CIO Ramakrishnan Helps Siemens Pick Up Profits

SIEMENS IS HUGE. No, really, really huge?447,000 employees spread across more than 190 countries, collectively generating nearly 80 billion euros (about US$70 billion). It’s also a company that’s difficult to pigeonhole. Just how do you describe a business that seems to manufacture almost anything?from mobile phones to power plants, and urban transit systems to medical equipment?

And it increasingly manufactures those items profitably too: Income before extraordinary items surged 81 percent to 3.38 billion euros (about US$3 billion) in 2000. Some of Siemens’ employees, who saw it once branded as hopelessly old economy, now chirpily contrast the steady upward march of Siemens’ stock price with the fortunes of their erstwhile new economy competitors.

But the view from CIO Chittur Ramakrishnan’s plush office in the company’s Munich, Germany, headquarters is notably less sanguine. First there’s the practicality of carrying out the CIO’s regular day job?ensuring efficient IT governance across the Siemens empire. The problem? Not just Siemens’ wide range of global businesses and the potential for turf wars in the company’s highly decentralized structure, but also the struggle for applicability of any single solution or system. The contrast with more homogeneous global businesses is stark. For example, while facing many of the same issues, NestlŽ CIO Jean Claude Dispaux at least has the comfort of working with a clutch of largely similar food businesses. (See “NestlŽ’s Worldwide Squeeze,” June 1, 2001.)

In addition, Siemens CEO Heinrich von Pierer has firmly nailed his colors to the e-business mast, setting out a five-point plan to transform the German giant into an e-company. Goal highlights: Electronic procurement to rise to 50 percent of spending; electronic orders to total one-quarter of incoming orders for industrial goods and half for consumer goods; and the creation of an end-to-end enterprise system embracing everything from R&D to dispatch. The timetable? Publicly, von Pierer doesn’t give specifics. But Ramakrishnan won’t need his MBA from France’s elite Insead Institute to read between the lines of “soon,” “near term” and “quickly.”

In the CIO slot since 1997, Ramakrish-nan, who first joined the Siemens India division in 1971, is employing some carefully thought-through strategies for delivering on his objectives. First, he’s obeying the time-honored maxim of the best way to eat an elephant: Start at one end, and methodically proceed to the other. Second, he’s acutely sensitive to the differences that exist among Siemens’ businesses. And third, he is harnessing the skills and abilities of the CIOs of Siemens’ individual businesses around the world.

Accounting Makeover

For an example of elephant-eating, look no further than the plan to standardize the company’s financial accounting systems. The impetus has been Siemens’ March 12, 2001, listing on the New York Stock Exchange and the consequent need to comply with U.S. Generally Accepted Account-ing Principles requirements.

For European companies, the task can be fraught with difficulties. Witness automotive giant Daimler-Benz’s contortions when it went through the same process. What appeared under German accounting conventions as a healthy profit had a troubling tendency to show up as a loss under U.S. rules. Siemens’ response, says Rama-krishnan, was to begin the process in plenty of time. Prior to April 1999, Siemens produced quarterly figures, but without any numbers given for the individual sector businesses. The financial results and the operational figures were combined into one set of accounts?making it difficult to get a handle on the true situation. From April 1999, Siemens started issuing comprehensive quarterly statements as Americans would recognize them.

Now Project Spiridon?”the name of an ancient Greek runner; it’s a company tradition,” Ramakrishnan says, laughing?aims to improve the process by producing a single Siemens-wide chart of accounts on demand, eliminating the manual processes currently involved in the task. “The major endeavor isn’t with the individual payables, receivables and asset ledgers, but the process of migrating them from their existing systems,” he observes. Although much of Siemens uses SAP back-office software, some units?especially in the production environments?run their financials on Baan or J.D. Edwards systems. Even those parts of the business on SAP are running different variants of SAP.

Spiridon’s initial intent was to provide a standardized SAP landscape through templates. This was modified when Siemens realized how difficult it was to separate SAP’s financial functions from its logistics transactions. So logistics had to be incorporated within the standardized landscape as well.

Further complicating the issue, Rama-krishnan explains, is Siemens’ decentralized structure. Some businesses have a worldwide responsibility, while others are organized on a regional basis. It is a tenet of faith within Siemens that the needs of the individual businesses come first in determining systems requirements. Hence the multiple templates that Spiridon embraces. While standardization is important, even more crucial is defining a framework that leaves the competitive edge of the individual businesses unimpaired.

And only when these requirements have been determined will the methodical task of coding and conversion begin. The plan: Roll out Spiridon on a country-by-country basis first, with Asia and Europe leading the way. Then tackle the more complicated headquarters division in Germany?those businesses without a strong country focus. The task, Ramakrishnan cheerily admits, is made easier through the efforts of Siemens’ two wholly owned software development subsidiaries, one in Bombay, India, and one in Vienna, Austria. “Our last major SAP upgrade was undertaken almost entirely by India,” he says.

CIOs on Call

But understanding those individual business requirements is a gargantuan task, for which Ramakrishnan freely calls on his pool of able CIOs from Siemens’ business units and geographic regions. “I have a very close relationship with my CIOs around the world,” he says. “We have regular CIO forums in Asia, Europe and the Americas, as well as functional forums for people such as network and SAP specialists.”

The forums, it seems, act partly as a knowledge-sharing venue, partly as a task force, and given Siemens’ size and diversity, partly as a development process for local-level CIOs being groomed for higher things.

Which may be the explanation for the punishing work schedule borne by Alan Feeley, Siemens’ U.K. CIO, as he shuttles between meetings in Munich and the U.K. headquarters in Bracknell, on the outskirts of London. Part of Feeley’s role is to act as Ramakrishnan’s representative on a number of internal Siemens committees. Feeley, who spent 13 years in Munich working for Siemens before coming to the United King-dom in 1998, acknowledges that his stint at headquarters alters the way he is viewed within Siemens. “I’m regarded as an honorary German,” he says.

Project Spiridon, it appears, is just the precursor to a whole series of initiatives that will see Ramakrishnan and his team redouble their globe-trotting fact-finding efforts. On Spiridon’s heels comes CEO von Pierer’s global e-business aspirations, for which, says Ramakrishnan, some 1 billion euros (about US$876 million) have been earmarked to purchase e-business procurement, supply chain management and online sales applications.

Procurement Clicks In

Furthest ahead is the procurement project, christened Click2Procure, which aims to link a common Commerce One procurement engine front end to each of the 300 or so ERP systems currently operating within Siemens. The objective is first to achieve standardized purchasing processes and second to achieve greater visibility into the prices paid for components and commodities across Siemens’ many businesses. That would enable subsidiaries to take advantage of the best deals wherever they were negotiated.

Click2Procure provides a framework for Siemens’ entire purchasing function, including electronic catalog buying, reverse auctions and competitive bidding, says Feeley. Siemens’ automotive division used reverse auctions to obtain prices 25 percent lower than pre-auction low-price watermarks. Across the whole company, depending on the commodity being purchased, the payoff should be savings of between 10 percent and 35 percent, a figure equivalent to a 2 percent reduction in the overall cost of sales for the company.

Siemens may be huge, but its corps of CIOs, led by uber-CIO Ramakrishnan, are intent on making this particular elephant perform very profitable indeed.