Knowledge Management

Knowledge Management at Siemens Spain

Should Communities of Practice at Siemens Spain be Open or Closed?

“In our company, Knowledge Management is a key factor in our becoming innovation leaders, thereby contributing to our clients’ success and the professional development of our team”

Eduardo Montes, CEO Siemens Spain

It was a cold, sunny autumn day in November 2002 at the Siemens Spain headquarters in Madrid. The Knowledge Management (KM) Team, comprising the Human Resources Manager, the IT Manager and the Processes Area Manager, was meeting to discuss the future of the various

América Grau and Emma Lara, Research Assistants, and Professors Sandra Sieber and Rafael Andreu prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. June 2004. The research for this case study, as part of a portfolio of 15 cases, has been funded by the European Commission via IST project 2000-29665 “RESCUE”.

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Last edited: 10/20/04

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local Communities of Practice (CoPs)1 at Siemens Spain2. Local CoP initiatives in Spain were launched as a strategic goal of the company, with full management support. The management team took a role in designing the communities’ infrastructure, and ensuring they followed a set of standard procedures.

The Context

An organization like Siemens, with more than 450,000 employees, needed tools that would allow them to fully exploit the intangible assets, such as knowledge, that the company produced. In that sense, CoPs were seen as a living form of organization within the company, whose cohesiveness was based on shared knowledge, a shared need for relevant business knowledge, and the creation of employee networks across organizational boundaries. In short, they provided a way of achieving a culture of knowledge sharing and creation.

The KM Team in Spain was delighted to see how many of the local CoPs launched in Spain were successful. One of the CoPs, the E-factories Community, was an initiative of the IT team in charge of implementing different SAP R3 modules in various factories in Spain, and was launched in 2001. Employees dealing with different SAP R3 implementation modules were able to communicate easily among themselves, share experiences and tips about the work they were doing, and access a vast pool of knowledge stored in the system by other employees. That meant that experts in a certain module were not required to be physically present in each factory, saving Siemens a lot of time and resources.

In that sense, CoPs at Siemens were seen as an ideal tool for making knowledge available among an extensive network of professionals, irrespective of their geographical location or hierarchical and organizational boundaries. The participants in a CoP, who were often employees carrying out similar tasks in different business units, developed, exchanged, shared and deployed knowledge; they also collaborated among themselves.

The development of a CoP was a process that followed a certain life cycle that could be divided into a number of stages. The most important was the start-up phase, followed by the actual running of the community, which involved elements such as tacit knowledge sharing and quick question processing, knowledge assets processing3, as well as the management and support of the community. Finally, in the winding-down phase, the knowledge assets were stored and the community closed down.

1 “A Community of Practice is an employee network which spans organizational boundaries, and is based on collective, relevant business knowledge and the need for such knowledge – membership, goals and products of a CoP are self-organized” Source: Siemens presentation.

2 From now on, ‘Siemens AG’ will be used to refer to the global company, and ‘Siemens Spain’ to refer to the Spanish subsidiary. 3 A knowledge asset was a documented type of knowledge and a valuable practical experience to be reused. Work with knowledge assets

was carried out according to processes and/or methodologies standardized in each community.

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Before the start-up phase, the team creating a CoP had to come up with a business plan detailing the subject matter, aims, activities and potential benefits of the community, its potential membership, financing, and organizational details and roles within it. They also had to think about the technological infrastructure that would support the CoP, and appropriate measures to evaluate its effectiveness.

This process of creating a CoP was followed worldwide, and Spain was no exception. The corporate KM Team’s role was to monitor the local CoPs in Spain, making sure they had a coherent structure, that the infrastructure design was correct and facilitated the effectiveness of the CoP and, to some extent, to prove to top management that they were on the right track. They also designed the strategic plan for Spain, which not only incorporated CoPs, but also forums and other KM initiatives, trying to implement a plan similar to that of Siemens AG, but taking into account the idiosyncrasy of the Spanish unit’s business processes and organizational culture.

