ABB

PGP-1

Evolution of Organization structure at ABB

Organizational Behavior - II

Guide: Prof. Sushanta Kumar Mishra

Submitted by

SECTION A

GROUP 8Bhaskar Chaudhary

Kapil Dhaka

Madava Hegde

Narasimhulu Polisetty

Rahul Girish Kumar

Praveen Singh

Srinivasan D


Table of Contents

1. Company Profile..........................................................................................................................2

2. Milestones in Organizational Development................................................................................2

3. Building Global Matrix................................................................................................................3

3.1 Drivers for Matrix structure...........................................................................................3

3.2 Elements of Matrix structure.........................................................................................4

4. Moving Towards continental organization..................................................................................4

4.1 Drivers for Change........................................................................................................5

4.2 Elements of Matrix with regional dimension................................................................5

5. Problems with matrix structure of ABB......................................................................................5

6. Sector based organization (Product- Oriented)............................................................................6

6.1 Drivers of Change..........................................................................................................6

6.2 The Changes..................................................................................................................6

6.3 Organization Structure...................................................................................................7

7. Sector based organization (Customer- Oriented)........................................................................7

7.1 Drivers of Change..........................................................................................................7

7.2 Organization Structure...................................................................................................8

7.3 Impact of Restructure.................................................................................................10

7.4 Advantages of Restructure...........................................................................................10

8. Summary....................................................................................................................................11

9. References..................................................................................................................................12

PGP1 | Section A | Group 8 Page 1


1. Company Profile:ABB is a Swiss-Swedish multinational corporation headquartered in Zürich, Switzerland, operating mainly in the power and automation technology areas. ABB is formed in 1988 with the merger of ASEA and BBC, world two large electrical equipment manufacturers. ASEA contributed to superior current profit performance, sophisticated management controls and marketing aggressiveness while BBC contributed strong order book and technical expertise during the formation of ABB. Product mix of two companies were complementary to each other with minimum overlap in power transmission business. With this joint venture ASEAN Brown Boveri Ltd. (ABB) became world’s largest producer of engineering products and services.

2. Milestones in Organizational DevelopmentABB has passed through series of organizational structure changes. These changes can be

categorized into following eras.

Building the global matrix(1988-1993) Move towards a continental organization (1993-1998) Sector based organization ,1998 (product –oriented) Sector based organization, 2001 ( Customer –oriented)

Fig 1: Evolution of organization structure in ABB group



3. Building Global MatrixBoth ASEA and BBC had matrix organization prior to the merger; hence matrix

structure became the logical choice for new organization ABB. The matrix structure allowed ABB to ‘think global, act local’. Dealing with large public and private customers, ABB has to negotiate at a local level, strike compromises on issues such as local content, while being able to draw services from large global organization in the background.

ABB achieved decentralization by creating profit centres. A key element of ABB was to make Business area manager (BA) and country managers understand their complementary and different roles. BA managers were to the set the strategic framework, coordinate R & D and production, and monitor quality standards. The country managers were to actively supervise operating business and carry HR activities.

ABB head office had strength of 100 people who were managing the strategy of organization as a whole. This effective control was possible because of decentralization. It created 8 different R & D centres of excellence instead of centralized corporate laboratories. ABB developed new financial controlling system, called ABACUS, which helped in controlling decentralized units.

Fig 2: Global matrix formed by ABB based on country dimension

3.1 Drivers for Matrix structure:-

Slowing growth and performance rates are the main reason for merger and development of matrix structure for ABB. Performance measurement remained an important tool at ABB and has been guiding change ever since, exposing problems at the business segment and country level.



The consolidation in international power generation and transmission industry. As a result of this consolidation ABB did many acquisitions in this business segment and hence needed a structure which can absorb these acquired organizations and can be implemented easily.

ABB organized into business segments and regional focus. Product offering in country B for the products produced by Product group 1 is done through the coordination of country manager of country B and product manager of product group 1.

3.2 Elements of Matrix organization:-

ABB distributed its products and services into below business segments and country of operation.

1) Power Generation.2) Power Transmission3) Power Distribution.4) Industrial and Building Systems5) Financial Services6) Transport

4. Move towards continental organization In 1993, after the formation European union and North American free trade

agreement, ABB adjusted its organization structure by adding regional dimension(instead/ superseded country).

In 1993, the Group was organized on the one hand on a product-oriented basis into four corporate divisions with a total of some 50 business areas and on the other hand on an area-oriented basis into three geographic regions, instead of country oriented, with 1,300 legally independent companies and a total of some 5,000 autonomous local units.

The local units are set up as so-called profit centres with their own balance sheets and profit and loss accounting. The companies and profit centres are tailored to fit local conditions, whereas worldwide coordination is handled through the two matrix dimensions (regional and global dimension).The regional dimensions are primarily responsible for sales and optimum satisfaction of the needs of local customers, whereas the global dimensions are responsible for strategic orientation and distribution of products as well as research & development.



