Siemens
Innovating the real and digital worlds
Siemens, the German technology business, seeks to combine the real and the digital worlds to meet the great challenges of our time. It's diverse portfolio of industrial businesses enjoy the entrepreneurial freedom to serve their customers and markets in the best way possible, the structure is geared toward creating value for customers, creating technology with purpose and thus changing the lives for better.
Siemens & Halske was founded by Werner von Siemens and Johann Georg Halske on 1 October 1847. Based on the telegraph, their invention used a needle to point to the sequence of letters, instead of using Morse code. The company, initially called Telegraphen-Bauanstalt von Siemens & Halske, is the forerunner of today’s German industrial giant, which continues to reinvent itself in a digital world.
Today headquartered in Munich and Berlin, Siemens and its subsidiaries employ approximately 311,000 people worldwide and reported a global revenue of around €72 billion in 2022. It is the largest industrial manufacturing company in Europe.
The principal divisions of Siemens are Digital Industries, Smart Infrastructure, Mobility, Healthineers, and Financial Services, with Siemens Healthineers and Siemens Mobility operating as independent entities.
Major business divisions that were once part of Siemens before being spun off include semiconductor manufacturer Infineon Technologies(1999), Siemens Mobile (2005), Gigaset Communications (2008), the photonics business Osram (2013), and Siemens Energy (2020).
Siemens has been a strong proponent and driver of digitalization across industries. The company recognises the transformative potential of digital technologies and has actively incorporated them into its offerings. Digital-specific businesses include:
- Digital Industry: Siemens provides a comprehensive portfolio of digital solutions for industrial automation, manufacturing, and process industries. Their offerings include digital twins, which are virtual replicas of physical assets, enabling simulation and optimization of processes. Siemens also offers industrial IoT platforms, cloud-based services, and analytics tools to collect and analyze data for improved efficiency, predictive maintenance, and better decision-making.
- Digital Energy: Siemens leverages digital technologies to optimize energy generation, transmission, and distribution. Their digital energy solutions help utilities and grid operators monitor and control power systems in real-time, ensuring reliable and efficient energy supply. Siemens also enables the integration of renewable energy sources, energy storage systems, and smart grid technologies to create more sustainable and resilient energy networks.
- Digital Healthcare: Siemens is a significant player in digital healthcare solutions. The company offers a wide range of medical imaging equipment, laboratory diagnostics, and clinical IT systems. These technologies enable the digitization of healthcare processes, such as medical imaging, patient data management, and telemedicine, leading to improved diagnostics, treatment, and patient care.
- Smart Infrastructure: Siemens provides intelligent infrastructure solutions for buildings, cities, and transportation. Their smart building technologies optimize energy consumption, enhance occupant comfort, and enable predictive maintenance. Siemens’ smart city solutions integrate various urban systems, including transportation, energy, and public services, to improve efficiency, sustainability, and livability. In transportation, Siemens offers digital solutions for rail automation, traffic management, and intelligent transportation systems.
- Digital Services: Siemens offers a range of digital services to support its customers throughout the lifecycle of their products and systems. These services include remote monitoring, predictive maintenance, and performance optimization. By utilizing data analytics and machine learning algorithms, Siemens helps customers maximize the availability, reliability, and performance of their assets, reducing downtime and maintenance costs.
Siemens’ digitalization efforts aim to empower industries and society to embrace the potential of digital technologies, enabling greater efficiency, sustainability, and competitiveness. Through their innovative digital solutions, Siemens continues to shape the future of various sectors and contribute to the advancement of the digital economy.
A recent article gave more insight into Siemens’ approach to innovation:
Companies expect half of their revenues five years from now to come from businesses and offerings that do not yet exist. As a consequence, building new businesses that aim to reach beyond a company’s existing core business has become one of the top strategic priorities at those organizations – double the share of recent years.
In contrast to an M&A-only strategy (in which corporations buy or merge with established companies) and corporate venture capital (in which they mostly invest in external startups), internal business building makes the most of a core organization’s existing assets and capabilities to create separate but linked businesses.
As a consequence, many companies seek to concurrently exploit and explore, that is to sustain their existing businesses and build new ones in parallel. What makes implementing this challenging is the fact that exploiting existing businesses on one side and exploring new businesses on the other draw on disparate requirements
Siemens Digital Industries has fully realized the need to become ambidextrous and develop its exploratory business building capabilities. “Explorers are seen as those burning the money, while Exploiters earn the money” says Franz Menzl, VP Technology and Innovation & CTO Factory Automation. “Therefore, a decisive question to be addressed to build new businesses in a corporate environment is: How can exploratory innovation be accomplished in a capital-efficient, bold and successful way?”
