SIEMENS COMPANY ANALYSIS
Matthew Ady, Mark Marcus, Mariana Florea
Strategic Management
Dr. Carrick
May 3, 2014

Section I: Energy Sector
Macro Analysis
The external environment for international business is always complicated and dynamic. The macro-environment analysis of Siemens is based from two perspectives: one is that Siemens run its business in German and the other condition is that it runs its business internationally or in other destination countries.
Political: Political factors always have great impact over the macro-environment in which the business runs, so multi-national companies need to do research on political environment before their international marketing planning. Siemens is doing well in evaluating political risk before it enters a new market. It is lucky for it that Germen government has steady relationship with lots of countries. Siemens often need to evaluate the historical relationship between countries that would benefit or do harm to its business. The influence of communities or unions for trading is also in its consideration. For example, trade barrier is also implemented in different firms of local laws. If necessary, a report regarding the political risks needs to be completed before its international marketing (Bell, 2001).
Economic: The economic situation in destination countries, the impact of currency fluctuations on exchange rates, the development of local market, the local market structure (Barney, 1996), the local human resources and the predisposition of local consumers are all very important issues for Siemens to consider (Bierly,1996).
The global economy just experienced the financial crisis; Siemens’ business in most countries also experienced a downturn. Another problem is that, together with the financial crisis is the tightened credit system for Siemens, which brought a lot of trouble to its business. The highlight is that some new markets such as the China market are still growing fast and these new markets provide good opportunities for Siemens’ revenue generation. From economic perspective, Siemens has got steady financial performance in the recent years.
Social: The cultural difference is often a tough problem that all the multi-national companies have met with (Choi, 2000). Culture, religion and society are of great importance to us. Will and how the local cultural differences affect Siemens’ business should also be evaluated. One of Siemens’ strategies is Diversity as a factor of success. Siemens is promoting diversity in the management ranks of the company to a greater degree than ever before. In the year 2008, Siemens applied the strategy of diversity into organizational structure. Siemens created the position of Chief Diversity Officer. The brand image of Siemens is very good and also means high quality by many purchasers (Davenport, 2000), which is one of Siemens’ advantages from the social perspective.
Technological: Siemens still have great technological advantages in its professional fields and it is still holding an advanced position in the international competition. However, in some countries where governments are not willing to afford high cost of new equipment, some smaller companies gained advantages over Siemens. For example, smaller companies like First Solar (FSLR) are more viable than Siemens as their technology becomes cheaper.
Environmental: With increasing attention from all countries in the world on global warming and with greater environmental awareness, environment is becoming a significant issue for multi-national firms to consider. The growing desire to protect the environment is having a great impact on the industry. More environmentally friendly products and processes are in urgent demand. All of these external factors can bring good business opportunities for Siemens.

Internal Analysis
Porter’s Five Forces
One of the most important sectors of Siemens is Energy and so Porter’s five forces will be applied to assess Energy industry together with Siemens. Degree of competition: In this industry, Siemens competes with big players such as General Electric (GE) of Fairfield, Conn., and ABB of Switzerland. GE has a strong market position in this industry, while ABB has great advantages in power generation and transmission. The number of market players in this field is big and the degree of competition is high (Barney, 1995).
Bargaining power of customers: In other industries, it is easy for companies to cut the prices as they compete for the same deals, which is less possible to happen in the industrial electrical equipment industry. These products are of highly specialized and professional technologies, so customers find it is very difficult for customers to purchase products of comparable quality at the same or even lower prices.
Bargaining power of suppliers: those companies that provide equipment parts and raw materials to these companies always have little bargaining power. As the equipment parts and raw materials are easy to be found in the open market, so the suppliers are easily to be replaced by other suppliers.
Threat of new entrants: Siemens and GE have dominated this industry for a lot of years. To run with the big players, a new company would need a great deal of investment. The company needs to have very good credibility and connections of both established firms and governments. So the entrant barrier for this industry is high.
Threat of substitutes: some new technologies from smaller companies, which focus on green energy, have posted threat to big companies that lacks a competing product. In solar equipment, for example, some smaller companies are becoming more viable as their technology becomes cheaper, while solar companies may soon have the strength to compete with traditional power source on price and performance, the threat from substitutes post pressure to supplier like Siemens.
Key Success Factors
Diversity: In Siemens’ culture, especially for the increasing shortage of highly qualified people and demographic changes in the global business, diversity is a prerequisite for all the multi-national companies’ long-term success. Siemens is engaged in promoting diversity in all levels of the company to a greater degree than ever before. Up to nowadays, diversity has been given a permanent place in the corporate level strategy. In the year 2008, Siemens applied the strategy of diversity into organizational structure. Siemens created the position of Chief Diversity Officer.
