ABB Corporate Culture
– Winners Shaped by History

By : Jim Pinto,
San Diego, CA.

Already an automation leader, ABB made a series of bold acquisitions in the 1990's. The company got into serious trouble in 2002, 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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Check out, March 2006

Already an automation leader, ABB made a series of bold acquisitions in the 1990's. In mid-2002, the company was in serious trouble. However, 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.

I 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 grew rapidly through acquisitions of several well-known companies, some not related to industrial automation. 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 Blahs

Then 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 website: "The ABB Blahs" (web link below).

Clearly, the restructuring that led to the ABB turnaround was not without pain. ABB was historically a decentralized, entrepreneurial company with lots of local 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 Success

Within a month, ABB streamlined its structure to two 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 five 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. Even the troubling asbestos issue was headed toward resolution.

Many 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 its target markets. And the company 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.

Emergence of a new winner

By mid-2004 ABB succeeded in reversing most of its problems. By the end of 2005, the two core divisions posted 14 straight quarters of top-line and earnings growth and the group reported 2005 net income of about $2.1B. Debt and operating ratios returned to respectable levels, and once-skeptical market analysts are positive. ABB shares have grown ten-fold from their lows in late 2002.

Today, ABB is a $22B 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. Swiss manager Juergen Dormann handed the CEO reins to Fred Kindle at the beginning of 2005. Underscoring ABB’s global culture, the five-person executive team spans five different nationalities that have collectively lived and worked in 14 countries.

Dinesh Paliwal, a 20+ years ABB veteran is a member of the ABB corporate executive committee, President, Global Markets and Technology and Chairman & CEO, ABB North America. Dinesh explains the ABB corporate culture change: "We decided quickly 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 have convened cross-functional teams in a dozen locations across four continents. Every player leaves the table prepared to live with the decisions."

Automation Technologies

Three years ago, ABB automation activities spanned 3 corporate divisions and 11 global business areas. Today, just one division and three 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.

Automation Technologies is now ABB's largest business, with 50,000 employees, $12.2B in revenues for 2005 and an installed base of more than $100B worldwide.

North American Focus

ABB's roots in North America come from many acquired companies including industry leaders such as AccuRay, Bailey, Fischer & Porter, Taylor and Combustion Engineering. 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.

While 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 cannot make money in North America, but Dinesh Paliwal is defying that myth. He explains how they are 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 (12% growth in 2005) 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.

Automation Business Strategy

Internally, ABB stresses four key "levers" to drive automation business strategy:
  • Operational Excellence: 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.
  • Core Competencies: Learning from past failures, ABB no longer aspires to be all things to all customers. The battle for pure market share is less important now than focus on proven competencies. Application centers-of-excellence have been consolidated to key locations. Some 60% of automation revenues now come through qualified partners such as Systems Integrators, Distributors and OEMs.
  • Strategic Marketing: ABB trumpets its comeback story by aggressively showcasing its wins. Brand advertising has been stepped up in media such as Business Week, Fortune, and Harvard Business Review, plus key cable news channels and major airports worldwide. Expenditures for conventional trade shows have been scaled back in favor of captive events such as the "ABB Automation World" Conference in April 2005, when more than 1200 customers and the press converged in Houston for 3 days of technical sessions, exhibits and relationship building.
  • People Power: ABB executives and managers praise employees who persevered when times were tough. There are rewards, recognition and development programs at every level – Dinesh Paliwal has personally nominated dozens of fellow professionals. There are incentive bonuses for most managers, which include a linkage to timely completion of employee performance appraisals.
Throughout 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.

Strong 2005 performance

ABB has moved successfully into profitable organic growth. Significant increases in orders and revenues, plus operational improvements contributed to a strong showing for the year 2005, just completed. Here is a summary of 2005 results for the two primary divisions:

Power Technologies Automation Technologies

$ Billion Growth $ Billion Growth
Bookings 10.7B 15% 12.7B 12%
Shipments 9.8B 13% 12.2B 11%
Profit (EBIT) 0.8B/8.1% 30% 1.3B/10.8% 28%

Net income for the ABB Group reached $735M (compared to $35M loss in 2004) and cash flow from operations topped $1B for the full year. Net debt was cut to about $500M at Dec. 31, 2005, from over $1B at the end of 2004. Unfunded pension liabilities were also reduced by about $600M to $839M. Overall, this is very creditable performance by an excellent and well-coordinated management team.

Good news too, on the lingering Asbestos problems: At the end of February 2006, a U.S. federal judge approved a $1.43-billion deal that settles long-running litigation against ABB. This related to claims about asbestos-lined boilers, which were produced in the 1970s by Combustion Engineering, the U.S. subsidiary acquired in 1990. The settlement puts the matter squarely in the past and means that ABB can now concentrate on developing its core power and automation technologies businesses.

There's an old saying, "When the going gets tough, the tough get going." The ABB culture of diversity, perseverance and teamwork has achieved one of the automation industry's most dramatic turnarounds.

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Copyright 2003 : Jim Pinto, San Diego, CA, USA