Interview: Relentless innovation - a cornerstore of Siemens

As vice president of organization development at Siemens AG, Dr. Michael Schaeffer is tasked with providing intelligence on Siemens' markets as the basis for strategic development, and to support global growth of the company's businesses. Those markets include energy, building technology, transportation, manufacturing, and healthcare, and span a multitude of technologies. Throughout its 168-year history, Siemens has been a leader in the development and commercialization of technological innovations and today is ranked as one of the most valuable brands in the world.

Mack Brothers, vice president of industry services and consulting at IHS, sat down with Dr. Schaeffer to discuss Siemens' commitment to "relentless innovation."

Q. At a recent IHS event, you talked about relentless innovation as a company value and how it's part of the company's culture. What do you mean by relentless innovation?

Innovation is one of the key values of Siemens that is well-founded in the company's history, stemming back to 1847 when Werner von Siemens and his partner, Johann Georg Halske, established the company in Berlin, Germany.

Werner von Siemens laid the foundation for the company with his invention, in 1846, of the pointer telegraph. This new generation of telegraphing technology automatically synchronized movements of the transmitter and receiver, making it faster and more reliable than any other device of its kind. Siemens & Halske built Europe's first electric telegraph line from Berlin to Frankfurt. Other breakthrough innovations followed, such as the first dynamo generator in 1866, the first electric locomotive in 1879, implantation of the first fully implantable pacemaker in 1958, development of the high-speed inter-city express train in 1985, and development of the world's most efficient combined cycle turbine in 2006.

More recent innovations include the Totally Integrated Automation Portal, which enables users to manage complex automation systems quickly and intuitively, thus eliminating the time-consuming and costly integration of additional software packages that was previously required; the world's largest rotor for 6-megawatt off ore wind turbines; the use of sensor networks in an advanced parking management solution that will contribute to ease the increasing parking space crisis in cities; or the Vectron multi- locomotive system.

Over its history, Siemens has been driven by sustained innovation, which is an underlying value for the development of the company. This value drives the company today and enables employees to push innovative projects that continuously renew and reinvent Siemens. The ability to continuously and sustainably innovate as well as the commitment to question current approaches, processes, products, and business models are at the core of relentless innovation.

Q. How do you know that innovation has become part of the corporate culture? What are the elements necessary to elevate it to culture status, and how hard is it to maintain the commitment over time?

Even the best strategy can't succeed unless it's supported by a strong culture. At Siemens, employees push and pursue innovations because they share the same values. This is highly important for the long-term success of the company.

Innovation is in our view tightly related to our culture of ownership that encourages every individual to give her or his best in order to help build Siemens' long-term success. Our ownership culture follows five principles:

• Leadership: Managers should serve as role models for the company's strategic direction by inspiring and empowering their teams to give their best for the company.
• Entrepreneurial behavior: Entrepreneurial behavior should be the standard and foundation for how we act at Siemens. This applies to each individual in the company- since only then can behaviors constantly evolve and improve.
• Values: If everyone in the company acts responsibly, achieves excellent results, and is innovative, they will personally contribute to the sustainable success of Siemens. Responsible, excellent, and innovative- these values are the foundation of our ownership culture.
• People orientation: We strive for a people- oriented approach that values and clearly fosters diversity of experience and expertise. If this is reflected in all that we do, we'll improve the performance of our company.
• Equity: We strongly believe that employee shareholders act responsibly and are oriented to the long term when they directly participate in their company's success.

Our ownership culture creates a trusted environment in which continuous innovation is possible and supported by values, processes, and incentive systems. One of the big challenges is the trade-off between short-term success and investment in mid- or long-term innovation. Especially in difficult times, it is hard to maintain this commitment when external pressure to improve short-term results rises. A value-based innovation approach gives an organization the strength to also pursue innovation activities in such a difficult environment.

Q. Siemens holds over 56,000 patents and employs nearly 30,000 research and development (R&D) employees worldwide. What characteristics do these employees share, and how are they motivated to be relentless

Siemens employees live our ownership culture-especially those colleagues involved in research and development, who are recognized as major contributors to the development of our company and work at the very heart of Siemens' innovation activities.

Initiatives, such as our Inventor of the Year award, highlight achievements of individuals involved in R&D and focus attention on the importance of innovation for the company. At the same time they motivate other employees to go the extra mile to lead their innovation projects to success. Examples of the Inventors of Year are:

• Preventing blackouts: Matthias Kereit, project manager, developed programs for protection devices that monitor high-voltage power lines. The programs allow the protective devices to switch off lines in case of dangerous short circuits.
• Efficiently illustrating metabolism: Metabolic illnesses can affect any organ in the human body, and are difficult to isolate. Alexander Hans Vija, director of engineering, and his team have developed an application that qualitatively improves SPECT-single- photon-emission computed tomography-analyses. Subsequent developments can reduce the dose of radiation-or the time the diagnosis takes by three-quarters.

An important aspect to enable people to innovate is to take the fear out of failure. When Joe Kaeser became Siemens CEO in August 2013, he made two points. "The first point: if you make a mistake and you can draw lessons from it, you will have no trouble. If you have any trouble, you should seek our help. The second point: if you do not know how to do a thing or your superior does not tell you how to do it, you should do it with a sense of ownership."