Innovation: Innovation has always been one of the most important elements in Siemens' business strategy. In Siemens’ culture, Innovations are thought to be able to enhance the core competence of Siemens. Moreover, in this industry, the technological innovation always means your products will deliver higher quality.
Industry Development:
Although Japan has world-class rechargeable battery technology, achieving further performance improvement is a crucial issue due to intense international competition in the battery market. On the other hand, performance limitations have become evident for conventional rechargeable batteries and it will be extremely important to take novel approaches to developing innovative rechargeable batteries (NEDO 2013).
In 2012 part of NEDO’s RISING Project, NEDO constructed two beam lines for rechargeable batteries. Each beam line has different characteristics and is used to provide basic knowledge about rechargeable batteries, investigate degradation mechanisms and conduct other relevant research. The two beam lines will significantly contribute to improving the performance of rechargeable batteries. NEDO is developing global market-leading technology for realizing innovative rechargeable batteries expected to be in use by 2030 based on its analysis of battery performance necessary for future advanced electrical vehicles (NEDO 2013).
Internal Analysis
S.W.O.T. Analysis
Strengths: The brand of Siemens has good global market penetration. The brand is always connected with products of high quality in a lot of markets. It has steady financial performance in recent years (Dess, 2008). Over the years, Siemens has delivered steady financial results. Siemens’ net profits have a similar trend in recent years. Steady financial performance enables Siemens to manage its operations well and also improve the financial flexibility in the next a few years.
Siemens is famous for its Strong R&D capabilities, which is also an important factor for its business success. Its research and development (R&D) investment keeps increasing in recent years; the average number of employees engaged in R&D also keeps increasing (Grant, 2008). The group's focus in R&D facilitates development of new products and enhancements to existing products help in maintaining its strong market position and serving a new segment of customers.
Weakness: Siemens is less innovative in the low-cost new technology. For example, smaller companies are more viable than Siemens as their technology becomes cheaper, so Siemens now face the pressure from smaller companies. Siemens relied on third party service organizations for most of its operational activities. It buys third party services for manufacturing, assembling and testing its products, while these third parties always have kinds of tie ups with multiple companies. Any problems from these third parties could adversely affect the group’s operations. Heavy dependence on third party reduces the group’s control over its operation and business costs. The consistence of the products could not be guaranteed, either.
Opportunities: During the financial crisis, a lot of small companies went bankrupt, some companies are of great value to enhance Siemens’ competency. It is a good time to buy these companies with low cost. Ally with a strong player is a good way to share the resource and enhance the competency of both companies. The joint venture with Nokia Networks, which combined Nokia’s networks business and Siemens’ carrier related operations for fixed and mobile networks. This joint venture is expected to provide significant long term returns to both groups. In addition, more countries are caring more about the environment. There is an increasing demand for environment friendly products, which is related to several products line of Siemens.
Threats: The new regulation of producers of electrical and electronic goods financially responsible for specified collection, recycling, treatment and disposal of past and future covered products post sizeable costs and liabilities to Siemens. The global economy has not fully recovered from the financial crisis, so the market has not fully recovered, either. Besides, the credit is still tight, and it is very difficult for Siemens to get new funding from external capital market.
RBV and Capability Analysis Over the course of their long history, Siemens’ relative success and growth has possessed them with a wide set of resources. Many of these are necessary for the firm to survive and required industry key success factors for the three industries within which it operates, while other resources have ultimately created competitive advantage for the firm allowing them to grow and gain more of such resources. The firm’s threshold resources include its shareholders, investors, land, operational buildings and loyal employees. These resources are all necessary for Siemens to survive in each industry by achieving the minimum required. The company’s unique resources include its possession of fossil fuel and renewable energy sources and related power transmission (Ellis 2011). This could be seen as a threshold resource necessary to survive in the Energy industry but due to the fact that Siemens operate in two other industries, such resources are unique as they create a collective competitive advantage for the firm. This is because they translate to those other industries, allowing Siemens to create and supply their own power which can lead to cost reductions across the company. Siemens Energy’s capabilities include financial control, multidimensional coordination and brand management. The industries within which Siemens operate are all huge globally important industries that are highly competitive. Such capabilities need to be possessed to establish and maintain a survival position. If Siemens did not possess such capabilities then it would cease to operate in the energy industry (Ellis 2011). An example of Siemens’ core competence connected with its unique resource is its ability to strategically innovate. The mentioned resource strengths create a strong R&D competence which ultimately leads to the creation of innovation. Such innovation creates resulting benefits throughout the organization and is integrated into all areas of operations to improve efficiency and reduce costs, thus creating a competitive advantage for the firm (Barney 104).

