PGP-1

Evolution of
Organization
structure at ABB
Organizational Behavior - II

Guide: Prof. Sushanta Kumar Mishra

Submitted by
SECTION A
GROUP 8
Bhaskar Chaudhary

Kapil Dhaka

Madava Hegde

Narasimhulu Polisetty

Rahul Girish Kumar

Praveen Singh

Srinivasan D
 Evolution of Organization structure at ABB

Table of Contents

1. Company Profile....................................................................................................................2

2. Milestones in Organizational Development...........................................................................2

3. Building Global Matrix..........................................................................................................3

3.1 Drivers for Matrix structure.....................................................................................3

3.2 Elements of Matrix structure....................................................................................4

4. Moving Towards continental organization............................................................................4

4.1 Drivers for Change...................................................................................................5

4.2 Elements of Matrix with regional dimension...........................................................5

5. Problems with matrix structure of ABB.................................................................................5

6. Sector based organization (Product- Oriented)......................................................................6

6.1 Drivers of Change....................................................................................................6

6.2 The Changes.............................................................................................................6

6.3 Organization Structure.............................................................................................7

7. Sector based organization (Customer- Oriented)...................................................................7

7.1 Drivers of Change....................................................................................................7

7.2 Organization Structure.............................................................................................8

7.3 Impact of Restructure............................................................................................10

7.4 Advantages of Restructure.....................................................................................10

8. Summary..............................................................................................................................11

9. References............................................................................................................................12

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 Evolution of Organization structure at ABB

Company Profile:
ABB is a Swiss-Swedish multinational corporation headquartered in Zürich, Switzerland,
operating mainly in the power and automation technology areas. ABB is formed in 1988 with
the merger of ASEA and BBC, world two large electrical equipment manufacturers. ASEA
contributed to superior current profit performance, sophisticated management controls and
marketing aggressiveness while BBC contributed strong order book and technical expertise
during the formation of ABB. Product mix of two companies were complementary to each
other with minimum overlap in power transmission business. With this joint venture ASEAN
Brown Boveri Ltd. (ABB) became world’s largest producer of engineering products and
services.

Milestones in Organizational Development

ABB has passed through series of organizational structure changes. These changes can be
categorized into following eras.

• Building the global matrix(1988-1993)

• Move towards a continental organization (1993-1998)

• Sector based organization ,1998 (product –oriented)

• Sector based organization, 2001 ( Customer –oriented)

Fig 1: Evolution of organization structure in ABB group

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 Evolution of Organization structure at ABB

Building Global Matrix

Both ASEA and BBC had matrix organization prior to the merger; hence matrix
structure became the logical choice for new organization ABB. The matrix structure allowed
ABB to ‘think global, act local’. Dealing with large public and private customers, ABB has to
negotiate at a local level, strike compromises on issues such as local content, while being able
to draw services from large global organization in the background.

ABB achieved decentralization by creating profit centres. A key element of ABB was
to make Business area manager (BA) and country managers understand their complementary
and different roles. BA managers were to the set the strategic framework, coordinate R & D
and production, and monitor quality standards. The country managers were to actively
supervise operating business and carry HR activities.

ABB head office had strength of 100 people who were managing the strategy of
organization as a whole. This effective control was possible because of decentralization. It
created 8 different R & D centres of excellence instead of centralized corporate laboratories.
ABB developed new financial controlling system, called ABACUS, which helped in
controlling decentralized units.

Fig 2: Global matrix formed by ABB based on country dimension

1.1 Drivers for Matrix structure:-

• Slowing growth and performance rates are the main reason for merger and
development of matrix structure for ABB. Performance measurement remained an
important tool at ABB and has been guiding change ever since, exposing problems at
the business segment and country level.

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 Evolution of Organization structure at ABB

• The consolidation in international power generation and transmission industry. As a

result of this consolidation ABB did many acquisitions in this business segment and
hence needed a structure which can absorb these acquired organizations and can be
implemented easily.

ABB organized into business segments and regional focus. Product offering in
country B for the products produced by Product group 1 is done through the coordination of
country manager of country B and product manager of product group 1.

1.2 Elements of Matrix organization:-

ABB distributed its products and services into below business segments and country
of operation.

1) Power Generation.

2) Power Transmission

3) Power Distribution.

4) Industrial and Building Systems

5) Financial Services

6) Transport

Move towards continental organization

In 1993, after the formation European union and North American free trade
agreement, ABB adjusted its organization structure by adding regional dimension(instead/
superseded country).

In 1993, the Group was organized on the one hand on a product-oriented basis into
four corporate divisions with a total of some 50 business areas and on the other hand on an
area-oriented basis into three geographic regions, instead of country oriented, with 1,300
legally independent companies and a total of some 5,000 autonomous local units.

The local units are set up as so-called profit centres with their own balance sheets and
profit and loss accounting. The companies and profit centres are tailored to fit local
conditions, whereas worldwide coordination is handled through the two matrix dimensions
(regional and global dimension).The regional dimensions are primarily responsible for sales
and optimum satisfaction of the needs of local customers, whereas the global dimensions are
responsible for strategic orientation and distribution of products as well as research &
development.

