Siemens Electric Motor Work Case

For the exclusive use of M. Azizkhani, 2016.

Harvard Business School

9-189-089

Rev. June 28, 1993

Siemens Electric Motor Works (A)

Process-Oriented Costing

Ten years ago, our electric motor business was in real trouble. Low labor rates

allowed the Eastern Bloc countries to sell standard motors at prices we were unable to match.

We had become the high-cost producer in the industry. Consequently, we decided to change

our strategy and become a specialty motor producer. Once we adopted our new strategy, we

discovered that while our existing cost system was adequate for costing standard motors, it

was giving us inaccurate information when we used it to cost specialty motors.

—Mr. Karl-Heinz Lottes, Director of Business Operations, EMW

Siemens Corporation

Headquartered in Munich, Germany, Siemens AG, a producer of electrical and electronic

products, was one of the world’s largest corporations. Revenues totaled 51 billion deutschemarks

(DM) in 1987, with roughly one-half this amount representing sales outside the Federal Republic of

Germany. The Siemens organization was split into seven major groups and five corporate divisions.

The largest group, Energy and Automation, accounted for 24% of total revenues. Low-wattage

alternating current (A/C) motors were produced at the Electric Motor Works (EMW), which was part

of the Manufacturing Industries Division of the Energy and Automation Group. High-wattage

motors were produced at another facility.

The Electric Motor Works

Located in the small town of Bad Neustadt, the original Siemens EMW plant was built in 1937

to manufacture refrigerator motors for “Volkskuhlschraenke” (people’s refrigerators). Less than a

year later, Mr. Siemens decided to halt the production of refrigerator motors and began to produce

electric motors for other applications. At the end of World War II, the Bad Neustadt plant was the

only Siemens factory in West Germany capable of producing electric motors. All the other...