Section II: Healthcare Sector
“Health is the most important factor for each one of us to live a happy and fulfilling life. Without our health, we lose the freedom to fulfill our potential- and our dreams” declared Mr. Hermann Requardt, member of the Siemens Managing Board and CEO of the Healthcare Sector. Aware of the level of the responsibility, the strategic importance their products have on the market, and the impact their success in innovating and delivering revolutionary technology have on the entire global population’s wellbeing, the people working in the Healthcare Sector of Siemens deliver state of the art products that help maintaining the company leadership on the market.
Siemens Healthcare Sector is like the other divisions of the company based primarily on innovation and multiple valuable discoveries that changed the course of the modern global civilization.
Currently, the Siemens Healthcare Sector is one of the world’s largest healthcare providers and a leader in medical imaging, hearing aids, laboratory diagnostics, and medical information technology. Siemens offers the best quality of treatments and solutions for any stage from prevention to diagnosis, treatment, and rehabilitation. Siemens Healthcare Division employs approximately 52,000 people around the world and for the fiscal year 2013 reported total revenue of 13.6 billion euros. That makes the division the provider of around 18% of the entire company’s revenue, but from the profit perspective, the Healthcare division leads the other sectors of Siemens.
Healthcare sector is comprised of five specific sub-divisions: Audiology Solutions, Clinical Products, Diagnostics, Imaging and Therapy Systems, and Customer Solutions.

With over 130 years’ experience in close collaboration with universities and hearing centers, the Audiology Solutions is a leader in providing support and solutions for the hearing impaired individuals. In this activity field, Siemens has the advantage of having the most patent applications in the industry which offers a strong advantage for the future.
The X-ray and Ultrasound technology, which in many cases represent the beginning of a patient’s care, offer physicians and radiologists better insights for their cases helping them save time and give accurate diagnoses. Besides these main products, the Clinical Products Division develops multiple other components and subsystems used in medical research in technology development.
The Siemens Healthcare IT solutions division delivers the technology necessary for assuring the effectiveness, accuracy, and safety of the flow of patient data with the purpose of facilitating collaboration between healthcare providers and insuring the existence of accurate data necessary for diagnosis and decision-making.

SWOT analysis
Strengths: Siemens is an engineering conglomerate that covers an extended market share. The company is diversified from power to transportation, lighting to communication, information to healthcare. The Siemens Healthcare Division itself offers a large diversity of healthcare solutions, diagnosis, and treatment. Very important for the overall business success is the strong R&D capabilities and lately, the company’s healthcare sector has been concentrating its innovative capacity into developing multiple data analysis products meant to help the industry adapt to the current business environment.
People “are going to realize that they need better IT tools to manage their growth and their cost structures. I expect we’ll see more IT spending because we still have all of this inefficiency [in healthcare].” stated Gregory Sorensen, MD, CEO of Siemens Healthcare North America (Buntz, 2012).
A valuable advantage based primarily on the company’s large scale and the high level of compatibility of the Siemens products provides product diversity in healthcare technology. Clients use that compatibility of multiple devices to integrate them in efficient systems that make their work cost effective, faster, and more.
Weaknesses: The major weaknesses are the difficulties of complying with the FDA regulations. Last time the Siemens Healthcare Sector was cited by the FDA was in 2012 for violating the manufacturing quality for its diagnostics products.
Partly due of its relatively recent focus towards the management and information delivery services, Siemens has been less innovative in the medical technology, especially in the lower-cost category. Smaller companies, for example Alere Inc., have been growing, increasing their market share, and beginning to put competitive pressure on Siemens. Also, over the past decade, because of the company’s capital structure, Siemens’s credit ratings were downgraded, which affected the company’s ability to obtain new funding from investors.
The weakness of the internal control is an overall issue for Siemens, but it directly affects the healthcare division’s effectiveness.
Relying on third parties for manufacturing, assembling, and testing the company’s products makes Siemens dependent on multiple business partners. Also, because of the high degree of collaboration with other companies, Siemens cannot always guarantee tits products’ consistency.
Opportunities: “There are tremendous unmet medical needs and tremendous opportunities to improve human health,” declared Gregory Sorensen, MD, CEO of Siemens Healthcare North America (Buntz, 2012).
From a global perspective, Siemens has great opportunity to develop as response to the increasing number of population worldwide. In many countries, the life expectancy was raised to levels that were never before possible, but although people tend to live longer, the need for medical attention is crucial. Also, on the American healthcare market, the Affordable Care Act has been the cause for the growing demand for healthcare and particularly for consulting technology solutions meant to lower the costs and make healthcare accessible to more people.
Threats: The small companies have been focusing on R&D, gaining market share with lower prices products, and growing in many cases through mergers or acquisitions which makes the competition for Siemens more intense than ever before.
The newly introduced regulations, especially the Affordable care Act is reshaping the entire healthcare market on the US market and that is going to affect every healthcare provider. Siemens needs to adjust to these changes and successfully turn them into advantages.
