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Transcript of ABB presentation
Case 9 Percy Barnevik’s 7 ideals for building ABB into a global corporation Question #2 Question 5 Access ABB's current corporate culture. Do you think that it has changed since Percy Barnevik's time. The first- ideal is the development of a group-wide umbrella culture. This meant that ABB had to established a common set of values, policies, and operational guidelines to safeguard and promote the culture.Barnevick understood that ABB was built up of many countries, thus the corporate culture had to respect each national culture and it’s differences by forgoing strong local identities in each home market. The second- ideal is the development of core technologies and core competencies. Since ABB is a tech leader in eight major business segments, it saw that It’s main objective was to lower operating costs and wider profit margins in the long run faster than competitors. The third- ideal is the development and use of multinational teams.This ideal was the solution to cut across cultural differences and to become more efficient. Teams started at the top after the merger with the supervisory board of eight people made up of four nationalities consisting of German, Swedish, Swiss, American, and Danish executives.For example: Brazilians and Argentines helped in ABB’s Latin America Expansion. The fourth- ideal is the development of effective global managers.As noted earlier Percy knew that competence was the key to select high quality managers. He also knew that to become an effective manager, it takes patience, cultural understanding, and the ability to communicate. The fifth-ideal is building a multi-domestic or federal organization along a global-Local continuum. Barnevik pointed out that some companies would be super-local like electricity and others would be super-global like combined power plants. Most would fall between the two extremes. However the goal was to conduct business by developing deep long roots to get close with customers. The sixth-ideal is the development of effective communication, understanding, and patience. This ideal fused all of the other ideals throughout the group. Barnevik knew that the price to pay for a high-degree of multi-national was a major investment that had to happen for two-way communication and consensus building across all borders. The seventh ideal is the development of a customer focus program.This was made to improve the company’s value system and direct every employee towards the customer. In return raising quality of service and increasing employee participation in running small business units, also more efficiently have continuous training programs. Jorgen Centerman - the first successor of Barnevik Believed the way to reduce costs and fix balance sheet would be through
4 to serve user customers,
2 to to serve the four end-user divisions and external customer base
1 for Financial Services division
Entrelec Group hoping to strengthen sales in key European and North American markets
Failed and had to layoff 12,000 workers
Had to deal with Combustion Engineering’s asbestos liabilities
Left ABB $4 Billion in debt and near bankruptcy Jurgen Dormann, the successor of Jurgen Centerman One of ABB’s most influential CEOs
Focused on the 2 main strengths of ABB: Power and Automation Technologies
Introduced the step-change program
-Would save $900 Million
-40% if saving by laying off 37,000 workers
-20% from improved production methods, etc.
-40% was from outsourcing of select activities
Filed a chapter 11 bankruptcy claim for Combustion Engineering
By the end of 2003, ABB had $18.795 Billion in revenue with a net loss of $767 million
Stepped down as CEO when he felt the company was heading in the right direction Fred Kindle Focused on the future of the company by concentrating on improving operation excellence and margins via organic growth
Paid over $2 billion in settlements in asbestos claims for Combustion Engineering
Sold their oil business, Lummus Global for $950 million
Pushed out of office in 2008 for quote “irreconcilable differences relating to the strategic direction of the company.” Joseph Hogan Increased revenue of ABB to $34.9 Billion and EBIT to $4.6 Billion in 2008
Kept his predecessor’s ideas in mind in developing the company globally in power and automation technologies
Lost money due to global economic downturn
cost and scarcity of funding
level of commodity prices
the need for customers to steadily improve efficiency and productivity.
Hogan, no relation to Hulk Hogan, is still working to strengthen the company to allow it to thrive for years to come. Who do we think performed the best? In our opinion Jurgen Dormann performed the best as CEO
He started the company’s focus on Power and automation technologies
This focus has lead to massive increases in revenue over the 10 since he has stepped down
He saved a valuable business venture, Combustion Engineering from being closed down
Stepped down as CEO as soon ABB was where he wanted it
ABB would not be thriving as well as it is today if not for the foundation laid down by him Percy Barnevik ABB CEO (1988–1997) Percy Barnevik laid great store in the use of a matrix structure. Discuss the pros and cons of matrix structure and compare and contrast with those of so-called product/market structures and divisional structures. Is a hybrid organization of overlapping responsibilities – is used by some firms but has recently fallen into disfavor.
