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ABB: The dancing giant

Bookcover

by Kevin Barham and Claudia Heimer, Financial Times Management, 1999.

Abstract

How ABB became a major player in the global market place by being simultaneously global and local, big and small, radically decentralised with central reporting and control and a global matrix organisation. The book is based on interviews with Percy Barnevik and other senior managers.

(Reviewed by Kevin Barham in February 2000 )

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ABB, Asea Brown Boveri, the global power engineering company, is the world's favourite case study. The company's success, in one of the most fiercely competitive industries in the world, is all the more remarkable in that the company has been pioneering a new form of global organisation to meet the new challenges. Percy Barnevik has described the paradoxes that ABB has tried to resolve as the simultaneous attempt to be 'global and local, big and small, and radically decentralized with central reporting and control.' In essence, Barnevik and his senior colleagues at ABB have tried to resolve these contradictions by creating what we call a 'globally-connected corporation', a loose-tight network of processes and partners which can only be held together by highly committed people and strongly-held principles. This is an organisation which fosters sharing and collaboration between its operations in different parts of the world and which links closely with clients and suppliers, and with the countries where it is present. Its combination of 'multidomestic' local presence and co-ordination through a global matrix organisation is a unique response to the 'think global, act local' imperative.

Percy Barnevik, the charismatic Swedish manager who built ABB into a global force, and recently retired as CEO to become non-executive chairman, has been described as the world's most influential manager.' We asked Percy Barnevik himself why he thought ABB had become such a popular case study. His explanation is that ABB came along at just the moment when both organisations and business schools were looking for new ideas and models for an increasingly globalized world. Certainly the gurus fell in love with ABB very quickly. Tom Peters says that Percy Barnevik has concocted 'what may be the most novel industrial-firm structure since Alfred Sloan built "modern" GM in the 1920s'. Manfred Kets de Vries, who has described the challenge of managing ABB as 'making a giant dance', goes further and declares that ABB is a new organisational concept - a 'new prototype' - that is in line with the needs of the post-industrial age, and which can discharge us from Sloan's model of the 'modern organisation'. Sumantra Ghoshal and Christopher Bartlett describe ABB as an 'individualized corporation' made up of a portfolio of entrepreneurial, integration and renewal processes. While it may not be a model for every other company, they say, it is certainly an example of what most companies can achieve.

Percy Barnevik cuts to the heart of the challenge when he talks about what globalization means to ABB: 'Too many people think you can succeed in the long run just by exporting from America or Europe. But you need to establish yourself locally and become, for example, a Chinese, Indonesian or Indian citizen. You don't need to do this straight away but you need to start early because it takes a long time. It can take 10 years. Globalization is a long lasting competitive advantage. If we build a new gas turbine, in 18 months our competitors also have one. But building a global company is not so easy to copy.'

There are many lessons that one can learn from the way that ABB has built a global company. Let's just take three here - managing cross-border mergers; making a global matrix organisation work, and expanding into emerging economies.

Managing cross-border mergers

The 1987 merger between ASEA of Sweden and Brown Boveri of Switzerland was the largest cross border merger in history up to then. It dropped a 'bomb' in the world's electro-technical industry and, as a classic case of strategic disruption, eventually led to the wholesale restructuring of the industry. The merger negotiation itself was carried out in just six weeks, was driven through by Percy Barnevik, the CEO of ASEA, and was a masterpiece of surprise and speed which caught the new company's competitors completely off guard. In addition to the need for secrecy and speed in carrying out such mergers, the ABB merger also teaches the vital importance of competitive intelligence. What would you do if you woke up to find that your two closest competitors had merged overnight?

Making a global matrix organisation work

ABB has attracted attention from both business academics and managers alike for its global matrix organisation. This consists on the one hand of some 5000 small entrepreneurial, highly customer-oriented profit centres organized into local companies, and on the other, some 35 global business areas which co-ordinate global strategy and seek economies of scale in manufacturing and R&D. Local companies report to both a country manager and a global business area manager. Some firms that introduced matrix organisations back in the 1960s and 70s encountered problems with slow and costly decision-making processes and abandoned the matrix in favour of more conventional single-line reporting structures. ABB, however, defends its matrix as the only structure that can help it handle its complex business environment and from which it has derived such benefits as economies of scale and scope, synergies between high wage and low wage economies, access to cheap inputs, cross-fertilization of ideas between business units, and high performance through healthy competition between business units.

ABB's advocacy of the matrix structure has repopularized it and, with increasing globalization, more and more firms have turned to it as a form of organisation. As they struggle with the complexities and ambiguities of the matrix, however, they often wonder how ABB makes such an organisation work. How, for example, does it resolve the inevitable conflicts that can arise between the different priorities of country managers and global business area managers? The success of ABB's matrix has depended in part on the tireless promotion of shared values by the company's top leadership and its insistence lower level managers resolve conflicts themselves without pushing them up the corporate ladder. Part of the answer is also that the company has over time shifted influence from the country managers to the global dimension of the network. The latest company reorganisation in August 1998 effectively gives the final say in any conflict of priorities to the global business areas.

Expanding into emerging markets

ABB has built a unique global presence. It has led the way in expanding in and supporting the growth of the emerging economies in Eastern Europe and Asia. It is, for example, the largest Western investor in countries such as Poland and the Czech Republic and has established a major presence in India and China. While ABB's total employment numbers at around 215,000, people have remained relatively stable over the past decade but within this overall figure there has been an increasing shift of production and employment away from Europe and North America to Eastern Europe and Asia. Despite current economic uncertainties, ABB still believes that Asia - and eventually the emerging economies of Latin America and the Middle East and Africa - will be major markets in future. When ABB competes on large projects in Asia, it goes in as a team of high-tech system suppliers from Western Europe and the US, plus low-cost equipment suppliers from Poland, Romania, Thailand or China.

Percy Barnevik says that 'The key difference in future will be the pace of change. Things have changed in the world before, but what is fascinating now is that today's changes are happening so fast. By the year 2010, the biggest home markets for ABB will include China and India, right up there with Germany and the US. Russia, Indonesia and Brazil will also work their way up to the top rankings. These changes will happen so quickly and will be of such a large scale that they will dwarf the developments in Western Europe on which we focus so much of our attention today.'

The book, based on in-depth interviews with ABB managers, including Percy Barnevik and new CEO G?ran Lindahl, looks in detail at all these issues and at other challenges of managing a globally-connected corporation. It also describes ABB's approach to management development whereby ABB has given much attention to developing global leaders for the future. In particular, it believes in the importance of giving young managers international assignments to give them a broader perspective and an understanding of working with different cultures. It describes this as 'screwing on a wide angle lens' - 'You suddenly get another view of the world and you are surprised at what you see.' For the company, sending out sales engineers and product specialist to support local businesses and encouraging a 'reverse flow' of bright young people from Asia, Latin America and other emerging economies to Europe and the USA is 'business development by people development'. The lesson from ABB is that you don't necessarily need lots of global managers - not everybody has to be global - but you do require a pool of cross-culturally capable people from which to draw your global managers. And you do need people who are able to work effectively in multinational teams. Substantial investment in global management development is therefore a fundamental requirement for any organisation that is going global.

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