Post on 05-Feb-2023
Running head: CORPORATE INNOVATION AT SIEMENS 1
Corporate Innovation at Siemens
Glen R. Witherbee
ORG530 - Business Ethics and Sustainability
Colorado State University - Global Campus
Dr. Jaime Klein
June 21, 2014
CORPORATE INNOVATION AT SIEMENS 2
Corporate Innovation at Siemens
Introduction
Innovation is the backbone for any organization if it
expects to flourish in today’s marketplace. A corporation’s
ability to remain flexible in the face of stiff competition with
respect to its procedures and technology will only ensure its
successful growth and Siemens is no different. Siemens was
founded in 1847 and has enjoyed 170 years of being one of the top
manufacturing companies in the world due to its innovative
approach to business. Siemens began by improving the telegraph
initially making most of its capital with this technology and in
1866, Werner Von-Siemens discovered a way to convert mechanical
energy cost effectively into electricity thereby laying the
groundwork for all technological advances we see today (Siemens
Global History website, n.d.). Siemens continues today to offer
innovative solutions spanning across business sectors by keeping
on top of what its customers demand whether it be specific
products or the way in which the product is delivered. This paper
will examine how Siemens can, through innovation, remain a
winning force in the economy today.
CORPORATE INNOVATION AT SIEMENS 3
Components of Innovation
Leadership and Culture
Strong leadership sets the tone for innovative attitudes
within the organization. Without the executive teams strong
influence, employees within the company won’t feel motivated to
carry out the innovation strategy. In fact, Davila, Epstein and
Shelton (2013) indicate that most employees look for strong
management to implement innovation strategies.
The current President and Chief Executive Officer (CEO) of
Siemens AG is Joe Kaeser and has been a strong force in leading
innovation. For example, under his leadership, the company has
opened Siemens Bank, which has given the organization the ability
to close business very quickly through its lending capability and
its ability to manage liquidity and the repossession of assets,
which no other company can match (Brace, 2012). Kaeser also
understands that the potential for growth is happening in
emerging markets such as Egypt, Vietnam, and Columbia and is
investing in collaborations with local colleges and universities
to provide the necessary skills required for Siemens to meet its
goals in those markets. It is imperative for leaders such as
CORPORATE INNOVATION AT SIEMENS 4
Kaeser to have such visions to guide the company and motivate its
employees in order to accomplish success overall.
Leadership is also responsible for instilling the cultural
values a corporation has. Culture consists of the collective
beliefs and the understood guidelines in an organization (Davila,
Epstein, & Shelton, 2013). Top level management must continuously
integrate organizational culture in everything the company does
and how it acts. Siemens believes that customer centricity is the
focal point of its culture (Bartlett, 2011). In other words,
everything Siemens does is directly linked to customer
satisfaction. All of its collaborations and business decisions
from offering financing through Siemens Bank to its relationships
with higher learning organizations are made for the betterment of
the customer experience. With the end goal of customer
satisfaction in mind, Kaeser can implement innovation in the
organization effectively and without question.
Strategy
The strategy of Siemens is based on its long term vision,
“Siemens – The pioneer in energy efficiency, industrial
productivity, next-generation healthcare and intelligent
CORPORATE INNOVATION AT SIEMENS 5
infrastructure solutions” (One-Siemens, 2013, p. 80). To
accomplish these goals, Siemens is well positioned as a global
company to capitalize on several factors such as changing
demographics, globalization, climate change, and urbanization.
Its footprint around the globe enables it to reallocate resources
to stronger markets when local economies are suffering. When the
cost of labor and materials rise in certain markets and infringe
on the company’s ability to make a profit, business units may
need to relocate to other parts of the world. One example of
Siemens’ capacity to do this can be seen in its Healthcare
division where it has manufacturing facilities in Germany, China,
and the United States. Currently in Germany, electricity costs
are skyrocketing and may eventually force the company to move
some of its manufacturing to other locations abroad.
Companies must also listen to their customers and society
when deciding what course of action is best for the entity.
Public perception of a company’s questionable operations can have
a negative impact on its other business sectors. Siemens
understands this and, as a result, has been a member of the
United Nations Global Compact (UNGC) since 2003 which is a
CORPORATE INNOVATION AT SIEMENS 6
public-private sector partnership dedicated to addressing social
concerns such as the environment (Matei, 2012). Siemens
involvement with UNGC shows society that it is listening to its
concerns. One bold move Siemens demonstrated in light of the
nuclear disaster in Japan, is its decision to withdraw from the
nuclear power business altogether. The strategy to close this
business is not due to the company’s inability to manufacture
safe nuclear power, but its capacity to learn from what the
market wants.
