corruption, monoculture, multiplicity, shareholder value

Siemens AG is currently often in the media, mostly negatively, in particular as regards the Siemens corruption scandal. This saddens me, since Siemens was my first employer and moulded my views.

5 years ago, with Marc Borner – a philosophy student from Darmstadt – I produced a lecture about corruption with the title “Das Käufliche des Unkäuflichen” for a seminar at the Wolfgang-Goethe-University and repeated it at various Universities and meetings. I still get reactions to it, so I will be happy to repeat it where there is interest.

Briefly, the (reasoned and substantiated) message was:

  • Corruption has existed as long as mankind.
  • So corruption can be regarded as normal.
  • Under exceptional circumstances corruption can even be ethical or even necessary.
  • But since corruption generally damages society it should be combated and limited as far as possible.
  • Corruption in many countries, including Germany, significantly exceeds what is acceptable.
  • It may be that we have gradually got used to it.
  • “Training” in corruption starts in childhood and continues in social systems and at work (see my posting “target-setting” – Zielvereinbarungen, if you understand German).

Enough for now about corruption:

When I started at Siemens in 1976, all new employees were greeted in the fine canteen in Hofmannstrasse in Munich by a real live director. His talk covered the social balance of Siemens AG and then described the Siemens corporate strategy in detail.

I summarise his talk:

“Siemens has 25 different divisions. Most make a profit, as one would hope. Two or three have crises. That is inevitable. These divisions will be sanitised as quickly as possible so that they are profitable within a couple of years. It is an illusion to think that all can always make profit. Siemens very rarely gives up a business area.”

“Modern” managers would probably dismiss this as an antiquated principle. But I believe it is a modern and wise company strategy, which has proved right in recent decades too, giving intelligent diversification coupled with synergy.

In 1976 synergy was not a dirty word. It really happened in Siemens. It was not always easy and friendly, but generally worked well. Personally, I know of Siemens products that were particularly good due to influences coming from different divisions.

Siemens was jokingly referred to as “a bank with associated electric business”. Financial health, customer utility, business respectability, solid, sensible cost planning, stability and long-term thinking were epithets associated with Siemens.

Nobody at Siemens then talked about Shareholder Value. Good results were expected. Good return on investment was the natural result of good engineering and a solid centrally integrated sales force. The company profited from a healthy value system. Siemens had a few weaknesses, but prospered while other electro-firms (AEG, Grundig, and Telefunken) failed.

What went wrong?

My explanation is quite simple. Siemens like many other European companies fell into the “Shareholder Value” trap. After more than a century, Siemens’ own successful strategy was sacrificed to the international analysts. Widespread dubious ideas were thoughtlessly adopted and became the new management principles. The following two were particularly damaging:

  • A multinational concern does well only when it is number 1 or 2 in the world
  • Corporate “styling” by merger or takeover or by selling parts is a good way to solve problems

“Number 1 or 2”

The belief that a major concern must be Number 1 or 2 gives me toothache. Perhaps there are special cases where this makes sense (e.g. Intel processor chips, or Microsoft operating systems), but I have doubts there too in the long term.

In business history one sees that the number 1 often goes downhill or even disappears completely. And there are many examples of companies ranked 3 to 10 in the world that constantly earn very well. Particularly in Germany there are firms whose good work (and luck as the founders willingly admit) made them number 1 in specialised areas. But when they go onto the stock market, the problems start. BMW is now finding out how hard life is as number 1. (Comment from the translator: I thought GM and Toyota were top).

I fear that the new Siemens strategy of concentrating exclusively on three mega trends is very damaging. The utopian aim to be number 1 or 2 in the world will fail. A multi-culture of 25 divisions with separate business areas seems to me a better form for a long term functioning company, than 3 mono-cultures that must always be number 1 or 2 worldwide.

