The Organizing Logic of ABB
ABB Asea Brown Boveri is a global organization of staggering business diversity. Yet its organizing principles are stark in their simplicity. Along one dimension, the company is a distributed global network. Executives around the world make decisions on product strategy and performance without regard for national borders. Along a second dimension, it is a collection of traditionally organized national companies, each serving its home market as effectively as possible. ABB’s global matrix holds the two dimensions together.
At the top of the company sit CEO Percy Barnevik and 12 colleagues on the executive committee. The group, which meets every three weeks, is responsible for ABB’s global strategy and performance. The executive committee consists of Swedes, Swiss, Germans, and Americans. Several members of the executive committee are based outside Zurich, and their meetings are held around the world.
Reporting to the executive committee are leaders of the 50 or so business areas (BAs), located worldwide, into which the company’s products and services are divided. The BAs are grouped into 8 business segments, for which different members of the executive committee are responsible. For example, the “industry” segment, which sells components, systems, and software to automate industrial processes, has 5 BAs, including metallurgy, drives, and process engineering. The BA leaders report to Gerhard Schulmeyer, a German member of the executive committee who works out of Stamford, Connecticut.
Each BA has a leader responsible for optimizing the business on a global basis. The BA leader devises and champions a global strategy, holds factories around the world to cost and quality standards, allocates export markets to each factory, and shares expertise by rotating people across borders, creating mixed-nationality teams to solve problems, and building a culture of trust and communication. The BA leader for power transformers, who is responsible for 25 factories in 16 countries, is a Swede who works out of Mannheim, Germany. The BA leader for instrumentation is British. The BA leader for electric metering is an American based in North Carolina.
Alongside the BA structure sits a country structure. ABB’s operations in the developed world are organized as national enterprises with presidents, balance sheets, income statements, and career ladders. In Germany, for example, Asea Brown Boveri Aktiengesellschaft, ABB’s national company, employs 36,000 people and generates annual revenues of more than $4 billion. The managing director of ABB Germany, Eberhard von Koerber, plays a role comparable with that of a traditional German CEO. He reports to a supervisory board whose members include German bank representatives and trade union officials. His company produces financial statements comparable with those from any other German company and participates fully in the German apprenticeship program.
The BA structure meets the national structure at the level of ABB’s member companies. Percy Barnevik advocates strict decentralization. Wherever possible, ABB creates separate companies to do the work of the 50 business areas in different countries. For example, ABB does not merely sell industrial robots in Norway. Norway has an ABB robotics company charged with manufacturing robots, selling to and servicing domestic customers, and exporting to markets allocated by the BA leader.
There are 1,100 such local companies around the world. Their presidents report to two bosses—the BA leader, who is usually located outside the country, and the president of the national company of which the local company is a subsidiary. At this intersection, ABB’s “multidomestic” structure becomes a reality.
