ASEA BROWN BOVERI Assignment 2

Group 9 Abhishek Fogla Abhishek Pal Ankit Kohli

ASEA BROWN BOVERI

Overview: Asea Brown Boveri (ABB) was formed by the merger of two European electrical equipment giants: Asea AB (Sweden) and BBC Brown Boveri (Switzerland). Currently, two main issues are being faced by Percy Barnevik, ABB's newly appointed CEO and President.

The McKinsey 7S model involves seven interdependent factors which are categorized as either "hard" or "soft" elements:

Systems The new organization structure could not work without a uniform reporting system that could provide mangers with accurate and timely information on sales, orders, margins and other data vital to decision making. A computer supported reporting system named ABACUS provided on going information required for oversight and complex decision making. Shared Values ABB saw itself as a customer driven organization, placing emphasis on research and the development of leading edge technologies, maintaining R&D expenditure while operating in recession hit markets. Style ABB is one of the largest electrical engineering companies in the world. It operates as a decentralized federation of national companies (containing around 5,000 individual profit centers) and operates in some 140 countries worldwide. In 1995 the company split its operations into 5 business segments Power Generation, Power Transmission and Distribution, Industrial and Building Systems, Transportation, Financial Services which is comprised of 51 business areas. Staff ABB Asea Brown Boveri was the result of a merger between Asea AB of Sweden and BBC Brown Boveri Ltd. of Baden, Switzerland in 1988. The merged entity became the worlds leading supplier in the $17.8 billion electric power industry. At that time ABB controlled as much as a third of Europes business and more than 20 per cent of the world market. It successfully integrated 850 subsidiary companies and 150,000 employees operating in 140 countries. Skills ABBs skills lie not only in the combined competencies of Asea and BBC, but in the leveraging of these competencies to create new competitive advantages. Aseas contributions to the merger were profit performance, management systems, and marketing capabilities. BBCs were a large client base, 4 billion USD in liquidity, and technical expertise.

ABB was also able to develop new advantages from the merger. To fill new managerial positions (due to a new matrix structure) ABB had a large pool of highly skilled managers who were familiar with both companies, allowing ABB to select the best managers for the available positions. Also, both companies operated in the same industry, allowing ABB to reap short-term cost benefits associated with eliminating duplicated efforts and leveraging economies of scope. Size ABB does US$5.5 billion in annual sales. The business operates 132 factories in 34 countries. The power transmission business is made up of 750 different profit centres. Average profit centres generate only $7 million in sales with 45 people. What is the strategy followed by ABB? Strategy ABB is a global leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. With about 117,000 employees we are close to customers in around 100 countries. With our technology leadership, global presence, application knowledge and local expertise, we offer products, systems, solutions and services that allow our customers to improve their operations whether they need to increase the reliability of a power grid or raise productivity in a factory. Focusing on our core strengths in power and automation technologies, we strive for organic profitable growth. Our global manufacturing base ensures consistent top-quality products and systems made in ABB for customers around the world. Our customers have broad and easy access to ABBs offerings -whether they buy from us directly or through distributors, wholesalers, system integrators or other partners. Our people work together seamlessly to deliver benefits for our customers. Our way of doing business is values-based, leadership-driven and performance-or Being global and local, big and small, and radically decentralized with centralized reporting, is not necessarily impossible. These goals depend mainly on perceptions. From the top, ABB should be perceived as global (in the areas of strategy, reporting, and knowledge transfer). From the bottom, ABB subsidiaries should be seen as local (in local management responsibility and freedom) and decentralized (in financial reporting and accountability). To maximize global optimization while retaining a local feel, ABB adopted a matrix structure, based on regional company operations and business areas. Global optimization goals were the responsibility of each business area, while locationdependent goals were allocated to regional managers. These efforts are not sufficient to achieve ABBs goals. Outline the central issues used for controlling ABB? Issue 1: Successfully creating a new company comprised of two former rivals was a very challenging task. He addressed it by building a common platform, which enabled the formulation of common procedures, common reporting systems and constantly communicating with managers (identifying clearly defined goals and responsibilities for them).

