ABB-The Dancing Giant: Creating the Globally Connected Corporation [Hardcover]

Kevin. Barham (Author), Claudia. Heimer (Author)

Book Description

Publication Date: December 15, 1998

Based on exclusive interviews with the ABB top management team and privileged sessions with the CEO, this book takes you inside Europe's most admired company to discover the ABB way. It offers the five guiding lights for the connected corporation, the four types of ABB manager, the steps to creating a global knowledge machine and the master plan for the next millennium.

Editorial Reviews

From the Back Cover

Inside ABB—the global company that has best achieved the promise of globalization!

• Building the globally connected corporation: the world's most important case study.
• How ABB captures global efficiencies while staying responsive to local needs.
• The unique ABB management culture: training, international experience, and more.

In the fiercely competitive global engineering industry, ABB has grown to be a world-beater—and at the same time, one of the most venerated companies in the entire world of business. ABB: The Dancing Giant takes you inside this powerhouse enterprise. Granted unprecedented access to ABB's leaders, the authors show you exactly how ABB has become the role model for the entrepreneurial, globally connected corporation of the future. ABB: The Dancing Giant combines an illuminating corporate story with the first insightful analysis of the strategies and structures that have shaped this remarkable organization. Kevin Barham and Claudia Heimer show you how ABB was born from the merger of Swedish dynamo ASEA and Swiss powerhouse BBC; how Percy Barnevik created and implemented a master plan for restructuring and growth; and how ABB executed each giant step to become a globally connected leader. Discover how ABB has broken all the rules: establishing a parent company that really adds value; capturing global efficiencies while remaining responsive to local needs, and developing a worldwide learning capacity that promotes innovation everywhere.

Excerpt. © Reprinted by permission. All rights reserved.

INTRODUCTION

Behind the master plan

In June 1987, Beat Hess, head of the Legal Department of the world-famous Swiss electrotechnical firm Brown Boveri and Company (BBC), was about to take his family on a well-earned week's holiday to Italy. He was suddenly told by BBC's Chairman, Fritz Leutwiler, and Chief Executive, Thomas Gasser, to prepare a full draft agreement for the 'unthinkable'—negotiations for a merger with long-time rival ASEA, the Swedish power engineering firm that had been gaining ground on BBC ever since a new CEO, Percy Barnevik, had taken over in 1980. If it came off, this would be the largest cross-border merger in history.

Despite the enormity of this move, Hess was not entirely surprised as Leutwiler and Gasser had told him about the possibility of such a merger some weeks previously. None the less, it was a huge challenge to write an agreement for merging two very large, internationally active firms, headquartered in two different countries—especially as he was told that it had to be done fast and in absolute secrecy. He was told to go ahead with his holiday if he wanted to but that the agreement had to be completed by the first week in July. The handwritten draft, with its coffee and suntan lotion stains, that Hess brought back from Italy was to be the basis for what has now become a legend in corporate history.

Of course, the merger—while a highly dramatic event in a world where the concept of 'globalization' had not yet taken root—was only the beginning. The newly merged entity, under Percy Barnevik as CEO, went on to catch the imagination of both managers and business gurus with the boldness of its restructuring, its adoption of a novel form of global matrix structure and the pace of its expansion into Eastern Europe and Asia.

If we hadn't written this book, we would have been dying to see someone else do so. Whenever one reads about ABB in the management literature, there is a 'no questions asked' attitude of 'if ABB has done it, why can't you? It must be the right thing to do. This is the way to do it, this is what ABB has done.' It is almost as if there is an ABB doctrine that fascinates both scholars and managers. Why is ABB so interesting to managers and business gurus alike? Why is it the world's favorite case study? Why is Percy Barnevik possibly 'the most influential manager in the world' (according to The Observer newspaper)?

Certainly, the numbers relating to ABB are more than impressive. In ten years, it has grown to its present position as the leading power engineering company in the world. It is now a $31 billion corporation, employing 220,000 people in 50 or more countries, including all the major markets, around the globe. It consists of some 35 business areas—each a global business in its own right—with 5000 profit centers, or what the new CEO, Goran Lindahl, calls '5000 perceived companies', each with, on average, 50 people and $7 million in business. It is the largest Western investor in Central and Eastern Europe, where it has 30,000 employees and orders received have grown from $200 million in 1989 to $2 billion today.

