Siemens CEO Kaeser Puts Energy and Purpose at the Core of Company Changes

At the World Economic Forum in Davos, Switzerland in January, Joe Kaeser, the president and CEO of industrial giant Siemens, found himself sitting a chair away from uber-environmentalist Al Gore. Just a month later, he was in Houston at IHS CERAWeek on a panel with ConocoPhillips CEO Ryan Lance discussing the state of the oil industry.

That might seem a bit schizophrenic but in fact Siemens is like many major multinational industrial firms that are trying to help the oil and gas industry become more efficient and meet a growing global need for energy while at the same time preparing for a low-carbon future shaped around renewables such as solar and wind power.

At IHS CERAWeek in February, Kaeser said the long-term fundamentals for the oil and gas industry were “positive” and added he was “very optimistic about this business.” He said depressed oil prices meant companies were in a competitive landscape where they needed to find ways to become more efficient. New technologies such as computer simulations, he said, could help oil companies map out processes and use their wealth of data to optimize their investments.

Still, Kaeser believes that Siemens’ future lies in a world increasingly drawing on power from renewable sources. He was one of 79 CEOs who signed an open letter on November 23, 2015 stating that the “private sector has a responsibility to engage actively in global efforts to reduce greenhouse gas emissions, and to help the world move to a low-carbon, climate-resilient economy.”

The United Nations Conference on Climate Change (COP21) in Paris developed an agreement designed to limit greenhouse gas emissions so that the global temperature rise does not exceed 2 degrees Celsius by 2100.

The Paris agreement is moving the world “in the right direction,” said Kaeser, but he cautioned that the world will need the “billions and billions of barrels of hydrocarbons” that will be produced in coming decades. He said the challenge will be to navigate the next 84 years, optimizing hydrocarbon production and preparing for a low-carbon future.

Kaeser has placed big bets on the oil and gas industry. Last summer, Siemens closed its deal to purchase Dresser-Rand, a Houston-based manufacturer of industrial equipment for the oil, gas and process industries, for $7.8 billion after European Union regulators gave their blessing to the acquisition.

“With Dresser-Rand on board, we now have a comprehensive portfolio of equipment and capability for the oil and gas industry and a much expanded installed base, allowing us to address the needs of the market,” said Lisa Davis, a member of Siemens’ managing board. “The current level of oil prices increases the focus of our customers for ways to reduce costs. Despite the challenges of a low oil price, this also brings opportunities as we focus our efforts on offers that reduce costs and increase efficiency.”

The acquisition fits into Kaeser’s strategic plan for Siemens, Vision 2020, focused on “electrification, automation and digitalization.” Kaeser explains that means offering products and services for the entire electrification value chain, providing automation across those industries and then creating the digital connection to run these assets in the most effective and intelligent manner.

Kaeser also spearheaded an effort to streamline Siemens’ organization, structuring it around nine divisions and running healthcare as a separately managed business. A number of analysts expect that Siemens will eventually spin off the healthcare division.

Siemens added to its energy portfolio in May 2014, when it announced it was acquiring Rolls-Royce Energy for about 950 million euros. That purchase strengthened Siemen lineup of gas turbines and compressors. The company said the turbines, originally developed for the aviation industry, were an “attractive power supply option in the oil and gas industry, in particular for the operators of offshore oil platforms where space is limited.” They also are used in decentralized power generation situations, where they can meet peak electricity demands or for emergency power.

Siemens’ strategy also includes the Digital Factory, where it is positioning itself to help companies capitalize on automation and the Internet of Things through a variety of products, including its process lifecycle management software.

Siemens strengthened its software offerings through the acquisition in January of CD-adapco, a U.S. firm that produces simulation software. Kaeser said the buy “further reinforces our leading role in industrial digitalization.”

Get the Job Done

When he took over as CEO in August 2013, Kaeser faced questions about whether Siemens should be split up into different businesses. He told the IHS CERAWeek audience that after wrestling with the issue, Siemens leaders determined, “against the trend” of short-term activism, that Siemens had brand value as a reliable partner to its customers and should stay intact.

But with that decision, Kaeser said the company needed an “underlying purpose” to unify its variety of businesses. He stressed the role that a higher purpose plays in motivating a workforce, particularly one as vast as Siemens’ army of 350,000 employees operating in 203 countries.

“People want to make a difference in life,” he said. Making employees part of a quest to serve that purpose, he said, makes them proud to work for a company and is the best way to attract top talent.

For employees trying to understand their role in Siemens’ huge organization, Kaeser said the key is to have them treat it as if they owned it. “This is what we call ownership culture,” Kaeser explained. “No matter what you do, no matter who you are, no matter where you’re at, act as if it was your own company and you’ll be fine.”

At IHS CERAWeek, Kaeser noted with pride that 50% of Siemens’ products and services were not produced 10 years ago. “We’re not exactly a startup,” he said.

If Siemens is too big to be even remotely thought of as a start-up, Kaeser nevertheless praised the mentality of entrepreneurs to take a problem and “get the job done.” He recalled his six years living in Silicon Valley, and pointed out the key to its ongoing success.

“Silicon Valley is a mindset,” he said. It encourages people to think big, try something and if you fail, he pointed out, “get up and try something else.”

While Siemens has a huge process-driven culture with “1,500 corporate circulars,” Kaeser said, he wants to create a mindset in the company where employees follow a startup’s approach to work and focus on how to “get the job done.”

Kaeser could take some credit for getting the job done with Siemens’ first quarter 2016 results. Revenue for the quarter ending December 31 rose 8% to 18.89 billion euros and net profit jumped 42% to 1.53 billion euros, compared to 1.1 billion euros in corresponding quarter of its fiscal 2015. Siemens also raised its guidance for the year, from a range of 5.90 to 6.20 euros per share to 6.00 to 6.40 euros.

The results were welcome news in the face of criticism by some analysts that Kaeser’s strategic plan was not yet resulting in the anticipated financial benefits. At the IHS CERAWeek event, Kaeser acknowledged that the Dresser-Rand acquisition had occurred just as oil prices and company CAPEX spending were plummeting, but he expressed optimism about the purchase and Siemens’ role in the oil and gas industry, stressing that Siemens was a company that had “always been in for the long term.”