Siemens has spent more than 175 years reinventing itself through waves of technological change. Today, the Munich-based company operates at the intersection of hardware and software, with businesses spanning factories, infrastructure, and transportation. As AI accelerates that convergence, Siemens is embarking on yet another transformation, with Cedrik Neike helping steer the effort. A member of the company’s Managing Board, Neike is also CEO of its Digital Industries division, which employs more than 70,000 people and spans Siemens’s industrial software and automation businesses.
Neike grew up in divided Berlin and was 16 when the wall fell. Soon after, he traveled alone by train through Eastern Europe, Russia, China, and beyond. “When you were born in a city that has walls around you, traveling through the world is an amazing way of opening your mind,” he says. That openness has stayed with Neike throughout a career that began with a Siemens apprenticeship at age 18. After 17 years at Cisco, he returned to Siemens in 2017 and took the helm of Digital Industries in 2020. In conversation with McKinsey Senior Partner Asutosh Padhi, Neike discusses the changes reshaping manufacturing, what they mean for global industry, and the lessons he has learned from navigating periods of profound change.
A career—and a company—transformed
Asutosh Padhi: Let’s start at the beginning. Go back to young Cedrik, who started with Siemens as an apprentice. What were your strengths and weaknesses at that time?
Cedrik Neike: The apprenticeship was competitive, with about 2,000 applicants for around 20 places. I did all the tests you have to do. I’m dyslexic, so I don’t think I’ve ever written anything without making 20 spelling mistakes, but the tests also included mathematics—and my average score was good enough to get me an interview. In the interview process, you have to stand up and give a speech. I fainted. Young Cedrik was definitely nervous, but the HR rep still wanted to take me. I learned, from the beginning, that somebody has to give you a chance.
When I became a board member, I met that HR rep again and said, “Look, I just want to tell you that you weren’t wrong.” She told me, “I never doubted it.” What I’m trying to say is that even if you have certain characteristics that make it hard to succeed in business, you take those challenges and you work on them and you change over time.
Asutosh Padhi: We’ll go back to young Cedrik later, but for now, let’s fast forward to today: Siemens has become one of the world’s most successful industrial technology companies. It’s now the biggest in Germany and in the top three in Europe, up from about number ten just a few years ago. Tell us about this transformation. What has driven Siemens’s success?
Cedrik Neike: The transformation has been long in the making. I’d left Siemens and spent 17 years at Cisco. When Joe Kaeser, who was the Siemens CEO at the time, hired me in 2017, he said, “I need somebody who’s seen Siemens from the outside and from the inside. We have to carve out the energy and healthcare businesses and be much more focused.” So that’s what we did during the first five years after I joined Siemens as a board member. That was the first phase of the transformation.
The second phase is to recenter Siemens. That’s what we’re doing now: We’re focusing on our ONE Tech Company program. Most tech companies have both hardware and software, and they leverage the technological backbones. For the last couple of years, we’ve been working on building that capability through acquisition and investment. We focused on the core and said, “In what we do, we will be the best.”
My business, for example, is automation. Every third machine in the world has a Siemens controller. I also look after industrial software, and we’re the leader there, too. We’re focusing on doing fewer things better than anyone else. It’s been a huge change for Siemens.
We are redistributing our strengths geographically. A lot of people have exited China, but we invested more because a lot of competition comes from there. We’re also trying to be stronger in process industries1 and with software-defined automation. Instead of having lots of gray boxes on the shop floor, we want to use cloud or edge capabilities.
The factory of the future
Asutosh Padhi: Paint a picture of what industrial manufacturing looks like today. How has it changed over the past 25 years?
Cedrik Neike: When you go into a modern manufacturing environment, it looks more like a hospital. There are moving robots, and it’s very quiet and clean. If you look back just five to ten years, a lot of the focus was on automating what you could and building as big a factory as possible. The supply chains were global. That has changed. The reality—not only in the United States but also in China and India—is that many countries want to bring manufacturing back home.