And some of the numbers impress because of their smallness. While ABB's global employment figures are enormous, it employs no more people than absolutely necessary. It runs this vast organization with a very small head office (150 without counting business area staff who relocated to Zurich in 1993). It is famous for being allergic to bureaucracy and for the way that it has slashed head office staff using Barnevik's 30 percent rule. Before he created ABB, he had already reduced ASEA's head office from 2000 people to 150 since 1983. At Stromberg in Finland, which ASEA acquired in 1986, the head office shrank from 880 people to 25 people in 3 years. And in the two years after the merger, the staff of the former BBC HQs in Switzerland and Germany went down from 4000 to 200 and 1600 to 100, respectively.

How can we make sense of what ABB has achieved? The company's success, in one of the most fiercely competitive industries in the world, is all the more remarkable because it has been pioneering a new form of global organization to meet the new challenges. Percy Barnevik has described the paradoxes that ABB has tried to resolve as the simultaneous attempt to be 'global and local, big and small, and radically decentralized with central reporting and control.' In essence, Barnevik and his senior colleagues at ABB have tried to resolve these contradictions by creating what we call a 'globally connected corporation', a loose-tight network of processes, projects and partners that can only be held together by highly committed people and strongly held principles. This is an organization that fosters sharing and collaboration between its operations in different parts of the world, and links closely with clients, suppliers and the countries where it is present. Its combination of 'multidomestic' local presence and coordination by means of a global matrix organization is a unique response to the 'think global, act local' imperative.

Is ABB a model for other organizations? In 1990, business journalists were already pointing to ABB as the organizational archetype of the future. For example:

From headquarters in neutral Zurich, ABB's elite corps of stateless managers shuffle assets around the globe, keep the books in dollars, and conduct most of their business in English. Yet the companies that make up their far-flung feifdom, tailor ABB's turbines, transformers, robots, and high-speed trains to the local market so successfully that ABB looks like an established player. Barnevik predicts such corporate ingenuity is the blueprint for the future (Kapstein and Reed, 1990).

Indeed, Percy Barnevik does have particular views on this question. In an interview in India, he said:

More and more companies will see the need to develop this multidomestic combination for global coordination. The big American companies used to have a domestic and an international division. You cannot have an international division. In my company, the word does not exist because if you are foreign, you are foreign everywhere. The whole meaning of being domestic or foreign has lost its meaning. When I am sitting here in India, I am not an Indian citizen, but I represent an Indian company just like I represent a Spanish company when I am in Spain. People have difficulty in perceiving that. When I was with the French Prime Minister the other day, I tried telling him that we were a French, English-speaking company. He said 'No, you are not a French company!' I do not want to be preposterous and say that this is the solution for all companies. Each company has to find its own way. And I will honestly say that we have had our setbacks and difficulties too (Skaria, 1995).

Eberhard von Koerber, who in his time has served as ABB's country manager for Germany, president of the company's European region, and is now Senior Adviser to the CEO and corporate management, says that other companies can learn from ABB's experience, but that ABB itself can do much to improve its effectiveness:

In a fast-changing world, where regional partnerships are growing, where local customers want local suppliers who can deliver world-class performance, where technology leadership will continue to be a key source of competitive advantage, the high achievers will be those who:

• build long-term partnerships with their customers being present everywhere as a local partner, giving customers their full attention at both the top management level and the operational level;
• will be energetic and fast movers in response to new regional markets and changing customer needs;
• will deliver world-class expertise in technology and low-cost supply at identical standards worldwide;
• will have the skills to make it work fast and profitably.

This has been ABB's approach to business, one that has so far brought us success... At the same time, we know that we have a long way to go. There are still huge untapped potentials in the areas of improving customer relations, cycle time reduction, standardization and modularization, concurrent engineering, and global supply. To realize them, we must continue to adopt a culture of continuous learning and change, where ever-higher targets and constant transition are seen as normal and positive, not threatening and negative. We will make it happen only by instilling a creative entrepreneurial attitude in all of our employees who welcome change as a challenge (von Koerber, 1996).

