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The case highlights the dangers of:
A central power culture in strategic determination.
The importance of organisational structure and its development to build effective communication.
The need to build a global presence around a narrower product / service focus.
The need to focus on and build a more diverse customer base and how well-meaning strategic vision.
How development can be affected by environmental change.
Firstly, to succeed, Isenberg (2008) suggests that global entrepreneurs must cultivate four competencies: They must clearly articulate their reasons for going global, learn to build alliances with more powerful partners, excel at international supply chain management, and create a multinational culture within their organization. Entrepreneurs shouldn't fear the fact that the world isn't flat. Being global may not be a pursuit for the fainthearted, but even start-ups can thrive by using distance to gain competitive advantage.
Barnevik crafted a unique decentralized management structure known as the matrix structure when the company was initially formed. The company was run by an executive committee with the organization below divided by business areas; company and profit centers, and country organizations. The aim was to reap the advantages of being a large organization while also having the advantages of smallness. Each of the company's subsidiaries were linked to their local customers and labor forces. In essence, each company was acting as its own company and appealing to the needs of its local customers, workforce and culture to:
Identify and analyse the total needs of the customer and the market in which they operated.
Improve communication within the company such that the company could respond quickly to customer.
Increase and improve company responsiveness to customer requirements.
Improve product and service quality.
Decrease operating cycle times.
Assess and evaluate the company in terms of outcomes as seen from the viewpoint of the customer.
1988 to 2004 was ABB's period of expansion, acquiring over 150 companies worldwide. Certain U.S. investments such as Westinghouse, however, were not immediately successful for ABB, and the company, over a few years, had to reorganize the acquired businesses, divesting $700 million in assets and trimming their payroll from 40,000 to 25,000.
In 1993, after the establishment of the European Union and the North American Free Trade Agreement, ABB re-thought its organisation. Such expansion could create problems with the simple original matrix structure. Barnevik reasoned that the world was becoming more regionalised and needed to have strong representation and sound structural systems in place that catered for this increased geographical spread and operational complexity. This also meant that matrix structures of such size and reach can cause control and communication problems. To counter these problems, the three regional managers became full executive committee members, underlining their importance in coordinating country organisations in Europe, Americas and Asia. The business segment dimension was reorganised into four main segments of power generation, power transmission and distribution, industrial and building systems, and rail transportation.
ABB in August 1998 announced that it would reorganise into what appeared to resemble a multidivisional organisation. Dissolving its regional management layer, ABB established seven business segments which in turn included a total of 33 business areas. The business segments were to become the company's dominant dimension in a deliberate effort by Gran Lindahl, the CEO who took over from Percy Barnevik in 1997, to strengthen ABB's product orientation.
The high degree of decentralisation and the fact that small ABB units all carried profit-responsibility often led to strong rivalry between profit centres and business segments.
The head office often lost sight of the global business dimension as a result of the introduction of the regions. This in turn often led to conflicting views between the regional and the head offices.
Thirdly, the small number of business segments combined very different businesses in one division which had little to do with each other.
Thus, Dormann, unhappy about the pace of restructuring, took over as chief executive in 2002. Within weeks he streamlined ABB's divisional structure, cutting its five divisions down to two core businesses: power technologies and automation, which are driven by the four levers of strategic marketing, people power, core competencies and operational excellence.
Bartlett and Ghoshal (1990) suggested that the main drawback with 'matrix management' was not so much the need for companies to take into account different product and geographical dimensions as the fact that 'organisational development has not kept pace (with strategic thinking), and managerial attitudes lag even further behind'. The challenge, they argued, was not to focus on creating the ideal structures, but rather on 'developing the abilities, behaviour, and performance of individual managers'. ABB, it has been implied by others, got this balance right and moved beyond the multidivisional organisation to become what Kevin Barham and Claudia Heimer called a 'dancing giant'.
Today ABB operates in over 100 countries and is one of the world's largest engineering and conglomerate companies. Having restructured five times since Barnevik's original decentralized model, it now operates six primary divisions: Power Systems, Low Voltage Products, Process Automation, Discrete Automation and Power products. The current CEO Joe Hogan will need to ensure that ABB has flexibility to respond quickly to changing market conditions for future success.