Siemens' Simple Structure

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

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 Kleinfeld took over as CEO, he sought to restructure the company along the lines of what Jack Welch did at General Electric. He has tried to make the structure less bureaucratic so decisions are made more quickly. He spun off underperforming businesses. And he simplified the company's structure.

Kleinfeld'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 Kleinfeld's GE-like restructuring efforts. In his efforts to speed those efforts, labor groups alleged, Kleinfeld secretly bankrolled a business-friendly workers' group to try to undermine Germany's main industrial union.

Due to this and other allegations, Kleinfeld was forced out in June 2007 and replaced by Peter Löscher. Löscher has found the same tensions between inertia and the need for restructuring. Only a month after becoming CEO, Löscher was faced with a decision whether to spin off the firm's underperforming 10 billion-euro auto parts unit, VDO. He had to weigh the forces for stability, which want to protect worker interests, against US-style pressures for financial performance. One of VDO's possible buyers is a US company, TRW, 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 Löscher decided to sell VDO to German tire giant Continental Corporation, Continental promptly began to downsize and restructure the unit's operations.

Löscher 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," Löscher said.

Since the switch from Kleinfeld to Löscher, 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 Alcatel-Lucent (down 83 percent) and General Electric (down 69 percent), and worse than others, such as IBM (up 8 percent) and the Swiss/Swedish conglomerate ABB (down 15 percent).

Though Löscher's restructuring efforts have generated far less controversy than Kleinfeld's, that doesn't mean they went over well with all constituents. Of the 2008 job cuts, Werner Neugebauer, 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, Löscher 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 Kleinfeld's efforts at Siemens tell you about the difficulties of restructuring organizations?
  • Why do you think Löscher's restructuring decisions have generated less controversy than did Kleinfeld'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 Kotter'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; Esterl & Crawford, 2007; Ewing, 2007; Frey, 2008 ).

Support your responses with examples.

Cite any sources in APA format.

Submission Details.

References:

Davidson, A. (2008. June 29). Peter löscher makes siemens less german. The
German Times
, Retrieved from http://www.german times.com/ index.php?
option=com_content&task=view&id=3212&Itemid=82

Esterl, M., & Crawford, D. (2007, July 23). Siemens CEO put to early test. Wall
Street Journal
, p. A8.

Ewing, J. (2007, January 29). Siemens' culture clash. Business Week, pp. 42–46.
(Judge 515-516)

Frey, G. (2008, July 8). Siemens cutting 17K jobs worldwide to cut costs. USA
Today
. Retrieved from http://usatoday30.usatoday.com/money/ economy/
2008-07-08-812302383_x.htm

Tutor Answer

RyanTopTutor
School: University of Maryland

Attached.

Running Head: RESTRUCTURING AT SIEMENS
1

Restructuring At Siemens
Name
Instructor
Institutional Affiliation
Date

RESTRUCTURING AT SIEMENS

2

1. What do Kleinfeld's efforts at Siemens tell you about the difficulties of restructuring
organizations?

Organizations operate in complex environments whereby factors force them to innovate
and evolve on a continuous basis so as to survive. In order to gain a competitive advantage as well
as curb demands on cost controls, organizations, such as Siemens, resort to restructuring their
operations. Although the concept of restructuring organizations is important because it will enable
such organizations address the aforementioned elements, there are various difficulties and
challenges that these organizations face.
The issue of resistance to change is one of the most common challenges facing
organizations that want to restructure. Restructuring basically entails introducing change which
will affect the existing status quo. Employee, customers, suppliers, as well as other stakeholders
often oppose the idea of restructuring the organization due to the fear of the unknown. Most
restructuring efforts fail because the company is not well geared to support the new processes
being implemented. Therefore, the issue of setting objectives and expectations are important when
proposing a restructuring change (Davidson, 2008. June 29).

2. Why do you think Löscher's restructuring decisions have generated less controversy
than did Kleinfeld's?

Kleinfeld did not engage the employees and other stakeholders in the decision-making
process pertaining the restructuring of the company. When Kleinfeld joined Siemens as the CEO,
the company’s existing culture entailed the involvement of employees in executive decisions.
F...

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Anonymous
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