Siemens' global strategic strengths and internal weaknesses

Global Strategic Management

Strengths

Siemens has a number of key strengths that have allowed them to become one of the largest industrial conglomerates in the world. The first key strength is their focus on innovation. Siemens has always been driven be engineering, and their ability to produce not only better products but to continuously improve those products is one of the reasons for their continued success. The company has utilized innovation to spur significant organic growth in recent years (Siemens, 2008).

To support their engineering competency, Siemens has developed an extensive in-house training program (2008 Annual Report). This helps the firm to develop the talent it needs to remain at the fore of the innovation curve. The company trains workers through a formal facility in Bavaria, where the company is headquartered. Training, however, has long been a fundamental strength of Siemens because it helps to attract talent as well as develop it.

Talent is also attracted by the company's solid reputation. As one of the oldest technology and engineering firms, Siemens has established a reputation for excellence in the field. This attracts innovators, and it also helps to attract business. The long record of success contributes to the company's reputation and helps to secure business deals as a result.

For Siemens another strength is its profits. Although profit projections for the upcoming year are generally soft, the company has remained profitable even during the downturn, when rivals such as General Electric and Philips NV have struggled (Schafer, 2009). This provides Siemens with a foundation of strength.

Weaknesses

Despite its numerous strengths, Siemens faces some internal obstacles that are hindering its ability to fully leverage those strengths. The first major weakness is the company's size and structure. The matrix structure is notoriously difficult to manage. The result is that the company often fails to identify opportunities to improve. Additionally, it takes longer for areas of weakness to be identified and dealt with. One recent example of this is with the enterprise product unit, which struggled for years before Siemens finally sold it (Gohring, 2006).

Another weakness is the high degree of leverage that Siemens holds. The firm's debt-to-equity ratio is a relatively unhealthy 89.66 (Reuters, 2009) meaning that they firm has very little equity. For a firm founded over 150 years ago to have so little equity is a symptom of operational weakness, but the leverage itself limits the firm's financial flexibility.

The company has in recent years demonstrated ethical lapses, including a bribery scandal that rocked the firm's executive suite (Taub, 2007). They have attempted to address this issue by implementing stricter governance regulations but the taint of questionable ethics remains with the company.

Another weakness is the focus on technology. Siemens has traded on its technological leadership for most of its history. Unfortunately, this has led to a weakness in service. With most technology products becoming commoditized at increasingly early points in their lifecycles, service is an important means by which firms can extend products and drive greater revenues. Siemens has not developed a service culture and lags many smaller firms in the provision of effective customer service.

On balance, Siemens ranks 2.7 on internal measures, just below average. Despite many strengths, the firm is saddles with a range of weaknesses, each of which threatens to limit organizational effectiveness. The fact that the company has grown revenues organically of late is encouraging, but equity growth has been limited and earnings per share have steadily declined as a result of the myriad weaknesses. The firm has underperformed its potential significantly and needs to address some of these weaknesses to restore operational excellence.

Threats

Siemens faces a number of different threats. The first is the global economy. While Siemens was able to fend off losses as a result of the downturn, in contrast to their main rivals, they are now faced with revenue reductions. Moreover, the company believes that it will be impacted by the downturn well into 2010 (Kennedy, 2009).

Siemens also faces intense competition in many of its key markets. In addition to similarly-structured conglomerates GE and Philips NV, Siemens faces competition from a wide range of smaller competitors in each of its businesses. If it fails to consistently innovate, it could lose significant market share in any of these businesses.

The company's size is also an impediment to growth. They operate in 190 countries and a wide range of products. The problem with this is that growth opportunities are limited because they have well-saturated many of their markets. The firm can only grow by developing new products.

Interest rates are another threat to Siemens. The company has a significant amount of debt. At present, interest rates are low but should those rates begin to rise the cost of that debt will increase for Siemens. This will limit the company significantly in the future, and compromise their profits.

Siemens' rating for these external factors is 2.65. This indicates sub-average performance. The company has managed to fend off losses but the downturn is beginning to impact the firm. Moreover, the firm is subject to other macroeconomic factors. Its mediocre performance in recent years is in part due to its inability to respond effectively to changes in its external environment.

Works Cited:

2008 Siemens Annual Report. Retrieved June 21, 2009 from http://w1.siemens.com/annual/08/pool/downloads/pdf/en/pdf_e08_00_gb2008.pdf

Siemens website. Retrieved June 21, 2009 from http://w1.siemens.com/investor/en/index.htm

Some financial information from Reuters. Retrieved June 21, 2009 from http://www.reuters.com/finance/stocks/incomeStatement?symbol=SI.N

Schafer, Daniel. (2009). Siemens Cuts Outlook Despite Second-Quarter Boost. Financial Times. Retrieved June 21, 2009 from http://www.ft.com/cms/s/0/cd667ff6-3487-11de-940a-00144feabdc0.html?nclick_check=1

Schafer, Daniel. (2009). Siemens Expects Boost to Green Sales. Financial Times. Retrieved June 21, 2009 from http://www.ft.com/cms/s/3ebee616-17d7-11de-8c9d-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F3ebee616-17d7-11de-8c9d-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fcd667ff6-3487-11de-940a-00144feabdc0.html%3Fnclick_check%3D1

Taub, Stephen. (2007). Former Siemens Finance Chief Convicted. CFO Magazine. Retrieved June 21, 2009 from http://www.cfo.com/article.cfm/9175778?f=related

No author. (2008). Siemens Proves Operational Performance in First Quarter. Siemens. Retrieved June 21, 2009 from http://www.siemens.co.uk/en/news_press/index/news_archive/jan_24_2008.htm

Gohring, Nancy. (2006). Siemens to sell Enterprise Business Unit. Network World. Retrieved June 21, 2009 from http://www.networkworld.com/news/2006/062006-siemens-to-sell-enterprise-business-unit.html

Kennedy, Simon. (2009). Siemens Tops Forecast, cuts Outlook. Marketwatch. Retrieved June 21, 2009 from http://www.marketwatch.com/story/siemens-profit-tops-expectations-as-outlook-cut