Siemens AG is a German multinational corporation globally recognized for its products and services pertaining to various fields such as Industry, Energy, Healthcare, Infrastructure & Cities, and Financial Services.
Here are some facts and figures that depict Siemens’ stature as one of the top companies in the world:
- Operations in more than 200 different locations around the world
- Boasts a diverse workforce of around 293,000 people across the globe
- The largest Germany-based conglomerate with a market value of 165 billion Euros
- Annual revenue of 57 billion Euros in FY 2020
- 42,900 patents registered under Siemen’s name as of 2020
- Illustrious history of almost 175 years in business and counting
- Research and Development (R&D) expenditure of 4.6 billion Euros in FY 2020
- 7th largest automation vendor in North America
- Siemens Healthineers is one of the world’s Top 10 Medical Technology firms
Let’s unravel the history and mystery of Siemens to see how it became a force to be reckoned with even with humble beginnings.
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Starting Small And Making It Big
Werner von Siemens was a German electrical engineer, inventor, and industrialist who laid down the foundation of a company that eventually became one of the world's largest conglomerates - Siemens AG.
By pursuing technological innovation, the company established an international presence within the first few years of business.
The Workshop That Started It All
Werner von Siemens was inspired to improve the electric telegraph; instead of using morse code, his invention used a needle to point to the sequence of letters. Thus, in 1847, along with his partner Johann Georg Halske, Siemens opened a telegraph construction company in a small workshop in Berlin.
At this point, the company only had ten employees, and its business was limited to the installation of telegraphs and other electrical equipment.
Early Contracts and Subsidiaries
In 1848, the company won a contract to lay down Europe's first long-distance telegraph line. The lines mainly ran underground from Berlin to Frankfurt over a distance of 670 kilometers.
In 1853, the company, now known as Siemens & Halske, was also awarded a contract by the Russian government to set up a telegraph line connecting Warsaw to the Russo-Prussian border.
The company's numerous successful contracts eventually led to the opening of a construction office in St. Petersburg. This branch undertook the construction of the Russian state telegraph network that was to span across 9,000 kilometers.
The company in Berlin gained a lot from the success in Russia; by 1856, the employees at Siemens & Halske grew to 330, and the export rates were as high as 80%.
It also established a sales office in England in 1858 and subsequently opened a cable plant in Woolwich to avoid dependence on the quality and prices of the English suppliers.
However, during this period of expansion, Johann Georg Halske withdrew from the company as his views on the company’s future differed from those of the Siemens brothers.
A Momentous Discovery And International Acclaim
Building upon the work of Michael Faraday, Werner von Siemens discovered the dynamo-electric principle in 1866. He then constructed a dynamo machine - a precursor to the modern electric generators.
The dynamo generated large amounts of electrical energy at low costs, proving immensely beneficial for the economy.
The product was highly rated popular and had a considerable impact on the future of electrical engineering.
The next step for Siemens & Halske was to set up a telegraph link between India and Europe. The company undertook the capital-intensive project in 1868, and by 1870, the “Indoline” was open for operations.
The Indoline drastically reduced the time for transmitting messages across the continents so that instead of 30 days, it only took 28 minutes to relay information from London to Calcutta.
The company’s achievements did not go unnoticed by the world. With each successful project, Siemens & Halske garnered more contracts and business opportunities.
In the early 1870s, the company sought to break the British monopoly on the telegraph network between Europe and the US. Carl von Siemens, therefore, advocated for the construction of an intercontinental submarine cable.
There were several obstacles and attempts to sabotage the project, but in September 1857, the telegraph line was declared operational.
The successful implementation of the intercontinental telegraph link brought in numerous contract offers for the company.
The Company Sets Itself Apart From The Competition
Not only was the company leading in terms of successful project implementations, but it was also taking the initiative to set up a social benefit system which was extremely rare for that time.
Werner von Siemens had already introduced a profit-sharing scheme in 1858, and from 1866 onwards, the company’s managers were benefiting from the business’ success through stock-taking bonuses.
Siemens also introduced a pension and a widows & orphans fund for company employees. It even reduced the daily working time to around eight and a half hours instead of the standard ten hours.
These measures were excellent incentives for retaining highly qualified employees at Siemens & Halske over the long run.
