What Is Abb’s Context and Environment?

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   1, What is ABB’s context and environment? 

    ABB is the company resulting from the merger of two giants in European electrical equipment industry, AB of Sweden and BBC of Switzerland. It is possible to define ABB as a multinational company, given the fact that it comprises 850 separated legal entities operating in 140 countries, at the moment of the merge. The sectors in which ABB operate involve power generation, transmission and distribution and the provision of process automation system, robotics, high speed locomotives and environmental and pollution control equipment. These sectors are extremely innovative and require a substantial level of technology. The new business structure given to the society defines 40 business area (BA) that are grouped into business segment on one hand, in which the managers of the company focus on a single product development, and on the other hand, integrated on a national basis. In order to understand in which context ABB operate it is useful to conduct the SWOT Analysis. In this case the positive attributions, tangible and intangible, internal to the company are:

-The high level of capital and technology owned by ABB because of the merger

-A large existing customers around the world

- The presence of technical expertise within the company

-A sophisticated management control

-Marketable securities

    Since the two companies involved in the merger have been the largest two in the electrical equipment market, only the fact that they merged give to the resulting company a competitive advantage due to the decline in competition. As far as weaknesses of the company are concerned Barnevik (ABB’s president and CEO) decide to initiate all the needed changes in order to increase sales. He also introduce cost saving measurement such as component outsourcing, overhead cuts and inventory reduction. The opportunities given by the market can be exploited only if the company have a strong local presence, because 95% of all electrical contracts in EU have been won by national companies. Potential threats can derive from industrial reorganization of the main competitors that look at ABB as an imminent menace over their market shares.

1.  ⁠⁠⁠⁠⁠What is ABB’s context and environment?    

    As far as the ABB’s strategy is concerned it consists in the commitment to optimize the business globally and maximize performance in every country. These two objectives have been introduced by Barnevik. In its visions of the business optimizing it globally allow the company to reach high level of specialization in the production of component and permit to obtain economies of scale. It allows the company also to rotate managers and technologists around the world for a better problem solving system. The second goal, “stay local”, permit to have deep local roots that enable ABB to keep close to the customer’s needs and also permit to recruit the best local talents from the university and make able the company to work with local government to increase the export.

    Decentralization through the creation of separate legal entities allow to create real balance sheet for each entity. Thus, it is possible to evaluate the performance of the management through cash flows and dividends that they effectively achieved. Further, because 95% of all past electrical generation contracts in EU’s countries have been won by strong national companies, ABB start a massive strategy of expansion, following Barnevik’s conviction that new orders would be awarded only by companies that have a strong local presence. ABB acquire or enter into Joint ventures with over 40 companies throughout Europe. The only way to structure a complex global organization is, as Barnevik say, to make it as simple as possible, so he thinks that company’s managers have to have well-defined sets of responsibilities, clear accountability and maximum degree of freedom to executive. Following Barnevik, the only structure that allow to reach both decentralization and individual accountability is the matrical one.

1. Is the organizational structure chosen by Barnevick appropriate? Why or why not?  

     Regarding the conditions and environments ABB was facing after merger, the matrix systems is the suitable structure the company to implement. The company’s intention was to solve the three dilemmas which were being global and local at the same time, being big and small, and being decentralized with centralized control to manage 1300 separating company in 140 different countries. In the line, there are 5 main points proposed by ABB to find the suitable for the company structure including global business optimization, specialization on production, sharing expertise, talent recruitment and build product in customer's country. These key points is matched with the matrix structure rather than functional, product division, or geographical structure. The table shows the relation between 5 target points and hierarchy company structure to find the most suitable structure:

Table 1

(Relation between ABB’s Goals towards possible company structure)

Based on the table shows, it seems that Matrix structure is the most suitable for the company to adopt. However, in this case matrix structure still have several disadvantages caused by its complexity:

a.         Confusion to the accountability among employees/managers