"When someone goes to the store to buy a quarter inch drill, what they really want is a quarter inch hole. We are thinking all about building drills, when we should be thinking about what our customer wants. I would encourage all of us as entrepreneurs or as thinkers who are sort of business oriented to think this way. In the end, it's all about the patients and the physicians who care for them.” Gregory Sorensen, MD, CEO of Siemens Healthcare North America. (Buntz, 2012)
One effective way of creating products that not only will help the customers adapt themselves to the fast changing healthcare market, but also develop customer commitment towards Siemens is delivering solutions for lowering the overall cost of healthcare and increase the accuracy and effectiveness of the patient care process.
When Siemens realized that it “had trouble with the traceability of our documents” and that it “had a lot of information, and nobody could handle all of this information in the right way”, the need for specialized information systems became clear (Zoellick, 2005). That was a revolutionary turn that opened the development of the healthcare information technology. Since the beginning of the 2000s, Siemens Medical Solutions “has totally reworked its content management and information delivery system, converting it from a problem and liability into a source of competitive and strategic advantage” (Zoellick, 2005).
In United States, to help customers meet the healthcare reform objectives, Siemens made available “three Strategic Consulting solutions” (usa.healthcare.siemens.com, 2013). These products are designed to help the healthcare providers offer high quality service while reducing costs, specifically supporting their “Value Based Purchasing programs, Reduction of Preventable Re-admissions, and reduction of Healthcare Acquired conditions” (usa.healthcare.siemens.com, 2013). That relates directly to the Siemens Healthcare Sector’s two-year global initiative which goal is to help hospitals discover new sustainable methods to comply with the challenges created by the health care reform.
Another milestone in healthcare IT innovation was represented by the launch of the new CareXcell program at the beginning of 2014. This is the latest addition to the company’s portfolio of next –generation IT solutions and it is meant to help organize patient data, facilitate and improve care management, and simplify communication between different healthcare providers. All this will be done primarily by consolidating and normalizing the patient data gathered from different sources and making it available to health information exchange from a single patient-centered repository. The improvements brought by this innovative solution will be not only in simplifying access to data, but also in reducing the time needed to access the records and the costs of the overall processing. Another major improvement will be the possibility of analyzing the patient data for monitoring trends and creating strategies for operational and financial enhancement. CareXcell also includes tools for direct patient communication and provides “a comprehensive approach focused on helping client understand what is required to respond to new care and reimbursement models” (usa.healthcare.siemens.com, 2014).
These IT solutions examples are just strengthening the confidence that in order to sustain the leadership on the market, Siemens needs to focus on developing and innovating its information services division. This is the most effective reaction to the market recent transformation and the most profitable response to the demand’s needs. Just to give a sense of the level of profitability in this industry, besides the previously attained success that situated the healthcare sector in the first place on the overall Siemens profit diagram, the contract won at March 28th with the two Dutch university hospitals awarding the sector with 50 million, represents what the company should expect to receive from developing its IT sector and maintaining the market leadership.
Section III: Industrials Sector
Summary: The Industry Sector offers a broad spectrum of products, services and solutions that help customers use resources and energy more efficiently, improve productivity, and increase flexibility. The sector’s integrated technologies and holistic solutions primarily address industrial customers, particularly those in the process and manufacturing industries. Siemens’ industrial portfolio spans industry automation, industrial software, drive products and services, system integration, and solutions for industrial plant businesses. The company has further strengthened its position in the industrial software business with the acquisition of LMS International NV (LMS), which was completed in fiscal 2013. Revenues from the Industrials Sector constitute more than 22% of the company’s total sales and represent almost 26% of the company’s total profits. The industrials sector of the Siemens business is its second most profitable segment with an average profit margin of 8.7%. The regional revenue contributions are described in the chart below.
Industrial Analysis
Intense Rivalry: According to Porter’s Five Forces Framework, companies face considerable headwinds to maintain sustainable competitive advantage through innovation. Companies operating within this highly competitive landscape must constantly be cognizant of what they are doing strategically to remain on the cutting edge. Competitors within the industry sector can be grouped into two categories: multinational companies that offer a relatively broad portfolio, and companies that are active in only a few of the geographic or product markets served by the industry sector. The sector’s principal competitors with broad portfolios are multinational companies such as ABB, Emerson Electric, Schneider Electric and Rockwell. In the industries in which the sector is active, consolidation is occurring on several levels. In particular, suppliers of automation solutions have supplemented their activities with actuator or sensor technology, while suppliers of components and products have supplemented their portfolio with complementary products for their sales channels. Many of these improvements function with the goal of improving what the companies already have. Actuator and sensor technologies are helping to increase efficiency whereas complimentary products are seeking to promote growth in the topline. Combined together, the overarching theme among competitors in the industrials sector is to promote greater growth in the bottom line through greater efficiency and higher sales. In order to remain competitive in this landscape, Siemens must be creative in improving its processes whilst continuing to put out desirable products for customers.
