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

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Case Details:

Case Code : HROB032
Case Length : 15 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 is an organization that fosters sharing and collaboration between its operations in different parts of the world and links closely with clients, suppliers and the countries where it is present. Its combination of multi-domestic local presence and coordination by means of a global matrix organization is a unique response to the 'think global, act local' imperative."1

- Kevin Barham and Claudia Heimer on ABB2.


For the financial year 2001, Zurich, Switzerland-based Asea Brown Boveri Limited (ABB), one of the world's leading multinational companies, reported it's first-ever loss of $691 million in its 14-year post-merger record. For the financial year 2002, ABB reported a bigger loss of $787 million representing a 14% increase in losses compared to 2001 (Refer Exhibit I).

Moreover, there was also a fall in revenue by 23 % compared to 2001. For the nine month period ended September 2002, ABB reported a pre-tax profit margin of just 2.5%, which was significantly lower than that of its European competitors - France-based Schneider3 (8%), and the UK-based Invensys4 (10%).

Analysts felt that poor strategic decisions taken by the top management of ABB and HR-related problems arising due to frequent changes in the organization structure were some of the reasons for the poor financial performance of ABB. They also felt that the frequent changes in the leadership of ABB during the late 1990s and early 2000s made matters worse for the company.

From 1988 to 2002, ABB had four CEOs - Percy Barnevik (1988-96), Goran Lindahl (1997-2001), Jorgen Centermann (2001-02) and the current CEO Jurgen Dormann since September 2002. During this period, the organization structure of ABB was changed three times5. The matrix structure of Percy Barnevik (Barnevik) was restructured by Goran Lindahl (Lindahl). Jorgen Centerman (Centerman) changed ABB's organization structure once again, replacing it with his own customer-centric model, while Jurgen Dormann (Dormann) intended to consolidate ABB's core businesses, undertaking yet another revision in the organization structure of ABB.

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1] As quoted in the book, "ABB - The Dancing Giant: Creating the Globally Connected Corporation," written by Kevin Barham and Claudia Heimer.

2] ABB is a global electrical engineering group having business interests in electrical power technologies, automation technologies, and oil, gas and petrochemicals business.

3] Schneider is one of the world's leading manufacturers of equipments for electrical distribution, industrial control and automation. It has operations spread across 130 countries.

4] Headquartered at UK, Invensys is a global electronics and engineering company. The company has four divisions -- Production Management, Energy Management, Development (Rail Systems, Wind Power, and Power Components), and Industrial Components and Systems.

5] A detailed description of the organizational restructuring undertaken by Lindahl, Centerman and Dormann, and their implications for ABB, is covered in the ICMR case study, "Reorganizing ABB - From Matrix to Customer Centric Organization Structure (B)."


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