Current event: Siemens’ Cost Cutting Plan Impresses, But There’s More to Do

After a decade of restructuring, Siemens AG still works on a plan to promote growth and reduce costs by implementing more efficient operation and manufacturing processes, eliminating redundant functions and laggard units. In effort to cut cost, Siemens laid off a total number of 615 workers in Iowa, Kansas, and Florida on September, 2012 because tax credit for wind energy was not renewed by the Government. The Republican Party was fighting whether or not to continue the tax credit program. During the recent five years period, the wind energy industry is facing a substantial decrease in demand. As a result, Siemens must find ways to adjust the manufacturing, planning project on wind power to survive. Siemens will cut about 8,000 positions at the end of 2012 globally.  On the other hand, Peter Loescher, Chief Executive Officer of Siemens AG, announced on September that he will dispose the operation of solar thermal energy and photo-voltaic, just three years after acquisitions.

According to him, there have been two distinct phases to push the success of Siemens: the cost reduction phase from 2008 to 2011 which was view as a big success. However, since 2011 a transition to a growth phase has faced many difficulties. Nicholas Heymann, an analyst at William Blair in New York, said that Siemens currently is under a critical transformation. Cost cutting and more aggressive in selling peripheral businesses may not enough to be successful, but doing fewer things on a truly global scale.

With the efficiency program, CEO Loescher hoped that Siemens AG can reach the industrial earnings margin before interest at least 12%, compare with 9.5% last year. However, some economics experts stated that this financial target is far from ambitious because the market’s expectation on 2014 is 11.5%. On November 8, 2012, Siemens AG made an announcement of a €6 billion savings plan, which is significantly above market expectations, assets sales and a more generous dividend policy. However, according to analyst Peter Reilly, restructuring charges and weak prices will partially offset the gains.

To prepare for these outcomes, Siemens middle managers should do a better job in managing human resources and manufacturing processes. It is important to calm current employees down and to guarantee a stable future since cutting labor has been the big threat for every employee. Besides, they need to encourage and reward employees with creative and practical ideas of producing effectively.

References

Pitt, David. (2012). Siemens to lay off 615 in Iowa, Kansas, Florida. Businessweek. [Available at http://www.businessweek.com/ap/2012-09-18/siemens-to-lay-off-615-in-iowa-kansas-florida ]

Weiss, Richard. (2012). Siemens Scaling Back Creates Chance to Reload Leadership. Bloomberg. [Available at http://www.bloomberg.com/news/2012-11-07/siemens-scaling-back-gives-loescher-chance-to-reload-leadership.html ]

Geiger, Friedrich. (2012). Siemens’ Cost Cutting Plan Impresses, But There’s More to Do. The Wall street journal. [Available at http://blogs.wsj.com/source/2012/11/08/siemens-cost-cutting-plan-impresses-but-theres-more-to-do/?KEYWORDS=siemens]