Is ABB a model for nations? Warren Bennis, Professor at the University of Southern California and an expert on leadership, edited a collection of interviews carried out by the Harvard Business Review with top executives. This included the 1991 interview that Percy Barnevik gave to the Harvard Business Review, on which many researchers and commentators on ABB (including ourselves) have drawn. In his preface, Bennis says:

The ability to align, create, and empower will characterize successful leaders well into the twenty-first century. But there is another theme that surfaces provocatively in some of the interviews..., most notably in the remarks of Percy Bamevik of ABB. That is the emergence of federation as the structure uniquely suited to balancing the seemingly incompatible drives toward global cooperation and the putting down of deep local roots. This paradox is evident in world politics, where intense ethnic and national identities coexist with the widespread recognition that new economic and political alliances must be forged outside one's borders. I'm convinced that 'federation' will be the watchword of the l990s. And I can imagine a time when corporations such as ABB that are simultaneously global and deeply rooted in local cultures serve as models for nations that aspire both to survival in an international economy and to national self-expression (Bennis, 1992).

So, what are the lessons that other organizations and managers facing the challenges of globalization can learn from ABB's experience so far? We think that there are many lessons that are both explicit and implicit throughout this book. However, we asked Percy Barnevik for his views. He says:

I do not believe that you can mechanically copy what another company has done. ABB itself has several variations on its organization and management depending on products and customers. You handle $10 electrical products differently than $1 billion plants. Some businesses are highly local, like service shops and installation, while others are highly global and demand another structure. However, there are some important general principles to learn from and adapt to your own business: the need to be global-local, big-small, and decentralized-central control.

We also asked Percy Barnevik why he thought ABB had become the world's favorite case study. His explanation is that ABB came along at just the moment when both organizations and business schools were looking for new ideas and models for an increasingly globalized world. Certainly the gurus fell in love with ABB very quickly. Tom Peters calls ABB a 'buckyball organization' and says that Percy Barnevik has concocted 'what may be the most novel industrial firm structure since Alfred Sloan built "modern" GM in the 1920s' (Liberation Management, Macmillan, 1992). Manfred Kets de Vries, who has described the challenge of managing ABB as 'making a giant dance', goes further and declares that ABB is a new organizational concept, a 'new prototype' that is in line with the needs of the post-industrial age, and which can discharge us from Sloan's model of the 'modern organization' (European Management Journal, Vol. 5, 1996). Sumantra Ghoshal and Christopher Bartlett describe ABB as an 'individualized corporation' made up of a portfolio of entrepreneurial, integration and renewal processes. While it may not be a model for every other company, they say, it is certainly an example of what most companies can achieve (The Individualized Corporation, Heinemann, 1998).

While ABB is certainly fascinating from a conceptual standpoint, what is perhaps most striking about it is the sheer pragmatism of its approach. The company often uses striking catchwords to describe its management philosophy (as shown throughout this book). These catchwords are not just theoretical, they have a deep practicality behind them. To the paradoxes that Barnevik famously describes, we would add that ABB is simultaneously complex and simple.

Percy Barnevik cut to the heart of the challenge in a recent interview with the Financial Times when he talked about what globalization means to ABB:

Too many people think you can succeed in the long run just by exporting from America or Europe. But you need to establish yourself locally and become, for example, a Chinese, Indonesian or Indian citizen. You don't need to do this straight away but you need to start early because it takes a long time. It can take ten years. Globalization is a long-lasting competitive advantage. If we build a new gas turbine, in 18 months our competitors also have one. But building a global company is not so easy to copy (Financial Times, 8 October 1997).

