Siemans | Company Review

SIEMENS

COMPANY REVIEW & BACK GROUND

TO THE STRATEGIC DECISION

Siemens is a worldwide leading organization in electronics and electrical engineering industry which is operating in the sector of energy, communication and healthcare sector. There are few industries working in the global market of small and large business which have maintained their successful history of quality products and customer satisfaction. Siemens is also one of those well known and established organizations, having proud to be the leading business. Siemens was founded by Werner Von Siemens and Johann Georg Halske in 1847. The Production Electrical Telegraphs are the remarkable source of Siemens for the past many decades to achieve the large amount of its overall sales. For more than one and a half century, Siemens is still popular in competitive industries for its innovative achievements, technical supports, quality, reliability, and globalization. Being the environmental friendly is one of many other positive aspects of Siemens to feel proud of. Almost one third of their revenue is generated by environmental friendly green products and solutions. “In fiscal 2009, ended on September 30, 2009, Siemens had revenue of €76.7 billion and net income of €2.5 billion. At the end of September 2009, the company had around 405,000 employees worldwide.” (www.siemens.com)

To acquire the long run and effective advantages, generally most of the organizations utilize Strategic decisions. Strategic Decisions help the businesses maintain their quality on the long term directions. Strategic decisions are comprised by considering the organizations activities and analysis to decide the working areas of any organizations. Siemens’ strategic decisions are quiet clear so far. Siemens basic strategy is to focus particularly on innovation and technology driven growth markets and until the substantive time they have been quiet successful in setting up the trend of new technology and capturing leading positions maintaining their strength of local existence and creating local values on the global level.

Siemens believed in diversification and innovation since the establishment which make outstanding business sector. They started identifying market particulars upcoming trends and drawing the strategic results early on. Some years past, Siemens improved their portfolio to four megatrends including demographic change, urbanization, climate change and globalization which are already influencing our daily life today, and the impact of these trends is increasing substantially in the decades. The activities into the sectors of Industry, Energy and healthcare have been the main points of consideration for business. They also set the stage to achieve leading positions and customer satisfaction in attractive continuous growth markets.

MICRO ENVIRONMENT ANALYSIS

Organizations have adopted the internal analysis as a key feature with the frequently changed environment nowadays. To face the environmental change in the ongoing time it has been more useful for the businesses developing strategies utilizing their own resources and capabilities. Siemens has already made it the prior concern for its organization believing their internal resources and strategies as the main strength to achieve their goals.

Financial Resources:

The group recorded revenues of E77,327 million (approximately $116,294.4 million) during the

financial year ended September 2008 (FY2008), an increase of 6.7% over the financial year ended September 2007 (FY2007). The operating profit of the group was E2,492 million (approximately$3,747.8 million) during FY2008, a decrease of 50.2% compared with FY2007. The net profit was E5,725 million (approximately $8,610 million) in FY2008, an increase of 50.4% over FY2007.(Data Monitor Siemens AG).

Physical Resources:

Siemens are very diversified in geographical presence. They operate in 190 countries spread over the Americas, Europe, CIS, Africa, Asia, Australia, and Middle East. During FY2008, the group generated 26.1% of its revenue from Americas, 52.7% from Europe, CIS, Africa, and

21.2% from Asia, Australian, and Middle East.

(Data Monitor Siemens AG)

Human Resources:

It is in the concern of Siemens that outstanding, competitive and innovative employees are their strength and valuable assets. All of their employees are highly trained, focused and innovative. This belief in their staff plays an important role for Siemens to sustain in the world market.

Reputational Resources:

Siemens is operating in over 190 countries and for over 160 years. It had created a good and remarkable reputation around the world. They have made them very diversified and manufactured their own brands. Their brands include generators, electrical products, healthcare equipments and many others are some of the outstanding and famous worldwide.

MACRO ENVIRONMENT ANALYSIS

There are some factors that keep changing time to time. These factors are called External factors. No organization can depend on it because of their constant change. Organizations are facing many economic and global problems to sustain. Due to the present dynamic environment; internal strength has been the key part for organizations rely on in order to face any of these challenges. As far as Siemens is concerned, they have been well prepared and have completed their homework keeping these challenges in front. They introduced remarkable measures that will not only help them surviving these crisis without being highly affected but also they will emerge much stronger with the passage of time. Because they began research, identified market specific and started to draw the strategic consequences quite early on to prevent their strength getting weak.

