Strategic Analysis Of Siemens Company Management Essay

This essay will start with a brief description of Siemens, an introduction of its current mission statement and an evaluation of the key strategic issues/objectives which Siemens faced and are facing. The next part, two appropriate tools of analysis, PESTEL analysis of the external environment the organization faces, and Porter’s 5-Forces analysis of the competitive environment in which Siemens operates; a summary of its key strategic resources and competencies, and any resources that it lacks will follow these tow analysis. At last, SWOT analysis will be applied to describe and evaluate the strategic options for Siemens.

Siemens is Europe’s largest engineering conglomerate.Siemens’ international headquarters are located in Berlin, Munich and Erlangen, Germany. Siemens is a diversified group, with business in information and communications, automation and control, power, transportation, medical and lighting businesses. The group’s businesses have strong leadership in electronics and electrical engineering. Siemens has experienced significant restructuring in recent years, including divestments, acquisitions and reorganization of divisions. Siemens has three main business sectors: Industry, Energy and Healthcare and it has with a total of 15 divisions (Barclay, 2000).

Worldwide Siemens and its subsidiaries employ approximately 420,800 people in nearly 190 countries and reported global revenue of 76.651 billion Euros as of 2009. Siemens AG is listed on the Frankfurt Stock Exchange, and has been listed on the New York Stock Exchange since March 12, 2001.

Mission and vision

Highest performance with highest ethics – that is the standard demanded by Siemens’ present president and CEO Peter LÃ¶scher. Its mission is to find the best way of combining and developing our know-how and expertise, so that Siemens can profitably channel them into outstanding value for customers. It has three core values—- Responsible: Committed to ethical and responsible actions Excellent: Achieving high performance and excellent results; Innovative: Being innovative to create sustainable value.

Siemens Strategic profile

Keeping Profitable and long-term growth is the business strategy of Siemens, which is direct and simple.

Specifically, according to the report of Siemens AG, there is several important components Siemens’ strategy, which is showed in the table below.

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Source: http://www.siemens.com

In summary, there are several key management strategies as following.

Making better use of sustainability as an opportunity

Siemens view sustainability as an important success factor. Sustainability serves as the basis for Siemens future business success and is a key pillar of Siemens corporate strategy. Siemens is in a strong position to meet tomorrow business challenges, so sustainability is very important. By concentrating its activities in the three Sectors Industry, Energy and Healthcare, Siemens has a setup that enables it to profit from four key megatrends – demographic change, urbanization, climate change and globalization. And with the Siemens Environmental Portfolio, it has an exceptionally broad spectrum of products and solutions for environmental and climate protection (Barney, 1986).

What’s more, sustainability is thought by Siemens to be closely linked to its values. In all its complexity, Siemens view sustainability as a contribution to a more equitable world economy and the provision of energy-efficient, durable products and solutions for Siemens’ customers. In Siemens sustainability is also the expression of a responsible employee culture and a sign of uncompromising compliance with laws and regulations.

Diversity as a factor of success

Siemens is promoting diversity in the management ranks of the company to a greater degree than ever before. Up to nowadays, Siemens has given diversity a permanent place in the corporate level strategy. In Siemens’ culture, in view of the shortage of highly qualified people and demographic changes, diversity is a prerequisite for Siemens’ long-term success.

The supply of qualified technical people and managers in the industrialized world is growing ever tighter. That makes it even more important for Siemens to acquire talented people and to create an environment that allows them to take on key functions in all units of Siemens- irrespective of factors such as nationality, age, gender, origin or religion.

In the year 2008, Siemens applied the strategy of diversity into organizational structure. Siemens created the position of Chief Diversity Officer and appointed Jill Lee, previously the Chief Financial Officer of Siemens China, to the new position. Armed with a comprehensive package of measures, Jill Lee would work in the coming years to meet an ambitious target: By 2011 Siemens wants to have dramatically expanded diversity among the members of its top management. Siemens wants to become the leader in diversity.

Delivering breakthrough innovations,

Innovation has always been one of the most important elements in Siemens’ business strategy. In Siemens’ culture, Innovations are thought to be able to help cut costs, increase sales and achieve higher earnings, and, those who fail to launch the right new product on the market at the right time will be punished more severely than ever before. Siemens intends to become “a pioneer in diversity”. While this is very important, Siemens to this day remains a very German and very centralized company. Competitors such as ABB are many years ahead in this respect as can be seen in various dimensions such as board structure, regional management or repartition of headquarter functions.

Siemens intends to become “a pioneer in diversity”. While this is very important, Siemens to this day remains a very German and very centralized company. Competitors such as ABB are many years ahead in this respect as can be seen in various dimensions such as board structure, regional management or repartition of headquarter functions.

Strategic analysis for Siemens

Firstly, Porter’s five forces and PESTEL will be applied to evaluate the microenvironment of Siemens and a complete SWOT analysis will follow to assess he strategic options for Siemens.