The supply chain during COVID showed us that we need to be much more flexible than in the past. Manufacturing used to be about predictive and mass production. We now need to have the cost advantage of the “mass production of one” model, which means hyperflexibility and hyperlocalization. That’s a huge change in factories. We’re even talking about putting factories in cities. Instead of going to an Apple store, you could go to an Apple production plant, which would build your iPhone on the fly.
Asutosh Padhi: A term I’ve heard you use is “AI-native factories.” What is an AI-native factory?
Cedrik Neike: It’s a factory completely driven by AI algorithms. We’re building a factory with what we call an AI brain. The factory will adapt much faster, but it will always have a human in the loop.
Imagine an AI brain like a queen bee in a hive. You have lots of worker bees that do their work—I’m talking about machines, robots, and humans in this environment. All of them need to be coordinated, and some of this will happen automatically and centrally. An AI brain will say, “I understand that the weather is changing, or the supply chain is changing, or the customer wants something different. I need to optimize the flow of these capabilities in my factory.”
Asutosh Padhi: Where and when will we start to see initial applications of physical AI in factories?
Cedrik Neike: With physical AI, automation automates itself. This means the robot doesn’t have to be preprogrammed. It knows the task and it will adapt to it, so I think that will push the limit of what we could automate from the current 30 to 40 percent to up to about 80 percent. Physical AI will make us much more flexible than we were in the past.
With physical AI, automation automates itself.
There’s a lot of money going into physical AI. We need one or two radical use cases to accelerate it. It will come, but it’s a question whether that will be in one year, five years, or ten years. Manufacturing is more conservative than most other industries, so it will probably take a bit longer. But when physical AI comes, it will be massive.
If you are trying to improve productivity, you have to make gains every year. Last year’s improvement doesn’t count for next year. Lean [manufacturing techniques] have tapered off, and we’re pushing the limits of what digital can improve. AI is filling some gaps. I see it bringing many productivity advantages now, but they’re nowhere near what we will see when a factory has an AI brain. For instance, we have a packing machine that can pack 9 to 10 percent more effectively because AI optimizes how much goes into each package. A human couldn’t do that. That also means we need less fuel for transportation. Overall, AI productivity improvements are about 2 to 4 percent today.
Software in the age of AI
Asutosh Padhi: There’s been a lot of discussion recently around a “SaaS-pocalypse”—basically saying that software as a service is dead and that the subscription and licensing model is no longer tenable. But you have doubled down on software. Talk to us about your views.
Cedrik Neike: I believe less in SaaS-pocalypse than in “SaaS-volution.” I think SaaS gives us a perfect environment in the industrial space to combine AI and make it available to more people.
A lot of our tools help design microchips correctly to the nanometer, so they have to be extremely exact. Some of our software builds turbines for planes. You want to make sure that it makes no mistakes; it can’t have any hallucinations. A lot of our software is either deterministic or serves as a record of truth. I’ll give you an example. To simulate a car crash, instead of running a car against a wall, you do a simulation on a computer. It takes a couple of weeks for a bunch of PhDs to do the analyses and calculations. With AI, you could run many simulations of a car crash before you do the end simulation. You can explore the design environment way more flexibly than in the past.
AI will give amazing engineering tools, which are available to us nerds, to a broader group of designers. It might be pharmaceutical designers, consumer goods designers, or car designers. That shrinks the development time and makes products even more interesting, and you produce better outcomes faster.
When creating a car, it often takes Western auto manufacturers between 50 and 56 months to move from an engineer’s ideas to the actual build. We’re working with Chinese OEMs to reduce their 18-month build process to 12 months. That would mean every Western car coming to the market will be three generations behind in technology than a Chinese model.
Asutosh Padhi: So you believe the software model—at least in the areas that Siemens focuses on—will continue to thrive?
Cedrik Neike: Software could expand if business models change. In the past, business models were on a per-user basis, and we’re changing this to per-agent. People used to say, “I’m using this software because I know the user interface [UI].” But UIs will disappear, and you will converse with the software. Therefore, we need to base software charging models on how many AI agents are interrogating it, not on the number of users. If you do that, software use will increase because it will not only be faster but more accessible.
