Trace the events responsible for its relative decline in the mid 1980’s. Critically evaluate the attempts made by Karlheinz Kaske to deal with these problems. This glorious success had established a firm foundation for Siemens. However, the company started to loss money. One of the reasons was that micro-circuits had to be purchased from Toshiba because of the unsuccessful production in this area. The decision to diversify into other fields was also the reason for lack of success. A large proportion of the profits the company made in the mid 1980’s came from financial investments rather than selling their products.
Furthermore, the recession of the economy as a whole led to a falling demand in the market – ‘the fall in the value of US Dollar led to competition both at home and overseas’. From a leadership aspect, both Plettner and Kaske adopted costly acquisitions and expansion policies. The development of its own microchips led to a heavy cost to the company. The spending on R&D also resulted in a significant drop in both earnings and dividends. Furthermore, much of the expenditure on R&D was not efficiently allocated to relevant markets. The conservative board and management style made it difficult for the company to face adversity.
Poor power delegation and a strong corporate culture background disadvantaged the company in the intense competitive market it faced. The company operated a matrix structure from 1966 to 1987. One of the disadvantages of the matrix structure is that the lack of a clearly defined hierarchy of authority can lead to conflict between functions and product teams. 1 This conflict was found in Siemens between Heads of the Groups and Departments. The consequence was that the company was inefficient in making decisions and the lack of flexibility resulted in slow and delayed reaction time. All these problems made Siemens decline in 1980s.
The restructuring of the company under Kaske was an evolution. He wished to simplify the decision process and wanted to design a new structure which was close to the market and the customer. He immediately moved away from heavy engineering, focusing instead on microelectronics, automotive electronics, communications and automation. His strong interest in R&D and microelectronics showed in the company’s expansion into automotive systems. The change may enable Siemens to concentrate on its customers and rebuild its strengths. The prospects of success were recognised by most observers.
It was clear that the existing hierarchy helped the company in the past but the same structure did not work in the present. Kaske established a small managerial committee to solve these problems. However, the company’s culture made this task very difficult because many managers feared their jobs or power would be damaged due to the change of structure. The change of the company’s culture was therefore urgent. At this point, Kaske failed to do so. He recognised that restructuring was essential for the company to regain market position, but he did not realise the fundamental problem was the culture.
The deep-rooted culture made managers regard the restructuring as a threat so they were less willing to support the programme. The restructuring of the company by Kaske indicates a more radical departure from the past. The change may be seen as an attempt to address the old form within the organisation. Kaske had put in place a significant programme of change and development, but fundamental change of its nature in the company cannot happen overnight. To what extent are the policies of Heinrich von Pierer different from those of Karlheinz Kaske?
Critically assess whether you think these new policies will lead to improved performance by Siemens. To Siemens, the 1980s was a mixed period. In the middle of the decade the fortunes of the company deteriorated. The instability of the international business environment partially led to this deterioration, but internal problems of Siemens and a gloomy German economy significantly contributed. Hence, the leaders of the company, first Kaske and then Von Pierer embarked on radical reorganisations and rationalisation programmes designed to retain Siemens’ position as an influential international business.