Porter’s five forces

One of the most important division and product of Siemens is electrical equipment and so Porter’s five forces will be applied to assess electrical equipment industry together with Siemens.

Porter’s five forces

Degree of rivalry

The degree of completion in this industry is pretty high and there are many big players in this market

Bargaining power of customers

The space for customers to bargain is limited as the products are highly specialized and buyers are always governments or big companies.

Bargaining power of suppliers

Suppliers who supply raw materials or parts to manufactures have little bargaining power

Threat of new entrants:

As the equipment is of high technology, in the early stage of this industry, the entrant barrier of this industry is high. Siemens and GE have dominated this industry for decades.

Threat of substitutes

However, with the popularity of new energy technologies, some small companies also entered this market with lower-cost technology and energy, so it is getting more and easier to find a substituted in some limited field in a small scale.

Degree of rivalry: In this industry, Siemens competes with big players such as General Electric (GE) of Fairfield, Conn., and ABB of Switzerland. GE has a strong market position in this industry, while ABB has great advantages in power generation and transmission. The number of market players in this field is big and the degree of rivalry is high (Barney, 1995).

Bargaining power of customers: In other industries, companies are liable to cut their prices as they compete for jobs. This is less likely to happen with industrial electrical equipment. These products are highly specialized and technical, making it difficult for customers to find comparable products at lower prices. And because these products have relatively few buyers, their prices are less likely to be pushed down by free-market forces.

Bargaining power of suppliers: Companies that provide parts and materials to these firms have little negotiating power. The components used in these complex electrical systems have little value until they’re part of the finished product. Suppliers of the raw components are a dime a dozen and can easily be replaced.

The complicated nature of this equipment would also make it difficult for suppliers to cut out the middlemen and sell directly to end customers. These suppliers usually lack the skill and sophistication to build these products.

Threat of new entrants: Siemens and GE have dominated this industry for decades. To run with the big players, a new company would need a great deal of investment. The company needs to have very good credibility and connections of both established firms and governments. So the entrant barrier for this industry is high.

Threat of substitutes: some new technologies from smaller companies, which focus on green energy, have posted threat to big companies that lacks a competing product. In solar equipment, for example, some smaller companies are becoming more viable as their technology becomes cheaper, while solar companies may soon have the strength to compete with traditional power source on price and performance, the threat from substitutes post pressure to supplier like Siemens.

In summary, although the completion in this industry is fierce, the entrant barrier for new entrants is high, what’s more, both customer and supplier have limited bargaining power. The pressure from small companies which focus on green energy keep increasing as they have advantages on price and cost.

PESTEL analysis of the macro-environment

The external environment for international business is always complicated and dynamic. The PESTEL analysis of the maco-environment of Siemens is based from two perspectives: one is that Siemens run its business in German and the other condition is that it runs its business internationally or in other destination countries.

PESTEL analysis for Siemens

Germany

GLOBAL

Political

Germany government policy on subsidies; subsiding policies for German firms

Political

Political factors always have great impact over the maco-environment in which the business runs, so muti-national companies need to do research on political environment before their international marketing planning. Siemens is doing well in evaluating political risk before it enters a new market. It is lucky for it that Germen government has steady relationship with lots of countries. Siemens often need to evaluate the historical relationship between countries that would benefit or do harm to its business. The influence of communities or unions for trading is also in its consideration. For example, trade barrier is also implemented in different firms of local laws. If necessary, a report regarding the political risks needs to be completed before its international marketing (Bell, 2001).

Economic

The economic situation in destination countries, the impact of currency fluctuations on exchange rates, the development of local market, the local market structure (Barney, 1996), the local human resources and the predisposition of local consumers are all very important issues for Siemens to consider (Bierly,1996).

The global economy just experienced the financial crisis; Siemens’ business in most countries also experienced a downturn. Another problem is that, together with the financial crisis is the tightened credit system for Siemens, which brought a lot of trouble to its business.

The highlight is that some new markets such as the China market are still growing fast and these new markets provide good opportunities for Siemens’ revenue generation. From economic perspective, Siemens has got steady financial performance in the recent years.

Social

The cultural difference is often a tough problem that all the muti-national companies have met with (Choi, 2000) . Culture, religion and society are of great importance to us. Will and how the local cultural differences affect Siemens’ business should also be evaluated.

One of Siemens’ strategies is Diversity as a factor of success. Siemens is promoting diversity in the management ranks of the company to a greater degree than ever before. In the year 2008, Siemens applied the strategy of diversity into organizational structure. Siemens created the position of Chief Diversity Officer.

Besides, the brand image of Siemens is very good and also means high quality by many purchasers (Davenport, et, 2000), which is one of Siemens’ advantages from the social perspective.

Technological

Siemens still have great technological advantages in its professional fields and it is still holding an advanced position in the international competition.

