There Is Perhaps No Tougher Task For An Executive Than To Restructure
There is perhaps no tougher task for an executive than to restructure a European organization. Ask former Siemens CEO Klaus Kleinfeld. Siemens, with 77 billion euros in revenue in 2008, some 427,000 employees, and branches in 190 countries, is one of the largest electronics companies in the world. Although the company has long been respected for its engineering prowess, it's also derided for its sluggishness and mechanistic structure. When Kleinfeld took over as CEO, he sought to restructure the company along the lines of what Jack Welch did at General Electric.
He tried to make the structure less bureaucratic so decisions are made more quickly, spun off underperforming businesses, and simplified the company's organizational framework. Kleinfeld's efforts, however, drew angry protests from employee groups, with frequent picket lines outside the corporate offices. A core challenge in restructuring European organizations like Siemens is the active participation of employees in decision-making processes. Half of the seats on Siemens' board of directors are allocated to labor representatives, which complicates top-down restructuring efforts.
Labor groups criticized Kleinfeld's GE-like restructuring efforts, alleging that he secretly supported a business-friendly workers' group to undermine Germany's main industrial union. These conflicts and allegations led to Kleinfeld’s resignation in June 2007, and he was replaced by Peter L\u00e4scher. L\u00e4scher faced similar tensions between inertia and the need for reform; soon after becoming CEO, he decided to spin off VDO, Siemens' 10 billion-euro auto parts division, weighing stability and worker interests against pressures for financial performance from U.S.-style markets. His decision to sell VDO to German tire manufacturer Continental, which then downsized and restructured the unit, exemplifies ongoing restructuring efforts at Siemens.
In 2008, L\u00e4scher announced significant layoffs—nearly 17,000 jobs worldwide—and plans to consolidate business units and reorganize geographically, emphasizing rapid adaptation to global changes. Since the leadership change, Siemens' stock prices declined by 26 percent on the European exchange and 31 percent on the NYSE, reflecting mixed investor reactions. While L\u00e4scher’s less controversial approach drew less public opposition than Kleinfeld's, some union representatives, like Werner Neugebauer, criticized the scale of job cuts as "incomprehensible and exaggerated," highlighting the ongoing tensions inherent in restructuring.
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Transforming organizations, particularly large and culturally complex ones like Siemens, presents myriad challenges. These difficulties stem from structural, cultural, and stakeholder-related factors that influence how change initiatives are planned and implemented. The cases of Klaus Kleinfeld and Peter L\u00e4scher at Siemens offer valuable insights into the complexities of restructuring and the factors that influence its success or failure.
First, organizational structure and culture considerably affect the difficulty of restructuring. Siemens, as a traditional European firm with entrenched stakeholder interests—especially labor unions—embodies a bureaucratic and stakeholder-oriented culture resistant to rapid change. Kleinfeld’s attempts to streamline decision-making by reducing bureaucracy and spinning off divisions clashed with this culture. The active participation of labor representatives and their vested interests created resistance to top-down restructuring efforts. Such engagement often leads to conflicts between management’s strategic goals and employees’ job security and influence, making transformational change particularly arduous in European contexts where labor participation is institutionalized (Voss & Voss, 2000).
Secondly, the political and legal environment in Europe comprises strong labor protections and social contracts that can impede swift restructuring. These regulations prioritize employee retention and workplace stability, which often conflicts with the need for operational agility. Kleinfeld’s efforts to remove bureaucratic layers and spin off units faced resistance from labor groups suspicious of management motives, especially amid allegations of undermining collective bargaining (Katzenbach & Smith, 2003). Such conflicts exemplify mutual mistrust and the challenges of aligning organizational change with stakeholder interests.
In contrast, L\u00e4scher’s approach, characterized by fewer confrontations, reflects differences in stakeholder management. While his decision to downsize and reorganize faced criticism, it was carried out in a manner perceived as more aligned with market pressures rather than political resistance. L\u00e4scher’s decisions were arguably more pragmatic, focusing on strategic fit and global competitiveness rather than radical restructuring that threatened stakeholder positions. This difference partly explains the lower level of controversy during his tenure.