Especially when it comes to fostering innovation, such a value base is crucial. Of course, measuring success of innovation activities has to be individually tailored to the specific opportunity. Depending on its maturity, innovations have to be treated differently. Especially in the case of early-stage innovations and disruptive technologies, it is important not to focus too early on financial measures such as revenue or profit margin, but to use agreed-upon milestones such as development of a prototype or winning a key customer. In such cases, strategic importance is rated higher than immediate financial performance. As an innovation matures, it is important to gradually shift to the standard performance measurement to ensure that the innovation is economically feasible.

Another important aspect is to try to fail early in order to focus your resources on the most promising projects. At Siemens we try to empower our businesses to build spaces in which such innovation opportunities can be pursued.

Q. Collaboration across business lines and across the globe is an important component of an innovation culture, but it is easier said than done. How does Siemens encourage and nurture collaboration to "connect the dots" in the pursuit of innovation? How are these practices formalized?

Again, let me emphasize the high relevance of our ownership and innovation culture to nurture collaboration in innovation activities of our businesses. At the same time it is necessary to create structures and processes to nurture these values.

R&D activities are carried out by both our Divisions and our Corporate Technology (CT) department. The businesses focus their R&D efforts primarily on the next generations of their products and solutions. In contrast, the aim of CT is to be a strong innovation partner for operational units and to help secure our technology and innovation future while strengthening Siemens as a technology company. Corporate Technology is both a creative driver of disruptive technologies and a partner to Siemens' businesses, providing high-quality research and development services. CT also creates organizational contexts in which disruptive innovations can be pursued and supports innovations that involve multiple divisions, business units, as well as external partners.

One example for such an organizational context is the Siemens Technology to Business Centers (TTB) that practice "outside-in" innovation for Siemens, seeking out the latest technology innovations from startup companies, individual inventors, universities, and research labs. For instance, TTB scouts learned from a Columbia University doctoral student the technology for optimizing the quality of service on computer networks. They were able to deliver that knowledge to the appropriate parties, including to the factory communications business. That group aspired to meet the customer need for guaranteed real-time traffic over wireless local area networks (WLAN). As a result of the TTB's diverse external network, Siemens was able to release the first-ever WLAN product focused on factories with real-time guarantees and become a leader in that market.

Q. Siemens has identified five long- term trends-digital transformation, globalization, urbanization, demographic change, and climate change-that are driving the company's innovation in a wide variety of industries, from medical imaging to power generation. Looking out to 2020 and beyond, what are some high-priority areas of innovation Siemens is pursuing that address some of these trends?

With our positioning along the electrification value chain, we have known how that extends from power generation to power transmission, power distribution, and smart grid to the efficient application of electrical energy. And with our outstanding strengths in automation, we're well-equipped for the future and the age of digitalization.

Siemens Vision 2020 defines an entrepreneurial concept that will enable our company to consistently occupy attractive growth fields, sustainably strengthen our core business, and outpace our competitors in efficiency and performance. It's our path to long-term success.

Across the areas of electrification, automation and digitalization, there are concrete growth fields-fields in which we see major potential. We're rigorously aligning ourselves to exploit this potential in order to achieve long-term success. Our setup reflects this aspiration.

• Flexible and small gas turbines: In the area of power generation, the trend is increasingly toward decentralized energy supply. Customers worldwide are demanding tailor-made solutions. As a result, we see major growth potential in the field of flexible and small gas turbines-potential that we intend to rigorously exploit.
• Offshore wind power: Siemens has the No. 1 position in the fast-growing offshore wind market and the clear priority to remain the world leader through innovation and industrialization.
• Distribution grid automation and software: Energy management is becoming increasingly vital-for distribution grids as well as industrial and private energy producers and consumers. Energy management systems make it possible to integrate increasingly decentralized power supplies into the energy cycle, while mitigating the negative impact of the fluctuations that occur when power is generated from renewable sources-thus improving the utilization of existing power grids. Our intelligent, integrated automation solutions offer customers decisive added value.
• Digital-twin software: The virtual and real worlds are merging more and more. Already today, our software solutions are helping customers develop products much faster, more flexibly, and more efficiently. For example, they can now perform endurance tests even before a single bolt is tightened in the real world. Not only products, but also the plants in which they're produced have digital twins that can be used to coordinate and integrate product design and production planning. The digital models are always up to date-as planned, as built, as maintained-while allowing improvements throughout entire lifecycles.
• Key sectors in process industries: Some industry sectors, such as food and beverage, are growing at above-average rates. We want to participate in this growth. That's why we're bundling our expertise to drive the adoption of technologies in process industries.
• Image-guided therapy and molecular diagnostics: The increasing use of molecular biological methods and progress in the life sciences are accelerating technological change in healthcare. To improve quality and efficiency, societies worldwide are also demanding new solutions for next-generation healthcare. Against this backdrop, fundamental changes are emerging-changes to which we're optimally gearing our healthcare business.
• Business analytics and data-driven services, software, and IT solutions: We have a comprehensive understanding of our customers' business processes. In the future, we want to leverage this knowledge even better by analyzing the data generated in these processes, providing recommendations for improvement and action, and thus creating value. The resulting competitive advantages for our customers are increasingly derived from cloud-based solutions and services powered by data-analytics software. A clear example is our cross-unit remote service, which we're continuously expanding.

Dr. Michael Schaeffer is vice president, organization development, at Siemens AG, based in Munich, Germany. He is responsible for companywide organizational development, economic analysis, and market intelligence to support the global growth of Siemens' businesses. Dr. Schaeffer joined Siemens Management Consulting in 1995. He has since worked for Siemens' telecommunications business; was head of Siemens Trango Software in Toronto, Canada; and had global responsibility for Siemens' Wireless LAN business, before assuming his current position in 2007.