The KM Team was meeting that day to discuss the future of the local CoPs in Spain and the expansion of different KM initiatives. Implicit to the discussion were the type of measurements they could use to evaluate the performance of a CoP and its impact on different business financials. It was intuitively clear that CoPs and KM initiatives in general contributed some benefits; however, the quantification of those benefits – as well as of the costs – was far more complex. The benefits of the CoPs included elements that were often intangible, such as the capacity to develop or combine new knowledge, an acceleration of learning curves and business processes, as well as the identification of experts in different topics, all issues more likely to be qualitatively measured than quantitatively4.

Up until then, CoPs in Spain had been relatively flexible and open, with members joining and contributing freely in a fashion similar to the open communities on the Internet. The KM team wanted to change the current model, creating more specific and closed CoPs, tracking and evaluating their members’ contributions so that it would be easier to monitor their performance and, to some extent, facilitate their justification to top management. They evaluated the steps to be taken in order to develop closed CoPs. One alternative was to create new CoPs that were closed from day 1; alternatively, they could change the rules of some existing open CoPs so that they would evolve into closed ones in a less drastic manner.

Company Background

Siemens AG was founded by Werner von Siemens and Johan Halske in 1847. One of their first goals was to improve the recently invented telegraph. Thanks to their work, less than three decades later a major intercontinental line connecting the US and Ireland became operational. At the beginning of the 21st century, Siemens had become a global giant in electronic engineering, also carrying out activities in the areas of transport systems, medical equipment and energy generation, with more than 400,000 employees.

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4 See Exhibit 1: CoP Benefits.

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From 1999 to 2001, Siemens AG restructured itself into six business areas and two divisions: Information and Communications, Automation and Control, Power, Transportation, Medical and Lighting, the Financial Services Division and the Real Estate Division. Each business area had different groups responsible for their own worldwide operations, with regional units around the globe supporting their activities5.

The Information and Communications area comprised three groups: Information and Communication Networks (ICN), Information and Communication Mobile, and Siemens Business Services. In this area, Siemens was a world leader and a single-source provider of all key information and communications technologies, applications and services. Siemens’ Automation and Control area was the world’s largest supplier of products, systems, solutions and services for industrial automation and building technology. It worked in the four main fields of automation: manufacturing, process, building and logistics. Siemens’ Transportation area comprised two groups: Transportation Systems and Siemens VDO Automotive AG. Both of them designed products to satisfy society’s need for mobility. Transportation Systems was a world- leading systems house in the railroad industry, and Siemens VDO Automotive was one of the world’s largest suppliers of automotive electronics. Siemens’ Medical area was renowned for its innovative products, services and complete solutions for the healthcare community. They supplied diagnostic and therapeutic systems as well as IT solutions for optimizing clinical workflows. Their offerings ranged from data management for healthcare providers to process management across the entire healthcare continuum. Siemens’ Lighting area, comprising Osram GmbH, specialized in lighting sources and related electronic control material. They focused on general lighting solutions, automotive lighting, special photo-optic lamps and display lighting.

The Financial Services division provided Siemens AG and other industrial enterprises with financial services in the areas of sales and investment financing, equity investment in infrastructure projects, risk and liquidity management, fund management and insurance. The Siemens Real Estate division was in charge of developing and commercializing idle properties to generate additional real estate earnings. In addition, a Siemens Affiliate was BSCH Bosch und Siemens Haugeräte GmbH, one of the world’s leading manufacturers of household appliances. The great diversity of business areas in which it operated gave Siemens a strength that some competitors lacked when facing the economic slowdown affecting many industries in 2002.

In the 2002 financial year, Siemens AG made net sales of €84 billion, of which €2.4 billion were generated by Siemens Spain, and earned a net income of €2.6 billion. The business activities of Siemens in Spain go back to 1862, when Siemens first provided a telegraph system. However, the official founding of Siemens Spain was in 1885 when it set up offices in Madrid. In 1910 Siemens acquired La Industria Eléctrica, S.A., a machinery factory located in Cornellà (Barcelona), still rated as Siemens Spain’s most important factory in 2002. The industrial development of Spain in the 1950s encouraged the economic growth of the country, and in 1957 Siemens built a factory

5 See Exhibit 2: Siemens AG Corporate Structure. IESE Business School-University of Navarra

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producing control panels, electrical and electro-medical gadgets, high-frequency radio equipment and base telephone systems in Getafe (Madrid).