Key Takeaway 1: There Is Always Room For Improvement
Werner von Siemens was an incredible visionary dedicated to improving upon already existing technologies. By doing so, he was able to create opportunities for growth for the company.
He even improved upon employee benefits to incentivize the workers’ continued employment at Siemens & Halske. These steps ensured that the company stayed ahead of its competition in every respect and delivered exceptional results with each project it undertook.
Growth And Change Go Hand In Hand
In the latter half of the 19th century, the company’s continued growth eventually prompted corporate restructuring, and substantial changes were made to the company’s mode of operations to enhance growth.
Werner von Siemens Retires But Business Continues
In 1890, the company transitioned from a general to a limited partnership. At that point, Werner von Siemens retired from the company and handed it over to his sons and brother.
The business flourished under the new leadership; by 1892, it had around 6,500 employees and generated 20 million marks' worth of revenue. In the mid-1890s, Rand Central Electric Works Ltd. contracted Siemens to construct the first public power plant in Brakpan, South Africa. The constructed plant supplied electricity to the gold mines located in Transvaal as well as to Johannesburg.
Adapting In Response To Challenges
By the 1880s, Siemens & Halske began facing increasing competition in the high-voltage sector because of the booming German economy. Siemens & Halske was a family-owned company at the time and could not compete with other globalizing corporations that used the capital market to finance creative business strategies.
Carl von Siemens had long been pushing for transforming the company into a stock corporation to boost its competitiveness. Finally, in 1897, the company made the much-needed transition and became Siemens & Halske AG. In 1903, Siemens & Halske merged with the Nuremberg-based firm called “Elektrizitäts-Aktiengesellschaft vorm. Schuckert & Co.”. (EAG)
EAG was a leader in heavy-current technology, and Siemens & Halske saw great potential in consolidating itself through the merger. The union of their heavy-current business resulted in the creation of Siemens-Schuckertwerke GmbH. The company also considered the centralization of its research activities.
Until the beginning of the 20th century, multiple Siemens & Halske production facilities had their affiliated laboratories. These labs had no connectivity amongst themselves; instead, they conducted independent research.
Therefore, in 1905, a central laboratory was established to enhance technological innovation and maintain overall competitiveness instead of focusing on the individual facilities’ interests. The Central Laboratory was declared operational in 1916.
Siemens & Halske Through WWI
During World War I, Siemens & Halske joined other companies in producing armaments. The company developed electrical engineering products for the military, such as warship equipment and communication materials. It also produced grenade fuses, parts of machine guns, and even combustion engines for airplanes and automobiles.
However, the company suffered heavy losses instead of generating profits. It lost 40% of its capital and most of its foreign subsidiaries and sales offices. In response, Siemens turned towards mechanized mass production, and the streamlining of its production process significantly improved efficiency. The company and its affiliated subsidiaries focused on electrical engineering but diversified their expertise within that field.
Through all these changes and strategies, the company re-established itself as one of the world’s leading electrical engineering companies after the war.
Key Takeaway 2: Bend With The Wind
Siemens & Halske made significant progress over the years by adapting to the changing circumstances. Whenever the company was in a tough spot, its best strategy was to quickly adjust itself so that instead of succumbing to the challenges, it grew out of them.
By restructuring its business model, rethinking its approach towards research activities, and initiating well-planned mergers, Siemens & Halske managed to reorient itself each time in a better position than before.
The Company Keeps Doing What It Does Best
Siemens & Halske had suffered a setback during the First World War, but it managed to get back on track afterward. The following decades saw it continue its expansion efforts through mergers, acquisitions, and other business strategies.
Siemens & Halske Regains Lost Footing
A notable achievement for the company post-WWI was establishing an incandescent lamp company, OSRAM, as part of a joint venture in 1919. Not only did the merger enhance efficiency and cost-effectiveness, but it grew so successful that by the 1930s, OSRAM was one of the largest lamp manufacturers in the world, with sales offices across the globe.
The researchers at Siemens & Halske created another opportunity for the company by significantly improving the range and quality of telephone connections. In 1912, the company laid down an underground telephone link between Brandenburg and Rhineland, eventually extending the network within and beyond Germany during the 1920s.
