The NEW ABB Corporate Culture
- Winners shaped by History
ABB was fueled by a series of bold acquisitions in the 1990's. But then, in mid-2002, a series of "hard knocks" took the company to the brink of failure. But quick, decisive action succeeded in reversing most of the problems. Read this review of the culture of a new, stronger and more focused ABB - one of the automation industry's most dramatic turnarounds.
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ABB Corporate Culture - Winners shaped by historyI think it was Peter Drucker who said, "When times are good everyone looks like a winner; but winners are only those who also win when times are tough." From this perspective, ABB is certainly a winner.
Formed by the 1988 merger between Asea of Sweden and Brown Boveri of Switzerland, ABB was fueled by a series of bold acquisitions in the 1990's. The company won several business honors - "Corporation of the Year" (R&D Magazine, 1993), and one of the "Most Admired Companies in the World" (Fortune Magazine, 1998). By the turn of the century, revenues exceeded $35 billion, employment topped 200,000 and share prices were rising steadily.
The ABB BlahsThen came a series of "hard knocks" that took ABB to the brink of failure. In mid-2002 the company reported a huge quarterly loss and market-cap plummeted by 25% overnight. Faced with mounting debt, an overly complex organization, and potentially debilitating asbestos claims (from acquired subsidiary Combustion Engineering), the ABB board took quick, decisive action. Chairman Juergen Dormann assumed the role of CEO in Sept. 2002 and launched a multi-year program to "right size" and re-focus. The story is chronicled on the JimPinto.com website: "The ABB Blahs".
Clearly, the restructuring that led to the ABB turnaround was not without pain. ABB was historically a decentralized, entrepreneurial company with lots of managers calling the shots for smaller units. In crafting the comeback strategy, some 2000 customers were surveyed in mid-2003. The responses showed that while users had deep respect for ABB technologies, they found the company too complex for efficient business dealings. The new management team took swift action.
Restructuring for SuccessWithin a month, ABB streamlined its structure to 2 core divisions - Power Technologies, and Automation Technologies - combining product manufacturing units in each business with end-market applications. The group executive committee was pruned to just 5 people, versus 10 C-Level posts, and within 18 months most of the non-core businesses were divested. Internal productivity improvement programs called "Step Change" were installed and hundreds of locally-driven initiatives removed $900 million in annual costs. Today, even the troubling asbestos issue is headed toward resolution.
Just 2 years ago, ABB automation activities spanned 3 corporate divisions and 11 global business areas. Today, just one division and 3 business-area managers direct the full portfolio of Automation Products, Process Automation, and Manufacturing Automation. A cross-functional team of about 15 people guides key decisions - bringing operational business heads, key country managers, and functional personnel together to reach consensus.
Focus on FundamentalsMany ABB insiders credit the company's focus on core technologies with retaining the support of customers through the most difficult times. ABB leads, or is the list of top-3 suppliers, in every one of it's target market, and works hard to maintain its edge.
Throughout the downturn, investments in R&D and project-related development held steady at about 5% of global revenues. The company has maintained research partnerships with institutions such as Stanford University, MIT, Carnegie Mellon, and Sweden's Royal Institute of Technology. ABB engineers and technicians contribute to more than 150 scientific publications annually, and average some 1,400 new patent applications every year.
ABB's public face to the automation markets stresses two key points: Productivity and energy efficiency. Squeezing measurable new performance from assets is a prerequisite; empty claims of "significant" have been replaced by real benefits for real customers, stated in numbers, percentages and dollars.
On the energy efficiency side, ABB's broad automation portfolio is well-suited to the era of $50 per barrel of oil: The company estimates that its variable-speed AC drives save energy equivalent to 10 average-sized power plants annually, while eliminating 60 million tons of carbon-dioxide emissions. On another front, ABB serves the marine market with modular, podded propulsion systems that cut fuel consumption for luxury cruise ships by up to 40 tons per week.