Processes
Innovation can be technology oriented or process oriented,
meaning advanced technological discoveries can be considered
innovations, but the way in which these advancements come about
can also be innovative. Examples of technological innovations are
items like the first x-ray tube first patented by Siemens in 1896
(Siemens Global History website, n.d.) to a Computed Tomography
(CT) scanner that we are all familiar today. This innovation is
quite dependent on the process of development. How did it get
from x-ray tube to CT scanner? Without process innovation,
development of a product would be non-existent. Siemens is not
CORPORATE INNOVATION AT SIEMENS 7
only looking for ways to make its products more efficient, it is
looking at ways to manufacture its products more efficiently. By
streamlining the process, costs can be reduced dramatically
thereby driving down the overall cost of the product. This is
demonstrated in Siemens Metal Technologies with the production of
steel. By introducing more automation and IT technology, the
overall process of steel manufacturing is much more efficient. As
a result, customers enjoy the benefits of lower cost of
manufacturing and its ability to respond more quickly to market
demands, while protecting its investments and the environment
("The Strategy of the Siemens," 2012).
Upgrading legacy computer systems is another way Siemens
aims to maintain its leadership in the industry. Antiquated
systems can pose problems with cyber-attacks that can bring
business to a complete halt as well as hamper productivity
overall. Upgrading these systems can eventually provide up to a
30% increase in efficiency and cost savings in the end (Ellam,
2010).
The same principals can be applied to supply chain
management as well. Customers today want their products more
CORPORATE INNOVATION AT SIEMENS 8
quickly and want them to work “out-of-the-box” while suppliers
want less risk and less inventory to manage. Integrating new
process technology into supply chain management can address these
issues by effectively getting the needed flow of information from
customers and by efficiently getting products into the field
(Cui, Loch, Grossman, & He, 2009).
Resources and Outsourcing
In order for any company to provide a product or service to
a customer, it must have access to the right resources. These
resources come in many forms such as human resources, research
and development (R&D), marketing, and so forth. In some cases,
companies are looking outside the organization for the resources
needed to in order to complete a project. Studies show that some
of the world’s largest R&D organizations, including Siemens, are
outsourcing up to 45% of their innovations (Cui et al., 2009).
This allows companies to take advantage of the expertise another
company may have in producing a component or service needed for a
larger system.
One way Siemens outsources innovation is by collaborating
with higher learning institutions such as university hospitals.
CORPORATE INNOVATION AT SIEMENS 9
As a corporation, Siemens does not have access to patients who
are needed to evaluate and improve upon new technology. One of
the company’s newest technologies is Positron Emission Tomography
and Magnetic Resonance (PET/MR) scanning which has prompted
relationships with Eberhard Karls University, the University of
Munster, and the University of Zurich. These facilities are
relatively close to Siemens headquarters in Erlangen, Germany
which allows the researchers to exchange data efficiently. The MR
scanner is also manufactured in Erlangen, which facilitates fast
turnaround on any software or hardware enhancements that need to
be made. The challenges arise with the PET scanner as it is
manufactured in Knoxville, TN. Accessing data and time zone
constraints must be dealt with in this situation and can slow
down the innovation process. Siemens also has relationships with
the University of Tennessee where much research is performed, but
the fact remains that different manufacturing facilities
geographically far from one another can present some challenges.
In this case, however, the benefits certainly outweigh the
small inconveniences allowing Siemens to focus on its core
functions (manufacturing equipment), the ability to access
CORPORATE INNOVATION AT SIEMENS 10
external skills (knowledge of medicine), and increased
flexibility (access to hospital infrastructure) (Salanta,
Lungecu, & Pampa, 2011). This is also a way for the company to
determine what the market demands and its multi-country partners
allow it to gain broader knowledge of different markets. Without
these relationships, Siemens would not be able to improve upon
its product. These affiliations also provide a catalyst for
innovation planning for new product development (NPD). Companies
such as Siemens with large amounts of capital for R&D and the
extensive networking in place tend to plan for innovation better
than those without (Song, Im, Van der Bij, & Song, 2011). These
partnerships are but one example of specific management systems
Siemens uses.
Performance Metrics and Measurement
“Ultimately, innovation is a means to an end – a competence
to generating profitable growth opportunities and improving the
organization’s overall competitiveness” (Chen & Muller, 2010, p.
1). The process of innovation must therefore be measured so that
companies can fine tune progression as needed. It is not just
what is created but how it is created as well. Adjustments must
CORPORATE INNOVATION AT SIEMENS 11
be made in order for more efficiency to be realized or for
expenditures to be protected. At Siemens, this begins with
quality. Quality starts with its customers, pervades the entire
organization, and ends with striving to improve even more.