Threat of New Entrants: Asian competitors are generally focused on large-scale production and cost-cutting while European and U.S. competitors are typically focused on high-quality lifecycle service. Nevertheless, most major competitors have established global bases for their businesses. In addition, competition in the field has become increasingly focused on technological improvements and price. Intense competition, customer budget constraints and rapid technical progress within the industry continue to cause significant downward pressure on prices. In addition, competitors are continuing to shift their production to low-cost countries. As a relatively high-cost provider, Siemens faces considerable headwinds from its Asian counterparts are the general environment changes to favor more economically prices products in the industrials sector. If Siemens wishes to remain competitive, they might consider mimicking some of the lost-cost practices to keep prices competitive.
Key Success Factors
Diversification: The Industry sector’s principal customers are industrial customers in a broad range of markets, including transportation and logistics, metals and mining, machinery, utilities and automotive. The sector is active worldwide, including in emerging markets, especially those in the Asia, Australia region, which sector management believes to have long-term growth potential. Apart from the Siemens brand, the sector markets some parts of its portfolio under different brand names (such as Flender for gears or Winergy for wind turbine components) depending on geography and technology.
Reliable Delivery: The sector sells its products primarily through dedicated personnel in Siemens’ worldwide network of regional sales units. In addition, it uses original equipment manufacturers, solution providers, installers, general contractors, third-party distributors and independent agents. The sector has manufacturing locations worldwide, especially throughout North and South America, Western and Eastern Europe, and Asia, allowing it to stay close to its major customers.
Strong Response to Customers’ Needs and Wants: The sector continues to work on reducing the use of hazardous materials (e.g., lead) and to replace them in its products and processes. Sustainable products and processes, such as coking coal free iron production processes (COREX), energy efficient motors and energy management play a major role in its innovation strategy.
SWOT Analysis
It is appropriate to perform a SWOT analysis of Siemens’ Industrial sector in order to understand its positioning compared to its closest competitors with respect to innovation and efficiency. As the company’s second most profitable segment of business and with shifting industry focus on lowering costs, opportunities and threats must be identified within the company’s relatively high-cost strategy.
Strengths: Throughout its history, the Siemens brand has been synonymous with quality and innovation. This kind of brand recognition is a key asset in Siemen’s business strategy. Already, Siemens has some of the world’s greatest scientists and researchers working for the company with innovation being the number one goal of their work. With its commanding position in the market, Siemens is able to continuously reap more great minds to develop more innovative technologies to push the company forward. Siemens has both strong revenues and margins, making it a consistently profitable company.
Weaknesses: With quality usually comes higher cost. As the general environment within the industrials sector trends toward lower-cost functional products, Siemens’ sales may slump. While cutting costs through lower quality may seem like the obvious choice, Siemens then runs the risk of alienating remaining customers who are not as price sensitive and want the superior product. In order to remain competitive, it is crucial that the company quickly develop a strategy to either actively pursue its low-cost customers or continue to reap profits from its remaining customers. It is not recommended that the company waiver in the between as this could cause the company to lose focus of its product portfolio’s direction and some of the company’s brand recognition may become more convoluted as it does not have one focus.
Opportunities: Siemens maintains very strong cash flows. Without delving too deeply into the threats section developed below, these strong cash flows can be implemented to continue growing the business through acquisitions of small startups to gain access to their technologies or it can be requisitioned for use in R&D to continue to produce cutting-edge products.
Threats: Brand recognition for being the best can only be preserved for so long. As the adage goes, “the proof must be in the pudding.” In other words, while the Siemens brand is closely identifiable with quality and a superior product, this a tough wave to ride forever. In order to remain at the forefront of competitiveness, Siemens must constantly stave off new entrants with potentially displacing technologies. This can be done through beating companies to the punch with Siemens’ own product development teams or by simply acquiring the firms much like Google has done with Android. Unfortunately, many of its competitors are massive multinational companies much like Siemens, so strong free cash flow will not be enough to make an acquisition of these firms. Therefore, Siemen’s real threat is in its HR and R&D departments, in that they must consistently recruit the absolute best in the field to prevent another competitor from gaining access to the most innovative minds. This is a tall order, selecting the world’s best and brightest before your competition, but failing to do so is solely one of Siemen’s greatest threats.
Benchmarking
When making comparisons to firms operating within the same industry as Siemens, it is important to analyze where the company stands with respect to its competitors.
Sales Growth: Firstly, as the general trend stated trend in the industry has been one from high to low cost suppliers, it is important to determine how Siemen’s sales growth compares to its competitors. Last year, Siemens had a positive sales growth of 3% versus the negative growth experiences by its main competitor, General Electric.