Recapturing International Markets
WWI had cost the company many of its subsidiaries and foreign markets. Consequently, it began devising strategies to penetrate back into the desired regions.
Siemens-Schuckertwerke chose to access East Asia by establishing a joint venture with a Japanese company Furukawa. It also renewed its efforts to reconnect with the U.S. markets. In 1924, Siemens-Schuckertwerke struck a deal with Westinghouse to exchange patents and knowledge.
These linkages were crucial to maintaining competitiveness in the international market.
Learning From Past Experiences
WWI had taught Siemens & Halske the importance of technical and organizational streamlining. As a result, the company initiated efforts to modernize its production process.
The company adopted assembly line production to enhance division of labor and to ensure standardized output. There were numerous advantages of this new system. It reduced storage requirements by 40% and halved the production time.
Throughout the 1930s, the company implemented this mode of production wherever it was compatible.
The Company’s First Major Project After A Long Time
In 1925, the Irish government authorized Siemens-Schuckertwerke to design and install the Ardnacrusha hydroelectric power plant on the River Shannon.
The project posed a daunting technological challenge for the company, but Siemens successfully set it up within four years. Once again, the company was in the spotlight in the international market.
Siemens & Halske Branches Towards Medical Technology
Reiniger, Gebbert & Schall (RGS) was a medical technology company leading the global markets in the arena of X-ray devices. In 1924, when it was struggling financially, Siemens acquired majority stakes in the company.
This venture was highly successful until 1929, when the Great Depression devastated the healthcare market.
Deteriorating market conditions eventually prompted the company to consolidate its medical engineering operations in Siemens-Reiniger-Werke (SRW). SRW soon became the largest electro-medical company in the world.
Key Takeaway 3: Look Towards Innovative Methods
Siemens & Halske did not get bogged down with the traditional ways of doing business. Instead, it was willing to modernize and adapt to the changing times. Delving into various products and services under the diverse field of electrical engineering allowed the company to broaden its expertise. Doing so also made its business model more secure against market fluctuations as its revenue was not dependent on just one type of product or service.
Coming Back From The Brink
Just as the company re-established itself in the post-WWI scenario, World War II spelled disaster once more.
Siemens & Halske During World War II
The German economy took an upward turn during the Nazi regime, and the electrical industry also benefitted from this development. The revenues for major companies like Siemens & Halske were exceptionally high during the war. However, the impetus behind this growth was the government’s armaments contracts. The company, however, restricted its armaments output to electrical goods and heavily limited the production of weapons and ammunition.
Aerial bombardment during the war destroyed many of the company's factories, thereby disrupting production.
Consequently, the company had to transfer and relocate its production plants throughout different parts of Germany and occupied territories multiple times to continue with its operations.
By the end of the war in 1945, the company had lost half of its buildings and manufacturing units. Moreover, the Allies took the company's surviving assets as compensation for the damages incurred during the war. The war had cost the company 80% of its total worth.
In 1941, Hermann von Siemens - the newly appointed head of the company - was tasked with the enormous responsibility of reviving the company.
The Situation Starts Easing Up
When the restrictions placed on Germany's foreign trade eased during 1948, the company saw an opportunity to recover its lost status.
Firstly, it bought back patents, brands, and other assets confiscated from it after the war. It reinstated its operations in 30 countries from 1952 to 1962, focusing primarily on the European and South American regions.
It soon received important contracts, despite the competition from America, which heavily contributed to re-establishing its global presence. These contracts included the San Nicolas power plant in Argentina, Saudi Arabia's national telecommunications network, and the provision of energy technology for a steel mill in India.
25% of the total revenue generated by Siemens & Halske was attributed to its export by the mid-1950s.
Branching Out Into Different Lines Of Business
The company continued with its strategy of sticking to its strengths and branching out into newer lines of business at the same time.
Its R&D department led the way for diversification. In 1953, it developed and patented a technique for making ultrapure silicon for semiconductor applications. The revolutionary development allowed the company to penetrate microelectronics - a technology that extended into various production fields.
As a result, Siemens also developed the highly successful SIMATIC - the first transistorized control system and a substantial advancement for the electronic automation industry.
