Siemens 2008 Annual Report Download - page 147

Management’s discussion and analysis 51
During scal 2008 we dened new target margins for the Sectors and their 14 externally reported Divisions.
In doing so, we also raised the target ranges for all three Sectors. For further information on the margin ranges,
see “Financial performance measures.”
We believe the new structure has a number of advantages to Siemens and its investors beyond simplifying our
reporting and offering clearer comparisons with our main competitors. In particular, it denes clear lines of
responsibility from the top down. Each Sector has a CEO who sits on our Managing Board. In addition, each Sec-
tor has a CFO reporting to the CFO of Siemens. CEOs of each Division within the Sector report to the Sector CEO,
and accordingly such structure is mirrored on the Business Unit level. We expect the CEO principle to provide
clearer responsibilities for prot and loss, streamline decision-making and enable Siemens to respond more
quickly to customer needs. In the same way as for the CEOs, a separate reporting line for the CFOs has been
established accordingly on the levels below the Sectors.
For similar reasons, we implemented a new setup for our regional companies in scal 2008. These companies
are now grouped into 20 “clusters” of countries, which in turn are organized into three world regions. The
regions are dened as follows: Europe, the Commonwealth of Independent States (C.I.S.) and Africa; the Ameri-
cas; and Asia, Australia and the Middle East. Regional companies in each cluster now share support functions
and administrative resources, so that they can focus more tightly on the customers, suppliers, media and other
stakeholders in their respective countries.
Inherent in the organizational changes described above is a substantial opportunity for us to reduce SG&A, such
as by consolidating and sharing these activities. Our SG&A program targets sustainable elimination of €1.2 bil-
lion in SG&A by the end of scal 2010 from the level in scal 2007. For further information on our SG&A pro-
gram, see “Global SG&A program” below.
At the end of scal 2008 we introduced a new management incentive program to go into effect with scal 2008
results. The primary purpose of the new program is to increase the alignment of management interests with
those of our shareholders. To that end it mandates that our top 500 managers must hold a dened multiple of
their base salary in Siemens shares; awards stock for performance; and rewards employees who hold Siemens
shares for a dened period with one free share per three held. The incentive program also pays out nancial
bonuses based on achievement of personal and organizational targets. The entire program is designed to be
effective, objective, easy to understand, and best-in-class.
Worldwide economic environment
According to estimates of Global Insight, Inc., gross domestic product (GDP) in 2008 is expected to grow 2.7%
on a global basis. In 2007, GDP grew by 3.9%.
Of Siemens’ three reporting regions, the largest is Europe/C.I.S./Africa. Growth of GDP in this region is expected
to be 2.0% in 2008, down from 3.6% in 2007. This decline is due primarily to Europe, which is expected to post
1.3% GDP growth in 2008 compared to 3.0% in 2007. Within Europe, 1.1% GDP expansion is anticipated for the
Western Europe nations, down from 2.8% in 2007 due generally to the strong euro and slowing global demand
for exports. This was also evident in GDP growth in Germany, which is expected to slow to 1.3% for the year,
down from 2.5% a year earlier. Other economies experienced additional impacts, such as a sharp slowing in the
housing markets of Spain, Great Britain and Ireland. The C.I.S. countries and Africa are projected to grow 7.1%
and 5.6%, respectively, faster than the region overall but slower than in 2007.