Competing in a changing world
Asutosh Padhi: Siemens is globally competitive. What lessons can other European companies learn from it?
Cedrik Neike: I think we’ve been through too many crises to give lessons. But I’ll make an observation: There’s a big push from some countries to shut themselves off from the rest of the world. They call it resilience, which is important. Resilience keeps the lights on. If geopolitical disruptions happen and suddenly you don’t have access to critical products, resilience ensures that you can continue to exist. But while resilience keeps the lights on, competitiveness pays the bills. You have to keep your economy competitive. And the only way to do it is to be competitive on a worldwide basis. That means Europe should not shut itself off.
In our industry, the most competitive place at the moment is China. So we are moving heavily into China to be able to compete against the best.
Asutosh Padhi: There are different views on the extent to which AI will reduce or create jobs. Where do you stand on the spectrum?
Cedrik Neike: I’m an optimist. Of course, some jobs will disappear because of AI, or they will be massively transformed. But I think AI adoption will create new jobs, such as AI detective: If AI makes a mistake, how do you find it?
I always compare the introduction of AI to the time when robots came to the shop floor and manufacturing. People were very scared and said, “It’s going to take my job away.” But the reality is this: The more robots a country has, the greater the manufacturing footprint, the more competitive it is, the more manufacturing jobs it has. The jobs will be different, however, and the change will be dramatic. The factories that existed in the 1970s and 1980s have the same number of people they had in the past, but they now have thousands more product variants, greater output, and better quality.
Lessons on leadership
Asutosh Padhi: Let’s go back to young Cedrik and what he learned about leadership. What experiences have shaped how you lead today?
Cedrik Neike: There are three experiences that really formed me as a leader. The first one was right after university. I’d graduated first in my class and came out thinking, “I’m very intelligent.” I have a brother who has disabilities, and after graduation, I decided to spend time with him in the community where he was living. At night, I was building the IT system. During the day, I was in charge of three children, two with autism and one with muscular dystrophy. You can be as intelligent as anyone, but trying to connect with somebody who has autism put me right back in my place. I learned a lot about how to deal with humans. I realized that disabilities are everywhere, and people are just at different places on the spectrum.
The second formative experience was at Cisco, when I helped build the Jio network [for Reliance Industries]. It was a completely new network that had to be built very fast, and at a scale that had never been done before. For three years, we worked day and night to build one of the most advanced networks. There were times I thought, “I’m going to get fired, I’m not fast enough.” But we built it.
The third experience involves the past two years. They were difficult because we went through an amazing time of growth at Siemens Automation, then the German economy stopped growing in areas that were previously strong. I needed to learn how to connect with people and be resilient while simultaneously accelerating and decelerating. I restructured the automation team to reallocate resources to growth pockets. At the same time, we completed two of the biggest acquisitions we’ve ever done, and we moved heavily into China. When doing all of this at the same time, you are under tremendous pressure.
I had a mentor who was a former Chicago fireman, and he said, “In a time of crisis, three things are important to remember. First, when there’s a fire, make the decision as late as you can. Don’t send anyone into a fire if you don’t know where the people are.” He also noted that you have to believe that you’re the right person for the job, however you feel. Finally, he said, “Everybody’s going to look at you, so fake it ‘til you make it. Be the shining example.”
Asutosh Padhi: You’re a very senior leader dealing with complex issues. How do you keep yourself centered?
Cedrik Neike: I always describe the job I have as running a marathon—or even an ultramarathon—in sprints. You go into one meeting, then you have to talk politics, then you have to talk personal development. You change and switch all the time. I try to swim two kilometers every morning, not because of the physical aspect, but because of the rhythm, the breathing. It’s my Zen meditation.
Second, my family grounds me because, as great as I think I am, my family puts me right back into the box where I belong. It keeps me humble.
Third, at a certain stage in your career, you think about giving back. You start saying, “Who can I develop? Who are the next generation of leaders?” It’s not just about yourself but what you leave behind. The combination of those three things keeps me grounded.