Profit Margin: Secondly, as Siemens attempts to be more efficient and remain competitive in pricing, it is equally important to analyze the effect it is having on the bottom line. Unfortunately, Siemens’ profit margin was hampered by its infrastructure sector and fell short of GE by 2%.
Free Cash Flow: Thirdly, because so much of the company’s innovation hinges on work done in R&D, a comparison of the company’s free cash flow should be made to establish competitiveness. Currently the company’s available free cash flow is over $6 billion.
Debt-to-Equity: Finally, it is important to always keep the company’s capital structure in mind when benchmarking. As the company seeks to make acquisitions and other large investments, it will require cash flows typically greater than that which is available through free cash flow. However, if the capital structure is unfavorable, the company may find itself literally trapped under the weight of its debt. Siemens maintains a debt-to-equity level that is one-fourth the level of Siemens.
Conclusions & Overall Strategic Goals
With the above information taken into account, this research and analysis of this report concludes that Siemens should pursue the following four strategies within the industrials sector of its business.
Heavy Focus on Human Resource Development: Much of Siemen’s business model is centralized around one key word: innovation. It is no secret that there are a limited number of individuals with the capabilities desired by Siemens to be innovative. The theory of supply and demand implies that when supply is low, demand for that item is high, and when demand is high, the price must be right. Siemens needs to actively recruit young, emerging individuals to work for its company while constantly scanning the competitive landscape as a headhunter for other companies. If Siemens is truly sincere about its commitment to innovation, it must be willing to pay the price to sit at the top of the proverbial pyramid. Siemens already has internship opportunities in place within its Energy sector to seek out the best and brightest students. The company should heavily consider making similar moves within its other three sectors as well. This will help to develop a direct pipeline between undergraduate/graduate students and the company.
Free Cash Flow Investment into R&D: Going hand in hand with hiring the best, Siemens needs to continue to emphasize research and development investments. In order to remain at the forefront of success and innovation, the company needs to supplement its acquisition of the best employees with the necessary funding to experiment and develop leading industry technologies. The company will make a much better return to shareholders through its investment of free cash flow (and its 2.3% dividend for that matter), into R&D.
Promote Brand Image of High Quality Supplier: It is risky to run in contrast to the changing business environment. However, in the case of Siemens it is and always has been about running against the grain in some function. To this end, Siemens is not a generic supplier. Based on solid historical revenue growth, it is apparent that those willing to pay for the superior product are not switching brands. So with its brand’s already powerful positioning, Siemens should not waiver and maintain its focus to be the number one supplier in the industrials sector.
Constant M&A Scanning: With a debt-to-equity that is 33% less than the industry average and more than a fourth of the size of one of its leading competitors, General Electric, Siemens’ financials are in a strong position to take on more debt for an acquisition of a smaller firm. This is a crucial piece of the company’s growth strategy as it will be able to take advantage of the new products offered by these small startup companies. Therefore, Siemens should leverage its capital structure in a better manner to provide greater return to shareholders while preserving its competitive edge in the industry.
Section IV: Infrastructure & Cities Sector
Summary: The Infrastructure & Cities sector (“infrastructure” for short) offers a wide range of technologies for increasing the sustainability of metropolitan centers and urban infrastructures worldwide, such as integrated mobility solutions, building and security systems, power distribution equipment, smart grid applications and low and medium-voltage products. While the sector has decided to divest its airport logistics and postal automation business, it has acquired the rail automation business of Invensys to expand and complement its rail automation business. The sector consists of five divisions: Rail Systems; Mobility and Logistics; Low and Medium Voltage; Smart Grid; and Building Technologies. Overall, the sector’s principal customers are industrial infrastructure and public customers in a broad range of markets, including construction and real estate, transportation and logistics, and utilities.
The timing and extent to which a division of the infrastructure sector is affected by economic cycles depends largely on the kind of business activities it conducts. Business activities that tend to react very quickly to changes in the overall economic environment include those in the Low and Medium Voltage Division. Business activities that are generally affected later by changes in the overall economic environment include those in the Smart Grid and Building Technologies Divisions. Sales in Rail Systems, Mobility and Logistics, and parts of Smart Grid are driven primarily by public spending. Customers of these divisions usually have multi-year planning and implementation horizons, and their contract tenders tend to be independent of short-term economic trends. The regional revenue contributions are described in the chart below.

Industrial Analysis
Regional Risks: Political, Financial, & Economic Threats: The infrastructure sector is active worldwide, including in emerging markets. While management of the infrastructure sector believes that these markets offer significant growth potential, the sector’s activities in these regions expose it to risks associated with economic, financial, and political disruptions that could result in lower demand or affect customers’ abilities to pay. The large size of some of the sector’s projects occasionally exposes it to risks relating to technical performance or specific customers, regulations or countries. In the past, the sector has experienced significant losses on individual projects in connection with such risks, primarily at the Divisions Rail Systems and Mobility and Logistics.