Many companies still follow the big bet approach to innovation, i.e., pre-selecting a very small number of ideas and opportunities (occasionally a single one only) they intend to put all their funding into, that have typically crystallized out of
- idea competitions
- pitch contests
- gut feel
- presentations to and decisions by executives (gut feel again)
- advisory from consultancies and external experts
However, experience and data from the startup space has shown: nobody can pick winners! The vast majority of startups fail and less than 1% become Unicorns, ie grow to companies with a valuation of more than $1bn. In fact, the failure rate ranges between 70 and 90%, depending on the study considered. Bottom line: Failure is inherent in starting new ventures, success cannot be predicted upfront and uncertainty is high. But what is the key reason for this high startup failure rate? And what needs to be tackled to increase the yield?
In their latest analysis, CBInsights have presented the top reasons for startup failure. It reveals that besides running out of cash and failing to raise new capital (38% of postmortems), the top reason is: no market need, i.e., lack of customer demand for the startup’s offering (35%) – followed by
- Got outcompeted (20%)
- Flawed business model (19%)
- Regulatory/legal changes (18%)
- Pricing/cost issues (15%)
- Not the right team (14%)
But how about Corporates and new ventures started inside them? A body of research also reveals here, that 70-90% of corporate innovation efforts fail – a striking analogy to the startup space! Obviously, it’s not possible to pick winners in the corporate space, either – particularly not in the exploration (vs. exploitation) space away from the existing core business. In light of these issues, Siemens has entered a collaboration with Bosch Innovation Consulting geared towards solving the Ambidexterity challenge, opening up new markets and business models and advancing evidence-based innovation management. The reasons for corporate innovation failure can be manifold, but mostly trace back to having missed addressing one or several of the following key questions, according to Franz Menzl:
Value creation
- Who is the customer?
- What problem are we solving?
- What value proposition do we have?
- Why would anyone pay for this?
Value delivery and capture
- Do we have channels?
- Can we build it? Should we?
- Do we need partners?
- Is it repeatable, scalable, profitable?
Strategic framing and alignment
- Does this venture fit our strategy?
- Where will it land in our organization (existing BU, standalone,…)?
- Are we committed to investing it until it has been scaled up?
Tackling inherent uncertainty and increasing the yield of exploratory ventures in corporate innovation requires maximizing the number of business experiments through a portfolio approach, keeping their cost as low as possible and following a structured approach that scrutinizes the very questions above. Or as Jeff Bezos put it “If you can increase the number of experiments you try from a hundred to a thousand, you dramatically increase the number of innovations you produce.”
In essence, this logic provides the basis of Siemens Digital Industries’ modern innovation framework, which aims at building exploratory capabilities in addition to existing core business strengths and, thereby, turning Siemens Digital Industries into an Ambidextrous Organization.
Building new growth businesses calls for a paradigm change: Rather than going all-in too early and risking waste of resources in case of failure, a more effective and resource-efficient approach is to gradually increase investment with in-market evidence, based on phase-specific criteria (see exhibit below).
Bosch has developed and honed data-driven innovation by having run ca. 800 internal ideas through this process. Improvements have been impressive:
- 7-10x more ideas evaluated
- 4-6x faster time to revenue
- 3-6x increase in venture net present value (NPV)
- Significant savings that can be reinvested into innovation and new business building
Drawing on Bosch’s experience, Siemens Digital Industries has established a holistic exploratory innovation approach (see exhibit below) to build new growth businesses that combines two elements:
Foresight-driven Innovation – targeted at identifying and exploring high-potential opportunity areas (also known as search fields, hunting zones,…).
DI Innovation Framework – targeted at discovering, validating and scaling new ventures within those opportunity areas. It covers an end-to-end process and leverages a powerful combination of coaches, leading innovation methodologies and tailored trainings for the entrepreneurial teams along the process. This process is characterized by three key success factors: Strategic Framing, Learning ahead of Investment and Purposeful Integration with Core Business. The DI Innovation Framework puts three critical priorities front and center:
- Shift from a technology view to a customer-centric view (with in-market evidence)
- Empowerment of innovation project teams to take data-driven, self-declared go/no-go decisions
- Transparency towards share- and stakeholders and engaging them with data and insights from experiments, investment release upon passed maturity level (VC-based funding approach), demonstration of investment-efficiency.
At the moment, ten ideas/projects are running through the validation phase of the DI Innovation Framework, centered around topics like AI-based robotics for logistics and the food industry up to the Autonomous Factory designed by and for people.
Franz Menzl concludes: “We have already made important learnings on our journey to building new growth businesses for Siemens Digital Industries and thus becoming ambidextrous as an organization, four central ones of which being:
- Focusing strongly on high-value customer problems is crucial.
- Running innovation as a diversified portfolio of small bets proves key.
- Operating ambidextrously requires maintaining a zero-mistake culture in core businesses, but also creating an experimentation-driven culture in exploratory businesses.
- Giving exploratory businesses sufficient independence to test their business model hypotheses rapidly and efficiently has turned out indispensable.”