Capitalizing On The Demand for Consumer Appliances
The 1950s and 60s saw a spike in demand for consumer goods such as washing machines, refrigerators, TVs, and radios. In 1957, the company started investing generously in the production and development of such appliances.
It merged the radio and television units of Siemens & Halske AG with Siemens-Schuckertwerke AG’s home appliance production to make a new company - Siemens Electrogate AG (SE).
However, it faced tough competition from Italy and Japan in home appliances and the concentrating market prompted Siemens and Bosch, the two leading companies, to merge their home appliance operation in 1967. Thus, Bosch-Siemens Hausgeräte GmbH was created.
It All Comes Together
In 1966, the company’s restoration and consolidation process resulted in the creation of Siemens AG. Siemens AG was the assimilation of Siemens & Halske, Siemens-Schuckertwerke AG and Siemens-Reiniger-Werke AG.
The company's need for increased capital investments, particularly in semiconductors and computer technology, made running under single management difficult. The new model incorporated six self-contained business units, each with its separate function.
Siemens also crafted a new image for itself by replacing the old company marks with a new trademark. The monogram S&H, which previously stood for Siemens & Halske, now meant "House of Siemens."
This critical restructuring was done to ensure a more efficient and cost-effective business model. It was also reflective of the company’s responsiveness to the needs and challenges of a globally expanding business.
Reinforcing Key Strategies
After WWII, the company had to cut back on employee benefit schemes, but it was committed to having its employees share in its success. In 1969, Siemens allowed its employees to buy a maximum of three company shares per person at half the trading price. 25% of the company's employees availed the opportunity, with Siemens issuing shares worth 6.8 million German marks within the first year.
During the 1960s, the company also realized the need to set up production facilities outside Germany as exports and sales offices alone were insufficient to establish it as a global competitor. By 1985, Siemens had 154 production facilities across 54 countries. Parts of the company’s R&D operations were gradually scattered across different countries as well.
Key Takeaway 4: Recovery Takes Time
All businesses are bound to hit a rough patch, and Siemens was left almost crippled post World War II. The road to reclaiming its lost prestige and getting back on track was long, uncertain, and not without its challenges.
But by focusing on one thing at a time, such as buying back its lost assets, performing well on the contract projects, and diversifying its portfolio, the company began its slow walk towards recovery.
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Experiencing The Highs And Lows Of Business
After regaining lost ground, the company was ready to take big steps and reinforce its competitiveness in the global market. The subsequent years saw it expand its horizons and experience the highs and lows of business.
The Company Evolves
Data technology became a crucial part of the company’s business as electrical engineering transitioned from analog to digital technology.
At the end of 1975, Siemens started constructing a research center in Neuperlach, which contained both the Data Systems Group and the central research unit. The site became a microelectronics hub where Siemens made significant progress in microchip development.
The advances in microelectronics allowed Siemens to develop digital telephone technology in 1980. It fused telecommunications with data technology to enable sharing texts, graphics, and other data over telephone lines.
Siemens' EWSD digital electronic exchange system became the world's best-selling landline switching system. Its Hicom private communications system was also rapidly integrated into business, industry, and government.
Siemens Takes A Big Risk
By the mid-1980s, U.S. and Japan dominated the semiconductor industry; to catch up with them, Siemens initiated a risky project.
The volatility of the semiconductor market posed a major risk and the project presented mixed results. Although the company caught up to foreign competitors in chip development, the economic returns were relatively less.
Eventually, the MEGA project launched in 1984, along with Philips, would advance chip development and propel Siemens to the top of the industry within five years.
Reorganizing Siemens
In 1989, Siemens found it necessary to reform its organizational structure for the sake of efficiency.
The reforms increased the autonomy of the individual units while retaining central control. The number of different business units was increased to 15 with varying levels of independence.
Siemens also changed its management structure. A Corporate Executive Committee was established, and it also scaled down the top management. The new structure would last till 2006 and was a significant milestone in the company’s history.
Siemens Consolidates Computer Technology
In 1990, Siemens acquired the majority of stocks of Nixdorf Computer AG to strengthen its position in the field of computer technology.
As a result, Siemens Nixdorf Informationssystem AG (SNI) was created. However, the acquisition and integration proved more challenging than expected.
