Corporate Innovation at Siemens

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.


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


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


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


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


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


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.


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


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


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


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.


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


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


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


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


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


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


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


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


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.


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