Breakfast is a managing board meeting. The supervisory board meets at lunch. And the shareholders get together for dinner.
That’s how family-owned enterprises work. Family members are simultaneously co-owners, managers and employees. Their focus is always on the company. They identify with it and work to ensure its sustainable success. Every member gives his or her best because the family’s livelihood and reputation are at stake. Every member wants to hand over the company to the next generation in better shape than it was when they took over.
Siemens, too, began as a family enterprise. In 1847, Werner von Siemens founded our company by setting up a small shop in Berlin in order to manufacture pointer telegraphs. His brothers soon joined, and together they built a highly innovative company operating around the globe. Today we like to say that Siemens was born in Germany, raised in Europe and is at home in the world.
The company has long since outgrown its roots as a startup in the middle of the 19th century. Today, 340,000 people work for Siemens in 200 countries and in a broad range of business fields.
How can the virtues of a family enterprise be applied to a multinational company like Siemens AG? How can comparable principles be used to lead a large organization? What does the company stand for? And what holds it together? How can leaders inspire employees to perform at their best?
These were some of the questions we focused on when we defined the new direction for Siemens. With Vision 2020, which we introduced in May 2014, we presented an entrepreneurial concept aimed at strengthening Siemens and achieving profitable growth in the long term. But even more importantly: We initiated a fundamental culture change that supports this concept and that shapes our management model at all levels.
Mainly two developments prompted the biggest company reorganization in the last 25 years. First, Siemens has not lived up to its economic potential in recent years. The most important competitors are growing faster and achieving higher profit margins.
Second, the paradigm shifter digitalization is fundamentally transforming the economy and society, and thus Siemens as well. The smart phones we carry in our pockets and purses today have processors that are over 2,000 times faster than the most powerful Siemens mainframe computer in the mid-80s. A computer, incidentally, that completely filled an open-plan office.
Digitalization is affecting all aspects of our lives and all industries; it’s turning business models upside down. We at Siemens are facing forays into our domain by software companies like SAP, Microsoft, IBM – as well as players like Google and Apple. These new competitors are venturing into areas such as manufacturing and building technologies, for example. Our answer to that is Vision 2020. Siemens covers the entire value chain of electrification, automation and digitalization and is focusing its resources on selected growth fields. From the very beginning, Siemens has been an electrification company. Today, we are the world leader in automation. If we want to be successful in the future, we must master digitalization and use it to create value for customers.
Ownership culture as the basis
How are we making Vision 2020 real? I believe that a culture change must accompany that – a change toward a true ownership culture, the kind of culture typical of well-run family businesses.
This means, first, a modern understanding of leadership. We expect managers to think long-term, to act like entrepreneurs, and to inspire and motivate employees.
Second, it means employee orientation. That entails communicating management decisions transparently, encouraging employees to ask questions, promoting an open dialogue, and standing by employees with the promise “We care.” The message is: In good times and in bad, no one will be left alone at Siemens. Our maxim is: “You never walk alone.”
Third, our employee stock ownership plan is turning Siemens employees into Siemens shareholders – not only in Germany, but in over 60 countries worldwide. That enables them to profit from the company’s success. At present, 144,000 Siemens employees are shareholders. By 2020, we want to increase this number by at least 50 percent to over 200,000. I’m convinced that employee shareholders are more motivated and perform better because they work for “their” company.
Fourth, our values. “Responsible, excellent, innovative” –ownership culture is also based on our company’s values. Only those who assume responsibility can produce excellent results and be innovative.
And fifth: Our overarching goal is to promote the behavior found in family enterprises. Our maxim is therefore: “Always act as if it were your own company.” In short: Think and act as an entrepreneur in your own area of responsibility; seek opportunities and seize them rather than being content to stay in your comfort zone. And in doing so, always focus on what creates value for customers and society.
But culture change is a marathon, not a sprint. We’ve now put the first few kilometers behind us. The basis for the implementation of our concept is our management model “One Siemens,” which comprises a financial framework, an operating system for daily business, as well as sustainability and corporate citizenship.
Let’s first take a look at the financial framework. As in family enterprises, Siemens gives financial solidity priority over short-term profit. That is reflected by financial targets oriented toward the creation of sustainable value, and it’s also evident in our compensation system: management remuneration is based on the fulfillment of the company’s financial targets and the success of Vision 2020. Our employee stock ownership program enables employees to benefit from the company’s sustainable development.
Werner von Siemens had financial sustainability in mind when he said: “I will not sacrifice the future for short-term gain.” We at Siemens follow that principle to this day.