Issue 2: The second and perhaps the more challenging issue was managing the performance of the new global giant. Barnevik had to ensure that after having put in the efforts in the integration process and the setting of new management principles and organizational structure, they functioned according to plan - the beginning of value creation.

Do you think the structure chosen by Barnevik was appropriate? Structure The Organization structure chosen for Asea Brown Boveri is the Matrix form of organization structure. This form of organization structure creates dual lines of authority and combines functional and product departmentalization.

Advantages provided by this model: The business of ABB was very complex. The matrix form of organization helps the company deal with internal and external complexity. Barnevick realized that geography is important but so is function, and so is customer grouping, product and technology. Hence, he went for a matrix organization which essentially encompasses all of these factors of complexity. The leadership at ABB believed more in decentralized form of organization and the matrix structure facilitated faster decentralized decisions. Improved global and regional products. This structure facilitates rapid response to changes in any two or more environments. Matrix structure provides speed and flexibility which results in efficient use of the company resources. Matrix management includes improved motivation among employees and managers. As a result decision making process within the group becomes more democratic and participatory which brings specialized knowledge and skills to the table thereby increasing the efficiency of the organization. Since the company based lot of significance to communication within organization, the matrix structure would work for them. It reflected the needs of global and regional customers well. It provided access to a diverse range of skills and perspectives. The matrix structure can deliver performance, provided people have the skills to make the matrix work. The ability to influence, build networks and get things done without traditional line authority. The ability to lead remote and virtual teams across distance, cultures, time zones and through technology.

The Trade-offs: The company gave up some of the organization structure clarity to achieve flexibility in the organization structure. Matrix type of structure is difficult to maintain as it has

complex reporting mechanism with high maintenance cost. The matrix organization structure itself, solves nothing it is how people work together in the matrix organization that makes it succeed or fail. Living with ambiguity and unclear multiple expectations. Managing multiple bosses which lead to increased stress. Leads to a lot of confusion and needs a lot of discretion on behalf of the employees while reporting to 2 separate authorities. This structure has the propensity to create power struggles between functional and product managers. The key requirements for the success of an organization structure are as follows: Communication: The organization structure should be designed to ensure that individuals and departments that need to coordinate their efforts have lines of communication that are built into the structure. E.g. ABB used the Abacus software for the financial analysis and accurate data reporting between the Company management, Regional management and Company management at the Business area level. Reporting Relationships: Reporting relationships must be clear so all members of the organization understand what their responsibilities are and know to whom they are accountable. These clear relationships make it easier for managers to supervise those in lower organization levels. Each employee benefits by knowing whom they can turn to for direction or help. In addition, managers are aware of who is outside the scope of their authority, so they do not overstep their bounds and interfere with other managers responsibilities. Right People in the Right Positions: Once the organization structure is in place, then the right people need to take responsibilities of the respective posts. Every person needs to play his role well to ensure smooth running of the organization. Effective Departmentalization and Work breakdown structure: The work breakdown structure and the departmentalization according to responsibilities should are done with diligence and future planning so as to minimize interdependence and conflicts. Ensuring greatest level of work satisfaction and optimal operational efficiency: The organizational structure should ensure job significance and also give a sense of autonomy empowerment to the employee. This creates a high level of internal job satisfaction and ensures high operational efficiency. Optimum ratios of supervisors to subordinates: This ratio needs to be maintained at the optimum level in order to avoid overhead of duplicity in monitoring and overstressed levels of monitoring. Conclusion It is very difficult to predict as to whether the organization has chosen the right structure or not since the effective implementation of the organization structure depends on the people. However, technically speaking, this is the most suitable organizational structure for the company given its complexity and globally spread out business.