In 1970, the group of Siemens companies in Spain changed its name to Siemens S.A. and later constituted a sole company, merging the different companies working as Siemens companies. At the time, Siemens Spain was operating in three important production centres: Cornellà, Getafe and Malaga, as well as having a sales network scattered across the whole country. In the 1980s it began producing electrical systems in Getafe as having a result of the international emphasis it gave to R&D activities in this field. It took on business in Telecommunications and Control to develop and install automation systems. By the late 1990s the Information and Communications area became one of the most active areas of the group; in 2001 it became involved in the logistics and automation equipment business, and in producing electrical components for the automobile industry.

Siemens Spain was one of the main industrial groups in the country, with a presence of over a hundred years. It had more than 6,300 employees in its different areas, and six factories6. It participated in a range of companies, and operated in the same areas as Siemens worldwide. In 2002, around 22% of Siemens Spain sales came from the Industry and Automation segment, 26% from the Components and Automotive Systems group, and 36% from Information and Communications. It had factories in Madrid, the Basque Country, Navarre, Aragon and Catalonia, manufacturing products ranging from train materials to auxiliary electronics for cars, household appliances and mobile phones.

Culture, Management Style and KM Initiatives at Siemens AG

In the past, some had viewed Siemens AG as a company with a stuffy culture in which people worked in large, very hierarchical groups, and which was noted for its bureaucracy and lack of energy. Dr H. Pierer, President and CEO of Siemens since 1992, had altered the company’s culture to allow more flexibility; for example, people worked in smaller groups, and new management techniques, unthinkable in the past, were introduced. In 2000, around 60% of managers’ pay became performance-related, and many employees qualified for share options7. In addition, the value of established processes and ways of doing business was reconsidered. Dr Pierer saw the need to gear the organization towards its most valuable asset – its knowledge base.

For example8, in order to encourage knowledge sharing, the ICN group within Information and Communications established the so-called Bonus-on-Top program, which offered employees incentives for knowledge transfer and creation worldwide. This incentive scheme had two complementary parts, the ICN Management Premium- on-Top and a special Bonus Award. The Premium-on-Top rewarded a country’s

6 Siemens Spain’s corporate structure can be seen in Exhibit 3: Siemens Spain Corporate Structure. 7 “Electronic Glue,” The Economist, May 31st 2001. http://www.economist.com/PrinterFriendly.cfm?Story_ID=638605 8 “Knowledge Management Case Book: Siemens Best Practices,” 2nd Edition, 2002, pp. 5 and 260-270.

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participation in global knowledge-sharing projects. Managers were awarded a bonus of approximately 10 percent of their salary for their participation in knowledge-sharing projects between countries. In addition to the Management Premium-on-Top, there was a special Bonus Award for the top five international best-practice projects, rewarding creative ideas in global knowledge sharing and reuse.

Dr Pierer turned Siemens into an e-company. He realized the importance of knowledge exploitation in gaining competitive advantage, and the need to transform Siemens from a traditional product company into a service company, where most of the value was located. Dr Pierer’s plan had four elements. The first was knowledge management, the second was online purchasing, the third was dealing with customers (encouraging online sales as the main purchasing method), and the fourth was to change the company’s value chain, from customers through Siemens to its suppliers, so that it functioned as smoothly as possible. To this end they developed their own e-business processes, including websites, along with proprietary EDI and ERP systems.

As Siemens was a highly diversified organization, participating in a wide range of businesses, questions were raised at the corporate level about how to increase value through collaboration among the different areas. Knowledge management could offer answers to some of these questions: if they were able to share knowledge across business units, then each business unit could take advantage of the expertise of the others. Many of the company’s communities of practice, which cut across business units and encouraged participation from employees in multiple units, allowed Siemens to exploit knowledge synergies across the divisional structure9.

