Siemens AG. Company Background and Porter Analysis

Table of Contents

Introduction

Company background

Porter Analysis

Conclusion

References

Appendices

Introduction

Siemens AG is a traditional electrical engineering company that is based in Munich, Germany. It has been in existence for 150 years and its reach spans as far as Malaysia and South Africa. And now its main focus is to move all its business and sales on to the Internet. According to The Economist, it is spending 1 billion euro in an attempt to turn itself into an e-company. They hope to move all their sales online by 2005. But is this a wise decision? Can Siemens coordinate all its units to converge with the headquarters' "e-vision"? But most importantly does Siemens have a distinct competitive advantage and a decent strategy to take on an Internet-based marketplace? To answer all these questions a complete exploration of the background of the company is done. Secondly a Porter analysis makes clear the strategies for its move to e-commerce. Finally a conclusion will be given.

Company background

Siemens is globally massive. More than 460,000 employees in over 190 countries are working for Siemens and nearly 57,000 employees are engaged in research and development worldwide. Siemens has more than a dozen business units with a product range from light bulbs to mobile phones to hearing aids to power generation equipment. A number of services are offered through Siemens. Some of these are building up e- business solutions, integrating sold IT and telecommunication systems, and providing financial services. There is also after-sales service where one can get in touch with qualified personnel. These are some of the business segments within Siemens portfolio:

- Information and Communications: Communication with network solutions and portfolio of cordless and mobile phones and latest-generation PCs
- Automation and Control: Optimizing production, cutting costs and boosting plant productivity and offering solutions in the field of production and logistics and automation and in increasing building productivity.
- Power: Providing affordable power and heat with environmentally friendly power plants and making energy transport economical and safe.
- Transportation: Integrating transportation systems and improving vehicle safety and comfort.
- Medical: Providing complete healthcare solutions and support diagnoses and therapy in hospitals
- Lighting: Providing economical, long-life lighting of every application.

Most E-commerce today is business-to-business (B2B). That includes all inter- organizational system transactions and electronic market transactions between organizations. Business-to-consumer (B2C) concerns retailing transactions with individual shoppers (Turban, 2000). Siemens deals with both B2B and B2C e-commerce but concentrates more on B2B. On the home page there is a column “for your business” which lists B2B functions such as “marketplaces”, “buy from us”, “sell to us” and “finance with us”. Siemens marketplaces are not like traditional marketplace in which a company brings outside buyers and outside sellers together to bid and trade products and services. In a Siemens marketplace, the only seller is Siemens. Buyers come and click on the industry they are involved in and the product line that they are interested in and in turn receive various options given by Siemens products, but only Siemens products. “Buy from us” and “sell to us” is for B2B as well because in order to shop in this part of the site, company needs to be registered with Siemens which requires a great deal of specific information about the company so as to be sure that the company is actually valid.

When it comes to the company's strengths and weaknesses, there is a saying in German business that sums it up: "If Siemens only knew what Siemens knows.". On the positive side, this statement insinuates the outstanding knowledge know-how of its employees. The company is distinguished for the technical talent of its engineers. If someone at Siemens has a question, odds are someone else at the company probably has the answer. The problem is actually getting this exchange to happen considering Siemens is so far reaching. This is where the Internet is very useful and a perfect example is one given by The Economist in June 2001. "Siemens Malaysia wanted to bid to supply a high-speed data network linking Kuala Lumpur and its new airport, but lacked the expertise to do so. Somebody on the project thought to check the internal system on which information is posted for use throughout the company called the sharenet, and found that Siemens was working on a similar project in Denmark. Malaysia adapted what had already been done there, and won an order for a pilot project." (The Economist, 2001). But still the employee with the question still must take the initiative and attempt to find the answer within the company's intranet or the information must be posted as it is acquired.

Another aspect of Siemens is that the market in which they are in has very high barriers to entry. These barriers are created by the fact that in order to succeed in the various markets that Siemens takes part in, a company needs to stay on the cutting edge of technology and always be developing a new model that is smaller, faster and better. Also Siemens has the advantage of being a long established company in the market with a good reputation. Therefore to enter into this industry would be extremely difficult and so the barriers of entry are high.

As the Internet increases the bargaining power of buyers and sellers because of the vast information available, it seems as if Siemens is trying to counteract that. First, there are the “marketplaces” that have been set up which are really more like a list of products and services a business can order from Siemens. There is no comparison with other companies in the marketplaces or in the consumer part of the website. But the information offered on the Siemens products is extensive. One can compare prices and functions of different models but again only within Siemens. This does make sense though because the site is not a retail site but the producer’s site. But in the future, if Siemens wants to become a complete e-business, it should probably have a link to comparison-shopping for consumers and businesses.

Porter Analysis

Siemens move to the Internet raises some questions. Of course it makes sense that a company so closely linked to current technology would have an Internet presence, but to transform itself into only e-business without a physical presence? What if the Internet isn’t as secure a place for commerce as previously thought? What if it is a passing phase and with in ten years people will rediscover their local newspapers and bookstores and the e-commerce structure collapses? There has been such a crash with the dot-coms where only a few strong businesses survived and the majority of those had a physical presence to fall back on. Perhaps the Siemens strategy will sustain the next failure of dot-coms considering its extended presence in the market. However in Porter’s article “Strategy and the Internet”, he sets up six principles of strategic positioning in the Internet, by which Siemens can be analyzed.