We were intrigued by the gloss and the immaculate PR image of ABB and wanted to see what is behind it. This book gave us the exciting opportunity to look through the keyhole and talk to some very interesting people around ABB, both in the corporate headquarters and locations in Europe, the Americas and Asia. We have carried out research in ABB before, when researching the competences of international managers (K.A. Barham and S. Wills, Management Across Frontiers, Ashridge Management Research Group and the Foundation for Management Education, 1992), but this gave us an opportunity to go back and take a broader view. We were also very curious about the heritage of Percy Barnevik, and how the company is doing now that he has passed on the role of CEO to a successor and divides his attention between various Swedish companies that are part of the Wallenburg sphere. Barnevik has almost come to personify the company and the spotlight has mostly been on him. He has certainly been an excellent spokesman for the company, but we wanted to look behind his image and public statements and find out what other people in the company think, how they experienced the merger and what life is like for them in the organization.

A key figure in ABB today is the new CEO, Goran Lindahl, a tough international sales negotiator and engineer by background—'deep in the technology' as he describes it. Determined, energetic and impatient to see changes in ABB, he has taken on the major challenge of following Percy Barnevik's brilliant track record. In a seamless transition, the man who has been a vital part of the ABB success story since the days of the merger has quietly taken control of the company and set out to consolidate and renew ABB. What are the concerns that he needs to address? His predecessor says:

ABB has virtually finished building its global structure. The main task now is to bring more executives from emerging countries in Eastern Europe and in Asia into the higher levels of the company. We have 82,000 employees in emerging economies. We have to bring the best of these to the top. Building a multinational cadre of international managers is the key... Very rarely would you get a global manager from the outside. Of course, companies such as Shell and IBM have such people, but there are very few available to hire (Financial Times, 8 October 1997).

When we talked to Goran Lindahl about the future of the company, he told us that one of his major aims is indeed to 'globalize' the leadership of ABB. When he called us back for an update on the restructuring that he announced in August 1998, this concept became clear. He was not talking about a soft issue relating to the competences of ABB leaders. By fine-tuning the matrix, he has begun a significant shift of power away from the countries towards global interests. Decentralization and self-organization inside the matrix are still key principles. And yet the shift becomes clear in his statement: 'If in doubt, the global interests should prevail'.

In 1996, Financial Times Management approached us to write this book. We had both been working together on international change issues since 1992, and had developed a practical approach to identifying and developing international management competences, based on Kevin's earlier research (K. Barham and C. Heimer, 'Identifying and Developing International Management Competence', in Stuart Crainer (ed.) Financial Times Handbook of Management, 1995). The invitation seemed a great opportunity to find out what had really happened in ABB since the merger.

Our objectives in writing this book have been to:

• document the story of the merger, ABB's growth and global expansion;
• catch more than a glimpse of the real story behind the company's ongoing success;
• raise some key questions for the future of ABB;
• highlight some lessons from ABB's experience for managers in other organizations facing international and global challenges.

We have drawn on a wide range of sources, including the many articles that have been written about ABB in the international business press, the analyses of ABB offered by leading business academics and our own interviews with ABB managers. Part of our intention has been to bring together the different perspectives offered by these different observers. We have, for example, concentrated one chapter on the views of some of the leading 'management gurus', such as Tom Peters and Sumantra Ghoshal and Christopher Bartlett. We have also brought in the research of lesser-known academics and writers, such as Professors Staffan Brege, Ove Brandes, Christian Berggren, Rolf Leppanen and Edwin Ruhli, who offer valuable insights into ABB, not least because they come from its original home countries. We have also drawn on the corporate history of BBC written by Swiss journalist Werner Catrina that was published just after the company merged with ASEA.

As we wrote this book, we were clear about our bias. We are both generalists who have developed out of specific areas of expertise in international management development and organizational psychology. We have looked at ABB from different angles and, without claiming to have produced the most exhaustive or critical coverage of the company, we have tried to give you, the reader, some rich insights into its story so far. The structure of the book reflects this.

Part I describes the early days of ABB. In the first chapter, we tell the story of the two companies that came together to form ABB—ASEA of Sweden and BBC of Switzerland. We describe how they reached the point of merging to form ABB, from their respective foundations at the end of the nineteenth century.

Chapter 2 moves on to give an account of one of the most dramatic events in recent corporate history: the 1987 merger that created ABB and set a standard that is still to be matched today. We give you an insight into the details of the merger talks, the high emotions involved and the way that Percy Barnevik drove the negotiations to a successful outcome.

