Siemens’ Simple Structure

There is perhaps no tougher task for an executive than to restructure a European organization. Ask former Siemens CEO Klaus Seinfeld.

Siemens, with 77 billion euros in revenue in 2008, some 427,000 employees, and branches in 190 countries, is one of the largest electronics companies in the world. Although the company has long been respected for its engineering prowess, it’s also derided for its sluggishness and mechanistic structure. So when Seinfeld took over as CEO, he sought to restructure the company along the lines of what Jack Welsh did at General Electric. He has tried to make the structure less bureaucratic so decisions are made more quickly. He spun off under performing businesses. And he simplified the company’s structure.

Seinfeld’s efforts drew angry protests from employee groups, with constant picket lines outside his corporate offices. One of the challenges of transforming European organizations is the customary active participation of employees in executive decisions. Half the seats on the Siemens’ board of directors are allocated to labor representatives. Not surprisingly, the labor groups did not react positively to Seinfeld’s GE-like restructuring efforts. In his efforts to speed those efforts, labor groups alleged, Seinfeld secretly bankrolled a business-friendly workers’ group to try to undermine Germany’s main industrial union.

Due to this and other allegations, Seinfeld was forced out in June 2007 and replaced by Peter Herschel. Herschel has found the same tensions between inertia and the need for restructuring. Only a month after becoming CEO, Herschel was faced with a decision whether to spin off the firm’s under performing 10 billion-euro auto parts unit, V DO. He had to weigh the forces for stability, which want to protect worker interests, against US-style pressures for financial performance. One of VD O’s possible buyers is a US company, TR W, the controlling interest of which is held by Blackstone, a US private equity firm. German labor representatives have derided such private equity firms as “locusts.” When Herschel decided to sell V DO to German tire giant Continental Corporation, Continental promptly began to downsize and restructure the unit’s operations.

Herschel has continued to restructure Siemens. In mid-2008, he announced elimination of nearly 17,000 jobs worldwide. He also announced plans to consolidate more business units and reorganize the company’s operations geographically. “The speed at which business is changing worldwide has increased considerably, and we’re orienting Siemens accordingly,” Herschel said.

Since the switch from Seinfeld to Herschel, Siemens has experienced its ups and downs. Since 2008, its stock price has fallen 26 percent on the European stock exchange and is down 31 percent on the New York Stock Exchange. That is better than some competitors, such as France’s Allocate-Lu cent (down 83 percent) and General Electric (down 69 percent), and worse than others, such as IBM (up 8 percent) and the Swiss/Swedish conglomerate AB (down 15 percent).

Though Lecher’s restructuring efforts have generated far less controversy than Seinfeld’s, that doesn’t mean they went over well with all constituents. Of the 2008 job cuts, Werner Neurosurgery, regional director for a union representing many Siemens employees, said, “The planned job cuts are incomprehensible nor acceptable for these reasons, and in this extent, completely exaggerated.”

When asked by a reporter whether the cuts would be controversial, Herschel retorted, “I couldn’t care less how it’s portrayed.” He paused a moment, then added, “Maybe that’s the wrong term. I do care.”

Based on the above reading and the knowledge gained from your assigned readings, respond to the following questions:

• What do Seinfeld’s efforts at Siemens tell you about the difficulties of restructuring organizations?
• Why do you think Herschel’s restructuring decisions have generated less controversy than did Seinfeld’s?
• Assume a colleague read this case and concluded “This case proves restructuring efforts do not improve a company’s financial performance.” How would you respond to this statement?
• Do you think a CEO who decides to restructure or downsize a company takes the well-being of employees into account? Should he or she do so? Why or why not?
• What were the forces for change?
• What were the restraining forces? How would you overcome them?
• Use K otter’s Eight-Step Plan for implementing change and explain how you would implement this change at Siemens. Be sure to include any organizational development tools that you might use (Davidson, 2008; Ester & Crawford, 2007; Ewing, 2007; Frey, 2008 ).

Support your responses with examples.

Cite any sources in APE format.