From Knowledge at Wharton
It would be hard enough under any circumstances to become the first outsider named to lead a 161-year-old global conglomerate, but Peter Loscher faced a unique challenge last summer when he assumed the reins at Siemens AG -- the German-based engineering and health care giant.
The 49-year-old president and CEO of Siemens openly acknowledges that his first and most difficult task after taking the job last July was dealing with the aftermath of a scandal that included allegations of bribes to foreign governments and union leaders. Loscher said he has moved aggressively to change the firm's culture and standards.
"Corruption exists in the whole world; but it's not our marketing plan," Loscher says. "It is not the business we are interested in, and it's not a sustainable business model, either."
The Siemens CEO describes his first-year mission as making sure that "the organization, from a cultural perspective, understands that this is a zero tolerance policy, that we stand for the highest performance with the highest ethical standards -- and (that the goal is) to put all the control systems in place and to travel the world and spread the word that there's absolutely no compromise whatsoever."
Loscher's international resume and personal history suggest he may be the right person to serve as a kind of worldwide ethics ambassador for Siemens, which currently does business in 190 different countries. Born on the side of Austria that borders Italy -- his parents are Austrian and his grandmother is Italian -- Loscher worked for a number of years in Japan, Spain and, most recently, the United States, before assuming the top job at Siemens. Two of his children were born in the U.S. and one in Spain, and the youngest is already speaking four languages -- at age three.
Valuing diversity as a path to success both in life and in the business world is a steady theme for Loscher. At Siemens, which has about $110 billion in annual revenues and roughly 400,000 employees worldwide, one of "the key elements is diversity," he notes, "because the connectivity of our world has never been greater than today."
The current path at Siemens begins with corporate ethics. Loscher has shaken up the management structure, reduced a middle layer of bureaucracy and imposed new executive principles. As part of his effort to rebuild the company, Loscher launched his tenure with a 100-day listening tour that took him around the world to key Siemens locations, where he met with employees and clients.
But Loscher -- who was president of global human health for Merck in New Jersey before he was tapped by Siemens -- has also reorganized the business model at his new employer. Since arriving, he has divided the German-based company into three broad divisions -- industrial, energy and health care -- in order to capitalize on the company's broad strength in those areas.
In giving a brief history of Siemens, he notes that the company is seeking to re-emphasize the two qualities that have always defined it: a global approach to sales and a drive to innovate. Within five years of the founding of Siemens in Berlin in 1847 by telegraph technologist Werner von Siemens, one of his brothers had set up shop in Russia -- a first at that time -- and another was operating in London. The firm's emphasis on global communications gave Siemens an early start in a number of key nations; Siemens was doing business in China in 1872, India in 1868 and Japan in 1875.
That tradition has continued. "We like to say only a few organizations are more global than we are -- among them probably the Catholic Church, the world soccer organization and Coke," Loscher says. "Coca-Cola is one of our customers, by the way, so the global footprint obviously is a key element."
But he notes that the company would not have achieved that kind of global success without the right products. Some of these were on the cutting edge of their time, like the first trans-Atlantic cable from Ireland to New York in 1875, while at least one was ahead of its time -- a prototype for an electric car that Siemens unveiled in 1904.
Quips Loscher: "We underestimated all the issues around storage and power life, but at least in terms of long-term innovation, it was in our sights."
Today, he says, Siemens is combining that spirit of innovation and its know-how in the area of information technology to revolutionize health care, which is an increasingly important sector of the company. Ironically, Siemens came perilously close to shedding its medical unit about a decade ago.
"In the 1990s, all the investment analysts were proclaiming that Siemens is too complex, that the health care business is not in tune with the rest of the businesses, that the health care business should be sold off," Loscher says. But instead, information technology has become a much greater factor in health care products -- especially in diagnostics, where Siemens is now the No. 1 player. The lesson from that experience, he adds, is that when corporate leaders develop a long-term strategy, it's important that they stick to it, in spite of the short-term obstacles.
The key to Siemens' success in diagnostics is understanding that the company's selling point is getting the best information to the clinicians, regardless of whether that comes from an electronic scanner or from an in-vitro test tube kit. "I would say that information is the critical element, that any organization has to move away from products and think about total solution packages. The information element is a part of it."
Increasingly, Loscher says, those key scientific ideas will be coming from collaboration outside the corporate walls. "I have found out that disruptive technology is happening anywhere in the world -- big and small but usually fast, creative and innovative. Consider that 90 percent of the innovation agenda is happening outside of any organization. So you have to make sure that your business is truly connected."
He says his experiences working in Japan, where he was an executive in the 1990s for two firms, including the pharmaceutical company Aventis, taught him the business advantages of cultural diversity and understanding. For one thing, he learned that the word "no" is not a part of the vocabulary in Japan. "So many misunderstandings happen when you negotiate in the Asian context with an inexperienced team. It's because the signals are not received in the right context. [Inexperienced non-Japanese negotiators] don't fully understand that a certain expression that is not the word 'no' is actually a 'no."'
Loscher was also surprised to learn when he worked on some major mergers and acquisitions in Japan that the CEO not only steps back from the talks, but that the most junior members of the negotiating team are expected to play the critical role. "As CEO, I am the face of the organization, so if I take a position and I lose my position, I have lost face. My organization tries at all times to protect me."
To those entering business, Loscher stresses the importance of finding a career that is, above all, challenging and rewarding. He had studied economics at Vienna University and in Hong Kong, earned an MBA in Vienna as well as an advanced degree from Harvard Business School, and worked as a senior management consultant before joining a German chemical company. His mentor became the firm's CEO and so Loscher presented him with an ambitious plan.
"I laid out my career path -- what I would like to do -- and I started to discuss it with him. As (my presentation) ended, he looked at it and turned it around and put it down and said, 'You know, this actually doesn't matter. The thing that matters is whatever you do, you have to enjoy."'
Returning to the major challenge confronting him -- instituting an ethics overhaul at a company as large as Siemens -- Loscher encourages anyone thinking about joining a particular organization "to look at its values, and at how the senior leadership team is actually living the values." Companies all around the globe, he added, "have all the rules in the world. They live in a rules-based environment. But the rules are only as good as how they fit the culture and organization."