Their integrated homework made them able to precisely consider the upcoming opportunities and threats. This homework helped them identify the nature of advantages, opportunities and threats before the time which are:

Opportunities:

Siemens had bought quite a few businesses in recent years because they think that these businesses have potential to drive its business growth. “In January 2007, the group acquired US based UGS, one of the leading providers of product lifecycle management (PLM) software and services for manufacturers. In the same month, Siemens Water Technologies strengthened its service and product business in the US with acquisitions of four companies: Envirotrol, CEC, Pure Water Solutions, and Sunlight Systems. In November 2007, the group acquired Dade Behring Holdings, a manufacturer and distributor of diagnostic products and services to clinical laboratories.” (Some information is taken from www.siemens.com)

Threats:

Siemens had done all their homework but still threats lie in front of them. Siemens faces intense competition across its market segments. As Siemens is a huge industry with different sectors their competition is much higher than other industries. Their main competitors in the industry sectors are ABB, Alstom, Bombardier, Emerson Electric, General Electric Company, Honeywell International, Johnson Control, Philips, Schneider Electric, and Tyco International. (Information is gathered from www.datamonitor.com). Likewise in energy sector as well its main competitors are General Electric, Alstom Powers, Mitsuibishi, Abbott and lots more. As it is quite clear that, such competition could adversely affect the revenues and profit margins of the group.

DIRECTIONS FOR GROWTH

It very important for organizations to be vigilant when choosing the strategic direction, it is a useful method for organizations to launch their products in the market and in order to gain competitive and desired advantages. As it is pointed out by Johnson, Scholes and Whittington that: organizations should be aware of 3 types of motives or pressures that may shape their choice which are:

Environment Based Motives:

As Siemens is concerned they already had pointed out the growth of economies in the different continents. “The group operates in about 190 countries Spread over the Americas, Europe, CIS, Africa, Asia, Australia, and Middle East. During FY2008, the group generated 26.1% of its revenue from Americas, 52.7% from Europe, CIS, Africa, and 21.2% from Asia, Australian, and Middle East”. (www.datamonitor.com)

Resource Based Motives:

As being one of the most diversified groups Siemens have very strong resource capabilities. Due to their high revenues Siemens can afford to spend lucrative amount on their R&D. In 2008 Siemens increased its research and development investment to (approximately $5,690.9 million).

Igor Ansoff has developed a well known matrix system to analyze the directions of strategies and mix between the products which a company sells and the market is to be sold.

Siemens has set the task for capturing leading positions in attractive growth markets. In order to maintain their position Siemens targeted their business activities to some sectors including Industry, Energy and Healthcare. Siemens direction of its strategy lies in all 4 stages of Ansoff matrix.

Market Penetration:

With the help of its targeted business activities in leading growth market Siemens is constantly penetrating the market. They also have a much diversified customer based group. This group has industrial, infrastructural and diversified customers. The group can be classified in markets like as transport and logistics (such as transport authorities), construction, communication, real estate, metals and mining, machinery, utilities, automotive and many others.

Market Development:

Siemens is operating in over 190 countries and for over 160 years and generating high revenues which is increasing with the passage of time. It’s because they had identified their opportunities and threats. Their prior homework of seeking new markets made them able to achieve the targeted financial market.

Product Development:

Product development is a very effective and attractive way to counteract a new entrant in market. Product development is to introduce new product to the market or the same product with enhanced and added new services. Siemens has been successful maintaining their vast market, product quality and customer satisfaction around the globe. The basic sectors Health, Industry and Energy are the ones providing them a remarkable deal of opportunities to develop their products. Some of the products and services in energy sector spectrum such as LED energy saving lighting and building control system are up-gradation to their products for their present markets.

