Reorganizing ABB - From Matrix to Consumer - Centric Organization Structure (B)


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Case Details:

Case Code : HROB033
Case Length : 13 Pages
Period : 1998 - 2002
Pub Date : 2003
Teaching Note :Not Available
Organization : ABB
Industry : Power, Transportation, Financial Services
Countries : Switzerland

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"This is an aggressive move aimed at greater speed and efficiency by further focusing and flattening the organization. This step is possible now thanks to our strong, decentralized presence in all local and global markets around the world."1

Goran Lindahl, former President and CEO, ABB, commenting on his new structure in 1998.

"We are responding to a silent revolution in the market that is completely changing the business landscape. Faced with increasing complexity and speed - much of it driven by the Internet - our customers want clarity and simplicity. Our new structure will make us easier to do business with and fully reflects our new vision of creating value and fuelling growth by helping our customers become more competitive."2

Jorgen Centerman, former CEO, ABB Group, 2001.

"The new structure will allow us to serve our customers better, enhance the external focus and more closely integrate our senior managers in local markets into our global management teams."3

Jurgen Dormann, CEO, ABB Group, 2002.

The Need to Restructure

The matrix organizational structure implemented by ABB served as a model for organizations with operations all over the world, to understand how to strike a balance between centralization and decentralization of authority between the center and local management.

However, notwithstanding its definite advantages, the matrix structure4 led to a few problems for ABB. Conflict of interests between the business area management and the regional management often resulted in delayed decision making, especially at the level of the Frontline Operating Companies. This in turn affected ABB's ability to respond quickly to the rapidly changing business environment.

Under these circumstances, analysts felt that there was a need to make ABB's organization structure more flexible and expedite the decision making process. Further, ABB's existing business segments needed to be realigned in such a manner that would enable them to serve the customers better.

On January 1, 1997, Goran Lindahl (Lindahl) succeeded Barnevik as the CEO of ABB. Barnevik was appointed Executive Chairman of the group. In 1997, ABB had four business segments - Power Generation, Power Transmission and Distribution, Industrial & Building Systems and Financial Services, which were further categorized into 36 business areas. At that time, ABB had 1000 operating companies spread across 100 countries under three broad geographical regions - Asia, America and Europe.

In the year 1997, ABB's financial performance deteriorated significantly. ABB's 1997 net profits dropped to US $572 million from US $1233 posted in 1996 (Refer Exhibit I).

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1] As quoted in the press release, "ABB Realigns Business Segments to Tap Market Trends; Names New Executives to Group Executive Committee" in the website, www.abb.com, dated August 12, 1998.

2] As quoted in the press release, "Early response to new market demands, aimed at fuelling growth" posted on www.abb.com, dated January 12, 2001.

3] As quoted in the press release, "ABB acts to lower cost base after week Q3" posted on www.abb.com, dated October 24, 2002.

4] A detailed description of ABB's matrix structure and its implications is covered in the ICMR case study, "Reorganizing ABB - From Matrix to Customer-Centric Organization Structure (A)."

 

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