Case of ABB: Strategic Rise, Decline, and Renewal

Carina Gruber(S124586@student.hb.se)
Yin Wang(S125066@student.hb.se)
Silvia Abendaño Delgado(S124778@student.hb.se )
Introduction
In this paper, we research the five solutions to the case of ABB: strategic rise, decline, and renewal. We conduct our solutions by analysis of the kinds of CEOs’ strategies and structures from 1988 to 2008. We completed our solutions by identifying the ideas and factors, which cued key areas to go awry and affect the performance of the business; discussing the key strategic initiatives implemented by the various CEOs appointed; analysis of the pros and cons of matrix structures and compare and contrast with the structures; assessing ABB’s current corporate culture; commenting on some strategic options. Our solutions were based on the book called International Management Managing Across Border and Cultures.

1. Identify Percy Barnevik´s ideals and discuss the factors which caused key areas to go awry and effect the performance of the business.

Percy Barnevik´s management had a goal, the goal was to build a company that could lead business in each of the major areas of the world, for this he was focused on the next seven points:

* The development of a group-wide umbrella culture: ABB established a common set of values, policies and operational guidelines. * The development of core technologies and core competencies: being a technology leader and market share leader. * The development and use of multinational teams: Barnevik believed, that the use of such teams throughout the company gave a deeper insight into global and local business problems. * Application to the development of effective global managers: competence was the key to selection, he believed that global managers were made, not born. * Bulding a multi-domestic or federal organisation along a global-locan continuum: some companies would be super local, and some would be super global. * The development of effective communication, understanding and patience. * The development of a customer focus programme: main focus was to permanently change the company´s value system and orient every employee towards the customer.

Some of the factors, which caused key areas to go awry was in the period of expansion because this could lead to problems in the matrix structure, for two factors: * The world was becoming more regionalised, and was formed the “Triad economies”, therefore ABB needed to have strong representation in each of these three regions, and needed structural systems. * The matrix structures of such size and reach can cause control communication problems. The dual reporting (nature of matrix structures) has always created friction between executives, there was always a conflict of interest between them. *
For this Barnevik carried out a major restructuring in 1993.
According to the consolidated financial performance, we can observe the large increase from 1993 to 1994, mainly in the net profit from $0.07 bn to $0.76 bn, and the EBIT/ revenues ratio from 4.8% to 8.8%.

2. Key strategic initiatives implemented by the various CEOs appointed after Barnevik´s tenure to take the company out of the “crumbling mess”.
Barnevik relinquished to became Chairman in 1997, after Barnevik´s tenure the following were: Göran Lindahl (1997-2000), Jörgen Centerman (2001-2002), Jürgen Dormann (2002-2004), Fred Kindle (2004-2008), and Joseph Hogan (2008 to present).

Göran Lindahl as CEO carried out two big restructuring: Firstly he planned to move thousands of manufacturing jobs from Europe and USA to Asia. The another major restructuring was carried out in which the geographic regional reporting structure was reduced in favour of a realignment of business activities on global lines.
Finally Lindahl´s strategic originated important financial problems.

Jörgen Centerman as CEO was manly concerned with a major restructuring, new aquisitions and issues relating to reducing cost and repairing the balance sheet. Whit Centerman, the company was near to the bankruptcy.

Jürgen Dorman as CEO began a strategy that gradually returned the focus of ABB to its two core strenghts of power and automation Technologies. Its goals were to increase the competitiveness of ABB´s core business, reduce overhead cost and streamline operations.

Fred Kindle as CEO would be able to focus on competing on an even keel with Siemens, GE and Alstom in the daily battle for new business. He slimmed down Sulzer further to concentrate on four disparate core divisions.

Joseph Hogan as CEO will lead to accelerated growth for ABB in Asian markets.

In our opinion, after Barnevik, the best CEO is Fred Kindle, because in spite of his experience was limited at the begining, under Kindle ABB´s financial situation improved considerably from four years of losses, the company achieved a double-figure EBIT/sales margin which it never previously achieved and net cash from operations was higher than any other time in its history.

3. Percy Barnevik laid great store in the use of a matrix structure. Discuss the pros and cons of matrix structures and compare and contrast with those of so-called product/market structures and divisional structures. What particular structure has ABB now developed and why did it take five major restructurings from October 1997 to January 2006?
The Pros Of Matrix Structures
The matrix structure is a hybrid organization of overlapping responsibilities. The structure is developed to combine geography support for both global integration and local responsiveness; also it can be used to take advantage of personnel skills and experience shared across both functional and divisional structures. In the matrix structure, the lines of responsibility are drawn both vertically and horizontally as illustrated in Exhibit 1. ( Deresky’s text,2011)
Exhibit 1 Matrix Geographic Structure

The Cons Of Matrix Structures
This method of management and organization maximizes the focus of skills and experience in the company also brings confusion, communication problems and conflict over having more than one boss to whom to report and stress over prioritizing time among overlapping and conflicting responsibilities. Employees maybe run into communication problems leading to conflict over reporting to different superiors because of the superposing responsibilities. Meanwhile, the employees may emphasize the prioritizing time due to the conflicting responsibilities. So this kind of method may result in political struggle and loss of market occupancy.

The Matrix Structure And Product/Market Divisional Structures
Exhibit 2 Global Product (divisional) Structure

Relatively, Global product (divisional) structure is a selective structure based on product lines. The company with this structure use diversifying technology to supply different product lines and services. With this kind of distribution, single product lines will be displayed by separate divisions. A single general manager who have the responsibility for their own production and sales functions. Every division is called ““a Strategic Business Unit” (SBU) with its own functional departments and accounting systems.

