases to describe a process that is often longwinded and difficult?

Our Vision 2020 is supposed to help us build a better company. We want to show the public, our employees and shareholders a clear direction. The past year was a year of showing new direction. We managed to get everyone at Siemens to understand where the company is headed. The coming year will be a year of operative consolidation. I hope that we will manage to achieve that with all participants and stakeholders fairly. In 2016, we will be able to start our course for growth.

Will the year 2015 be the year in which medical technology will see many IPOs?

No. I see the medical technology sector going through a fundamental change of new paradigms. Molecular biology, molecular diagnostics, the decoding of the human genome and biotechnology have changed the face of business in ultrasonic cleaners and computer tomography. We need to be prepared for this and that is why we want to give medical technology more room – also in terms of new acquisitions.

What do you think about splitting energy giant E.ON into two parts?

I think this move is very sensible. It is the only way to get out of its cul de sac. The business model (for E.ON) has been eliminated through the regulatory framework that politics has set in the so-called “Energiewende,” the German government’s plan to abolish non-renewable energy sources. But a company can experience the same fate by technological advances. Those are paradigm shifts that are far-reaching because they can maneuver companies into an existential cul-de-sac.

 

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You have identified the energy business as an important pillar in view of the shale gas boom in the United States. The oil price is in a free fall now and in the energy business, there are overcapacities worldwide. Is this bad timing?

In big gas turbines there are indeed overcapacities. That is because the trend is going towards decentralization and fragmented energy delivery. This has the advantage that one doesn’t need long overland supply lines. Another trend is the electrification of oil- and gas-related activities. We took over the turbine business of Rolls Royce and bought Dresser Rand, a premium U.S. provider for growing oil and gas markets.

Thomas Middelhof, the former CEO of Bertelsmann, was sentenced to three years in prison. Do you think this was justified?

I don’t know the facts well enough. In a courtroom you get a sentence. Whether the sentence is justified is another question. I cannot and will not answer this question from afar.

Do you understand that people get upset when a manager circumvents a traffic jam using a helicopter?

It depends on the alternatives. We also have company airplanes. In general I only use those for inner-European flights because one loses a lot of time with flight plans, check in and security controls. For intercontinental flights, I generally take scheduled commercial flights. That isn’t really asking too much.

How do you manage not to lose touch as a top manager?

That starts with one’s attitude. For me, the priority is: Always act as if it is your own company. When I take a company plane, I always ask myself if I would do the same if it was my own firm. Apart from that, I can only recommend that every manager engage with his employees and visit production sites.

“The governments in Europe must set the economic standard so that companies can move freely enough to be innovative and globally competitive. This starts with making the right provisions for an aging population, investing in infrastructure and certainly does not end with sensible energy politics.”

Joe Kaeser, Siemens CEO

Is it imperative that a top manager participate in socio-political debates?

Yes, as the head of a company, one has to take part in the sociopolitical debate. The wrong-headed developments of Germany’s Energiewende, for example, should have been avoided. German businesses, us included, did too little at the beginning to recognize the situation. The problem with interfering in societal debates as a top manager is that one always faces the criticism: “That guy should get his own company in order first!”

An important issue is the women’s quota in corporate board rooms. How do you go about promoting women into leadership roles at Siemens?

One has to start early and not just promote women but diversity overall. We are following a global approach with our younger generation. Siemens is represented in 134 countries in the world and is doing business in 212 countries. We therefore have a gigantic talent pool.

The only woman left on the Siemens’ management board is based in Houston, Texas.

Houston is the international center of the oil and gas industry. In Germany, fossil fuel production was pushed back by Germany’s “Energiewende.” As an entrepreneur, one has to see where the future of those markets lie. With fossil energy production, this is primarily in North America. That is why we are directing our business from there. In 2016, the United States will have more gas turbine sales than in the next decade in Europe.

Was your visit to see Vladimir Putin last spring a mistake or would you do it again?

In hindsight I would say that one should be more careful with such a visit, given how such a visit might be judged.

But your judgment of the situation then – that the conflict was a short-term disruption – was wrong, right?

The way I formulated this in an interview with German state television show “Heute Journal” was pulled out of context and misconstrued. I had always said that Siemens was looking back on a 160-year history in Russia and had survived two World Wars. I was talking about historic perspective and was not commenting on the current events taking place in Ukraine and Russia.

If you take a look at western Europe, do you believe the worst is over in this crisis?

It was and is a crisis of innovation and debt in countries which lost their competitiveness decades ago and now have to take painful structural and political measures. Countries such as Ireland succeeded in this. Spain and Portugal are still working hard at this. Some others have obviously not made enough progress structurally.

Is the European Central Bank’s monetary policy dangerous or does it make sense given the current situation?

I think that the ECB can increase demand by pursuing a relaxed monetary policy like the United States has done. However, this shouldn’t lead to a hidden bailout of European banks through which one buys questionable securities from them.

Is the desire for forward-looking economic change bigger in the United States or Asia?

America is profiting from an almost unique constellation. This country is the biggest economy in the world and very safe from a geopolitical point of view. That is also why we are investing heavily there. In addition, the United States is almost self-sufficient in its energy needs through its political approach. They also have incredible expertise in software and microelectronics. Rich economies are marked by raw materials, strong private demand and technology.

What you describe here applies to Asia as well. Is there a danger that Europe will become a mere tourist destination and museum for rich Asians and Americans?

If we don’t watch out, we indeed face the danger that we will have a non-existent Europe between the economic power blocks of China and America, economically and politically speaking. We need to be aware of this here in Europe and act upon it.

How?

The governments in Europe must set an economic standard so companies can move freely to be innovative and globally competitive. This starts with making the right provisions for an aging population, investing in infrastructure, and certainly does not end with sensible energy politics.

In Asia there are also issues. In China, the economy is slowing. Is the country at a crossroads?

No. China is in the process of strengthening its economy with the help of reforms. This requires time because these reforms require restructuring which are at times painful. The Chinese government industrialized the country in the past through heavy public investment. For a long time, this went well. At the moment, however, in traditional industries which enabled many jobs in the countryside, overcapacity has emerged. The steel, mining and cement industries are affected by this. They need to be modernized now, which will significantly affect the number of jobs.

You have been at Siemens for over 30 years. Can a career employee still embody a sense of breakthrough?

Yes, I can. What drives me is to leave this company in a better state for the next generation. That is why I get out of bed every morning.

How do you recharge your batteries? How will you spend your Christmas holidays?

My batteries are always charged. I am looking forward to letting my thoughts run free. I almost never have time for that. Just to sit down and read a book, write something down … that is how creativity and emotion return. It is fun to not always be so disciplined and to just let go.

 

This article first appeared in German weekly WirtschaftsWoche. Matthias Kamp is a correspondent for WirtschaftsWoche in Munich, where Siemens is headquartered. Miriam Meckel is the editor in chief of WirtschaftsWoche.. To contact the authors: matthias.kamp@wiwo.de and miriam.meckel@wiwo.de

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