Using a scandal to drive change

I arrived at Siemens at a very difficult moment. The company faced allegations of bribery in several countries, and eventually it paid US$1.6 billion (S$1.95 billion) in fines.

But as I always remind anybody who is listening: Never miss the opportunities that come from a good crisis - and we certainly did not miss ours.

The scandal created a sense of urgency without which change would have been much more difficult to achieve, regardless of who was CEO.

Siemens is a very proud company with a history of innovation and success. In the absence of a catalyst like this, people would have asked themselves: "Why alter anything?"

Yet, Siemens had to change. It is not so much the uniqueness of your strategy that matters nowadays - it is the strength of your execution. How can you adapt continually to the changing world we are in right now?

Siemens needed to execute more rapidly, and to do that we had to take a hard look at both our organisational structure and whether we had the right people in the right jobs.

Although I was Siemens' 12th Chief Executive, I was the first one who knew the company not from the inside but from the outside.

Getting to know the company meant really engaging with its people. So I went off travelling around the world.

I developed a daily routine: First, I would have breakfast with customers. Then morning sessions with either individual customers or politicians. Lunch with young high-potential Siemens employees. After lunch, business reviews with the local team and then a town hall meeting. Dinner with the top leadership team of the specific location. After dinner, I would fly out and follow exactly the same routine in another city the next day.

Doing this repeatedly gives an extremely good view of what is really happening. What I learned was that Siemens employees were frustrated with bureaucracy and wanted more independent decision-making.

At the same time, people felt that the corruption scandal represented a failure of leadership. They were shocked and ashamed, because they are very proud to be part of Siemens.

When it came to changing the company, I worked with my immediate team. I did not want to bring in consultants to tell us what to do. The exercise became very painful at the end. Four-fifths of the managing board members had to leave.

In Germany, companies have two boards: One is the supervisory board, with 50 per cent employee representatives and 50 per cent lenders and shareholders. The other is the managing board, made up of top executives, with the CEO as chairman.

But at Siemens, the managing board consisted of two levels as well: Some "coaches" and their direct reports, who operationally led the business as part of committees within each Siemens division - miniboards.

We got rid of this two-layer system. There were 12 units, and I could not afford to have all 12 operating CEOs sitting at my table.

Asking long-time employees to step down is never easy. I wanted to have a transparent process in which we benchmarked each of the positions externally. I asked the search firm Egon Zehnder to manage this.

Many people welcomed the process, but it was highly threatening for others. Some of them showed up in my office and said: "You know, I've been running this business successfully for 20 years. I'm not willing to go through the process."

My answer to them was very simple: "Either you go through it, or you have to decide for yourself to leave the company."

By November 2007, the executive level just below the managing board was a good mix of experienced people who were already running the divisions and people who came from below in the organisation. By the end of the year, the new CEOs two levels down had decided on their teams.

Then there were the country organisations. It was clear to me from the time I had spent competing against Siemens that its strong country organisations were one secret to its success. Nevertheless, some of these organisations had become like separate companies, with the local teams operating almost independently.

For example, many years ago, Siemens decided to get out of the mobile-phone handset business. Some of the country organisations decided that for them, it was a great business, and they would stay in it.

So we found ourselves with a very eclectic collection of local businesses, and we immediately got rid of them. I decided that every business needed one person who was accountable for global performance. Together with my new leadership team, I also decided to group these country operations into fewer clusters.

Siemens is probably the most global industrial company in the world: We operate in 190 countries, and our only real rivals in terms of reach are Coca-Cola, FIFA and the Catholic Church. Those 190 countries were grouped into 70 clusters before I came. We decided to reorganise them into 20 clusters and create a steering group that would meet on a quarterly basis.

These organisational changes had a simple goal: To reduce bureaucracy and make Siemens nimbler in a fast-changing world. Nowhere is the world changing faster than in emerging markets.

There were hardly any cars. You looked across the river to Pudong and you could see rice fields. I would never have been able to imagine how different it would become.

When you see this with your own eyes, you realise that mankind radically and consistently underestimates the speed of change.

What we did not have with the old Siemens structure was the ability to cope with that pace. In a slow-moving, relatively constant global environment, we could manage as we had in the past. Not any more.

To push forward with appropriate speed after the reorganisation, we needed a clear strategy. To a degree we already had one, introduced by my predecessor - the strategy of megatrends, in which we organise our businesses to take advantage of broad changes occurring in the world: Globalisation and the ageing population, which calls for a focus on health care and diagnostics.

I added our environmental portfolio, which showcases our products that are more energy-efficient and resource-efficient than the marketplace average. Siemens had never tracked things this way.

Historically, our customers had relationships with the country organisations, but I added the management of key accounts to the managing board's responsibilities. We have around 100 key accounts, so each member of the board is responsible for roughly a dozen companies.

In my first year, I tried to find other ways to emphasise to the entire organisation that customers should be our primary focus.

In 2008, I collected the Outlook calendars for the previous year from all my division CEOs and board members. Then I mapped how much time they had spent with customers and I ranked them. The rankings were a classic bell curve, with most people in the middle. I was No 1, having spent 50 per cent of my time with customers.

I said: "Is this a good sign or a bad sign? In my opinion, it's very bad. The people who are running the businesses should rank higher on this measure than the CEO."

Now, some people have passed me, and most are near me at the top of the distribution - because everybody knows this matters and that names will be up there at the next leadership meeting.

With this simple approach, we have achieved a much stronger emphasis on customers in the top management echelons.