Siemens CEO's mission to automate everything | Decoder

The world needs electricians and plumbers for sure. Someone's got to build and plumb the data centers, and maybe that's the only career in the future. Terrorists are like taxes. They help close the budget deficit, and I never saw taxes going back, which helps close a budget deficit.

Thank you, Neil. Nice to meet you.

And it's indeed not that easy. We came a long way. It's more than 170 years since the company was founded, and we made so many changes in our portfolio in our company. Actually, when people talk about it, I say there's one constant in our history, which is that we reinvented ourselves over and over again. And absolutely, we are now in the midst of another reinvention, a transformation, with one difference: this is the fastest and the most fundamental one we ever had because of technology. And then people ask, what is Siemens about? Because you have Siemens Healthineers, you have Siemens Energy, you have Siemens. Actually, it's not that easy to describe because Siemens Healthineers has the task in the name — it's about healthcare. Siemens Energy has the task in the name — it's about energy. But Siemens is not that clear. So here is how I explain it: We transform with our technology the everyday for everyone. That doesn't get you closer, but the point is you have to look behind the curtain and then you see what Siemens technology does. When you see a car passing by, eventually all of them are touched by Siemens technology. Either cars are designed by our technology or they are manufactured. Every third manufacturing line in the world is run by Siemens controls. If you walk through New York, you cannot walk a block without passing by a building which is automated by Siemens technology. We are controlling something like a little bit less than 50% of electrons touched by Siemens technologies in our transmission systems, low voltage systems. And if you talk about health, I mean if you get a scan somewhere in the world, the likelihood that it's a Siemens CT or MRI scan is a little bit higher than 50%. And this is what we do. We have a technology which enables others to transform their everyday, and that is what Siemens is about.

No, absolutely. And here comes the point, and this is a absolutely valid question because now we are very active in so many different industries. I mean, industries, manufacturing, process industries, but we also are in buildings and grids and mobility. So we build trains and signaling systems. So the first basis of Siemens is, and this is where our value sits, it's in our technology platform, is it our design software. We are one of the largest software companies in the world. When it comes to industrial software, we are the largest. And with our software, you can build the most comprehensive physics-based digital twin of whatever product you do. And we are now expanding into molecules. So the other one is automation technology as talked about, either for discrete or process manufacturing. We also go for software-defined automation which is a kind of disruption. And in anything, we are the largest automation company. We automate grids, we automate buildings, we automate signaling systems, we automate trains, we automate manufacturing. So the underlying technology is where the value is. Now we are bringing this technology to different verticals, markets like industrial markets, food and beverage, chemicals, automotive, machine builders, utilities, mobility operators, and the like. And then at this point, the domain know-how comes into play. So having technology is one thing, but having the domain know-how to deploy, to talk the customers' language, is another. And on top comes the whole thing is now supercharged by AI technologies which we are rolling in as we speak. We have a long history regarding AI. Actually, one of the first supercomputers doing machine learning algorithms was Synapse One. I mean, this is in the '90s. Siemens had the most powerful one. This was the grand grandfather of the GPUs today. So we have been working with artificial intelligence technologies, but this is now obviously a new level which we want to bring it to. So the organization obviously we organize according to businesses, they are reflecting the markets we are acting in, but you have to look at from the back, the underlying technology including the data which is super relevant.

We are running according to businesses. One is Digital Industries, which is all about the software and automation piece. One is Smart Infrastructure. Here you find our building technology, medium voltage, low voltage, but also the grid automation, grid control software. The third element is Siemens Mobility where we have our trains, high-speed locomotives, commuter, metro, light rail, but also rail infrastructure including turnkey projects. And the last one, since we are still consolidating, is Siemens Healthineers which we hold still some 70%, which is a listed company. We are about to let go, so we announced a spin-off of 30% from the 65% or so. But this is a separate company. So that's how we are organized. Of course we have our corporate organizations like strategy, IT. We run obviously horizontally. We have our M&A department. So that's what a corporation normally has. And maybe one more special thing is we still have research. So we still invest out of our 8% in terms of revenue, or 6.5 billion, a portion of that goes into research advancement. So we work on quantum computers — we don't build them, but we run on the software, the middleware, how to use it, the applications. And we have also machine learning and AI experts who are doing research there. So that's roughly how the company runs. And then talking about regions, we have in total including Healthineers now 320,000 people. We have 45,000 in the United States, 30,000 in China, 35,000 in India, roughly 85,000 in Germany. It's still a German company, there's a lot of manufacturing here.

