The size of Siemens is such that it will inevitably experience diseconomies of scale, such as managerial inefficiencies (known as X-inefficiencies). This is not uncommon for multinational enterprises, but in the case of Siemens these problems are personified by the diverse nature of its business activities and external environment. Mintzbergs (1992) notion of a divisionalised structure with each division within the organisation adopting its own independent structure would best suit Siemens. Although there is some evidence that such a structure already exists, greater autonomy needs to be given to these divisions.This can be achieved through greater decentralisation of power from the board of directors to the heads of division. Decisions need to be made by the people with the expertise and knowledge rather than the older members of the board who may not be fully aware of the specific challenges facing individual departments. Thus power needs to be redistributed to the people who can use it best.
In order for Siemens to revive its fortunes a change in management style is required. The organisation needs to be run more in the interests of the shareholders.The shareholder value perspective emphasises profitability and sees organisations primarily as the instruments of their owners (Rappaport, 1998; Schleifer & Vishney 1997). Shareholder value, synonymous with profit maximisation is not about shareholder value itself. In practice it amounts to the goal of creating shareholder value. One of the key tools in assessing whether an investment will create shareholder value is using the net present value (NPV) approach to valuing cash flows. Thus Siemens needs to identify its least profitable divisions and take immediate action.
If an investment is not creating value it should be sold. This strategy of downsizing and redistributing may prove unpopular with workers, as it inevitably will lead to job losses. However, giving employees stock options could help to maintain motivation by giving workers a sense of ownership (limits the principal-agent dilemma). For instance Siemens Medical and Information divisions both offer less than a tenth of a percent profit on turnover figures.
These areas have valuable capital tied up which could offer much higher potential earnings elsewhere.Thus the notion of opportunity cost should become of greater significance to the Siemens Board. Thus Siemens should sell these divisions and concentrate on value adding activities. The main problem Siemens is facing is over diversification.
It needs to re-identify its core competencies and get back to basics. “Core competencies are the collective learning in the organisation, especially how to coordinate diverse production skills and integrate multiple streams of technologies. Core competencies should be difficult to imitate and should make a significant contribution to the perceived customer benefits of the end product.A good example of a core competence is Sony’s ability to miniaturise. ” (Prahalad & Hamel 1990) Essentially Siemens needs to rediscover what it does best and then concentrate more of its resources towards those sectors.
This again links into the notion of specialisation, downsizing and creating shareholder value. Siemens has in fact itself identified this necessity: “Siemens focuses on its core expertise and builds up additional capacities in places where we can establish the necessary proximity to customers, find qualified employees and operate at competitive costs. ” (http://www.siemens. com/index. jsp) This view is further supported by the work of Porter (1990) who identifies “firm strategy, structure, and rivalry” as one of the components of his “diamond determinants of national competitive advantage”. Another widely adopted corporate technique is that of benchmarking, which measures and compares the performance of an existing process, product or service against that of the recognized best in class, both inside and outside the industry (Haslam, Neale & Johal 2002).
The use of benchmarking may in fact help Siemens in identifying its core competencies.