Now let’s look at the “operating system.” First, the model of a family-run business shapes our customer relationships. We nurture close and trusted partnerships with customers, often over generations. At Siemens, we want to be close to our customers. That’s why we eliminated some organizational layers in 2013. And that’s why we want our sales employees, wherever they work around the globe, to devote 30 percent more time to customers. Customer proximity also means reducing bureaucracy and paperwork. Customers expect us to meet their requirements, and that’s good because that motivates us to constantly improve and to dare to innovate.
Second, our operating system includes an innovation strategy that proactively meets the challenges customers face. Today, many of these challenges arise from digitalization. How can businesses process data in such a way that it creates value for customers? How do we get from data to business? That’s the key question today. I don’t think Silicon Valley is the only place where groundbreaking inventions and innovative business models are being developed; Siemens and other European companies are capable of doing that as well.
Here, too, ownership culture plays a central role. Family enterprises develop innovations based on their tradition: They analyze their specific strengths. They seek out business fields of the future in which they have a head start. And they allocate resources to these fields. That’s exactly what we’re doing at Siemens. We’ve identified eight growth fields within our core business.
One of these growth fields is industrial digitalization, or “Industrie 4.0,” the Fourth Industrial Revolution. The Siemens Electronics Plant in Amberg, Bavaria, already provides a view of the future of manufacturing. We produce about 15 million Simatic industrial controllers a year there – that’s roughly one product every second. The quality rate is 99.9989 percent or just one defect every two days. That’s unmatched worldwide. And that’s exactly the aspiration of family entrepreneurs: Always be the best in your line of business.
The third element in our operating system is business excellence. For us, this means that benchmarking is mandatory. Every three years, each of our businesses analyzes in detail its performance in comparison with the competition. It then takes measures to either catch up with the best or to maintain its top position. Business excellence relies on constant learning and improvement and on utilizing what has already been learned. The prerequisite for that is what we call “Corporate Memory.” “If Siemens only knew what Siemens knows…” is a common expression in our company. Since its founding, Siemens has collected an immense pool of know-how and experience. An institutionalized corporate memory bundles this know-how, systematically makes it available for use in new projects, and provides information that is invaluable in weighing opportunities and risks.
One example of ownership culture in practice is the construction of the world’s biggest metro line in Riyadh, Saudi Arabia. Siemens won the 1.6-billion-euro order to deliver a turnkey rail system for two driverless metro lines. Already in the bidding phase, we employed a cross-regional and cross-Divisional team to avoid project risks. Then, in the planning phase, we utilized our experience with large-scale projects in other business fields in Saudi Arabia and our knowledge of the conditions specific to the region. Likewise, the knowledge we gain in the Metro Riyadh project will be stored in our Corporate Memory and systematically made available to help us with future large-scale projects – not only in the rail business.
Finally, for us, business excellence means constant improvement. Our Wind Power and Renewables Division, for example, launched a program called “Zero-Defect Culture.” Its goal is to avoid faults in production, installation and maintenance. Its four core principles are: We deliver as promised. We don’t accept defective products. We strive to do things right the first time. We spot weaknesses before they lead to defects.
This program and other, similar programs are underway in a number of Siemens businesses and regions. The broad variety is intentional; it shows that employees are acting as entrepreneurs and contributing and implementing ideas. We know that a company culture can be promoted but not imposed from the top. It has to develop – and be put into practice.
Let me turn now to the fourth and last area of our operating system. “People excellence and care” means that employees should have challenging tasks and feel supported, as in a family enterprise.
We need excellent entrepreneurial skills and abilities, especially in these days of rapid change, and that comes only from motivated employees who identify with their company.
The generation just entering the working population, “Generation Y,” drives that home. Today’s 25- to 35-year-olds seek work that is meaningful, work they can be proud of. And you can be proud of a company only if it creates real value for society.
Nobel Prize laureate Milton Friedman once said: “The business of business is business.” But I believe the business of business is more than business. The “more” here is assuming responsibility for society and for the generations that follow. The prerequisite for that is obviously healthy profitability – because only those who have (profit) can give (to society).
Some months ago we asked our employees what word they would use to describe ownership culture. Around 15,000 responded with words like “family, passion, freedom, authority, commitment.” But the by far most often mentioned word was “responsibility.” We posed the identical question to our 500 top managers as well. Here, too, “responsibility” ranked far above all other words. This shows that both the leadership and the rank and file at Siemens have understood what it’s all about: responsibility and personal engagement for the good of “their” company. And that is ownership culture.