“Merging and divesting”

I need not write much about mergers. The literature shows that most mergers fail. The desired positive effects very rarely happen. Siemens-Nixdorf, BMW and Daimler are recent German examples. Compaq, HP and DEC also bear this out. The hope is that 1 + 1 will give more than 2, but often 0·5 or less, results. Regarding sell-off, in Germany one thinks of BenQ, Fujitsu-Siemens, Infineon, Quimonda (all dubious Siemens spin-offs), and (soon to come) NSC.

Uncritical foolish adoption of the above two beliefs has damaged Siemens AG more than the currently well publicised corruption. Corruption is one of the moral problems of our time, but should not be overrated. Siemens was perhaps recently a bit more corrupt than other firms, but I do not really believe it. Probably Siemens just hid things less cleverly, (which could be taken as a sign of positive culture).

What could have been done better?

It is easy to criticise. Effective advice is much harder, as I know from my own experiences as a businessman. I believe that lasting success in business only comes when three main requirements are satisfied:

  • Costs must be controlled!
  • Know-how – the best thing that a company has – must be protected!
  • The firm must continuously renew itself, and stay young!

Here some clarification of these three requirements:

“Costs must be controlled”

Clear control of all costs and economical operating are the first prerequisites for lasting success. This is particularly important while building new business. This used to be a strength of Siemens. Recently it went missing. I cannot really judge whether it was clever to shower Ronaldo and Real Madrid with money, in order to sell mobile telephones in South America. But I am allowed to register my scepticism.

“Protect Know-How”

In my time at Siemens, I was always impressed by its universal know-how. The joke “If only Siemens knew what Siemens knows” was absolutely justified. Regarding IT, I have recounted something about it in my posting “InterFace Stories”. Particularly technology firms live mainly from their know-how. To throw this away is the cardinal sin. I have personally experienced monstrous demolition of know-how in Germany, by Siemens and other firms.

“Stay young!”

This is probably the biggest and hardest demand on “old” companies! Keeping young is many-faceted. Company and working culture belong to it, as do the mental states of young and old employees, and simply the average age of the workers.

It is not easy in an aging society to find enough young people to reduce the average age of a firm. But we need them. They know life and the market. They bring dynamism. They are energetic and want to work in a collaborative environment. They bring a fresh wind to the firm. (Comment from the translator: Roland is trying to get better jobs for his 7 children. He has contributed to keeping Germany young)!

An average age of e.g. 46 (I know of a concrete case) is simply too high for an IT firm or department. As growth has its limits, older employees, who cannot all go into management, must be fitted into suitable alternative employment. Early retirement schemes are not the answer. We need the seniors. Perhaps the seniors must be ready to switch to new (worse paid) activities. This conflicts with the traditional rules of the job market, so new thinking and modest demands are needed.

We seniors must stay on the ball. Certainly we have many qualities that we can use constructively. But that will only function when we welcome change. Our children take things for granted that we do not fully understand. I know IT managers and businessmen, who did not know what a blog or podcast was, when I tried to get them to read my blog. And what that funny youtube or a twitter is good for, they don’t know either. This is not a joke. It is bitter reality.

We seniors and our younger colleagues together must see to it that the firm stays young!

Summary

The current decline of European technology concerns is not caused by corruption however objectionable that is.

Shallow American management slogans have been imported to Germany without due consideration, and healthy multi-cultures replaced by mono-cultures. In the business playpen, directors have played company-monopoly with gusto, busily buying and selling, merging and divesting. Megalomania and presumed omnipotence were their companions. Everything was judged to be successful and the rewards of success were quickly paid out by the players to themselves.

In “Germany Inc.”, the good old German company virtues have been forgotten. The challenges of change have been misunderstood or ignored. Real reform has not happened.

The various themes of the abandoned Siemens divisions were not bad. The main weakness was physical and psychological aging in the company. This was treated with the wrong medicine. Mega trends and dreams of world market leadership are useless. Only bold striving for change can help. Sadly, for some technologies in Germany it is already too late.

RMD

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