Diversification:

Diversification is one of the key parts for organizations to gain competitive advantage over their competitors. On the other side it includes a great deal of risk for organizations because a huge amount money is required to invest lucrative amount in R&D. As The Siemens is a market business leader in the growing sectors, so it deals with the risk to diversify with upper hand. Siemens had always believed in innovation and the technology as said by the founder of the Siemens Werner Von Siemens “If you are not moving forward you are moving backwards.” Siemens diversify its business by two different ways.

Related Diversification:

Siemens operates in various sectors of the business market. It provides so many opportunities to diversify beyond the substantive product market within the broad confines of the ongoing industry. Siemens always tried the best in their value chain to gain new products market and customer satisfaction. In industry sector Siemens offers different products such as services like building, communication, lighting, mobile solutions and in energy sector they are providing distribution of power, conversion, extraction and lot more.

Unrelated Diversification:

Siemens has also diversified its business sector activities beyond its current scope or industry sector. Because of dealing with three business sector activities, Siemens always believed in technology and innovation in their products and services. It requires a great deal of investment in R&D. Siemens has a very powerful R&D. Recently Siemens had increased their research and development investment to E 3,784 million. Siemens invested with Fujitsu in laptops, which is a very good example of unrelated diversification.

PORTFOLIO ANALYSIS

The strategy of Siemens portfolio is quite clear for the past many years which set the target to capture and maintain the Number 1 or Number 2 in the future profitable and competitive markets. By doing that Siemens believe they can survive and get through in the difficult constantly changed environment. Siemens is concentrating deeply on renewable energy and organic growth of various products and services. In the past five years they had invested 20 billion Euros in the acquisition of growth business. Siemens has established its leading position in the attractive growth market working out with its three business sectors Healthcare, energy, and industry. As a part of DESERTEC a Solar Thermal Power in Sahara and Wind Farm in Europe are being constructed. They have also being producing Smart Grid Solutions based Technologies such as Electric Cars and lot more. The best and precise portfolio Analysis of Siemens is comprised by Boston matrix.

BCG Matrix Siemens AG

METHOD OF DEVELOPMENT

Siemens have varieties of methods and strategies to develop their SBUs (Strategic Business Unit). It is because they had a diversified business culture worldwide and they operate in 3 major sectors Healthcare, Energy and Industry. Siemens is constantly operating with their strong partners and developing their services to beat their competitors, therefore they are gearing the value chain to efficiency. They believe that for outperforming their competitors they have to consistently work out and improve their services better than they are. Following the belief of always being better than they are, Siemens is successfully developing their services to sustain in the market and improve customer satisfaction. As a diversified business Siemens believe in utilizing different methods of development. Strong R&D department is one of their strenghts. They are able to afford the Organic development. They also intend to continue the assurance of strict resource allocation in the future; they are very keen on the Organic growth.

In the past five years Siemens have invested Twenty billion Euros in the organic development. There was a significant increase in R&D budget and it got its R&D location in more than 30 countries worldwide. Siemens is also keen to acquire growing businesses. They had recently invested more than 20 billion Euros in order to acquire businesses. Siemens is constantly optimizing its portfolio of Products. Every year numerous acquisitions and divestitures are completed by Siemens.

“In 2005 alone, Siemens invested around EUR 2.5 billion in new businesses and the 2006 figure will be substantially higher. On the divestment side, the carve-outs of BenQ, Product Related Services and Logistics & Assembly have caused a stir.

Regarding recent prominent acquisitions, such as Flender AG (Germany), CTI (USA), Bonus (Denmark), US Filter (USA) or VA Tech (Austria), Siemens Management Consulting were primarily involved in the pre- and post-merger integration (PMI) work”. (Information is gathered from www.smc.siemens.de)

It is Siemens belief that acquisitions helped them come closer to achieve their goal of growing a fast global market. Siemens is also running many joint ventures with one of their SBUs for obtaining growth. Such as Siemens and Nokia have announced their intention to merge the network business of Nokia and the carrier related operations of Siemens into a new company which they will call Nokia Siemens networks. It’s a 50-50 joint venture. In which both parties will invest half and half share. Both parties are looking forward to stand as a Global Leader with strong position in current important growth segments of fixed and mobile network infrastructure and services.