German engineering giant Siemens will reduce its global workforce of 343,000 by about 2.3 percent through management and administrative cuts, the company said in a statement on Friday. Some 3,300 jobs will disappear in Germany.
The measure will deliver about €1 billion, or $1.1 billion, in savings by the end of 2016, with that money to be reinvested in sales, research and new plant equipment, Siemens said. Due to the reinvestments, the total number of employees is expected to remain stable, it said.
Since taking over as chief executive in August 2013, Joe Kaeser has been pursuing a restructuring program, called, “Vision 2020,” to increase profitability and sales in a move to keep up with its rivals, including General Electric.
Our Vision 2020 concept will enable us to get our company back on a sustainable growth path and close the profitability gap to our competitors. Joe Kaeser, Chief executive, Siemens
The job cuts will eliminate management layers between the board and its divisions and between the board and its countries, according to Andreas Willi, an analyst at JP Morgan.
The job cuts "make the company more entrepreneurial and make information travel more directly to the board and vice versa,” he told Handelsblatt Global Edition.
Siemens has struggled to match the profitability of archrival GE and ABB of Switzerland. Last week, the German firm announced a series of management changes amid flagging performance, sending down its stock by more than 3 percent.
Energy operations at Siemens have struggled to keep up with those of GE, which has benefited from an oil fracking boom in the United States.
Last year, Siemens hired Lisa Davis, a former Shell manager, to improve results after its $6.4 billion takeover of U.S. fracking equipment maker Dresser-Rand last September.
“Our Vision 2020 concept will enable us to get our company back on a sustainable growth path and close the profitability gap to our competitors,” Mr. Kaeser said in the statement.
Under Mr. Kaeser’s leadership, Siemens has announced a series of divestments, including washing machine maker Bosch Siemens Household Appliances, and acquisitions, such as Dresser-Rand and power generation operations of Rolls-Royce. His goal is to make Siemens more focused on corporate customers and energy, and less on consumer products.
But the results have not yet materialized, as a comparison with General Electric shows. At the end of its fiscal year, which ended on September 30 last year, GE reported a net return of 13.2 percent, or almost double that of Siemens.
In an interview given last week with the German broadcaster N-TV, Mr. Kaeser defended his steady course.
“In addition to managing our operational businesses, we have to be careful that we are not executing our restructuring, which has a long term focus, too rapidly. We must also make sure our employees can follow course,” Mr. Kaeser said. “On the capital markets, we can hear regularly that the direction is good but it could move much quicker.”
Mr. Willi, who has a "Neutral" rating on Siemens and a price target of €100, said the strategy was right but it came down to its implementation. “They now need to execute," he said. "The plan has been given. The next two years they have to deliver.”
Siemens shares were down 0.9 percent at €95.47 by 10:36 GMT on the Frankfurt Stock Exchange, in line with a 0.8 percent drop of the German blue chip index DAX. The stock moved little on Thursday, when Bloomberg reported first details of the job cuts.
Siemens shares have fallen from a 7-year high at around €103 last week, when the company announced disappointing results.
Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. To contact the author: [email protected]