The advantages of the Global product (divisional) structure refer to concentration and innovation of the company. This structure allows for more responsiveness to new opportunities, as well as facilitating diversification and rapid growth. But now and then, it not only spends scale economies and functional specializations to support diversification and growth, but also make many difficulties in coordination of the broad distributed operations. MNCs are a solution to the difficulties which uses the global geographic (area) structure.

ABBs Current Structure and the Major Restructurings
We consider that the current structure has now ABB developed is Division expansion with a Global Customer Group (GCG) focus.
Exhibit 3 Structure Developments

This structure is under Kindle and there are five divisions in it: * Power Products * Power Systems * Automation Products * Process Automation * Robotics * There are also several subdivisions under each division.

We deem there are different kinds of aims and destinations according to different CEOs. Barnevik considered that expansion could cause problems for the matrix structure. He regarded the matrix structure as something designed to achieve economic party with the United Stated of America due to more and more European countries become regionalized. It is necessary to run a entity in those areas, such as USA, NAFTA, and Asian, to support the operational issues. Meanwhile, this kind of structure would result in confusion, communication problems and conflict over having more than one boss to whom to report and stress over prioritizing time among overlapping and conflicting responsibilities.

In a word, a number of major restructurings were taken to achieve the current structure: From Barnevik’s Matrix Structure to Lindahl’s Global Products Group (GPG) divisions, to Centerman’s GCG divisions, to Dormann’s Global Power and Automation with GCG divisions, to Kindle’s Division Expansion with GCG structure.

4. Assess ABB’s current corporate culture. Do you think that it has changed since Percy Barnevik’s time?
Corporate culture is the population of common values, norms and attitudes which coins decisions, actions and the behavior of the members of an organization. It is also closely connected to the management style of the people in charge of leading positions. Due to the fact that there were a lot of changes concerning the CEO of the company, it can be said, that it also had a considerable impact on ABB’s corporate culture. Having a look only at the past 24 years, there were six different CEOs leading ABB.

There were also a variety of changes within the company structure, which changed the corporate culture to a certain extend. At first, ABB had a quite complex matrix structure, which the different CEOs tried to simplify over time to make communication within the single business areas and business units easier.

At first there was a so-called outline matrix structure with geographic regions on the one dimension, and the single business segments on the other one. Percy Barnevik made use of that decentralized matrix structure. Due to some major changes in expanding the company ABB, Barnevik realized that such expansion could create problems in the matrix structure, such as control and communication problems due to its size and the world becoming more regionalized. It was restructured along the two dimensions of the matrix organization: three geographic regions and three geographic regional heads. Under the leadership of Göran Lindahl as CEO, ABB had six business segments comprising Power Transmission, Power Distribution, Automation, Products/Contracting, Oil/Gas/Petrochemicals and Financial Services. The matrix structure was essentially run down when the regional dimension was discontinued. Dormann introducted Global Power and Automation divisions divided into Power Technologies, Automation Technologies and Non-Core Activities focusing on GCG (global customer group). Kindle improved that model further and implemented a division expansion.

Finally, the actions each CEO take, also play an important role when it comes to corporate culture. As the management style of each chief executive officer differed from the previous one, the perception of the company’s environment also changes.

Concluding it can be said, that there were some significant changes within the company, which could not happen without coining the company in a certain matter to a certain extend, as well as changing the corporate identity over time.

5. ABB’s current growth strategy is to seek small “bolt-on” acquisitions to existing product areas rather than via major acquisitions that could take the company into new areas (e.g. aerospace). Comment on these strategic options.

According to the case study about ABB (Asea Brown Boveri), the company is lead by its current CEO Joseph Hogan at the moment. His current strategy consists of so-called “bolt-on” acquisitions, which means that they are looking for expansions for their existing product areas.

Joseph Hogan is a member of GE’s Senior Executive Council and formerly CEO of GE. He commenced his appointment as CEO of ABB on 1st September 2008. As already mentioned in the case study, Joseph Hogan was able to develop a record of securing growth through these bolt-on acquisitions.

Having a look at the past of ABB and its development until now, it can be said, that there was a huge variety of restructuring measures to keep the company profitable – including changes of the matrix-structure and number of layers. Also the CEOs changed quite often and it was hard for ABB and its managers to keep the different departments connected to, and in permanent interchange with each other. Moving through ABB’s company history, it can be determined, that its variety of Business Areas (BAs) was reduced significantly. Nowadays, according to the sound strategic direction developed by Centerman, Dormann and Kindle, it puts its major focus on developing the company globally in power, automating technologies including robotics and focusing on customers.

As the past showed, it was a good idea to expand the variety of major acquisitions, but unfortunately that success didn’t last long and the company had to fight against new problems. Markets can change quickly and Joseph Hogan has to ensure that ABB has the flexibility to respond quickly to that. Due to his leadership, the company experienced revenue declines in all divisions except Process Automation. Even though, the first quarter of 2008 is being considered as one of the strongest ever quarters recorded by ABB.

Of course, on the one hand, the idea of acquiring major parts (e.g. aerospace) would make it possible for ABB to enter completely new areas. On the other hand though, Joseph Hogan should try to stabilize the company’s current position on the market. This idea is not totally excluded and – maybe – is likely to be realized in a couple of years. If ABB will be successful with major acquisitions, largely depends on its leadership. With Joseph Hogan as CEO at the moment, the company is likely to look towards a promising future.