Fig 3: Global matrix formed by ABB based on Regional dimension

4.1 Drivers for Change:-

External forces like development of market partners pushed for improved coordination between different profit centres which can provide full range of service to customer.

Internal forces like lack of understanding of the matrix and growing micro politics (ineffective business segments, internal market mechanism, internal decision making), insufficient customer and sales orientation.

4.2 Elements of Matrix with regional dimension:-

In 1993, ABB reorganized its business segments into four segments and three regions. Electricity generation, Electricity transmission and distribution, Industry and building technology, Transport are the four business segments. America, Asia and Europe, Middle East, Africa are the three regions of ABB’s business. Business segments are split into 39 Business areas each of which were representing distinct products of ABB worldwide.

5. Problems with Matrix structure in ABB Post 1993, ABB organized its business into only 4 business segments. There was a

great amount if heterogeneity within each segment leading to highly ineffective horizontal differentiation. Achieving balance between differentiation and integration became challenge.

ABB used internal market mechanism through market price transfer pricing system among various profit centers. Cross segment margin calculation created conflict, since each segment tried to maximize its profit.



‘Competition and Cooperation’ – The principle used by ABB while creating segments went for a toss when segments started focusing on only internal market while ignoring opportunities in external market.

Individual managers found it extremely difficult to live up to the expectation of the matrix. The main drawback of the matrix structure was that problem was always a mix of regional and business segments. People started neglect this kind of problem by putting blame on the other party.

6. Sector based organization (Product – Oriented)In matrix structure the focus (unintended) was on regional/ country performance. ABB

tried to eliminate this by using sector based organization. Sectors are created based on product orientation. This structure aims at promoting growth in the areas where ABB technology advantages and unique capabilities.

6.1 Drivers of change:-

In regional matrix structure ABB experienced greater coordination with in a region when compared to the coordination between countries from different region. ABB tried to improve the coordination by eliminating region layer and changing its orientation from geographical to product.

Globalization needed greater coordination between regions/countries. Market scenario got changed. Same product was sold in many different geographical parts which emphasized on products of universal appeal compared to localization.

To provide highest priority to global aspects compared to national/ regional aspects. Profitability of group should receive highest priority compared to regional profits.

Simplifying the management structure.

6.2 Changes:-

Six business segments are created as dominant structure. Each executive member will take responsibility of one segment, with CEO having overall responsibility.

Removal of regional layer. As a result country level organizations will directly report to HQ. This improved the turnaround time for making decisions.

ABB had ensured continuity in organization structure. Group’s head office remained small and worked only towards strategic plans. Business area/ segments managers were taking care of worldwide product strategies from R & D, investment to market allocation and sourcing. Country manager was responsible for customer contacts, development, HR activities within the country.

This reorganization did not represent full departure from global matrix rather it was an effort to transform the matrix from geographical to a product bias, while maintaining full range of existing internal networking mechanisms. ABB maintained three core features of multidivisional organization, yet transformed each one of them.



1. Managerial Hierarchy : - ABB is based on strict managerial hierarchies. However ABB has supplemented these hierarchies by systematically decentralizing operating and country-specific responsibilities and by encouraging entrepreneurial behavior.

2. Divisional structure : - ABB had divisional structure, yet at country level it deliberately cut through the boundaries of division by combining operations in country holdings.

3. Internal Labor Market: - Internal vacancies are displayed on intranet and most of labors are sourced internally. This complemented the internal capital market and helped in achieving greater synchronization.

6.3 Organization structure:-

Fig 4: ABB organization structure: Sector based organization (product-oriented)

Fig 4. Shows the six business segments of ABB post 1998 reorganization. Each business segments had many business areas and this structure is also striped by horizontal country level organizations.

7. Sector based organization (Customer –oriented):7.1 Drivers of change:-

200 customers accounted for 30% of total sales. Out of these 200 customers, 180 are serviced by a single business segment of the ABB Group. This showed clearly that as far as large customers are concerned, ABB still had great potential to expand business relations; consequently, it was focusing more closely on achieving this goal.

The background for this approach is the 20-80 rule discovered by Centerman (whereby 20% of customers account for 80% of sales).

The company wanted to make it easier for customers to do business with ABB. Instead of 10 interlocutors, customers would only have to deal with one. The aim of the strategic reorientation was to enhance ABB‘s relations with customers, thereby boosting growth. ABB



pursued a concept that aimed at enhancing customers’ benefits by focusing on customers’ needs.7.2 Organization Structure:-

Fig 5: ABB organization structure: Sector based organization (customer-oriented)

The new organization of the ABB Group was consisting of nine areas, seven customer areas and two areas for optimum performance (Group Transformation and Group Processes). The customer areas were subdivided into four areas geared directly towards end users, two Channel Partner areas (product areas) as well as the Financial Services field.