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 Evolution of Organization structure at ABB

Fig 3: Global matrix formed by ABB based on Regional dimension

1.3 Drivers for Change:-

• External forces like development of market partners pushed for improved

coordination between different profit centres which can provide full range of service
to customer.

• Internal forces like lack of understanding of the matrix and growing micro politics
(ineffective business segments, internal market mechanism, internal decision making),
insufficient customer and sales orientation.

1.4 Elements of Matrix with regional dimension:-

In 1993, ABB reorganized its business segments into four segments and three regions.
Electricity generation, Electricity transmission and distribution, Industry and building
technology, Transport are the four business segments. America, Asia and Europe, Middle
East, Africa are the three regions of ABB’s business. Business segments are split into 39
Business areas each of which were representing distinct products of ABB worldwide.

Problems with Matrix structure in ABB

• Post 1993, ABB organized its business into only 4 business segments. There was a
great amount if heterogeneity within each segment leading to highly ineffective
horizontal differentiation. Achieving balance between differentiation and
integration became challenge.

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 Evolution of Organization structure at ABB

• ABB used internal market mechanism through market price transfer pricing system
among various profit centers. Cross segment margin calculation created conflict,
since each segment tried to maximize its profit.

• ‘Competition and Cooperation’ – The principle used by ABB while creating segments
went for a toss when segments started focusing on only internal market while
ignoring opportunities in external market.

• Individual managers found it extremely difficult to live up to the expectation of the

matrix. The main drawback of the matrix structure was that problem was always a
mix of regional and business segments. People started neglect this kind of problem
by putting blame on the other party.

Sector based organization (Product –

Oriented)
In matrix structure the focus (unintended) was on regional/ country performance. ABB
tried to eliminate this by using sector based organization. Sectors are created based on
product orientation. This structure aims at promoting growth in the areas where ABB
technology advantages and unique capabilities.

6.1 Drivers of change:-

• In regional matrix structure ABB experienced greater coordination with in a region

when compared to the coordination between countries from different region. ABB
tried to improve the coordination by eliminating region layer and changing its
orientation from geographical to product.

• Globalization needed greater coordination between regions/countries. Market scenario

got changed. Same product was sold in many different geographical parts which
emphasized on products of universal appeal compared to localization.

• To provide highest priority to global aspects compared to national/ regional aspects.

Profitability of group should receive highest priority compared to regional profits.

• Simplifying the management structure.

6.2 Changes:-

• Six business segments are created as dominant structure. Each executive member will
take responsibility of one segment, with CEO having overall responsibility.

• Removal of regional layer. As a result country level organizations will directly report
to HQ. This improved the turnaround time for making decisions.

ABB had ensured continuity in organization structure. Group’s head office remained small
and worked only towards strategic plans. Business area/ segments managers were taking care

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 Evolution of Organization structure at ABB

of worldwide product strategies from R & D, investment to market allocation and sourcing.
Country manager was responsible for customer contacts, development, HR activities within
the country.

This reorganization did not represent full departure from global matrix rather it was
an effort to transform the matrix from geographical to a product bias, while maintaining full
range of existing internal networking mechanisms. ABB maintained three core features of
multidivisional organization, yet transformed each one of them.

1. Managerial Hierarchy: - ABB is based on strict managerial hierarchies. However

ABB has supplemented these hierarchies by systematically decentralizing operating
and country-specific responsibilities and by encouraging entrepreneurial behavior.

2. Divisional structure: - ABB had divisional structure, yet at country level it

deliberately cut through the boundaries of division by combining operations in
country holdings.

3. Internal Labor Market: - Internal vacancies are displayed on intranet and most of
labors are sourced internally. This complemented the internal capital market and
helped in achieving greater synchronization.

6.3 Organization structure:-

Fig 4: ABB organization structure: Sector based organization (product-

oriented)

Fig 4. Shows the six business segments of ABB post 1998 reorganization. Each business
segments had many business areas and this structure is also striped by horizontal country
level organizations.

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 Evolution of Organization structure at ABB

Sector based organization (Customer –

oriented):
1.5 Drivers of change:-

200 customers accounted for 30% of total sales. Out of these 200 customers, 180 are
serviced by a single business segment of the ABB Group. This showed clearly that as far as
large customers are concerned, ABB still had great potential to expand business relations;
consequently, it was focusing more closely on achieving this goal.
The background for this approach is the 20-80 rule discovered by Centerman (whereby
20% of customers account for 80% of sales).
The company wanted to make it easier for customers to do business with ABB. Instead of
10 interlocutors, customers would only have to deal with one. The aim of the strategic
reorientation was to enhance ABB‘s relations with customers, thereby boosting growth. ABB
pursued a concept that aimed at enhancing customers’ benefits by focusing on customers’
needs.
1.6 Organization Structure:-

Fig 5: ABB organization structure: Sector based organization (customer-

oriented)

The new organization of the ABB Group was consisting of nine areas, seven customer
areas and two areas for optimum performance (Group Transformation and Group Processes).
The customer areas were subdivided into four areas geared directly towards end users, two
Channel Partner areas (product areas) as well as the Financial Services field.