By the mid-1990s, after extensive organizational restructuring, SNI became the strongest-selling European computer manufacturer. However, SNI was not contributing to Siemens' growth. Thus, it was integrated back into Siemens AG.
Instead, Siemens relegated the personal computer business to a joint venture with Fujitsu, which sustained itself as Europe's largest computer company.
The Ten-Point Program
Since 1997, the company had been facing severe difficulties such as delivery delays, profit slumps, and the consequences of misjudgments in the mobile phone market, etc. The deteriorating situation prompted the CEO to propose the Ten-Point Program - "Buy, cooperate, sell or close."
Siemens was only to continue the businesses in which it was either first or second in the global market. The drastic measures were ultimately successful: stock prices rose, profit and revenue increased, and the company took a turn for the better.
The program also meant for the company to get listed on the New York Stock Exchange. The management was hopeful for further expansion following the listing in March of 2001.
However, the listing failed to improve its strategic focus; instead, it brought additional expenses. Eventually, in January 2014, the company’s Managing Board decided to delist from the NYSE.
Megatrends - A New Strategy
In 2005, the company identified three megatrends of the time: the influx of people into cities, increase in world population coupled with changing demographics, and accelerating climate change.
Siemens focused on three corresponding lines of business; energy and environment, automation and infrastructure (private and public), and healthcare. Consequently, the company began acquiring firms in the industries to reinforce its operations in the identified fields. The strategy allowed Siemens to deliver innovative solutions while dealing responsibly with scarce resources and the environment.
Siemens Goes Through A Crisis
In 2006, the Munich public prosecutor's office revealed a lack of transparency, manipulation of customers, officers, and employees, and other criminal charges against certain individuals affiliated with the company.
However, the company took strict measures in response. It replaced many of its top management and started internal investigations into the matter. The company also paid 1.2 Billion Euros worth of penalties.
In 2008, the legal proceedings against the company came to an end. Siemens set up rules and regulations regarding compliance conduct. This new system was well received and held the top position on the Dow Jones Sustainability Index multiple times.
Key Takeaway 5: Desperate Times Call For Desperate Measures
Siemens went through critical phases in its business cycle multiple times, but it overcame the challenges by changing strategies and taking calculated risks. These few decades saw Siemens taking unconventional steps and making drastic changes to its business strategy to adapt itself according to the situation. The Ten-Point Program, the megatrend strategy, and the changes to its compliance conduct helped Siemens weather the storm.
Setting Sight On Greater Heights
Siemens set a vision for the future – digital technology and sustainability - and dedicated itself to working towards it. It underwent critical changes to adapt itself in accord with its vision which eventually resulted in the creation of Siemens as we know it today.
Siemens Orients Itself For The Future
During the 2000s, Siemens acquired multiple digital technology firms and businesses, investing around US$10 Billion and displaying incredible foresight regarding the industry's future. The acquisitions were well-planned and reinforced the company's existing operations in automation and simulation software etc.
In 2008, Siemens presented its environmental portfolio: products, systems, solutions, and services geared towards renewable energy usage and environmentally sustainable technology.
Siemens had already saved 114 million metric tons of carbon dioxide through its products and solutions. It had generated a revenue of 17 billion euros through its environmental portfolio. The numbers continued to rise in subsequent years.
The company also reoriented its organizational structure in 2008. Siemens now consisted of three primary sectors and 15 divisions with Clusters combining similar areas of business. However, the company re-adjusted its corporate structure in 2014. Siemens broke up its Sectors and Clusters, and it reduced the number of divisions to 10.
Vision 2020
In 2014, Siemens adopted a new corporate strategy under the name Vision 2020. Under the new vision, Siemens emphasized progress in the fields of electrification, automation, and digitalization.
It sought to cut costs, revive lagging businesses, enhance customer satisfaction, improve capital efficiency and increase employee involvement in the company’s success.
These goals were the guiding principles that steered the company into the future. Another objective of “Vision 2020” was to reinforce Siemens’ presence in growing markets. Therefore, the company acquired Rolls-Royce’s aero-derivative gas turbines and compressor business.
It also took over majority stakes in Dresser-Rand - the world's leading provider of compressors, steam and gas turbines, and engines. These acquisitions allowed Siemens to provide rounded solutions and services throughout the value chain in the energy sector.