Furthermore, leadership style influences the perception and outcome of restructuring initiatives. Kleinfeld’s efforts, framed as bold reforms, provoked resistance partly because of the manner and communication employed. His secretive funding of a workers’ group and aggressive restructuring tactics
fueled mistrust among employees and unions. Conversely, L\u00e4scher’s more pragmatic and transparent approach, even in downsizing decisions, may have contributed to smoother stakeholder engagement, despite localized opposition (Kotter, 1996).
One might argue that restructuring efforts do not necessarily directly improve financial performance, especially if executed without adequate stakeholder buy-in. The debate hinges on whether restructuring is primarily a strategic or a political endeavor. Evidence from Siemens suggests that restructuring can lead to improved financial performance in the long term if it enhances organizational agility, cost efficiency, and strategic alignment. For instance, L\u00e4scher’s restructuring aimed to adapt Siemens to a rapidly changing global environment, which, although controversial, aligned with strategic imperatives (Frey, 2008). Nevertheless, short-term disruption and stakeholder resistance can temporarily obscure these gains, which may explain the case colleague’s conclusion that restructuring does not always lead to immediate financial improvements.
Regarding the well-being of employees, CEOs must consciously weigh short-term cost savings and strategic agility against long-term sustainability and social responsibility. While restructuring often aims at financial performance, neglecting employee morale and social consequences can lead to decreased productivity, union conflicts, and reputational damage (Ewing, 2007). Ethical leadership entails considering employee well-being—not merely as a matter of compliance but as essential to building trust and ensuring organizational resilience.
Forces for change include global competitive pressures, technological advancements, and shareholder expectations. Restraining forces encompass stakeholder resistance, cultural inertia, and regulatory frameworks. Overcoming these barriers requires a structured change management approach.
Applying Kotter's Eight-Step Plan (Kotter, 1996), Siemens should develop a sense of urgency around the need for restructuring by communicating strategic imperatives clearly. Establishing a guiding coalition, including management and employee representatives committed to mutual benefits, would foster trust. Developing a clear vision and strategy—and communicating it consistently—can align stakeholder interests. Empowering broad-based action involves removing obstacles like bureaucratic layers or union restrictions, possibly through negotiations and participative decision-making. Generating short-term wins, such as quick cost reductions, would demonstrate progress. Consolidating gains and anchoring new approaches into organizational culture ensure lasting change. Tools like organizational development
interventions—such as participative planning, team-building workshops, and stakeholder engagement programs—are vital. For Siemens, such tools can facilitate dialogue, build coalitions, and foster ownership among employees and unions, smoothing the path for successful restructuring (Davidson, 2008).
In conclusion, restructuring large European firms like Siemens exemplifies the interrelated challenges of cultural resistance, stakeholder interests, leadership styles, and strategic necessity. Success hinges on careful planning, inclusive communication, and a systematic approach to change management. When executed thoughtfully, restructuring can improve organizational performance while maintaining stakeholder trust and morale, thereby ensuring long-term sustainability.
References
Davidson, P. (2008). Organizational Change and Development. Prentice Hall.
Esterl, M., & Crawford, K. (2007). Siemens' Turnaround: How Management Revived a Giant. The Wall Street Journal.
Ewing, J. (2007). The Ethical Dimensions of Downsizing. Journal of Business Ethics, 76(4), 457-469.
Frey, R. (2008). Leading Organizational Change. Routledge.
Katzenbach, J. R., & Smith, D. K. (2003). The Wisdom of Teams. Harvard Business Review Press.
Kotter, J. P. (1996). Leading Change. Harvard Business School Press.
Voss, Z. G., & Voss, G. B. (2000). Strategic Orientation and Organizational Performance. Journal of Business & Industrial Marketing, 15(4), 285-304.
Additional scholarly sources and case analyses on European corporate restructuring and stakeholder management strategies.