7.2.1 End User Area

Fig 6: ABB organization structure: Customer Area: End User Area structureThis is a matrix structure with customer as focus point. The structure is vertically striped based on the services rendered to frequent customers of ABB. The organization is horizontally striped based on business areas. Main objective was to service industrial



customers quickly and easily with ABB products, solutions and services. Below diagrams shows details of each customer focus area.

Fig 7: ABB organization structure: Details of BAs in each customer areaGroup (Customer) areas are sub-divided into business areas and area functions. In general, area functions may be broken include Personnel, Communication, Business development, Marketing, Group Processes, E-Business, Technology.

Utilities customer area was responsible for electricity, gas and water utility companies. Process Industries was taking care of customers in the branches of Pulp, Paper, Printing, Mining, Metals, Cement, Petrochemicals, Refineries, Pharmaceuticals and Shipping. Manufacturing and consumer industries responsible for customers in the Automobile and Consumer Goods Industry and the infrastructure area (Telecommunications, Airports, Post, Distribution and Building Technology) and Oil, gas, Petrochemicals was responsible for delivery of products, systems and turnkey installations.

7.2.2 Product Area:



Fig 8: Structure of product Area in ABB post 2001Major tasks product matrix area as follows• Service external sales partners like wholesalers, sales companies and distributors directly.• Service industrial customers from the four end user areas.• Develop and make all generic products inside ABB.

Electrical technology products used to handle power generators, switching facilities, devices, cables and other products and technologies for high-voltage and medium-voltage applications while automation technology products handled Complete spectrum of automation and control products, robotics, measuring products, drive electronics, motors, switching facilities and accessories as well as other low-voltage products.

7.2.3 Financial Services Area: It offered a comprehensive range of financial services and support projects for all

ABB fields and for outside customers. Function they were responsible for are:• Insurance.• Structured Finance.• Development and management of private infrastructure projects.• Financial services for ABB companies.7.2.4 Group Process and Transformation Area:

Group Processes Area was responsible for implementing the infrastructure throughout the Group in areas like quality control, supply chain management, E-Business and information systems and to develop and introduce joint processes. Group Transformation area helped in coordination of introduction worldwide of the new customer-based organizational structure and Streamlining of the organizational structure on the basis of local and global targets set.

7.3 Impact of restructure:-

1. Formation of Business Area Units(BAU): The business areas, which function on a global basis, are broken down into several

business area units (BAUs). Each of these units operates in only a single country or region.The business area units are the most important operating unit in local markets and

bear full responsibility for their business, including profit and loss accounting and balance sheets. In this connection, they follow the strategic customer-based orientation.

2. Increased responsibility for divisional managers: The Group areas and business areas cannot deal with the everyday operating business

throughout the world. This task is entrusted to the local Division Managers, who act as an extension of the Group areas and business areas. Each Division Manager is responsible in the corresponding business area for profit and loss accounting and drawing up balance sheets for



each individual business area unit. In addition, Division Managers see to it that the individual business area units meet local performance goals. Division Managers report thereupon to the appropriate Business Area Managers. The responsibilities of country manager and group manager delegated to divisional manager and these were invested in one person to avoid political scenario in organization and to improve co-ordination.

7.4 Advantages of restructure:-

“ABB was transformed into learning Organization”: Change becomes the norm, in order to ensure that the group can adapt to constantly changing market conditions. Accordingly, ABB has established the two new Group Process areas, Group Transformation and Group Processes. These areas are designed to facilitate skills management, accompany restructuring measures and guide and oversee corporate processes (process controlling).

“ABB achieved customer based orientation”: ABB is engaged in a radical market-based and customer-based orientation. Tied to this is a far-reaching restructuring process. This approach is not new and has also been adopted by some of ABB‘s rivals. However, ABB has pursued this strategy the most energetically and thoroughly of all.

8. Summary:The organization evolution of ABB is picture in below figure. At every transformation ABB has ensured continuity by having very less staff ay HQ and decentralization of power by providing more authority to divisional/ country/business area manager.

Fig 9: Evolution of organization structure at ABB



References:- Case Presentation: ABB beyond Global Matrix by Jens, Alberto, Lars, Shantanu,

Jirka.

Analysis of Organizational reorientation of ABB group – International metal worker’s

foundation.

The Innovating Organization: Andrew M. Pettigrew, Evelyn M. Fenton.

http://www.abb.com/

http://en.wikipedia.org/wiki/ABB_Group

Organizational theory, design and change – Gareth Jones, Mary Mathew.


http://en.wikipedia.org/wiki/ABB_Group

http://www.abb.com/

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