Because quality is the benchmark for everything Siemens does, it
has detailed a quality management protocol that maps the way the
company manages its process which includes: customer integration,
quality standards in process and projects, consistent supplier
management, business-driven quality planning, focused quality
reporting, comprehensive qualification for quality, continuous
improvement, spirit by management involvement, and control and
support role of the quality manager (Siemens Aktiengesellschaft,
2011).
Customer integration involves continuous communication in
order for Siemens to understand its customer’s needs. Customers
drive business, so businesses need to listen. Standardization
allows the company to be more efficient and reach specified
milestones while managing suppliers in a consistent manner
ensures that everyone is on the same page. Synchronicity equals
efficiency. Business-driven quality planning refers to
CORPORATE INNOVATION AT SIEMENS 12
management’s ability to set targets and goals. Each of these
individual goals are then examined to determine if any
improvements can be made. Siemens employs only qualified
individuals, and continuous training is offered to maintain a
level of expertise in that area. Finally, the leaders place the
onus on themselves to instil a level of commitment to quality
throughout the entire company and are thought of as role models
that proliferate the culture of said quality (Siemens
Aktiengesellschaft, 2011).
Specific metrics are also needed to evaluate a company’s
return on investment. Without these measurements, there is no way
for an organization to rectify areas that may be problematic
thereby causing product or service deficiencies. An example may
be the amount of money being spent in R&D. Let us say that a
product is introduced into the market, and it performs poorly. An
organization may increase the budget as a solution to the problem
but are shortsighted when they should be looking at how they
spend their money. Detailed observation is critical to avoid
wasteful spending.
CORPORATE INNOVATION AT SIEMENS 13
Siemens has in place a comprehensive list (close to 100) of
specific metrics that are used within the company to monitor its
success ranging from product pipeline throughput to field failure
rate (Siemens PLM Software, 2009). This documentation
demonstrates Siemens’ commitment to quality and transparency.
Understanding this will only inspire customers to feel confident
while working with Siemens both as a partner and as a customer.
Incentives
Incentives and rewards can be very important components of
motivating employees to get the best work out of them. Depending
on who the employee is and what their job entails will determine
what type of reward is appropriate. Motivating employees is
crucial with respect to reaching desired goals and proposing
incentives for specific tasks are one way to achieve this.
According to Davila, Epstein, and Shelton (2013) “people engage
in an activity because of these elements; the expected incentives
associated with the activity, their passion about the activity,
trust that they will be appropriately recognized, and a vision
that provides a clear sense of purpose” (p. 182). Knowing which
CORPORATE INNOVATION AT SIEMENS 14
of these four items that drive employees and using them to
motivate them is fundamental.
Motivation can come from external sources or can come from
within the individual. Everyone needs to have some motivation
from within or nobody would want to work at all. Finding a career
that interests individuals will only help foster that internal
drive to participate in the economy. After all, we tend not to do
things that we don’t enjoy. Human beings have certain needs that
can be met in the work environment, and companies can tap into
these needs to get what they want.
A specific need is the premise that employees feel that
their employers think they are valuable and that what they do,
contributes to the overall progress of the business (Khan, 2012).
One way to accomplish this is to provide ongoing training. This
not only shows employees that the organization sees them as
important by investing in further improvement, but it also
benefits the organization ensuring that its employees continue to
be competent in their role. Training performed by the
organization can implement ideas that they want to encourage such
as changes in attitude, and behavior. By taking in interest in
CORPORATE INNOVATION AT SIEMENS 15
helping individuals become better people, employees may see their
employer as one who cares about their success. In turn,
motivation is increased and as a direct result, productivity
escalates (Khan, 2012).
Being recognized is another important aspect of employee
motivation. Kanfer (2009) suggests that a basic human need is to
feel that what they do within an organization is important and
that being recognized for their efforts is important. Siemens
knows this to be true as well as it holds formal recognition as
part of its culture. In fact, the organization found it so
important that it formed a unified recognition team of sorts that
spans across all the business units of the company throughout the
world. One of the items that organizers deemed necessary was that
the process be seamless so that bureaucracy didn’t interfere with
managers’ ability to get rewards distributed. Managers throughout
the hierarchy had a certain number of monetary awards to give,
and it was up to them how they wanted to disperse them. Those on
the front lines made the decisions quickly enough to have the
right impact on the employee being rewarded. The effect it had on
employees was significant. Siemens performs an employee survey
CORPORATE INNOVATION AT SIEMENS 16
every two years and found that the retention rate of workers
increased by 5% since the program went into effect (Jakobson,
2012). This number is noteworthy in a company that employs over
60,000 people. With fewer people looking elsewhere for work, the
company does not experience as many disruptions and, as a result,
spends less capital on training new people allowing them to
maintain the ability to innovate efficiently.