This is a constant discussion because we have very strong regional leads. We have strong businesses. So there's always this matrix, and every company has this matrix. The first question is which one is the predominant line, is it the business or the regions? In our case, it's a clear answer: it's the businesses. So the businesses have the full P&L, regions are the second derivative behind it, still very strong. And in some businesses, let's take for example our low voltage business, switching technology, this business is fully run by regions — you have independent China, United States, Europe, and these are their P&L, so rolled up by regions. If you talk about automation, the next level is still motion control for machine builders, factory automation, process automation, and then come the regions. So you still have different kinds of setups depending on the business. And then the third dimension, just to make it a little bit more complicated, is the verticals. For example, factory automation runs into any kind of factory automation you can imagine, discrete and hybrids, food and beverage, automotive, machine builders, machine control, but also a lot of battery manufacturing, semiconductors. So this is the third dimension to serve verticals, because each of them has a different language, different applications. So we have a very three-dimensional matrix, but there's a clear lead driven by the business lines.

You're right. When I explain my organization, you can identify the problems or the opportunities, put it that way. And here comes the point. I mean, I talked about we are investing 6.5 billion in R&D, and obviously this goes into different businesses, and some of them have a higher share. This is 8% on average, some of them are definitely more than 10, 13%, some others are more on 3 or 4%. So capital allocation — R&D, CapEx spending — is done business by business. Each of them has a business case and we allocate capital. In some cases, we obviously want to allocate more capital in higher growth areas. And I talk organic capital allocation. When it comes to M&A, this is something that happens on the board. We come up with proposals and we see where we want to spend more money and where we focus on our M&A and where not. But then here comes the point, and this is the part of our One Tech Company program. Actually, I started last year together with my fellow board members maybe one of the most fundamental transformations of our organizations, because you're completely right. We are very much boxed below these businesses I talked about, like Digital Industries, we have software, then we have automation, automation are three boxes: factory automation, process automation, motion control. Below that you have even segments. So we are very much boxed, and what we want to do is we are taking layers out. We bring that into bigger boxes. So we are talking for six units, but then we also say we want to create fabrics, which is a kind of operating system where we have horizontal ones. So we have a data fabric, we have a technology fabric, we have a sales fabric. The idea behind the fabric is a thin layer, but a very strong one, where we are really scaling horizontally as much as we can. For sales fabric, for example, we want to use the same tools, the same nomenclature for customers. Believe it or not, if I ask today how much revenue we do with BMW, people have to run out and pile numbers together. This stops now because we have one identifier for BMW, and with the push of a button I know what to do. They have the same sales methodology, also the customer journeys should all be alike. Technology fabric is that we don't do things over and over again. When we talk about a digital platform where we sell, we build it only once and sell our portfolio. So this is a change. We are unboxing our organization into little boxes, and the reason is, number one, technology and AI in particular doesn't respect silos. AI doesn't respect data silos, doesn't respect any kind of boundaries. The world is squeezing out the small. The more data you have, the more capabilities you have, the stronger you are. I mean, it's a fact. Look at the big companies. So therefore we have to play the strengths of Siemens, and this requires a different way of running this company. This is behind our One Tech Company program, which is really pulling in horizontal as much as we can, yet respecting different go-to-market and different kind of technologies or applications of technologies depending on the verticals we are serving. So not losing our strengths which we have built over so many years while scaling horizontally. Does it make sense?