Emergence of a new winnerWithin 2 years, ABB has succeeded in reversing most of its problems. The two core divisions have posted 10 straight quarters of top-line and earnings growth and the group reported Q1 2005 net income of nearly $200M. Debt and operating ratios have returned to respectable levels, and once-skeptical market analysts are positive. ABB shares have grown six-fold from their lows in late 2002.
Today, ABB is a $20B company (versus $35B in the late 90's); employment has halved to about 100,000, and the core divisions are even considering acquisitions again to complement their portfolio. Juergen Dormann handed the CEO reins to Fred Kindle at the beginning of 2005. The executive management includes Dinesh Paliwal (Automation Technologies), Peter Smits (Power Technologies), Michel Demaré, (Chief Financial Officer) and Gary Steel (Human Resources). Underscoring ABB’s global culture, this five-person executive team spans 5 different nationalities who have collectively lived and work in 14 countries.
Dinesh Paliwal, a 20-year ABB veteran is a member of the ABB corporate executive committee. He heads the global Automation Technologies business and also group operations in North America, his dual role. He explains the ABB corporate culture change: "We decided early to abandon the ivory-tower approach of forcing decisions from corporate HQ. Our management meetings now take place in key operating locations. We come face to face with the people involved, experience their best practices, and give them a stake in the decision process. In two years, we've convened cross-functional teams in a dozen locations across 4 continents. Every player leaves the table prepared to live with the decisions."
Automation TechnologiesTwo years ago ABB Automation activities spanned 3 corporate divisions and 11 global business areas. Now just one division and 3 business-area managers direct the full portfolio of Automation Products, Process Automation, and Manufacturing Automation.
Automation Technologies is now ABB's largest business, with 50,000 employees, about $11B in revenues for 2004 and an installed base of some $100B worldwide, including about $20B in process automation systems.
North American FocusWhile still generating growth in Asia and Eastern Europe, ABB has strengthened its North American focus. Beginning in 2004, Dinesh Paliwal began managing ABB's automation activities across Canada, the U.S. and Mexico as one regional business.
Some industry observers suggest that European companies can't make money in North America, but Dinesh Paliwal is defying that myth. He explains how they're doing it: "We have historically under-managed in North America, letting our European roots dominate ABB thinking in this, the the world's largest market. Today, we’re in position to leverage our local management strength and get our fair share of new business across the region - while still serving the installed-base customers who stood by us during hard times."
ABB Automation orders in North America are now growing in the double-digits, buoyed by such high-profile achievements as an $80 million process automation and offshore-platform outfitting project for Mexican oil producer PEMEX, and a full robotics body shop for auto giant DaimlerChrysler. Stand-alone automation products such as motors, drives instrumentation, and low-voltage devices provide a steady stream of revenues, with performance-based services catering to the large installed base.
ABB's roots in North America come from many acquired companies including industry leaders such as AccuRay, Bailey, Fischer & Porter, and Taylor. Though these names are no longer used, ABB has strengthened its marketing focus on "heritage brands" and pledges lifecycle support through strong services offerings. Globally, automation services are showing double-digit growth, accounting for almost 25% of revenues today.
Automation Business StrategyInternally, ABB stresses 4 key "levers" to drive automation business strategy:
With some 140 manufacturing, software and applications centers worldwide, the ABB automation team is constantly tweaking logistics, design and marketing processes. This includes combining locations, and moving some manufacturing operations to fast-growing emerging markets. Some of the most profitable units blend global sourcing with core operations.
The NEW ABB CultureThroughout the ABB comeback from near-ruin to new respect, key managers have consistently taken a "pleased, but not satisfied" approach to celebrating success. CEO Fred Kindle likes to say that he makes key value decisions as though he owns the company. Dinesh Paliwal always encourages his people to "raise the bar" for their own future performance.
There's an old saying, "When the going gets tough, the tough get going." The ABB culture of diversity, perseverance and teamwork is achieving one of the automation industry's most dramatic turnarounds.
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