One of Dr Pierer’s top priorities was electronic networking and the management of Siemens’ internal knowledge, so that they could be more efficient and bring greater benefits to their customers. He also saw the need to systematically share Siemens’ best practices as a complement to Siemens’ management tools to improve value added benefits. As a result of Knowledge Management, Best Practice Sharing and Learning programs, Siemens could learn faster and better focus its innovative strength on developing new products and services.

Siemens worked on the creation of a number of measures geared to improving the use and re-use of knowledge within the organization, taking advantage of the technical base provided by its world-wide intranet. An interesting aspect of knowledge management as understood at Siemens, itself a technology company, was that technology was not considered to be enough on its own, and knowledge could be valuable not only because technology made it possible.

Sharenet, a global knowledge management network created by the ICN group and launched in 1999, was a clear example of Siemens’ transformation from basically a pure product seller to a global solution provider with the support of KM initiatives. Sharenet linked the sales people of Siemens ICN group worldwide, making each salesperson’s accumulated learning experiences accessible to the entire sales force. It

9 See Exhibit 4: Communities of Practice in Siemens. IESE Business School-University of Navarra

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went beyond the storing of information in large data repositories: it actually focused on creating an expert and interactive web of knowledge on a global scale. The other divisions within the company had other applications that were converging and migrating towards the “Siemens Sharenet” platform, which was shortly to become the KM platform for all Siemens employees worldwide, including Spain. Siemens also began testing it with key customers, partners and suppliers.

Siemens used the so-called Knowledge Strategy Process (KSP) as an instrument that management teams and business owners of KM action initiatives could use to set up and deploy their plans. KM action plans were guidelines for KM teams and a valuable contribution to the Knowledge Management Roadmap, the overall KM guideline at Siemens. The KSP identified which knowledge areas had an impact on the business, thus creating a strong link between knowledge management and business performance. It consisted of six basic steps, which resulted in a knowledge management action plan and a project plan.

· Step one determined the business context, the strategies and goals of the company,

· Step two identified the knowledge areas relevant for the business case,

· Step three defined the critical performance indicators such as customer success,

a performance index, etc.,

· Step four analyzed the impact of knowledge areas on the key performance indicators defined in step three,

· Step five analyzed the status of selected knowledge areas and identified their needs for improvement,

· Step six formulated the KM action plan.

Thus, the basic KSP elements and resulting actions already contained knowledge and knowledge management measures, so that the bases for measuring their effect on selected indicators were set from the start. Also, an explicit connection between the KSP and Balanced Scorecard elements allowed for a focused definition of quantitative objectives pursued by the different KM actions. For example, the Bonus-on-Top program formulated by the ICN group paved the way for the introduction of a strategic goal – international revenue through knowledge exchange – as an integral part of the headquarter’s strategic control system, the Balanced Scorecard10. Every quarter, top management reviewed the progress made in international knowledge sharing and reacted to alarm signals in the Balanced Scorecard with appropriate measures, launching campaigns in those countries with a high knowledge potential but reporting low knowledge sharing figures.

10 The Balanced Scorecard methodology is an analytical technique designed to translate an organization’s mission statement and overall business strategy into specific, quantifiable goals to spread strategic messages throughout the organization, and to monitor its performance in terms of achieving these goals. It typically examines performance in four areas: financial analysis (including measures such as operating costs and return on investment), customer analysis (customer satisfaction and retention), internal analysis (production and innovation) and learning and growth analysis, which includes management effectiveness in terms of employee satisfaction, retention, etc.

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Siemens’ success in the area of knowledge management was duly recognized in the annual assessment made by the heads of the Fortune Global 500 companies and knowledge management experts around the world. Siemens was the only German corporation ranked among the world’s top 20 knowledge management companies in the period 1998-2002 (worldwide). They were Number One in 2001 in Germany, Number Two in Europe and among the top ten worldwide.

