Research Paper (undergraduate), 2004
20 Pages, Grade: A-
Value Chain Analysis
Other ways of looking at EPG
The Organizational Structure
SWOT Turnaround Framework
Risk Analysis/PEST Model
ABB´s current situation
Is ABB’s worldwide reputation justified?
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.
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)
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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?
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)
illustration not visible in this excerpt
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.
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