However, in some countries where governments are not willing to afford high cost of new equipments, some smaller companies gained advantages over Siemens. For example, smaller companies like First Solar (FSLR) are more viable than Siemens as their technology becomes cheaper.

Environmental

With increasing attention from all countries in the world on global warming and with greater environmental awareness, environment is becoming a significant issue for muti-national firms to consider (Michael, 2003). The growing desire to protect the environment is having a great impact the industry. More environmentally friendly products and processes are in urgent demand. All of these external factors can bring good business opportunities for Siemens.

Legal

The Waste Electrical and Electronic Equipment (WEEE) Directive of the European Union (EU) makes producers of electrical and electronic goods financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. The Waste Electrical and Electronic Equipment Regulations 2006, which implement most aspects of the WEEE Directive, came into force in 2007 in most Europe countries. Several product divisions of Siemens are subject to the WEEE regulation (Hofee, 2003).

SWOT Analysis

Strengths

Weaknesses

Big company scale and market share;

Strong brand image;

It has a lot of divisions;

Steady financial performance.

Strong R&D capabilities

Good at diversity

Less innovative in the low-cost new technology

Low in credit rating

Weak in internal control

Depend upon third party service providers for majority of its operational activities

Opportunities

Threats

Increasing demand for environment friendly products

Bankrupt of some local companies in other countries

Joint venture with other big playes

New regulation;

Completion from new and smaller competitors;

Unclear trend of global economy

Strengths

Siemens is a German engineering conglomerate with considerable scale and market share; Siemens is a diversified group, with business in information and communications, automation and control, power, transportation, medical and lighting businesses.

It have strong brand image. The brand of Siemens has good global market penetration. The brand is always connected with products of high quality in a lot of markets.

It has steady financial performance in recent years (Dess, 2008). Over the years, Siemens has delivered steady financial results. Siemens’ net profits have a similar trend in recent years. Steady financial performance enables Siemens to manage its operations well and also improve the financial flexibility in the next a few years.

Siemens is famous for its Strong R&D capabilities, which is also an important factor for its business success. Its research and development (R&D) investment keeps increasing in recent years; the average number of employees engaged in R&D also keeps increasing (Grant, 2008). The group’s focus in R&D facilitates development of new products and enhancements to existing products help in maintaining its strong market position and serving a new segment of customers.

The global economy needs diversity. Siemens has given diversity a permanent place in the corporate level strategy. In Siemens’ culture, in view of the shortage of highly qualified people and demographic changes, diversity is a prerequisite for Siemens’ long-term success.

Weakness

Siemens is less innovative in the low-cost new technology. For example, smaller companies like First Solar (FSLR) are more viable than Siemens as their technology becomes cheaper, so Siemens now face the pressure from smaller companies.

Siemens is low in credit rating. Siemens’s credit ratings were downgraded by some major global rating agencies in the recent years, which is partly due to its capital structure (Hungenberg, 2008). In November 2007, Moody’s Investors Service downgraded Siemens’ long-term corporate credit rating from Aa3 to A1.Its finance is not good at generating cash flow, therefore, Siemens’ ability to obtain new funding and investment from external investors may be negatively affected by its low credit rating.

Its internal controlling mode is not as effective as expected. Some reviewers said Siemens’ disclosure controls and procedures have been not effective due to material weakness in its internal control. In the area of anti-corruption and financial report, Siemens got a lot of trouble due to its weakness in internal control.

Siemens relied on third party service organizations for most of its operational activities. It buys third party services for manufacturing, assembling and testing its products, while these third parties always have kinds of tie ups with multiple companies. Any problems from these third parties could adversely affect the group’s operations. Heavy dependence on third party reduces the group’s control over its operation and business costs. The consistence of the products could not be guaranteed, either.

Opportunities

During the financial crisis, a lot of small companies went bankrupt, some companies are of great value to enhance Siemens’ competency. It is a good time to buy these companies with low cost.

Ally with a strong player is a good way to share the resource and enhance the competency of both companies. For example, joint venture is a good way. Nokia and Siemens established a 50-50 joint venture in 2007. The joint venture is called Nokia Siemens Networks, which combined Nokia’s networks business and Siemens’ carrier related operations for fixed and mobile networks. This joint venture is expected to provide significant long term returns to both groups.

As all the countries are caring more about the environment, There is a increasing demand for environment friendly products, which is related to several products line of Siemens.

Threats

The new regulation of producers of electrical and electronic goods financially responsible for specified collection, recycling, treatment and disposal of past and future covered products post sizeable costs and liabilities to Siemens.

Small companies are gaining market share by their products with lower price, which make the competition more intense.

The global economy has not fully recovered from the financial crisis, so the market has not fully recovered, either. Besides, the credit is still tight, and it is very difficult for Siemens to get new funding from external capital market.

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