MGMT 6300
Hawaii Pacific University
Spring 2004

ABB’S RELAYS BUSINESS: 

BUILDING AND MANAGING A GLOBAL MATRIX

ABB Analysis

Marion Weiler

Table of Content

Introduction  -   Page 3
Transnational Framework   -  Page 4
Global Localization  -   Page 5
Value Chain Analysis  -   Page 6
Other ways of looking at EPG  -   Page 8
Strategies  -   Page 9
The Organizational Structure  -   Page 10
SWOT Analysis  -   Page 12
SWOT Turnaround Framewor  -   Page 14
Risk Analysis/PEST Model  -   Page 15
ABB´s current situation  -   Page 17

Is ABB’s worldwide reputation justified?

Introduction

ABB Ltd. is a leader in power and automation technologies. ABB provides products and systems for industrial, commercial customers, and financial services using the most advanced technologies and applications. The ABB Group was formed in 1987 through the merger of the Swedish company Asea with the Swiss company Brown Bovery. Presently its core company is organized into 5 divisions and the following are the percentages of the 2002 gross revenues:

- Automation Technology (22%)
- Utilities (21%)
- Industries (19%)
- Power Technology (19%)
- Other (19%)

Percy Barnevik, who at that time was the CEO of Asea, became the CEO of this new established corporation. Back in 1996, the National Electrical Manufacturers Association (NEMA) recognized Barnevik as an “innovative inspirational leadership in the electro industry and his role as a chief architect of a global company that recognizes no national borders and vigilantly protects the spirit of entrepreneurship” (ABB, 1996). Through his new management style and through delegating responsibilities to its managers, ABB became a predominant player in the Industrial electrical equipment industry competing with companies such us: Emerson Electric, GE, ITT Industries and Nidec Co. with operation in around 100 countries and employing about 115,000 people.

Transnational Framework

In order to determine ABB’s overall position in the multinational arena we must address the main characteristics that describe this organization. In this case, we need to identify the overall position and also the strategy that Asea and Brown Boveri played since they merged in 1987. When Percy Barnevik stepped up as the ABB’s CEO, his main purpose was to create an organization that could obtain at the same time the greatest level of forces of integration and also the highest level of national responsiveness. Barnevik’s new management style predominated in this early stage and was fundamental to develop ABB, in a four-year period, into a “$29 billion company with over 200.000 employees worldwide” (Bartlett, Birkinshaw & Ghoshal, 2003). Ten key people selected by Barnevik were responsible for implementing Barnevik’s matrix structure that consisted of “an organization built on approximately 60 global business areas (BAs) with the national market focus provided by 1,300 local companies grouped under the umbrella of several country-based holding companies” (Bartlett et al., 2003). ABB clearly represents the optimal distinctiveness of a transnational company. Here are some of the descriptions that best identify a transnational company:

• Seeks efficiency to achieve global competitiveness
• Acknowledges local responsiveness ----> National Responsiveness: the company
  is a global company, however, it responds to the individual market of the country.
• Innovates a process of international learning “geocentric/world” Worldwide
  innovation and learning. The company would choose the best possible person for
  a specific position regardless of the country of origin.
• Views the global business environment (Global efficiency)
• Develops, innovates and systematically adopts globally. In that sense the
  company is flexible, ABB is able to adapt to the local market where it operates.

[....]   Abb. 1: The Transnational Framework (Bartlett, 2003)

Global Localization

One of Barnevik’s requirements was to make sure that ABB was able “to manage three contradictions – to be global and local, big and small, radically decentralized with central control” (Bartlett et al., 2003) to support his management strategy. Back in Cannes in 1988, he presented the “policy bible” to the top management people of the organization. He established certain rules that should be followed by all members in the organization to carry out his management style. Even though ABB was a global company, each time ABB penetrated a different market, the local company managers would be responsible of the overall management of each center.

The fact that ABB’s top management level was given such levels of responsibility to the local managers and the fact that ABB’s top management team was delegating responsibilities to levels which were unthinkable at that time, allowed ABB not only to become an insider but also helped the organization to become a global player with a local touch. An internal reward system was created as a way to motivate and reward all the managers that were doing an outstanding job, and also as a way to identify the managers and locations that were performing poorly.

What represents the best practice?

Value Chain Analysis

It is relevant to regard the value chain as a thoroughgoing model on all three planning levels in the organization: Strategic, Managerial and operational level.

[....]  Abb2: Levels of Responsibility (Bartlett, 2003)

The ABB Management Chart shows that BA management was responsible for setting worldwide strategy and overall operating objectives, while local company managers controlled operations and were responsible for profits. Senior level business and regional managers reviewed the operations of the local units and ensured that objectives and priorities were consistent.

[....]  Abb. 3: Value Chain (Kotler, 1997)

The movement of the upward activities depends on factors like costs (e.g. labor, material, overhead and fixed costs), on labor resources (e.g. skills) as well as on political factors (e.g. incentives, export restrictions or economic stability). The movement of downward activities can be done in two ways. First, marketing is done in the home country, but sales are done overseas. Second, marketing is done in the home country as well as overseas while sales are done only overseas.

At ABB, there were overlaps in the primary value chain activities. The major overlap in R&D, manufacturing and marketing was resolved by giving Sweden primary responsibility for high-voltage products. A worldwide R&D head coordinated development activities in each company. To exploit synergies, particularly across the four core companies, functional councils for R&D were formed. The R&D council was challenged to develop a common platform for future product development across units. Problems evolved in the Comsys (common system) Business Area development project. A cross-country team was formed to solve it. Most local development had been curtailed to focus resources on Comsys. But the teams didn’t feel independent initiative anymore and holding up local development projects compromised the unit’s current performance.

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