Culture, Management Style and KM Initiatives at Siemens Spain

Siemens Spain also changed profoundly when Eduardo Montes took the top job in 1995. Being an outsider, his appointment broke the company’s tradition of internal promotion to this post, although having been an engineer in one of Siemens Spain’s factories in his early years gave him “insider flavor”.

Just a few months after his appointment, Sr. Montes ran a kick-off workshop in which different levels of management gathered to discuss the “Siemens Vision 2005”: elements, projects, ambitions, values and critical success factors. Similar follow-up workshops, which were subsequently organized annually, became a crucial element in bringing the company’s vision to life. The main goal was for the group to become a leader in each market in which it operated, doubling sales to €3,500 million in 2005 and simultaneously increasing the company’s returns. In addition, it was to become a competencies center, offering its customers innovative solutions while working hand- in-hand with strategic clients.

During his first months in the top job, Montes created the Management Board, an instrument for information and knowledge exchange as well as an interdivisional decision-making tool that allowed managers from each business unit within Siemens Spain to meet every two weeks. This board was an element uniting the management process at Siemens Spain.

Montes also created the Corporate Development Division within the structure of Siemens S.A. This was the only horizontal business division that aimed at taking advantage of the different market opportunities in which various Siemens divisions could participate. It gave Siemens a stronger position and fostered participation among different parts of the company, allowing Siemens to bid for new market opportunities not previously feasible. The Corporate Development Division overcame some problems by increasing the interdivisional synergies, knowledge sharing and know-how scattered in different areas, in order to capture new business opportunities as a whole.

Three months after his appointment, Montes implemented a management system based on a Management by Objectives scheme. Management divisions were taught how to work under the new framework, starting with a pilot program in one division and then deploying the program across the other divisions. From the second year onwards, the Management by Objectives scheme was implemented in teams outside the management and directors’ board. In 2003, the scheme was running in all divisions of Siemens Spain except the operating and productive divisions such as factories and technical services. The Management by Objectives scheme was useful in providing objectives

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that went beyond sales objectives, articulating the goals of the company and aligning them across all organizational levels.

Montes also adopted the EFQM11 Business Excellence Model, which was implemented only by managers and directors in the first year, and was then deployed to all Siemens Spain employees. He insisted on the importance of elements such as performance evaluation and the definition of activities to be undertaken.

After three years of obtaining outstanding financial results, Montes launched the Leadership and Feedback 360o initiative, which included the creation of a leadership model in Siemens Spain, and the implementation of the 360o evaluation practice by all directors and managers. Parallel to this, he implemented the Siemens Management Learning (SML) program, aimed at reinforcing the leadership capabilities of both existing managers and employees with high potential. He also had a special interest in actively promoting KM and sustainability initiatives, considering not only the financial results of the company, but also the social and environmental results of its actions.

His management style, openness, and the positive results that followed meant Siemens Spain won the Top Award for the best run Siemens Company outside Germany in 1999. His corporate vision was fully consistent with that of Siemens AG. Consistent with the vision, some of Siemens’ shared values were: commitment to clients’ success, speed, an orientation towards results, leadership, continuous innovation, open and transparent communication, and team spirit. In addition, a set of critical success factors was defined. These included the development of the service business, the corporate identity, strategic alliances, continuous process improvement, the development of knowledge management, a flexible and agile organization, e-business development, and attracting and developing the best professionals. In this way both the shared values and the critical success factors established a solid background for effective knowledge management12.

Sr. Montes was similar to Dr Pierer in strongly encouraging knowledge sharing, and he also saw the need to make the necessary organizational changes to facilitate knowledge flow among different divisions and business areas. Knowledge management was not seen purely as an IT initiative, but also as one that encompassed many other aspects of the organization. The goal was to become a permanently innovative company: an organization which absorbed ideas from the outside world through regular benchmarking of its activities against those of its main competitors, and at the same time sharing best practices internally, the aim being to ensure that Siemens employees could effectively access the company’s enormous pool of knowledge.

