The German company Siemens is one of the world’s
great engineering conglomerates manufacturing
everything from hearing aids and medical scanners to
giant power generation turbines, wind systems, and
locomotives. By the late 2000s, however, Siemens was
struggling with subpar performance relative to its global
rivals such as General Electric (GE), Honeywell, and
United Technologies. In July 2007, Siemens hired Peter
Löscher as CEO, replacing Klaus Kleinfeld, and gave him
the task of trying to revitalize the organization. Löscher,
an Austrian whose career included major leadership
positions at GE and Merck, was the first outsider to run
Siemens since the company’s establishment in 1847.
In 2007, Löscher inherited a global organization of
significant complexity. At the time, Siemens had
475,000 employees and revenues of $72 billion,
operated in a wide range of industries, and had activities
in more than 190 countries. As a comparison, today,
Siemens employs about 362,000 people, with revenues
1/16/2019 Bookshelf Ambassadored: International Business: Competing in the Global Marketplace
https://ambassadored.vitalsource.com/#/books/1260437892/cfi/6/60!/4@0:0 4/13
of about $79 billion, and covers a similar number of
country markets. At the time, Siemens was organized
into 12 operating groups, which were further subdivided
into 70 business divisions. Although each division had
its own product focus, such as wind power or molecular
imaging, Siemens worked hard to deliver integrated
solutions to customers. This required many of the 70
business divisions to cooperate with each other on large
projects.
Siemens also had a strong tradition of local
responsiveness. The countries where the company was
the most active had their own executive manager, known
as “Mr./Ms. Siemens.” This individual acted as the
country manager for all Siemens businesses in a specific
geographic area, and was also CEO of the respective local
company. The operating group and business division
structure was often replicated within the local company.
This resulted in a matrix organization, with the head of
the power gener
1/16/2019 Bookshelf Ambassadored: International Business: Competing in the Global Marketplace
https://ambassadored.vitalsource.com/#/books/1260437892/cfi/6/60!/4@0:0 5/13
divisions cooperated on the delivery of a project. Local
companies were given significant discretion over product
specifications for local clients. Thus, the local company
in Argentina might bid on a subway project in Buenos
Aires, tailor that bid to meet the needs of the local client,
and if the bid was accepted, make sure that there was
sufficient cooperation between the different business
divisions in order to successfully complete the project.
Löscher could see the virtue in this organization—it
tried to meld together global scale at the business level
with local responsiveness at the country level—but it was
very complex to effectively and efficiently implement. In
his view, there were too many direct reports to the
corporate headquarters, resulting in significant overload.
There was also a serious accountability problem. If the
company failed to deliver a project profitably—let’s say
the subway system in Buenos Aires—who, then, was
responsible for that: the local managers or the managers
of the business divisions? Löscher believed that country
managers had too much power in the structure, and the
business divisions had too little and were not
accountable enough.
In 2008, Löscher changed the organizational structure
to deal with these power and accountability issues. He
1/16/2019 Bookshelf Ambassadored: International Business: Competing in the Global Marketplace
https://ambassadored.vitalsource.com/#/books/1260437892/cfi/6/60!/4@0:0 6/13
consolidated the operating groups into three main
1/16/2019 Bookshelf Ambassadored: International Business: Competing in the Global Marketplace
https://ambassadored.vitalsource.com/#/books/1260437892/cfi/6/60!/4@0:0 7/13
Page 624
PRINTED BY: [email protected]. Printing is for personal, private use only. No
part of this book may be reproduced or transmitted without publisher's prior permission. Violators will
be prosecuted.
sectors: industry, energy, and health care.
The business divisions were placed within
their respective sectors. He then organized
the 190 country units into 17 regional clusters, and gave
them primary responsibility for developing a costefficient regional infrastructure, focusing on customers
and managing sales organizations. Profit and loss
responsibility was assigned to the sectors and business
divisions. Previously each operating group and national
subsidiary had maintained its own separate profit and
loss accounts. This change was a shock to the Mr./Ms.
Siemens around the world, who were told that their goal
was to contribute toward the global operating income for
a sector and business division. While not doing away
with local responsiveness, Löscher had effectively
reduced the power of country managers within the
1/16/2019 Bookshelf Ambassadored: International Business: Competing in the Global Marketplace
https://ambassadored.vitalsource.com/#/books/1260437892/cfi/6/60!/4@0:0 8/13
Siemens structure, making them directly responsible for
boosting the profitability of the global businesses.
Löscher went further, instituting a management view
process that led to the replacement of half of the
company’s top 100 managers. Löscher is now directly
involved in the appointment of the top 300 management
positions at Siemens. He also took out two layers of top
management that had no operational accountability in
the older company structure. His goal in making these
organizational changes has been to replace managers
who did not buy into a new way of doing things, and to
increase the performance accountability of the people
who ran the sectors and business divisions.
Sources: B. Kammel and R. Weiss, “How Siemens Got Its Mojo
Back,” Bloomberg Businessweek, January 27, 2011; V. J. Racanelli,
“The Culture Changer,” Barron’s, March 10, 2012; S. G. Leslie and
J. Sorensen, “Siemens: Building a Structure to Drive Performance
and Responsibility (A),” Stanford Business School Case, October 7,
2010.
Case Discussion Questions
- How would you characterize the strategy for competing
internationally that Siemens was pursuing prior to the arrival of Peter
Löscher? What were the benefits of this strategy? What were the
costs? Why was Siemens pursuing this strategy?
1/16/2019 Bookshelf Ambassadored: International Business: Competing in the Global Marketplace
https://ambassadored.vitalsource.com/#/books/1260437892/cfi/6/60!/4@0:0 9/13
JCB Pins Hopes on
the Indian Market - What strategy is Löscher trying to get Siemens to pursue with his
streamlined “power and accountability” initiative? What are the
benefits of this strategy? Can you see any drawbacks? - Does the “power and accountability” initiative imply that Siemens will
now ignore national and regional differences?
Sample Solution