Yeah. Give a little bit of insights how we did in the past and how we do it right now with our One Tech Company program. In the past, we had many restructurings and many changes. The point was a managing board. We have now seven people and we used to have 15 or more. In the past, these guys were going together with their strategies in a room, defining a new structure, laying out an org chart, and then 'Dear colleagues, this is where we want to go,' and we reshuffle. You can imagine how that goes down. This time, we created a north star, where we want to be. The north star is basically what I sketched to you: these fabrics, the businesses, but allowing them to focus on what they need to do, focus on their customers on their applications, but yet we want to get horizontals into it. And then we said this is a north star, and here are we call it tracks to the north star. These are the points where we really want to touch, for example our CRM system for automation which was completely scattered, we want to do that. And this is a blueprint for the whole. And then we engaged people to say let's go, and you work with us now on these tracks and how to change it. That means we give the people an opportunity to contribute, to bring their ideas, but we have a clear idea where we want to go in order to move first. Secondly, obviously you need to communicate a lot. You have to explain what you do, because you're describing something where people don't know where it goes. They're not experienced to work that way. But you have to talk it over and over again, explain why we do it, what's the benefit, and what changes for the people. And for some they said, 'Oh, I don't experience any change.' Yes, because we don't touch everything. We touch only things where you really can improve. And some we just let go, because why would you fix something that's not broken? The next one is we definitely also train our people, because transformation is not just shifting boxes. It's a different set of values. Collaboration is a much more important element in it. So we are putting a lot of emphasis in helping them. And change is not only a structure, it's also the processes behind, the way how you lead. And the last thing is obviously you also want to inject capabilities from the outside also on a higher level, where you have people who know what good looks like when it comes to a super professional sales organization, when it comes to AI technologies and model developing. This helps a lot. And we do that all over the company on the lower level, higher level. But if I talk now really highest level, if you come with people who really have the gravitas, who bring the experience where nobody would doubt that if they say this is how modern software looks like, they have authority by themselves without giving them the stars and stripes, so they just pull people together and say this is how we go, and people listen and follow. So this is the package, and you need all of them in order to make this transformation. And it seems to work. I had huge respect. I mean, I'm a lifetime at Siemens now, and I saw in my 30 years of Siemens so many changes and programs. Before pulling the trigger of making this big change, which is the deepest one for the last at least 20 years, you think about twice, because if this vessel runs in the wrong direction, you have a problem. And we have to deliver at the same time. So but I pulled the trigger because I knew that we have to change. The environment technology is changing so fast, so we have to be on the forefront. But I'm quite happy because it runs now for one year and good progress. There's another one ahead of us by the end of the fiscal year. So by October, November, we are basically through with all the big moves and the changes, and we are already grooving in the first batch of changes we made. Sales seems to work quite well. We're grooving in, and then within two years I would say we finally are ready to scale.

First thing about decisions is empowerment. Don't pull every decision up to the boardroom. It makes us slow. It is really not attracting people. People want to really take decisions on a lower level. So basic idea: take decision on the lowest possible level. However, empowerment is not anarchy. You have a clear strategy that sets boundaries. This is where I want to go. Within that frame, within your responsibility, you can act and are empowered. Empowered is a two-way street. Empowered gives freedom but it also requires accountability. So if I empower somebody, they have to be accountable for what they are doing, which is super important. So that's the first thing: don't decide on things which you can decide on a lower level. But then if it comes to the bigger rocks, the M&A decisions, this really goes to the board. We have processes how we do it. We have a P proposal, which is a proposal where somebody says, 'This is a company I want to acquire, this is my business case.' In order to say, okay, now we believe in that, we give you a trigger. You are ready now to negotiate, go forward, make a non-binding offer. Then they work on it. We have a lot of processes. Then comes what we call an I proposal where we finally pull the trigger to say we can invest and go. And the decisions, if it comes to strategies, we engage as many people as we can, the experts, listening to them in the boardroom. In some cases, we also ask them not to prepare a super polished PowerPoint — it's not the point. We want to really get the content. And then we have a very open discussion culture in our managing board with our leaders to come to better decisions. Very often I'm also snorkeling around, getting advice from others, pulling our network if it comes to certain decisions. So it's a structured process, but a process which encourages people to speak up, to bring their opinion in order to come to better decisions.