11 European Foundation for Quality Management, a not for profit organization that encourages sustainable excellence in organizations in Europe. For more information, visit www.efqm.org.

12 See Exhibit 5: Shared Values and Critical Success Factors.

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Knowledge Management Initiatives at Siemens Spain

Siemens knowledge management initiatives supported not only Siemens operations at the global level, but also cross-divisional projects and initiatives within a specific region. In 2001, Siemens Spain created its Knowledge Management Roadmap, consistent with Siemens’ Global Roadmap. This roadmap was not imposed on Siemens Spain, but its use was suggested as a way of ensuring that the knowledge management strategy was aligned with the business objectives of the company, as well as with the critical success factors defined in the strategy workshops regularly held in Siemens Spain. The KM Roadmap described the implementation, operation and standardization of basic components of KM solutions as well as the corresponding change initiatives. It served as the overall plan for the transformation of Siemens into a knowledge-based company, and it also helped to define the methodological aspects of the implementation of different KM actions13. Basically, knowledge management objectives differed depending on the area in which they were targeted, be they operational units, business areas or clients. Knowledge management objectives in operational units aimed at increasing profitability; those in business areas aimed at improving competencies and those with clients aimed at increasing clients’ loyalty.

In May 2001, Siemens Spain presented its E-business Strategic Plan, which included the KM Strategic Plan. It encompassed nine strategic projects, among them knowledge management projects, as well as a strong emphasis on CoP building. At the beginning, each global business area had a different technological platform as well as a slightly different KM organization. Those elements slowly converged towards a unique solution and platform that aimed at taking the best elements from each one. The technological knowledge-sharing corporate platform consisted of Siemens Sharenet, which included Sharenet and Livelink, organized in superimposed layers, providing the maximum functionality for collaborative work and knowledge sharing.

Siemens Spain already had a number of CoPs running before the formal definition of the KM roadmap. For example, it had the previously mentioned E-factories CoP that linked the different IT teams dealing with the implementation of SAP R3 modules. However, as a result of the KM Roadmap, Siemens Spain focused its KM Strategy on two main areas: the creation of several local CoPs and a new KM section within the corporate intranet14. This online KM section included a set of “intranet forums” in which Siemens collaborators with common functions in different divisions of the company could meet. For example, the intranet content publishers used a forum to help themselves when they had technical questions regarding the software used, and to exchange information, content and images.

In accordance with “Siemens Vision 2005” principles, knowledge management initiatives were divided into three sections: Vertical KM (Divisional KM), Horizontal KM (Cross-Divisional KM) and KM Collaboration with Clients, (see Box 1 below).

13 See Exhibit 6: Siemens Corporate KM Roadmap (Germany). 14 See Exhibit 8 for a screenshot of Siemens' Employee Portal within the corporate intranet. IESE Business School-University of Navarra

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Each section entailed a qualitative analysis of its impact on different business indicators, such as sales, cost reductions, customer intimacy and competency build-up, all found in the Balanced Scorecard15, and together comprising a set of CoPs for each section. Such measurements, although not yet quantitative, were considered useful in guiding management attention towards those KM actions that contributed most to a specific outcome, and in checking to what extent they could complement other existing management tools in order to generate value for the company.

Box 1

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Vertical KM solutions, also known as Divisional KM, were business-specific by area, and with an international link among business units to ensure a high degree of knowledge transfer at the international level. They consisted of a document- management and project-support tool to improve knowledge sharing, and were estimated to have a high impact on profitability and cost reduction, and a very high impact on competency build up. Impacts on sales were higher than on customer intimacy. Eight CoPs existed along this KM axis. They were international CoPs in which English was the language used. To motivate participation in those CoPs, Siemens AG developed a share scheme by which shares (points) were given depending on inputs included in the CoP – whether it was a question, an answer to an urgent question, a document contributing to the knowledge base, etc. These shares could be exchanged for small gifts. The system, which focused on quantity of inputs rather than quality, was replaced a year later by a system in which users themselves could evaluate inputs from other users. Later, experts were brought in to evaluate content quality; and the share scheme was transformed into a system that evaluated the knowledge provided.

