Davenport, Leibold, Voelpel: Changing managerial mindsets: the case of Siemens

In recent research at Siemens, a practice of challenging existing strategy imaginations (mindsets) was revealed by the company’s focus on transcending, rather than beating, competitors. In transcending competitors, a recurring theme was to ruthlessly adopt the perspective of the customer in order to discover whether a new product would actually be superior to the old one, and would consequently provide superior value.

An interesting example of adopting the customer’s perspective in transcending competitors was emphasized in an interview with the Top Plus Program manager at Siemens Medical Solutions: “… we looked at existing products from the customer perspective. While this may sound trivial, it is not. Usually, in medical solutions, you look at it from the technological perspective… What we did was ask our customers: ‘what would you want from us if you knew what is technologically doable.’ The result of this was sophisticated magnetic resonance systems that did not use the traditional tunnel-technology, but instead used an ‘open’ design. The result: patients did not feel as claustrophobic, and our direct customers, the medical doctors, were happy”.

The central question in the approach of challenging imagination at Siemens was: are the current businesses an adequate reflection of the market needs, buyer preferences, and technological requirements? In other words, is the current definition of the industry or industries in which Siemens competes an accurate reflection of reality? The research evidence demonstrated that often customers, and in particular corporate customers, would not pay heed to the definition of industry boundaries, but would instead demand highly integrated solutions that often cut across several of the industries served by Siemens.

Given the blurring of industry boundaries, Siemens’ managers considered it expedient to re-define industry boundaries. To cite a colorful evocation of this point by the assistant to the CEO of the Information and Communications business unit: “If we only think in terms of telephony networks, and nothing but the network, we have a problem. No question: it’s good to think about the developments of networks, how existing networks can be improved, and can be made more efficient and customerfriendly.

But if we do this, we fail to realize forces that impact the network as such. That’s the ‘frog’s perspective.’ I see the net and nothing but the net. What I see is the number of data bits that gets transported, I wonder how more data can get transported and that kind of thing … I don’t grab the steer by its horns, all I do is perhaps get hold of its tail”.

Siemens interviewees emphasized the importance of ‘defying old paradigms.’ The company exhibited a variety of approaches by which old paradigms were defied, old ways of ‘doing things around here’ were challenged and path-dependent behavioral patterns were questioned. Importantly, the need to defy old paradigms was seen as a function of the past successes achieved by using a specific paradigm, such as the telex technology. Put differently, the more successful Siemens became in exploiting a specific technology such as telexes, the more important was the need to defy this very paradigm at the time when it was most successful. Indeed, it was discovered that past successes could lead to: “systematic biases against innovation … Particularly if a new technology competes with an old one, reactions and biases against the new technology can kill its commercial potential immediately. The fax machine is a good example. Siemens actually invented the fax machine, but since the telex technology provided excellent profits that could be cannibalized by the fax technology, we sold the fax to the Japanese. The rest is history”.

Given the deeply ingrained nature of ‘ways of doing things around here,’ often radical approaches to defying old paradigms were necessary. In the Top Plus Program, Siemens made use of defying old paradigms as a ‘shock therapy.’ This was particularly evident in the new approach to portfolio management, which no longer supported cross-subsidies between the individual business units. It was repeatedly emphasized, that “no one should feel safe or comfortable in such divisions simply because the group as a whole is doing well. Let me emphasize once again, we will not support cross-subsidies” (von Pierer, speech, June 21, 2001).

Importantly, while ‘shock therapies’ to defying old paradigms were being encouraged, a prudent approach to defying old paradigms was simultaneously being advocated, because it was realized that sudden defiance of old paradigms, particularly where they referred to capabilities and skills that were considered core competencies, could lead to demotivation and frustration.