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Siemens s new strategy - Re-engineering

2012-11-01 07:37:36

Falling orders and unforced errors prompt a rethink

Oct 27th 2012 | BERLIN | from the print edition

EVERY company needs shaking up now and then, even a sprawling world-beater like

Siemens. Peter L scher, the chief executive, gave his troops a pep-talk on

October 11th, to be followed by the unveiling of a new strategy on November

8th. Do not expect surprises. The group will continue to make everything from

turbines and trains to smart grids and scanners. But it needs to be a lot more

efficient.

Alarm bells rang in the summer: new orders had dropped in almost every

division, compared with a year earlier, most dramatically in energy, and

infrastructure and cities (which includes high-speed trains). Orders from

within Germany and from India had fallen by over 40%. Even China ordered 11%

less. Much of this was due to the economic slowdown, especially in Europe, and

to a return to normal after some big orders in 2011, Siemens s best year ever.

Revenues are up despite the falling orders. But the declines reflect some

strategic errors, which Mr L scher manfully admits.

First, Siemens bet on a global recovery in 2012. That didn t happen, especially

in Europe. Second, Siemens overreached in offshore windparks and particle

therapy, an experimental cancer treatment. In both cases it launched too many

ground-breaking projects at once and hit unexpected problems and costs: bad

planning again.

Mr L scher will not fall on his sword. His record is too good for that. Since

2007, when he was brought in as an outsider to clean up corruption at the

company, Siemens has flourished. It has already changed 50% of its business

portfolio. But he wants to reduce costs (for instance by bringing research and

development closer to production), organise sales coverage in clusters rather

than country by country, reduce bureaucracy, and be less tolerant of

underperforming sectors. On October 22nd Siemens said it would dump its

solar-power business.

Union leaders fear job cuts. But it is difficult for Siemens to shed jobs and

close plants in Germany. In 2008 it struck an agreement, renewed in 2010, to

safeguard German jobs and plants in the long term. Recently it has even been

adding to its workforce. But some relocation is likely. Its subsidiary Osram, a

lighting manufacturer, has been shifting jobs away from making obsolescent

light bulbs.

On October 31st a brand-new SGT5-8000H gas turbine, at 440 tonnes the biggest

and most efficient in the world, capable of generating 375MW, will rumble out

of the factory in Berlin and head for Turkey. A new plant in Charlotte, North

Carolina, is building these turbines too. If, next year or the year after, the

world economy improves, and German politicians clarify the country s currently

chaotic energy policy, many more turbines will rumble, and customers will order

more trains, transformers and scanners.

Siemens, which turned 165 on October 12th, is in it for the long haul. But it

is learning that it cannot wholly ignore investors, nor the analysts who sway

them. Hence the fanfare of a shake-up, and of a programme this year to raise

cheap debt and buy back 3 billion ($3.9 billion) of shares. Siemens aims to

beat its great rival, GE, and to hit annual revenues of 100 billion (last year

s were 74 billion). Sensibly, it hasn t specified when.

from the print edition | Business