Siemens Goes Mega

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Two Siemens employees are checking open gap measurements in the final assembly of the turbine plant in Berlin-Moabit.

Thorsten Futh / laif for TIME

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And he acted more like an American portfolio manager, discarding businesses that didn't meet profit targets or fit into his megacities strategy. Co-workers say Kleinfeld, a music lover who plays a mean blues harmonica, is easygoing and adaptable, a contrast to the stiff corporate culture of Von Pierer's world.

Their differences showed. In recent months, say insiders, Kleinfeld and Von Pierer often clashed over strategy. In corporate Germany, a departing CEO often becomes chairman of the supervisory board. In the case of Siemens, Von Pierer simply moved across the hall to a new office in the executive suite, sharing his old secretary and staff and even the executive washroom with Kleinfeld. Von Pierer began to block Kleinfeld from taking more radical restructuring steps, say these insiders. In the end, Von Pierer had to fall on his sword, but one tantalizing theory is that Von Pierer made sure he took Kleinfeld down with him. "With Von Pierer, one of the last great representatives of the old Germany Inc. is retiring," wrote the daily Frankfurter Allgemeine Zeitung. "For Von Pierer, the systemic conflict in the Siemens leadership has taken a tragic end."

Inside Siemens, the habits of Germany Inc. have been dying for a long time. In fact, the company has changed so much that it's fair to ask whether Siemens is really a German company anymore. Siemens has businesses in the U.S. ranging from water technologies to medical equipment that employ 104,100 people and generate $31 billion in sales, some 26% of revenue. Asia, where Siemens is building low-emission coal-fired power plants in Shanghai, accounts for 15% of the company's sales. In Europe, excluding Germany, Siemens has 127,400 employees and nearly a third of its sales. Germany accounts for just 19% of sales but 34% of the company's staff.

Siemens One notwithstanding, managing the growing multicultural community is sometimes a diplomatic challenge. Last year, for example, a row broke out between American and Iranian engineers during a training seminar at a Berlin turbine plant. The Americans, a plant official explains, refused to work with the Iranians. To resolve the issue, the seminar leader removed the name Iran from a map of Siemens locations, replacing it with "Sandy County." "The Americans were adamant," says the official. "Even though we're all in one company, we can't escape global politics."

In December, Kleinfeld was caught by surprise during a visit to the company's industrial-steam-turbine business in Görlitz, a provincial city on the Neisse River, which divides Germany and Poland. Kleinfeld walked into a meeting with about 200 of the division's staff, shook a few hands and launched into a pep talk in German. As he started to hit his stride, many of the division's top executives looked on dumbfounded. Then Rene Umlauft, the division CEO, intervened, waving his hand at Kleinfeld and forcing him to stop midsentence. "Excuse me, Mr. Kleinfeld," said Umlauft. "But you can't speak German here. They don't understand. You have to speak English." Startled, Kleinfeld quickly grasped the humor of the situation.

The growing number of non-German engineers is a result of economics and education. Countries like India, China and the Czech Republic are producing highly qualified engineers who are less expensive than their German counterparts. And it's not just engineers who are caught in the global squeeze. In 2004 Siemens extracted an agreement from its workforce at two mobile-phone-handset plants in Bocholt and Kamp-Lintfort to work longer hours and accept a cut in holiday pay. Frustrated union leaders say they were blackmailed into eating what amounted to a 20% wage cut. "We had to accept these terms because there was the constant threat that these jobs would go to Hungary if we didn't," says Wolfgang Mueller, who was IG Metall union's representative on the Siemens supervisory board at the time. The concession didn't help much. When Kleinfeld took over in 2005, he jettisoned the handset business, selling it to Taiwan's BenQ, which shut it down a year later, embarrassing Kleinfeld and sparking protests from workers and politicians.

Kleinfeld wasn't done with telecom though. He put the struggling telecommunications-equipment business into a joint venture with Nokia, creating Nokia Siemens Networks, the No. 2 manufacturer in its industry. The rationale was simple: in a rapidly globalizing telecom business, with distinctions between fixed line and wireless disappearing, Siemens had to get the scale to compete. "It's No. 2 from the start, and that's a big win," Kleinfeld told TIME. "We'll have a true opportunity to be one of the top players in the industry."

The pressure from global competition inside and outside Siemens has a huge impact on careers. While there are still very few non-Germans in high executive positions, they are becoming more common. For example, a year ago, Umlauft needed a director for global sales. "Everyone expected me to appoint a German," he says. "But I hired a guy out of India. He's now in Görlitz, and he's a great sales guy."

Or take Ajit Singh, 43, a computer scientist who grew up in northern India and moved to the U.S., where he joined Siemens in 1989. There he worked closely with Kleinfeld and has been one of the people driving Siemens' development of medical scanners that use digital image processing for the early detection of disease. Singh explains that a doctor could take digital images of a beating heart and compare them with images of a healthy heart and determine if there is an anomaly, often long before symptoms of an impending heart attack appear. Last year he moved from San Francisco to Erlangen, Germany, to run Siemens' global image- and knowledge-management business. "I have never come across any ceiling--visible or invisible," Singh says. "If you look at a 10-year span for somebody born in India, working in the U.S. and responsible for a global business at a German-based company, I would view that as best in class."

The ranks of Siemens' multicultural community were certainly rooting for Kleinfeld and a weakening of what remains of the German Old Boy network in Munich. With the executives of the Von Pierer era either retired or under investigation, Kleinfeld was supposed to have had a free hand to go about cleaning up the company from the inside and to take his restructuring drive to the next level. But the past had one blast left, and it got Kleinfeld.

Julian Mitchell, an analyst with Credit Suisse, applauds Kleinfeld for sorting out the bad businesses in the company's portfolio but says Siemens--no matter who runs it--still has a lot of work to do. "The next phase is all about improving execution in the core areas of the company, the areas the company is good at, like power and automation and health care, and then further streamlining the portfolio," he says.