Two different lines of authority
No one person has sole decision making power Matrix Structure PROS CONS Align close to customers’ needs
Improve communication with customers
Improve customer responsiveness
Decrease operating cycles create conflict and confusion in organizations
highly inefficient way of managing an organization
follower in the market, creates an inability to innovate. Divisional structures people with divisional occupational specialties are put together in formal groups by similar products or services, customers or clients, or geographic regions.
Grouping by similarity, either by products they produce or market/customers they share
Single line of authority Compare & Contrast MATRIX STRUCTURE groups employees by both function and product
There are conflicting goals
adapt to changing environments and customer base
Used by large companies and is structured according to geographical location DIVISIONAL STRUCTURE groups each organizational function into a division
Everybody understands their task or goals
The greatest advantage is skill development
Smaller organizations usually use this type of structure Under Percy Barnevik
Develops a strong company philosophy
- Umbrella Culture
Strong Company Structure of how things are done
Very Internally based at the beginning
-Wanted a Philosophy system in place Other CEO’s:
-Tried to be Flexible
-External Focus The Downfall -CEO's each had their own idea of change needed
-They were trying to adapt to the environment around them.
-Trying to be flexible in order to fix the company. QUESTION 4 Greater large-scale presence in key markets
Integration of acquired firm’s culture and operational processes into that of the purchaser’s -- likelihood of problems
Complex management structure
Potential acquisition of unforeseen liabilities (legal fees, extensive time spent in court, costly settlements, etc.) Major Acquisitions Growth within existing business segments
Greater operational efficiency and optimized communication within the organization resulting from a simplified management structure
Streamlined business activities and profitability optimization by focusing on core competencies Bolt-On Acquisitions Overview Asea Brown Boveri (ABB) was the result of a merger of Asea AB from Sweden and BBC Brown Boveri from Switzerland. ABB World's leading supplier in $50 billion electric power industry.
CEO, Percy Barnevik. CEO Percy Barnevik, born 1941 in Skane, which is southern Sweden.
1969-79 was CEO of Sandvik Steel in the U.S. Joined Asea in 1979 and was CEO until 1988.
Became president and CEO of merged entity in 1988. In 1988 Asea enabled a merger due to the understanding of environmental forces affecting the heavy engineering industry in Europe MERGER After merger was completed the result was the creation of:
160,000 employees in 25 countries.
Combined revenue of $18bn. Expansion The $4 billion of cash flow received within that first year of merger
was used for the expansion of the company. In six years ABB aquired more than 150 comapnies world wide.
Operating in Europe, Middle East, Africa, Asia and the Americas
Gerating $34bn in revenue CEO Percy Barnevik's ideals in building ABB into a global corporate presence were well founded. Identify these ideals and discuss the factors which caused key areas to go away and affect the the performance of the business. Identify and discuss the key strategic initiatives implemented by the various CEOs appointed after Barnevik's tenure to take the company out of the "crumbling mess" within which it found itself in 2001. In your opinion which CEO performed the better and why? ABB's current growth strategy is to seek small "bolt-on" acquisitions to existing product areas rather than via major acquisitions that could take the company into new areas. Products Power technology, Industrial automation
Revenue US $40 billion (2011)
Operating income US $4.667 billion (2011)
Profit US $3.168 billion (2011)
Total assets US $36.30 billion (2010)
Total equity US $15.46 billion (2010) Business Segments Power Plants
Motors and Robotics
IT Systems The Downfall -CEO's each had their own idea of change needed
-They were trying to adapt to the environment around them.
-Trying to be flexible in order to fix the company. Hogan's Culture “Bold on” system
Focus on Improvements
-External Focus -Clan
-Market EL FIN