Threat of New Entrants: The sector’s principal competitors are multinational companies such as ABB, Alstom, Ansaldo, Bombardier, General Electric, Honeywell, Johnson Controls, Schneider Electric and Tyco. But it should be noted that the sector’s competitors vary by division. The infrastructure sector also faces competition from niche competitors and from new entrants, such as utility companies and consulting firms, exploiting the fragmented energy efficiency market. The sector’s solution businesses also compete with engineering, procurement and construction providers, and competitors in the service field often include small local players.
Key Success Factors
Strategic Market Segmentation: The infrastructure and cities sector is further segmented down into five sub-sectors: Rail Systems; Mobility and Logistics; Low and Medium Voltage; Smart Grid; and Building Technologies, which are referred to as “divisions”. The products of these divisions are geared toward very specific markets. Targeting niche markets where these products can be successful is crucial. For example, Europe has a very well developed commuter railway network already in place, whereas the US does not. Recent trends in fuel costs and shifts in the general environment toward sustainable living practices have incited a greater demand for commuter railways in the US. By targeting specific needs for products within the divisions, the infrastructure sector can boost sales dramatically.
Understand Competitors’ Strengths and Weaknesses: Because of the narrowed focus of the divisions within the infrastructure sector, it is important that Siemens recognizes those areas at which it excels, and those at which it does not. Using valuable resources on a project in which Siemens lags heavily behind another competitor could be wasted, as a competitor already dominates the market for that product. For instance, it would not be wise for Siemens to actively attempt to outcompete with Shinkansen, a premier leader in magnetic railways, in the Japanese High-Speed Rail market. By that same token, Siemens should recognize its strengths within its energy infrastructure division with its “Smart Grid” technology. Smart grids, which enable the bi-directional flow of energy and information, are a prerequisite for the increasing integration of renewable energy sources. Using data obtained from smart grids, power providers can also boost their operating efficiency. Software solutions that analyze grid data are continuously gaining in importance for this industry, and Siemens in on the cusp of it all. Focusing on its strengths in energy and avoiding weakness elsewhere will help to alleviate the misuse of R&D funds.
Cost Controls & Profitability Boosting: By a landslide, the infrastructure sector is Siemen’s least profitable. Although infrastructure accounted for 22.6% of the company’s revenue in 2013, it only contributed 5.1% to the bottom line with a measly 1.7% profit margin. The continued survival of the infrastructure sector is a huge point of contention, as it is simply not providing the same return to shareholders as the other three sectors. If Siemens wishes to continue progressing with the infrastructure sector, the “Jack Welch” principle should be considered, where the highest performing projects should be continued and the medium range projects should be modeled accordingly after these, while the underperforming projects simply need to be cut.
SWOT Analysis
Strengths: As with any other sector in the company, infrastructure and cities development by Siemens is regarded as top-notch. Not only is it perceived that way, but Siemens’ infrastructure is also predominantly used around the world. Many cities around the world attribute a large quantity of their power to Siemens’ infrastructure. Within the general environment, there is a large increased demand for sustainable products, something at which Siemens is on the cutting edge with its Railway industry and smart grid technologies. With an already very well established reputation and network within the infrastructure and cities sector, Siemens is well positioned to take advantage of the demand for innovation and more sustainable cities.
Weaknesses: Profitability is a huge concern for the infrastructure sector. Currently sporting a profit margin of 1.7%, which is well below the rest of the company’s sector operations, the infrastructure sector is the laggard by far within the Siemens portfolio. This lack of profitability stems mostly from the fact that product designs are not transferrable around the world. In other words, one size does not fit all. With it much more difficult to mass-produce products, economies of scale cannot so easily be attained as in other sectors.
Opportunities: Honing in on profitability, Siemens can cut costs without cutting the productivity of some of its greater projects, like Bangalore, India. Home to nearly 8.5 million people, Bangalore is India’s third-largest metropolitan area. Called the Silicon Valley of India due to the many IT, aerospace, and biotech companies located in and around it, the city owes its success to an advanced infrastructure that is also driving progress across the entire state of Karnataka, which has a population of over 60 million. Between 2001 and 2011, the population of Bangalore grew by 50% leading the transportation infrastructure system to become heavily overburdened. Demand for more aerospace accommodations and cleaner air are both also large areas of concern. This city offers a huge opportunity for an integration of products from a number of its divisions within the infrastructure sector. By contracting with Bangalore, Siemens infrastructure could grow revenues and not compromise as much of its profit margin through increased synergies within the project.
