\u00a9 April 2007, Jesse Kedy
International Business Strategy
University of Richmond
acquired firm being uncooperative; most managers seemed to be open to the new corporate culture and goals. Finally,
ABB\u2019s sheer size allows it to leverage deep economies of scale, as well as expansion strategies, such as acquisitions.
At the same time, ABB\u2019s main potential weakness comes from its size. Barnevik\u2019s expectation of \u201cno
honeymoon period\u201d, along with his overall agenda for ABB was very complex and challenging to say the least. This
was compounded by the breadth and depth throughout which Barnevik\u2019s message had to travel. His policy bible, for
example, although communicated directly to 300 key managers, would have to be rapidly and correctly communicated
to tens of thousands of employees, globally. The manual had to be translated, by ABB managers, into many languages
(ABB operates in over 100 countries). Anything lost in translation would hinder Barnevik\u2019s strategic efforts.
ABB also faced several opportunities. First, its newfound size put it in a position to consolidate large parts of
the industry. Also, its aggressive acquisition program was based on the identification of two opportunities: rising
global demand and a strong need for local identity. Further, the U.S. market may prove to be one of ABB\u2019s biggest.
Finally, with the recent fall of communism, it would seem that Eastern Europe would be an immense opportunity to
establish market leadership. At this time, China is not a realistic short term consideration.
ThreatsThe biggest threat to ABB lies in competitor response to the merger. Beyond the merger of GEC and Alsthom,
local governments might respond negatively to ABB, despite its longstanding relations with them. Thus, another threat
may come from political instability and the degree to which ABB is considered a \u201cforeign invader\u201d.
As mentioned, being global and local, big and small, and radically decentralized with centralized reporting, are
not necessarily impossible. These goals depend mainly on perceptions. From the top, ABB should be perceived as
global (in the areas of strategy, reporting, and knowledge transfer). From the bottom, ABB subsidiaries should be seen
as local (in local management responsibility and freedom) and decentralized (in financial reporting and accountability).
To maximize global optimization while retaining a local feel, Barnevik adopted a matrix structure, based on regional
company operations and business areas. Global optimization goals were the responsibility of each business area, while
location-dependent goals were allocated to regional managers. These efforts are not sufficient to achieve ABB\u2019s goals.
The complexity of the organizational structure, the corporate blunders and the fact that the company expanded internationally at a very fast pace without being able to adapt its organizational structure based on the geographical area of its numerous subsidiaries;
The company’s control system,
ineffective management style, widespread subsidiaries and seeking decentralization while keeping the same matrix structure at a global level, disregarding important issues such as strong competition;
The East Asian crisis, the weaker demand from other parts of the world and the company’s inability to
deal with the changing markets; All the causes mentioned above had a negative impact on the company.
Difficulties in the lines of control, which tend to become ambiguous, confusing and stressful, determining conflicts between each other and causing difficulties in materializing the goals of the company at a worldwide level;
Poor performance, elimination of projects;
Massive financial downfall -
major lowering of the company’s revenue, losses in market share;
Revenue losses and a setback for the improvement of the company (due to the asbestos related liabilities);
” company image (effects of the enormous pension benefits);
Identification of alternative solutions
The alternative solutions our team has come up with in order to resolve the issues met by ABB while following the internationalization process are:
Global Product Division Structure
Global Area Division Structure
. We consider that, unlike the
employed by the company, these two solutions are highly efficient, as each division is optimized for its market and its work is coordinated, they allow more control. They would also be more benefic as the lines of communication and the locus of control are relatively far in the case of ABB.
Global Product Division Structure Advantages
Fast response to the global competitive
Destructive duplication of management, sales