Looking Ahead
In 2018, Siemens introduced Vision 2020+ because, by 2017, the company had already achieved most of the goals set in Vision 2020. The new set of goals emphasized accelerated growth, increased profitability, and a more straightforward organizational structure for the sake of long-term value creation.
Vision 2020+ seeks to make individual businesses more autonomous under the Siemens brand, enhancing responsiveness to their respective markets. Siemens also reorganized into three "Operating Companies" and three "Strategic Companies."
Through these measures, Siemens aspires to bestow “considerably more entrepreneurial responsibility” to its businesses.
Three Independent Companies
Siemens drastically realigned itself in recent years in response to shifting market conditions. This realignment is evident in the public listing of Siemens Healthineers in 2018 and its move to spin-off its energy business into Siemens Energy.
Siemens AG's new constitution revolved around an industrial core including Digital Industries, Smart Infrastructure, and Mobility. The three independent companies, each with their area of focus, fell under the umbrella of the Siemens brand.
The new structure perfectly positions the three companies to lead their respective industries in terms of market share, sustainable profitability, and growth.
Key Takeaway 6: Growth With A Goal
Siemens had a vision and purpose behind all its corporate decisions ranging from reorganizing business structures to targeted acquisitions and reinforcing key businesses.
It set tangible and clear goals for itself and took all the necessary steps to achieve them. This strategic focus on the identified areas of interest helped mold its corporate image as well and establish the company’s position in the industry and customers’ minds.
Siemens Today & Key Takeaways
Few companies have been successful in such a wide range of industries – that too at the same time. This is why Siemens’ journey is so remarkable. Even today, Siemens continues to set the bar higher for other conglomerate firms.
Standing Tall In Difficult Times
2020 was one of the toughest years the world had seen in several decades. With the global economy experiencing unprecedented challenges and Siemens’ operations spread worldwide, the company too experienced a significant dip in revenues. Its profits for April-June 2020 alone were 1.14 billion euros less than the same quarter of 2019.
However, the company responded strongly, and by September of the same year, it distributed 200 million euros in bonuses to its employees. Thus, not only did it brave out the economic crunch of the pandemic, but it also assured its employees of their value to the company.
Growth By Numbers
Strategic Takeaways
Always Strive To Be Better
From its initial years, Siemens has made sure that it is never content with its current situations and always seeks opportunities to improve – both for its employees and customers.
From stock-taking bonuses to the dynamo motors, it improved its operations and, resultantly, was able to establish itself as a strong force despite existing competition.
Adapt To Changing Circumstances
Many times Siemens has faced hurdles that forced it to rethink and remodel itself. But never did the company shy away or refuse to change in order to strive and thrive.
The company strategically restructured itself when necessary, acquired new companies to grow in potential markets, and relied on research to adapt to changing technology.
As a result, Siemens was always a step ahead in every market it entered.
Innovation Is Critical To Stay Relevant
Markets, consumer demands, and production processes change rapidly. Very early on, Siemens realized that it would have to invest in research to improve its operations and keep up with the rising demands.
Thus, it streamlined its assembly lines, explored medical technologies, and rolled out many products that boosted its production efficiency. As a result, it sustained the impact of changing trends and technology and kept itself up-to-date and progressive.
Take It One Step At A Time
Siemens suffered huge losses both in terms of revenue and its asset holdings after WWII. However, instead of limiting itself or pursuing a reckless campaign to regain its footing, the company took a calculated approach.
It showed its capabilities by acquiring one international project after the other, gradually diversifying its portfolio, and eventually coming back stronger than it was ever before.
Strategy In Times Of Crisis
From periods of slumps to legal complications, there were several times in recent decades when the company’s operations hiccupped. But each time, the company came up with a plan to mitigate the situation, accept its fallibilities, and change its way in the future.
The Ten-Point Program and the megatrend strategy are perfect examples of how Siemens was always stood tall in the face of crisis and persevered.
Follow A Vision
After a company has reached the level Siemens had, it’s easy to become complacent or simply satisfied with its current position. But the reason Siemens got there was its farsightedness and futuristic approach.
Thus, the company again looked ahead with a clear vision for electrification, automation, and digitalization to give it a sense of direction and help it grow even larger.
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