Ethics
Ethical business practices seem to be more important today
than ever before. The current economic environment has forced
corporate America to proceed with caution with respects to
growth. Many people feel that the corporate machine is only in it
for the money with little regard for anyone but themselves. This
concept manifested when individuals took to the streets in the
Occupy Wall Street movement indicating the frustration that some
had with big business.
Large organizations who do business all over the world have
dealt with some ethical dilemmas simply by being associated with
different cultures. Siemens is no stranger to this as it has been
legal in Germany to offer bribes abroad until 1999; these were
CORPORATE INNOVATION AT SIEMENS 17
even tax deductible (Loscher, 2012). Because Siemens was getting
ready to be released on the New York Stock Exchange (NYSE), it
had to abide by United States law by not participating in any
corrupt practices such as bribery anywhere in the world. As a
result of Siemens poor practices, the company was fined in excess
of $1.6 billion dollars. In 2007, the CEO of Siemens, Peter
Loscher insisted that Siemens do business around the world in a
clean and ethical manner by demanding that all employees be
trained in proper behavior and by increasing the corporate
compliance team by 70% (Bartram, 2011).
The author participated in the training offered by Siemens
where a full day was spent reviewing the most corrupt nations in
the world, their practices, and what the company could and could
not do throughout the business day. This included being
prohibited from buying lunch for a customer, which many found to
be ridiculous. Nobody felt that providing pizza would persuade
anyone from purchasing a $1 million dollar piece of medical
equipment. This was merely a way to build relationships which is
a huge part of doing business. Some customers were used to this
and even expected it, but they soon came to understand why the
CORPORATE INNOVATION AT SIEMENS 18
company had to change its ways. A level playing field for
everyone meant fairness for everyone.
Learning
Learning and innovation are two sides of the same coin
because, without learning, there can be no innovation. In a
sense, innovation is the “action” component from what a company
learns. Just mentioned was Siemens’ corruption scandal in which
it took steps to correct a problem in order to continue to do
business around the globe. This leader driven step allowed the
company to continue to grow and make a profit. Without changing
its business practices, the company would be blocked from playing
in certain parts of the world. Customers such as the United
States demanded this and Siemens listened.
Another way the organization learns is through its
relationships with its partners such as universities. As
previously mentioned, this type of relationship gives access to
knowledge that the company may not have. Siemens also can get
important feedback from these partners and can modify and change
its product in order to meet the needs of those in the market.
Patients may also demand a specific technology when managing
CORPORATE INNOVATION AT SIEMENS 19
their healthcare and will seek out the institution that offers
said technology. Only from the advice Siemens gets from its
hospital partners can it apply the proper innovation to its
technology.
Internally, employees are continuously trained on new
policies in order to keep up with current business practices.
They are also taking part in increasing their product specific
knowledge as technological advances are made. The organization as
a whole must continue to learn and make changes as the market
demands, or it will not survive.
Another way that the company learns is its ability to know
when to enter into or get out of a specific market. Siemens
demonstrated this by getting out of the nuclear power industry
previously mentioned. Due to strong external opinion, the company
decided that it was in its best interest to distance itself from
the controversial product. Again, the organization listened to
the people and acted appropriately. Learning is about openly
communicating and by doing this, companies can change accordingly
to the demands of their customers.
Discussion
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As has been seen, innovation permeates the very fabric of
successful organizations. This innovation starts at the very top
with the executive team who instils the concept into the culture
of the company making sure that all employees are constantly
thinking about it. Siemens strategy and the processes it has in
place to support innovation demonstrate the company’s commitment
to positive change and growth for its stockholders and for
society as a whole. Its partnerships with universities and its
accessibility to highly skilled workers supports persisting
innovation and positions the company to gain market share
consistently. The company’s ability to accurately measure its
people and its processes allow it to be extremely efficient
thereby keeping costs and production time down. Its commitment to
the employee through incentive and recognition programs inspires
and motivates workers to perform better creating an environment
of longevity in the organization. This creates fewer disruptions
with respects to retraining new personnel, again maintaining an
efficient process. The companies pledge to principled business
practices sends a message to all associated with the organization
that it is committed to doing the right thing. This creates an
CORPORATE INNOVATION AT SIEMENS 21
awareness among potential customers that working with this
company can only enhance their own business. Finally through
learning the organization can continuously change in a positive
direction and offer products that its customers want and need.
The author’s ten year experience with this company gives him
the opportunity to offer some advice in making a minor change in
its innovation process. Better communication in what innovation
is and how it is integrated into the company should be conveyed
better. Only by looking back now can he see how implementing
innovation was helping the organization. By clearly defining what
innovation is to non-leaders would make the process of change
easier to swallow for many employees.
CORPORATE INNOVATION AT SIEMENS 22
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