ABB Strategy Analysis - Essay Example

ABB Case Study Question The Background ABB is a global leader in automation and power sector. The company has over one hundred thousand employees working in more than 110 countries. ABB was in an acquisition spree in the 1990s to add up to its strength. ABB went through a major strategy shift over the last two decades of its existence. In the 1990s, ABB was to consolidate its market space by going for major acquisitions. The company's sales that was at about USD 15 billion in 1988 and 1989, went to over USD 30 billion in the mid 1990s. But the acquisitions did not yield the results that were expected by the company and the company went into a spin. By 1997 and later in 1998, there was a steep fall in the sales turnover of the company. Figure 1: ABB Revenues in the last two decades. The turnover fell to USD 20 billion in 1999 and the company started its divestitures. Though a higher profit was indicated in the years 1999 and 2000, it was primarily out of these divestitures. Now under this background a new strategy was worked out for the company and the strategy has to be viewed under this perception. The Business Plan The major lessons learnt by the company during the years of crisis from 1998 to 2004 were the following: 1. Margin is more important than the growth momentum that the company displays. There was a substantial growth in the size of the company during this period but the profit margins fell drastically. 2. Solid foundation and operating profitability is more critical than the number of businesses the company does. The company moved into a number of new areas of business that were not really contributing to the profitability of the company. Based on these lessons learnt and on the overall turn around strategy needed, the following major directions were adopted by the company: 1. Concentrate on core businesses. Power and automation are the strengths of ABB and the same need to be the thrust areas. 2. A corporate culture for excellence and perfection in execution has to be stressed by the company. This would help the company capitalize on the man power and on the efficiency of operation of the company. 3. Growth is important but should not happen at the cost of the margins to the company. 4. The company should become a global company but close to the customer every where. 'At home everywhere' was made the slogan of the company. 5. Innovation will be core of the growth in all areas of business. More research establishments were positioned and more patents registered during the next five years. These formed the core of the strategy adopted by the company. The implementation of every one of these issues was brought about in both the structure of the organization and in the spirit of the organization. Question 2 Organization Structure Figure 2: Interlinked business structure The company would essentially work on a business structure that is interlinked and would produce the required result. The organization will have two major product groups; one, the process automation and two, the power systems. And derivatives of these products will also interlink the businesses and strengthen them as well. In either of the cases, this will help in customer sharing as well as in strengthening the technology in addition to cost sharing. 1. This strategy will help in strengthening the basic strategy of concentrating on the core business strengths of the company, namely, the automation and power sector. 2. This will also help in identifying the major revenue sources or customers who would provide better margins to the company's operations. 3. By providing this kind of product organization and support, the customer will get supporting products and services that complement one another. This will increase the overall margins of the company which is also the major thrust for their operation. 4. The company visualizes this to provide an effective cost leadership in the market place. By concentrating on specific product lines, the economies of scale could be leveraged to their advantage. This would help the company to even take up low cost opportunities in growing economies. 5. Account management is grouped and the overall group account management will help realize the synergy of operation across the groups. Figure 3: Organization Structure since 2006 The entire organization is divided in line with business areas and specific business lines. Every one of them is individually accountable and maintains their own P&L. Five divisions for every business line. One of the intermediate layers has been removed from the earlier structure to make it all the more simpler and easier to administer. Global Markets and Technology is more an extended arm of the CEO rather than a specific business area. Providing for regional sub structure and in administering cost control measures would be the essential activities of the GMT. Effectiveness of the Structure The effectiveness of the strategy invariably reflects in the performance of the company. Business line 1 2 3 Power Products ABB Siemens Areva Power Systems ABB Siemens Areva Automation Schneider Siemens ABB Figure 4: Market position of the competitors as of 2006. In the power products segment the company is already in the top position. And the structure is primarily aimed at building on the strengths of the company and its number 1 position, so that it could continue to hold it. The effectiveness of the structure is also reflected in the continuous revenue growth in every one of the sectors that the company is bidding in. The overall revenue of the company is consistently growing in every one of the lines of business adopted. This makes the company larger than any other operator and all operators put together. This has resulted in ABB getting the following strong points: 1. Huge installed based. More than 100 countries. Slogan: At home everywhere as helped furthering idea with the employees of the company. 2. Strong manufacturing base and culture building has resulted in gaining efficiency of the operation in every one of these bases. This is a result that would help the company drive its overall margins up and has strengthened the fundamentals of the company. 3. Strong manpower and skilled resources have been built by the company. 4. The brand built is strong and easily recognized across the globe. 5. The Group Account Management that was initiated in the current strategy has provided great returns to the company. This has provided strong relationship with business groups, resulting in early identification of project opportunities, trends, value-addition to specific groups and completes life cycle support for every product. 6. The stress on innovation has resulted in 18,000 active patents worldwide with more than 6000 researchers in 9 R&D labs across the world. The effectiveness of the structure is pretty clear. And from the organization structure it is clear that the overall company vision and strategy is also adopted by the company using this structure. Individual thrust of business lines and stresses on the core business are the major ideas that have been implemented using this structure. In addition, this structure also helps in innovation as well as in profit accountability. Question 3 The managers at different levels are expected to promote the overall targets and objectives of the company. The vision of the company: 'Power and Productivity for a better world'. Managers need to ensure that the overall strategy of the company is upheld. Value creation, higher margins, better efficiency in manufacturing and an overall improvement in capital efficiency are all expected out of the managers. Therefore, the role of the managers is certainly interesting and challenging. If given an opportunity, it will be a worthy assignment to do. Every front line manager has to take this message of the company forward. It is important as a front line manager not only to promote technical capability and working culture in the employees but also to ensure that every direction of the company's board is implemented in the spirit of the decision. This will be a challenging assignment and the company's growth will depend on such front line managers. The company has clear divisional strategies lining its business ventures. There are individual heads of businesses that are accountable for the profitability and growth of the specific business unit. However, there is also integration of the businesses and there is a mutual synergy existing between these business units to support one another. The complementing nature of the business would only aid the company to grab more of the market share that it already has. This has led the company to become a world leader in its chosen area of business. An opportunity to work in such a company will be highly welcome and challenging to any earnest manager. References 1. The company website: http://www.abb.fi and http://www.abb.com 2. ABB Strategy 2005 - 2009, 'Power and Productivity for a Better World' available at: http://www02.abb.com/global/seabb/seabb364.nsf/0/9707fdeaf9759be5c1257074002b52ca/ Read More