1.6.1 End User Area

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 Evolution of Organization structure at ABB

Fig 6: ABB organization structure: Customer Area: End User Area

structure
This is a matrix structure with customer as focus point. The structure is vertically striped
based on the services rendered to frequent customers of ABB. The organization is
horizontally striped based on business areas. Main objective was to service industrial
customers quickly and easily with ABB products, solutions and services. Below diagrams
shows details of each customer focus area.

Fig 7: ABB organization structure: Details of BAs in each customer area

Group (Customer) areas are sub-divided into business areas and area functions. In general,
area functions may be broken include Personnel, Communication, Business development,
Marketing, Group Processes, E-Business, Technology.
Utilities customer area was responsible for electricity, gas and water utility
companies. Process Industries was taking care of customers in the branches of Pulp, Paper,
Printing, Mining, Metals, Cement, Petrochemicals, Refineries, Pharmaceuticals and Shipping.

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 Evolution of Organization structure at ABB

Manufacturing and consumer industries responsible for customers in the Automobile and
Consumer Goods Industry and the infrastructure area (Telecommunications, Airports, Post,
Distribution and Building Technology) and Oil, gas, Petrochemicals was responsible for
delivery of products, systems and turnkey installations.
1.6.2 Product Area:

Fig 8: Structure of product Area in ABB post 2001

Major tasks product matrix area as follows
• Service external sales partners like wholesalers, sales companies and distributors directly.
• Service industrial customers from the four end user areas.
• Develop and make all generic products inside ABB.
Electrical technology products used to handle power generators, switching facilities,
devices, cables and other products and technologies for high-voltage and medium-voltage
applications while automation technology products handled Complete spectrum of
automation and control products, robotics, measuring products, drive electronics, motors,
switching facilities and accessories as well as other low-voltage products.
1.6.3 Financial Services Area:
It offered a comprehensive range of financial services and support projects for all
ABB fields and for outside customers. Function they were responsible for are:
• Insurance.
• Structured Finance.
• Development and management of private infrastructure projects.
• Financial services for ABB companies.
1.6.4 Group Process and Transformation Area:
Group Processes Area was responsible for implementing the infrastructure throughout
the Group in areas like quality control, supply chain management, E-Business and
information systems and to develop and introduce joint processes. Group Transformation area
helped in coordination of introduction worldwide of the new customer-based organizational
structure and Streamlining of the organizational structure on the basis of local and global
targets set.

1.7 Impact of restructure:-

1. Formation of Business Area Units(BAU):

The business areas, which function on a global basis, are broken down into several
business area units (BAUs). Each of these units operates in only a single country or region.

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 Evolution of Organization structure at ABB

The business area units are the most important operating unit in local markets and
bear full responsibility for their business, including profit and loss accounting and balance
sheets. In this connection, they follow the strategic customer-based orientation.
2. Increased responsibility for divisional managers:
The Group areas and business areas cannot deal with the everyday operating business
throughout the world. This task is entrusted to the local Division Managers, who act as an
extension of the Group areas and business areas. Each Division Manager is responsible in the
corresponding business area for profit and loss accounting and drawing up balance sheets for
each individual business area unit. In addition, Division Managers see to it that the individual
business area units meet local performance goals. Division Managers report thereupon to the
appropriate Business Area Managers. The responsibilities of country manager and group
manager delegated to divisional manager and these were invested in one person to avoid
political scenario in organization and to improve co-ordination.

1.8 Advantages of restructure:-

• “ABB was transformed into learning Organization”: Change becomes the norm, in order
to ensure that the group can adapt to constantly changing market conditions.
Accordingly, ABB has established the two new Group Process areas, Group
Transformation and Group Processes. These areas are designed to facilitate skills
management, accompany restructuring measures and guide and oversee corporate
processes (process controlling).
• “ABB achieved customer based orientation”: ABB is engaged in a radical market-based
and customer-based orientation. Tied to this is a far-reaching restructuring process. This
approach is not new and has also been adopted by some of ABB‘s rivals. However, ABB
has pursued this strategy the most energetically and thoroughly of all.

Summary:
The organization evolution of ABB is picture in below figure. At every transformation ABB
has ensured continuity by having very less staff ay HQ and decentralization of power by
providing more authority to divisional/ country/business area manager.

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 Evolution of Organization structure at ABB

Fig 9: Evolution of organization structure at ABB

References:-
• Case Presentation: ABB beyond Global Matrix by Jens, Alberto, Lars, Shantanu,
Jirka.

• Analysis of Organizational reorientation of ABB group – International metal worker’s

foundation.
• The Innovating Organization: Andrew M. Pettigrew, Evelyn M. Fenton.
• http://www.abb.com/
• http://en.wikipedia.org/wiki/ABB_Group

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 Evolution of Organization structure at ABB

• Organizational theory, design and change – Gareth Jones, Mary Mathew.

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