The first principle is having the right goal with e-commerce. Does Siemens expect to run its business as it did when the Internet didn’t exist or will it develop an entirely new strategy? According to Porter, a company that wants a presence on the Internet should focus not on market share but on quality of products and making it so that consumers will pay more for the product than it cost to produce it, thus creating economic value. Since Siemens has been in the industry for so long it probably doesn’t need to worry too much about market share but it needs to have an edge to keep that share if it moves to the Internet. As of now that edge is entirely unclear except that it does have leading engineers working for them and therefore will probably come out with the newest, smallest, and the best mobile phone first. But that can always change.

This brings up the second principle of value proposition, or set of benefits, that distinguishes the product for other products. Technical innovations such as a mobile phone/MP3 player/place to explore stock options with your own personalized cover are examples of this but it is more in the way the company presents them and emphasizes what it deems important. Such an example, not in Siemens but in Nokia, is what consumer group they try to appeal to. Advertising for Nokia is usually directed towards consumers that are under thirty and are more concerned with looking good and having fun. Therefore the aspects of the phone that are usually emphasized are the personalized cover and the built in MP3 player. Siemens since it is focused more on B2B than anything else should emphasize the actual technical aspects of its products rather than appealing to the sensibilities of the buyer. This is linked to the third principle, which is a distinctive value chain. However this is more a question of not what should we do to remain competitive but how should we do it? As was stated before Siemens should keep focused on the B2B aspect of their business, as many mobile phone companies are just that, mobile phone companies and not involved in any other industries except communications. Those companies pretty much have to focus on the consumer because it can offer nothing more than a phone that has more functions than one person can use. Focusing on B2B e-commerce would be an intelligent trade-off, which happens to be Porter’s fourth principle. A company needs to make trade-offs in services and products to be distinctive in others. In the Siemens case, the trade off would not be in what product of service they should forgo but what group of customers should they focus on.

The fifth principle is does the elements of the company fit together. For example, does the product design complement the manufacturing process? Is there enough communication throughout the business to utilize already acquired knowledge? Does the company work together as a whole? As addressed before, Siemens has the ability to do this but does it actually make a habit of accessing the share net developed in the company’s intranet? Siemens sharenet could make this company even more powerful and much more profitable in terms of cutting costs if it was actually used on a regular basis.

The sixth and final principle is continuity of the strategy’s direction. In order to keep a strategy strong, it must be continuous, despite the lost options in developing other products in order to better others. Weak strategies are often characterized by the “reinvention” of the company, according to Porter. In that case, could this massive move to the Internet be a sign of weak strategy? It is possible since some argue that strategy is obsolete on the Internet and those with a weak strategy would succeed anyway. The world has already seen that this isn’t true and to keep going forward with this transformation after the dot-com crash with the idea that you don’t need a strategy to succeed in e-commerce would not be characteristic of a 150-year-old business.

Another issue brought up by the respondents of the surveys was technical difficulties with the site and difficulty actually getting the website up and running. This is worrisome because this company is supposed to be a leader in technology yet it can’t even manage to acquire decent technology to support its website. This could happen to anyone but it does look especially bad for technological leader. This is yet another reason for Siemens not to completely become an e-business. A little dysfunction within a website would probably go somewhat unnoticed by the outside observer with a physical presence to back it up. But to completely move to a market whose basis is not entirely reliable would be quite risky.

Conclusion

Siemens AG, for what it is trying to do, is succeeding fairly well. It has a variety of different marketplaces supported by the site for almost any industry one could think of. There is a buyer-oriented and a supplier-oriented marketplace supported by the company both of which are protected by complex questionnaires for the purpose of guarding the information provided by the site from invalid companies. Within the site you can compare the functions and prices of Siemens products. Within the company there is an intranet used for exchange of knowledge and information worldwide, which can help reduce costs considerably for Siemens. The business opportunities via the Internet are not as massive as they are for some e-businesses because Siemens already has a global presence and can’t benefit as much as a small company could from the global audience.

Recommendations for this company are hard to make because of a personal belief backed by the Porter article that an e-business will most likely not succeed if it doesn’t have physical presence as well. And since Siemens is aiming to rid itself of its physical presence, the first recommendation would be stop the transformation from the physical to the virtual. But in spite of that recommendation, the second would be continue to focus on the business-to-business aspect of their company as it seems the most built up now and therefore probably their first priority. Of course they should not entirely ignore the consumer and as it stands right now, I would expect to see more products other than mobile phones offered to consumers where the company is already very well known, starting in Germany. Finally, Siemens has a great deal of knowledge it has to learn to harness. The company has already built up an intranet for the company and now it just needs to be utilized on a regular basis. To accomplish this it might be a good idea to use the Internet as an integral part of problem solving in employee training programs. In terms of product development, it is expected to see complete integration of the Internet with mobile phones. Siemens is the one company that has the technology to do this because it has such a wide range of products in electronics. A person can already check their bank accounts, e-mail, the stock market and listen to music in the palm of their hand. In the future, it is expected to be able to search for old school friends and apply for jobs via my mobile. And most probably Siemens will come out with this technology first.

References

Company overview (2001). Retrieved December 3, 2001 from the World Wide: http://www.siemens.com/page/1,3771,226207-1-999_3_0-0,00.html

Turban, E., Lee, J., King, D., & Chung, H.M. (2000). Electronic Commerce: a managerial perspective. New Jersey: Prentice-Hall.

author (2001, June 2). title. The Economist, 6, page.

Porter, M. E. (2001). Strategy and the Internet. Harvard Business Review, 62-78

Appendices