Well, it like kills them dead. The number of times I've heard that story is very high. So, how do you bring that together? There's a first one and this is so super important for communication because you got it right. Low voltage, I mean this is as mechanic as it can get. I mean this is mechanical stuff. There's no software, no AI, if not in the development of course, but normally this is a product which is hard. Not only because we have now solid state switching which is disruptive, which brings software into it, but take that aside. And then talking about being on stage talking about AI and new models and whatnot and digital twins, the people sometimes feel lost where Busch is always talking about that stuff but I'm just doing mechanicals. So we have to give love to these guys as well because they do a lot in terms of contributing top and bottom line cash flow to our company. They are part of the equation. If you go to any kind of customer, they say I love your automation, I love your software, but still I have to do some switching here and we are rolling in. And it's super relevant because if you don't have a switch or if it breaks, then you have a problem. Bring the capabilities to a customer and say, not by the way we have also some low voltage here, but really say this is important for you to have a very solid operation. It makes sense. And they are proud to contribute. So you have to distribute your love not only to the new stuff but also to those which are basically super important and carrying our piano forward. And then the other element is believe it or not, this CES presentation or keynote where you really are on par with I mean talk with Jensen Huang there and you show what we do, and people even the low voltage guys are proud of what we do. I give a last one because I have to share that with you. We didn't talk about a completely other area which is Siemens Mobility. They do trains. This is hard stuff. Bogies, frames, mechanical. I mean these trains are super loaded with automation. These are basically software-defined trains because they, even before they come to the depot, they tell the depot what they need, which part, what's wrong, and how to replace it. So it's technology at its best. However, which company can say that we are transforming the whole economy of a 110 million people country, which is Egypt, where we built 2,000 kilometers of railway lines from the north to the south or west to the east, connecting 90 million people and transforming the whole system with high-speed, commuter, and locomotives. I mean this makes people proud. And I didn't mention any AI technology, even though it's in our trains, but this is something where which company in the world can do that?

We believe in free trade rather than trade barriers because it brought the world to where we are, and leveraging technology as fast as possible means bringing it to different countries as fast as possible. The good news is since we are global from the very beginning — when Werner von Siemens founded this company 175 years ago, he sent one brother to London and one to Russia because Germany was too small for his technology to scale. Ever since, Siemens is a global company, and now our local-for-local content in the United States or in China is 85-87%. We are so local, but we still have goods traveling. The impact of tariffs currently — and we stated this publicly last fiscal year — was a mid single-digit bottom line impact. So that's okay for us, but maybe not for others. Our customers are suffering, and with our customers we are suffering. Machine builders have reduced volume because their machines are tariffed when they go to the United States. Along with that normally comes Siemens automation. The direct impact is rather low, but we are increasing our resilience. We are trying to double source semiconductors, looking for more localization, and investing in the US, India, and China. So good news is we are quite resilient. Bad news is for many of our customers it doesn't help and it slows things down.

The truth is it's a little bit of both. Where it's real — let's talk about the pharmaceutical industry. The Swiss and German ones are investing in pharmaceutical production in the United States. Some car makers that are not that strong are doing it, but the big wave of remanufacturing in the United States is not happening yet. The reason is you don't know where the tariff situation settles. Also, American companies leveraged low labor costs abroad and made a good living out of it. Do I believe this will change? Yes, I believe there will be a wave of more manufacturing coming — definitely semiconductors, battery factories, pharmaceuticals. If you build a new manufacturing line in the United States, make it as automated and digital as possible because you cannot get enough trained labor. If you go there with a greenfield plant, you have all the freedoms to make the whole thing digital before you even send the first excavation machine. That's what we do. Whenever we build a new one, we go all in.