Case Presentation

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Case Presentation

• Beyond the global matrix

brought to you by
Jens, Alberto, Lars, Shantanu, Jirka
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Theory Behind the Matrix

• Connected to the transnational MNC, the matrix is
  a way to organize when trying to achieve
• Local responsiveness, i.e. diversification, with
  learning as a key requirement
• Scale and scope efficiencies in production etc

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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The Matrix
Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings

• Basic philosophy Operating decisions pertaining
  to particular product should be shared by the
  product division and the various regions of the
  firm.
• Ex Product offering in Country 2 for the
  products produced by Product group 2, determined
  by consultation between Country Mn and Product
  Mn.
• Operational Mn report to both!

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The Matrix - Pros and Cons

• Combine efficient global integration and local
  response
• leads to scale, speed and lower unit cost
• Customized products
• More flexibility to changes in national needs.
• Better decisions (?)

• Complex
• the dual-hiererchy could lead to confusion and
  conflicts over responsibilities and decision
  making
• Time-consuming, clumsy and bureaucratic
• consensus takes time and could create an
  inflexible org.
• Hard to ascertain accountability
• Strong need for a common culture and informal
  Mn network.

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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The Company

• Engineering company
• Emanated from merger between Brown Boveri
  (Switzerland) and ASEA (Sweden) in 1988
• Key figures (1997)
• 215000 employees in more than 100
• countries
• Revenue 31.3 billion
• Products

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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BEFORE 1988 ASEA BBC

• ASEA CONTRIBUTIONS
  
• Superior Profit Performance
• Sophisticated Management Control
• Marketing Agresiveness

• BBC CONTRIBUTIONS
• Strong Order Book
• High Technichal Expertise

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
As a result, it is created ABB that becomes
worlds largest producer of engineering Products
Services, based on the principles of
decentralization of responsibilities and
individual accountability
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Original objective was a transnational matrix
structure

• Reconciling three dilemmas to ... create real
  organizational advantage
• Global and local
• Big and small
• Radically decentralized with centralized
  reporting and control
• ?GLOBAL INTEGRATION
• OPTIMISE A BUSINESS GLOBALLY Specialization in
  components, economies of scale, worldwide
  rotation of managers and technologists
• ?LOCAL RESPONSIVENESS
• TO HAVE DEEP LOCAL ROOTS EVERYWHERE YOU OPERATE
  product differentiation, local recruiting
  processes, local entrepreneurship, local contacts

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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THE STRUCTURE IN 1988
EXECUTIVE COMMITTEE
Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
COUNTRY ORG. (150)
BUSINESS AREAS (50)
COMPANIES (1300) AND DIVISIONAL PROFIT CENTERS
(5000)

• Total company 210.000 employees
• Company average 200 employees
• Profit center 50 employees

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Balancing regional and business area interests
Business area focus
Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
Strategic task Linking customer satisfaction with
core competences

• Efficiency and product focus
• Worldwide results and profitability
• Development of worldwide strategy
• RD and product development
• Worldwide market allocation and sourcing
• Price strategies and coordination
• Purchasing coordination
• Product and product allocation
• Transfer of know-how
• Acquisitions and divestments

Geographic focus

• -Customer-based regional strategies
• Regional results and profitability
• Day to day mgmt of profit centres
• HR development
• Local relationships / networking

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1988 - 1993 Organizational integration

• Drivers for change
• EXTERNAL Consolidation of industry.
  Establishment of the EU and NAFTA.
• INTERNAL Shift of focus from restructuring and
  integration to improve quality of products,
  services and customer orientation. Too
  complicated structure for employees to
  understand. Benefit from more permeable country
  borders
• Growing challenges
• Make business segments more dominant
• Increasing customer focus improving process
  orientation, customer relations and quality
  management
• The new Matrix structure
• Adding 3 regions to allow for lateral linkages
  within regional areas.
• Simplifying with 5 Business segments and 39 BAs
• Simplifying with centers of excellence concept
• Customer Orientation Program
• 1996 4 Business segments.
• 1996 Introduce tools to enhance country level
  networking Cross Company Teams Open spaces
  concept, joint data bases, personell transfers
  etc.

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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1993 - 1998 The Network Multidivisional

• Drivers for change
• EXTERNAL Deregulation and privatization of
  utilities. Customers developing into
  commercially-thinking market partners demanding
  complete turnkey plants with a full range of
  services.
• INTERNAL Still lack of understanding of the
  matrix and growing micropolitics (ineffective
  business segments, internal market mechanism,
  internal decision making), insufficient customer
  and sales orientation
• Growing challenges
• Cooperation with internal market mechanisms to
  solve paradox of competition and cooperation.
• Solving conflict and confusion with decision
  making
• Better definitions of large business segments
• Structural change into a network divisional
  matrix
• Dissolve regional layer and keeping the country
  dimension
• 7 Business segments become the dominant dimension
  ? PRODUCT ORIENTATION (product bias instead of
  country bias)
• ...however, it has not been a dramatic
  reorganization CONTINUITY AND CHANGE

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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ABB in 2003

• Drivers for change
• EXTERNAL Market saturation, Declining economic
  conditions
• INTERNAL Drop in market value of ABB. Top
  management turnover. Performance is declining.
  2001 was the first year in ABB history resulting
  in a loss.
• Growing challenges
• Product and segment orientation
• Develop total solutions
• Achieve critical mass in each business field
• Structural change
• More centralized the structure.
• Business segments dominant line of authority.
• 2001 Replacing business segments with 4 customer
  segments to avoid silos along product lines.
• Networking among segments

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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The ABB building process (an overview)
Change
Continuity

• Centralizing
• Customer segmentation

2003
Network Multidivisional (critical mass in
businesses, solution provider, financial services)

• Focus on simplification
• Service business and total solutions
• Product orientation instead of country bias

1998
Global matrix with regional dimensions (implementi
ng regions, customer focus)

• Increased customer focus
• Country level networking
• Centre of excellence / Lead country concept

1993
Establishing merged global matrix (Turnaround
mgmt, individual profit centres, internal
markets, local responsiveness)

• Matrix local entrepreneurship and strict
  managerial hierarchy
• Internal global monitoring (ABACUS) and internal
  markets
• Responsibilities, accountability, local freedom

1988
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Corporate Culture - Criteria

• Clarity
• Continuity
• Consistency
• Communication

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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Culture Related Issues

• Think Global, Act Local
• Customer Focus Program
• Matrix Structure Profit Center Philosophy
• Networking Accross Segment
• Performance Measurement

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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Cultural Problems

• Inability to understand the matrix
• Internal negotiation led to micro politics
• Strong autonomy of front line companies
• Lead country concept to led to micropolitics

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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Culture - Evaluation

• Clarity Failed to achieve
• Continuity Partly fulfilled
• Consistency Biggest weakness
• Communication Recent realization

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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Key Learnings

• A matrix is complex structure with many pitfalls
• locally structure as simple as possible
• globally complexity cannot be avoided
• Organizations evolve over time
• Adaption to and of the environment
• there is no ideal structure

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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Key Learnings (ctd.)

• Conflicts are inherent parts of a matrix and
  organizational changes
• Importance and influence of management control
  systems

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings
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Open Questions

• Learning possibilities served as main
  justification for diversification. Are there
  knowledge synergies?
• Is ABB too diversified? How big is beautiful?
• Possibility of / need for a uniform corporate
  culture within a very diversified organization?

Matrix Theory Introduction to ABB ABBs
Implementation Corporate Culture Key Learnings