Threats: The most obvious threat to the infrastructure sector is competition from other competitors, namely, General Electric. There are a very narrow number of projects to be taken within this sector. If Siemens fails to capitalize off of these availabilities because another competitor outbids them, it could be catastrophe for the infrastructure sector. In order to negate this threat, Siemens must always be actively pursuing the next customer as they are doing currently with Bangalore, India. Falling behind the wave of customers even briefly is not an option.

Benchmarking
When making comparisons to firms operating within the same industry as Siemens, it is important to analyze where the company stands with respect to its competitors.
Sales Growth: Firstly, as the industry for infrastructure products is relatively narrow, it is important to note whether sales for this sector have fallen in-line with its industry peers. Last year, Siemens outperformed by 3%.
Profit Margin: Secondly, as infrastructure is the laggard sector in terms of profit margin for the company, it is necessary to determine whether this fits in with the rest of the industry or if it is a truly lagging field. Currently, the profit margin of the infrastructure sector is more than 6% below the industry average.
Free Cash Flow: Thirdly, because so much of the company’s innovation hinges on work done in R&D, a comparison of the company’s free cash flow should be made to establish competitiveness. Siemens’ free cash flow is three times that of GE while Siemens has a lower market capitalization.
Debt-to-Equity: Finally, it is important to always keep the company’s capital structure in mind when benchmarking. As the company seeks to make acquisitions and other large investments, it will require cash flows typically greater than that which is available through free cash flow. However, if the capital structure is unfavorable, the company may find itself literally trapped under the weight of its debt. Luckily for Siemens, the debt-to-equity is 25% of the level of GE.
Conclusions & Overall Strategic Goals
With the above information taken into account, this research and analysis of this report concludes that Siemens should pursue the following four strategies within the Infrastructure & Cities sector of its business.
Control Profitability: For the infrastructure sector, everything must revolve around boosting profitability. Ignoring its relationship with its benchmark competitors, the low profit margin is hampering the company’s overall return on assets and, more importantly, return on equity. With this vast difference in profitability present, Siemens must either find a way to boost this sector’s profits or spin it off to another company, private equity, or in an IPO so the funds generated can be more appropriately used to generate the best returns to shareholders.
Key Market Segmentation: Finding the most appropriate places to market its business is crucial for Siemens infrastructure. Setting up a deal with Bangalore is exactly what the infrastructure sector should continue to do. By finding developing cities in need of massive infrastructural overhauls, Siemens can market all of its industries within the infrastructure sector to its customer. With the growth of the developing world, especially in the BRIC nations, segmenting they key markets and finding viable clients within them will play a key role in the continued growth of the infrastructure sector.
R&D Investments into “One Size Fits All” Product Development: Utilizing its Smart Grid software technology, Siemens infrastructure stands to take advantage of a dynamic capability to become a utility management branch. By developing software that actively works with the electric grid in place to increase efficiency, the company can continue to reap profits by managing the products after work is completed in the physical grid. In this way, the sector can boost profitability and hopefully bring the infrastructure sector back into line with the rest of the company.

Works Cited
Bell, Barney, Bierly, Choi, and Davenport. "Strategic Analysis Of Siemens Profile Management." Strategic Analysis Of Siemens Profile Management. N.p., n.d. Web. 08 Apr. 2014.
Barney, J. (1991). Firm Resources and Sustained Competitive Advantage, Journal of Management, vol. 17 (1991), no. 1, pp. 99–120.
Ellis, Brett. "Managing Capability - A Resourced Based View Analysis of Siemens." (2011.): n. pag. EZone. Web. 19 Apr. 2014.
"NEDO Project." NEDO:. N.p., 13 Aug. 2013. Web. 08 Apr. 2014.
Buntz, B. (2012, June 06). Healthcare problems are tremendous; so are the opportunities to address them, says siemens healthcare ceo. Retrieved from http://www.mddionline.com/article/healthcare-problems-are-tremendous-so-are-opportunities-improve-human-health-says-siemens-he
Zoellick, B. Siemens Medical Solutions. Gilbane. Retrieved April 19, 2014, from http://www.astoriasoftware.com/pdf/resource/siemens_medicalwhitepaper.pdf
Siemens Launches Strategic Consulting Services to Help Healthcare Providers Address Health Reform. (2013, January 17). . Retrieved April 18, 2014, from http://usa.healthcare.siemens.com/press/pressreleases/healthcare-news-2013-01-17-1 Siemens Healthcare launches CareXcell™ for sustainable population health management (2014, February 20). Retrieved April 19, 2014, from http://usa.healthcare.siemens.com/press/pressreleases/healthcare-news-2014-02-20-2 Other Sources: Company 10K Reports, Bloomberg, Morningstar, Thomson Baseline, Yahoo! Finance