Horizontal KM solutions, also known as cross-divisional solutions, were aimed at fostering a culture of information sharing among employees and avoiding reinventing the wheel. The approach consisted of e-learning and CoP elements that enabled employees to learn by themselves those topics they were most interested in. They also identified practice experts who could share their knowledge with the community. Contrary to the Divisional KM, the estimated impact of this solution on competency build-up was very high, and its impact on profitability and cost reduction was medium. However, the impact on estimated sales and customer intimacy was estimated to be low. Some examples of this kind of solution were the Siemens Learning Valley and the Sharenet from the former E-excellence Center, later integrated within the Corporate Information and Operations Centre16. Twenty CoPs were created along this KM axis, which tended to be used by employees with the same function within the company (usually in marketing, IT, quality and environment), but belonging to different areas. Those CoPs included forums in which best practices could be exchanged and discussions started; each area had an

15 See Exhibit 7: Impact on Benefits.

16 The Corporate Information and Operations Center’s (CIO) role was created in 2002 to organize and integrate in a more consistent framework all technologies, platforms and KM initiatives in Siemens all across the globe. It unified the criteria used in Siemens to develop and implement new technologies linked to the management of information and knowledge.

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employee in charge of a specific topic within a CoP. Those CoPs did not yet have a motivation scheme implemented to encourage participation, although the KM Team was starting to consider one. Nevertheless, they were satisfied by the degree of CoP usage.

KM Collaboration with Clients encouraged sharing and exchanging of knowledge with clients and selected partners, who would get to know Siemens’ solutions and products better, while at the same time Siemens would have the chance to learn more about its clients’ needs. It had elements of e-learning, communities of practice, collaborative tools and an emphasis on project follow-up. The estimated impact on customer intimacy and on competency build up was very high. Also, the impact on sales and profitability/cost reduction were expected to be significant. Siemens Spain started with a couple of KM Client Collaboration CoPs, which were used to follow- up some of Siemens’ projects with clients.

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Employees of Siemens Spain could access and participate both in horizontal and vertical CoPs. Courses were organized to teach them how to use the tools and platforms contained in vertical CoPs, which in Spain were mostly used by experts in different areas, and by product managers. Courses were also organized to teach employees how to use the tools existing in horizontal CoPs.

Around 600 employees were using CoPs in Siemens Spain in early 2003 (around 10% of Siemens Spain and 20% of Siemens S.A. employees). The KM team faced the challenge of both deploying CoPs across the whole organization, up to a point at which they would influence the organizational model of the company, and also increasing their efficiency, effectiveness and impact on business results. This was the context in which the KM team was considering whether to emphasize open or closed CoPs.

The Siemens Management Learning Program also became relevant in the process of getting KM initiatives started. Different levels of management could attend these programs, and could choose from five levels, depending on their functional levels. There were programs targeted at high-level executives, programs for management board members, regional and local managers, as well as programs for people with high potential within Siemens.

Levels 4 and 5, targeted local managers and employees with high potential, and were implemented by local offices following Siemens AG guidelines, with content targeted to local needs, designed by managers working in local offices and taught by local university faculties. Levels 4 and 5 were launched in Spain by Sr. Montes, and they were taught 50% in English in order to provide the opportunity of collaborating with neighboring countries such as Portugal, Italy and Greece.

Those attending the Management Learning Program were required to work in teams and come up with a business plan for a new idea, called a Business Impact Project (BIP). They had to implement the BIP and ensure that they obtained results within the

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duration of the 9-month Learning Program. A team attending the Management Learning Program for the local level in Spain presented a project to create a CoP for SAP R3 users. The CoP project proposal was aimed at connecting the 350 SAP R3 users with Livelink, the corporate knowledge-sharing platform used in Siemens Spain, to share knowledge and hints on R3. Its goal was to capture and promote knowledge sharing on that specific topic among SAP R3 users, with a strong focus on quality and continuous learning. The users were employees from sales administration/commercial areas of different business units, sharing the use of SAP R3 to manage their respective business units. The estimated quantitative impact on earnings of the project was valuated at €200,000 per year. Its estimated qualitative impact was broader, comprising elements such as the availability of the system anywhere/any time, as well as networking enhancement and self-learning capabilities for its members. The project was launched, and before the end of the nine-month program Siemens was already obtaining positive and encouraging results.

