EMERGING

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<strong>EMERGING</strong> MARKETS: A Review of Business and Legal Issues strengthened, especially in those sectors of the economy where natural monopoly existed (telecommunications, railway transport, and postal services). Siemens skilfully used those links and for many years became the “court supplier” of large state-owned enterprises, not only in Germany. Their privatisation in the 1990s and the increased international competition changed the conditions for doing business. It turned out that in the new conditions, despite the high technological level of products, the competition introduced new solutions faster and they were cheaper than the products of Siemens, which is unable to cut their cost in order to offer attractive prices. 1 The strategy under Heinrich von Pierer and Klaus Kleinfeld The years between 1992 and 2007 is the era of Heinrich von Pierer, who was the CEO of the company until 2004 and subsequently the chairman of its supervisory board. His leadership in Siemens was characterised by caution in making new investments (including capital investments in Poland), the “without sudden ups and downs” company development policy, and complete restructuring as a response to the challenges posed by the competition and the criticism of poor results of Siemens as compared to its competitors. 2 Due to the strong position of trade unions, those changes excluded instruments related to the reduction of employment. Nevertheless, he took several steps whose consequences have probably only begun to unfold in the results in recent years. He began the spin off of those branches of the corporation which failed to generate the desired margin (e.g. the production of semiconductors, production of electronics). He also made some acquisitions (e.g. Westinghouse), leading to the expansion of Siemens on the US market, which resulted, inter alia, in the flow of innovation in the field of management. In the spirit of American practices he introduced the EPA programme (development – promotion – recognition) for middle level managers (around 30 000 people). The programme consists in applying individual pay rises and bonuses depending on the results of work (sales). On the other hand, he introduced a rule 1 MF, 2007, Siemens – dymisje obu prezesów [Siemens – dismissals of both presidents], Zarządzanie na świecie, 3, p.3 2 1996, Rzeczpospolita, Page 38 Volume 1, April 2009
<strong>EMERGING</strong> MARKETS: A Review of Business and Legal Issues according to which failure to meet the planned results is possible only twice. If it happens for the third time, the person responsible for the failure is laid off. Klaus Kleinfeld, who was earlier the president of the American branch of the corporation, despite being in the Board of Directors since 2004, had a real influence on the strategy of the corporation only for less than 2 years. It is characteristic that he began his term in office from stating that he would “aim at the maximum transparency of Siemens”. Soon after he took over the management of the company, he announced the change of the existing strategy, which allowed for significant autonomy of 12 business areas. Each of the branches could be an independent corporation from DAX-30 list, in terms of revenues or the number of employees. The majority of them functioned well and generated profits but the results of several were poor (telecommunications equipment, production of mobile phones, IT services). 1 The new strategy envisaged setting ambitious development goals for each department, i.e. getting closer to the best companies in the world (benchmarking) and reaching the profit margin envisaged by the head office. 2 He stated that within two years each branch of the company had to become profitable, and those areas which did not promise improvement would be sold or separated in order to form companies with other partners. Siemens had practised joint venture for a long time (e.g. Siemens-Nixdorf, Fujitsu-Siemens, etc.). The profitability was to be achieved by means of, inter alia, reductions of employment by up to 10% in each business unit of the corporation and the planned structural changes – the separation of joint support divisions for all sectors in order to overcome the isolation of individual sectoral branches and jointly deal with the customers using the scale effect (Siemens One programme, which, however, is the imitation of One GE concept). 3 Those plans were to be implemented by the end of 2010 (the Fit for 2010 programme). 1 Der Spiegel, 2006, …… 2 Manager Magazin, 2007, Captain Future – Welche Spuren Klaus Kleinfeld bei Siemens hinterlaesst. Heft 7. p.32 3 C. Dougherty, 2005, Siemens chief pushes 'one for all' strategy, International Herald Tribune, 26.08; Page 39 Volume 1, April 2009
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