Siemens spends $5.4 billion on research and development worldwide and $875 million in the United States alone. We understand that our reputation depends on the products and services we develop.
As chief financial officer of Siemens Corp., I analyze and develop proposals for major expenditures, deciding why the company should invest in them. To be taken seriously, proposals must answer these critical questions:
Does it fit Siemens' strategy? Siemens has two main priorities for its U.S. business: Act as "One Siemens" and improve the bottom line. Acting as One Siemens means leveraging our strengths across the enterprise and gaining economies of scale that let us operate more effectively and efficiently. Improving the bottom line means increasing profitability. Projects that don't have a direct impact on the bottom line are not considered vital.
How does the investment match the flow of savings, and how credible and concrete are the savings? Proposals with a short payback period and a high return on investment are more likely to be approved. Special focus is placed on the validity of the savings. IT professionals often focus on the less quantifiable benefits of their programs, such as time savings generated by faster access to the Internet and improvements in employee performance--enhancements that, while positive, do not necessarily save money. Savings need to be substantiated, explained in detail and signed off on by the individuals who are requesting the investment.
Proposals showing cost avoidance as the only savings are questioned, because these ideas mean spending money to avoid increasing costs in the future. I have seen a lot of these projects over time, and very few were able to prove they stopped cost increases.
A recent proposal that answered these questions well, and received funding and support, was for a project presented by HR and the CIO to build an online employee portal. The concept was to consolidate processes into one portal, generating greater economies of scale and creating a One Siemens approach to multiple services, such as purchasing and travel. A central site for purchasing would produce immediate savings derived from vendor discounts applied to large, consolidated orders. An online travel mechanism would reduce the number of calls to the travel agency, saving each operating company thousands of dollars per month. The portal also would give employees information regarding benefits and expense reporting, and give senior management a vehicle to communicate easily with employees. The portal would improve the bottom line by letting us shut down some systems.
The IT team is rolling out the employee portal to the operating companies now with the expectation that it will take about 12 months for the 14 operating companies and Siemens Corp. to have complete access. The payback period is less than one year. The scope of the project is concrete, measurable and compatible with our strategy of leveraging resources and improving the bottom line.
The proposal team offered a detailed implementation plan, including written commitments from operating companies that agreed to recruit their employees to use the portals and commitments from departments and outside organizations that would offer savings. A system was put in place to monitor the project.
IT is a fundamental part of our company's competitive advantage. But in any IT proposal, it must be clear that the need is driving the technology. No matter how innovative the technology, its concept must be strategically relevant, and its benefits must be financially quantifiable and quickly captured.
Klaus Stegemann, executive vice president and CFO at Siemens Corp., has spent 28 years in finance positions at Siemens in New York and parent Siemens AG in Germany.
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