A few measures of the efficiency and effectiveness of a CoP had been defined in the early stages of their launch. The efficiency measure was the ratio between the knowledge contributed to the community and the knowledge consumed in that community, called the efficiency ratio. To compute it, each action related to a document, project, forum and workflow was assigned a certain number of points (for example, uploading a document to the community scored three points, deleting it, two points, etc.). Each user accumulated points depending on his/her activity in the community. Then, the number of points accumulated by all users in the CoP was divided by the number of actions in the CoP to get the efficiency ratio. On the other hand, a CoP effectiveness measure had been defined as the average activity by user, measured by the ratio between the points earned by a user and the number of CoP members. The effectiveness ratio is depicted by the radii of the different spheres (CoPs) in the graphical representation in Exhibit 10, Classification of Different CoPs.

These measures proved to be useful for obtaining what at Siemens was called the “CoP Activity Indicator”17, which allowed ranking of CoPs according to the score obtained. Communities with an efficiency ratio below 140, characterized by a low number of users posting information in relation to the number of users consuming it, were named Distribution Communities. Communities with an efficiency ratio between 140 and 180 in which there was equilibrium between contribution and consumption were named Knowledge Management Communities and finally, communities in which the efficiency ratio was above 180, with a high degree of contribution with respect to consumption, were named Storing Communities18. Although these units were not directly linked to the company financials, they provided management with an overview of the types of CoPs that existed and how they were being used.

Additionally, Siemens had made some rough calculations to evaluate the returns of a CoP based on, among other things, personnel and infrastructure costs, as well as a benefit calculation, mainly based on time savings derived from CoP use. The

17 See Exhibit 9: CoP Activity Index. 18 See Exhibit 10, Classification of Different CoPs.

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calculations were controversial – e.g. how to evaluate the time savings? – but were useful as indicators.

Looking Ahead

In 2003 Siemens Spain reviewed its E-business Strategic Plan. The E-business Department, created in 2001 as a result of the Strategic Plan, had been reorganized and its members scattered across other departments of the company such as IT, Processes and Business Development.

Before moving on with more CoPs and the expansion of KM initiatives, however, the KM team asked itself several questions relating to their responsibilities and roles in the Siemens organization. Should they concentrate their efforts on mobilizing collaborators for their existing KM initiatives? Should they choose four or five business problems and study which KM action they could design to solve them? Should they use open or closed CoPs? How should they show the financial and qualitative results of the different CoPs, especially for the horizontal and open CoPs? The analysis of results was easier when CoPs were vertical and only working for one division, or when they were closed with a specific objective. However, in open and horizontal divisions, there were many obstacles to overcome in order to come up with specific quantitative results.

One of the important issues had to do with the evaluation of the effectiveness of CoPs. CoPs were aimed at linking a widely dispersed network of experts willing to interact and share experiences. They were different from traditional teams in the sense that monitoring and evaluation was not carried out in a formal way. However, when valuing a CoP it was necessary to report to top management on the tangible benefits that those initiatives contributed to the company, and to define a standard method that would enable prediction of the impact of each CoP on different business objectives. The impact measures developed by different CoPs and other knowledge management initiatives within Siemens were a good starting point, but they were not enough. These measures were directed towards the activity of the CoP, but not towards the quality of the content.

A conceptual issue remained in the KM Team agenda. What should be the main philosophy underlying the CoP concept at Siemens Spain? This was an important issue for extending the implementation of KM initiatives, and CoPs in particular, to the whole organization in Spain. Should CoPs be purely open communities, with no management follow-up or direct control, or closed and focused communities? Alternatively, should only those communities with a positive, measurable impact be allowed to continue?