A Report on Siemens Wind Energy Strategy Formulation

Introduction

Siemens Gamesa came into existence through a merger between German multinational Siemens and the Spanish wind energy company Gamesa on the 17th of July, 2016. This Strategic Partnership Agreement that benefitted both companies created a leading wind player. The market strong hold that these two companies possess are geographically diverse hence by merging created a well-balanced footprint around the world.

The global presence and network of Siemens makes it essential for a solid business strategy to be in place for the survival and growth of the company. Being a market leader in several sectors Siemens not only have to hold their current position but have to expand and growth from a position of strength. They utilize a range of tools to grow and reach their target such as Roadmapping and a process known as “Pictures for the Future”. This two-perspective process primarily carries out two functions which is developing and mapping today’s technology and creating a scenario in the future where all factors which would influence the project are evaluated together. Through this process it would be able to identify the necessary adjustments that need to be made for a project to succeed in the future. Through these various processes Siemens develops strategies to move into newer market segments. Siemens Energy is known to use a global standardization strategy to reap the benefits from economies of scale and location as they are in a high-pressure situation to reduce costs.

Researches along with the BCG matrix have shown the offshore wind sector to be a cash cow which have a steady inflow of cash. The strategy formulated to develop market segments through strategic alliance came out when the dots were connected between the opportunities that would arise in the future with a key success factor for Siemens which was its ability to form strategic alliances which made them a market leader. The very definition of strategic alliance can be applied to the proposed strategy where an alliance is created to share knowledge in a new market where risks and uncertainties are high and access to a critical asset which in this case is the oil rigs of Korean national Oil Corp can be gained only through this alliance. All in all, to gain a competitive edge to strengthen current position as market leader and learn the new capabilities.

Formulation: What To Do

Market Development Through Strategic Alliance

Siemens being a market leader in the offshore wind energy market serves as a steady platform not only to develop a new market segment but to create a unique symbiotic relation. Having a successful history with strategic alliance as seen with Gamesa the company gains significant advantage through these agreements. This relationship would be with offshore oilrigs which would eventually run dry, utilizing their existing infrastructure to create a more sustainable energy producer. This project being a new upcoming development would require to be tested before being implemented in a large scale. Following the 4I- Idea Invention Innovation Imitation in order to reach the imitation stage to run the project in a large scale this alliance would provide the knowledge and know-how. Seeing on how strategic alliances have aided Siemens in the past its strength lies in these alliances to achieve reduced costs to take advantage of the opportunities such as associating with oil rigs. In 2004 two south Louisianan businessmen decided to set up a wind farm on an abandoned oil rig in the Gulf of Mexico. This example with today’s technology would help the company further penetrate the offshore market segment all while reducing the investment cost. The strategy itself hinges on moving forward through technological advancements as a hybrid between the two energy sectors would help overcome the drawbacks of competing in an existing onshore market which was reveled through a cause and effect analysis.

Implementation: How To Do

The strategic alliance with Equinor would not be difficult to implement as they previously have a contract with Siemens to be their supplier in a project in South Korea. This contract would be extended for a period of 10 years which in turn would aid in geographic market development. Having secured the project with Korea National Oil Corp. Equinor would require a supplier such as Siemens for their floating wind power development with Korea National oil Corp. a bid which they won in the previous year.

This strategic alliance would be carried out through a non-equity alliance which would facilitate the share of knowledge and profits while protecting the parties from unmitigated risks in an experimental project. It would be seen as a 50-50 partnership between the two companies to gain a competitive edge in the Korean market. Even as offshore wind farms are seen to have many pros to them such as stronger wind currents than those onshore there is still the complexity of the marine environment. The basic functions such as transport, installation and running of the equipment which is complicated and bears a high cost. The proposed project would attempt to bring down the cost as investment overheads are reduced due to available infrastructure on oil rigs hence a differentiation is created. The trade-off between the cost leadership and differentiation would make for a successful integration strategy as the product being offered here would be unique onto itself while the benefit of being mounted on an oil rig would lower costs.

Analysis: Why So

The South Korean renewable energy goal is seen as a rather ambitious project which is in jeopardy of falling short on its determined mark. Through the PESTLE analysis we were able to determine the motivation of these countries to ratify the Paris Climate Change Agreement. Knowing this piece of knowledge was critical for the formulation of the strategy to move on the choice of geographical market segment as South Korea in order to reach their target would increase their subsidies making it a smooth process to set up an offshore floating wind turbine. Mounting on a wind turbine on an offshore oil rig not only helps us to reduce cost moving towards becoming a cost leader but it makes this strategy a sustainable model for the future to move into further geographical markets with abandoned or dry oil rigs such as the middle east. This could be achieved through mergers and acquisitions with oil and gas companies in the future. The drying up of oil rigs would not come as a surprise but with the exact date still being elusive it would be in the company’s interest to organically phase out oil and gas but use the current infrastructure in the best way possible. The previous contract as Equinor’s supplier has paved the way for this first phase of this strategy as Siemens would already be familiar with the laws and regulations of the country. The company has an ongoing onshore wind project from the year 2016 where it would carry out service and maintenance for the coming ten years. The competitive advantage which would be attained through the technological advancement as well as reduced installation cost would put Siemens Gamesa a step ahead of its competitors.

References:

1. Farrokhzad, Babak, Claus Kern, and Meike de Vries. “Innovation Business Plan at Siemens: Portfolio-Based Roadmapping to Focus on Promising Innovation Projects Right from the Beginning.” In Technology Roadmapping for Strategy and Innovation, edited by Martin G. Moehrle, Ralf Isenmann, and Robert Phaal, 211–23. Springer Berlin Heidelberg, 2013.
2. Kang, Jichuan, Jose Sobral, and C. Guedes Soares. “Review of Condition-Based Maintenance Strategies for Offshore Wind Energy.” Journal of Marine Science and Application 18, no. 1 (March 1, 2019): 1–16. https://doi.org/10.1007/s11804-019-00080-y.
3. Price, Chris. “Abandoned Rigs Could House Wind Farm.” New Orleans CityBusiness (1994 to 2008) 25, no. 13 (September 27, 2004): 5.
4. Rothaermel, Frank T. Strategic Management. Second. New York: McGraw-Hill Education, 2015. https://elearning.fhws.de/pluginfile.php/937370/mod_resource/content/1/Strategic_Management_2nd%28marked%29.pdf.
5. “South Korea Likely to Miss Its 2030 Renewable Energy Target: WoodMac.” Reuters, March 27, 2019. https://www.reuters.com/article/us-southkorea-energy-idUSKCN1R807X.