What was the masterplan behind this incredibly ambitious gambit—the biggest cross-border merger to have happened at that time? Chapter 3 outlines Percy Barnevik's concepts regarding the strategy, structure, control mechanisms and people development of the new company. Barnevik talked about ABB's strategy after the merger in terms of a two-stage rocket—restructuring and then growth.

Part II looks at ABB's global expansion and the company itself through a number of different lenses. In Chapter 4, we recount the way it has sown the seeds of its global 'triad' by building a presence in each of the three 'super regions' of the Americas, Europe and Asia. Like the merger, this restructuring exercise has been characterized by speed and decisiveness. In Chapters 5 and 6, we look at ABB as the 'globally connected corporation' and we set ABB in the context of the global transitions that more and more firms are having to make to compete in a globalized world. As noted above, ABB has inevitably attracted the attention of the world's business scholars and consultants. In Chapter 7, we give an overview of four of the most important analyses of ABB that have been made by leading management gurus.

Part III looks at the organization a decade after the merger to find out how the masterplan has worked out to date and at how ABB has started to reap the harvest resulting from all the hard work it has put into building its structure and implementing its strategy. Chapter 8 looks more closely at why ABB has become the world's favorite case study and why it is an example of that rare organizational breed, a successful cross-border merger. One measure of ABB's success is also the extent to which the creation of ABB led to a fundamental restructuring of the electrotechnical industry. We take a look at the fallout in the rest of the industry and at what happened to those competitors caught in the blast.

Chapter 9 looks at the payback from ABB's strategy of multidomesticity. Chapter 10 asks how ABB's global matrix has worked out so far and describes the changes and refinements that the company has made to the matrix. It also enquires how ABB's strategy and structure have translated into financial performance and considers Percy Barnevik's assertion that 'long-term shareholder value' is the ultimate measurement of corporate performance.

The company has consistently been among the most admired European companies in recent years, but what is it like to work for? What does it mean to be a global manager in ABB and how does it go about developing them? What other tricks has ABB got up its sleeve for the future? Goran Lindahl, who took over from Percy Barnevik as Chief Executive at the beginning of 1997, says that two of the major priorities for ABB in the future are innovation in human resources and information technology, so Chapters 11 and 12 look more closely at what ABB is doing in these areas.

Anyone who has followed the company's development will be asking, 'What will life be like after Barnevik? What are Goran Lindahl's plans? What is his personal style as a manager and leader?' Percy Barnevik has said that every company with global aspirations now needs to be an 'IT company'. What are ABB's plans in this regard? Is it preparing another revolution? Chapter 11 gives some answers to these questions, but we expect to be continually surprised by Percy Barnevik, who has gone on to direct the industrial holdings of one of the world's wealthiest families. In the meantime, we ask how is Goran Lindahl preparing ABB for the next millennium?

We conclude with our summary of how to become a global organization and a memo to Goran Lindahl setting out some thoughts about the future of ABB.

We write this book ten years after the creation of ABB, when the company has fully established itself. The timing coincides with a development cycle the company has followed from the beginning. Percy Barnevik told us about five-year cycles, during which the company is left undisturbed in terms of its formal structure, before a significant review of the organization is undertaken. As we write, ABB is completing its current reorganization, again about five years after the last one. It will be interesting to follow the pattern into the second decade of its existence.

Although we were, of course, interested in the value of ABB's experience to other people, we must qualify the validity of the lessons for anyone who has not gone through the experience themselves. There is a paradox in offering learning to those who have not had the opportunity to experience the kinds of transition described in this book. Are you willing to take on the challenge and discover which insights the book can reveal to you? Find out what it takes to create a global company. Find out what living in a globally connected corporation is like. Find out if the globally connected corporation is really for you.

Kevin Barham Collonges-sous-Saleve, France

Claudia Heimer Freiburg-im-Breisgau, Germany

Product Details

• Hardcover: 400 pages
• Publisher: Financial Times Prentice Hall; 1st edition (December 15, 1998)
• Language: English
• ISBN-10: 0273628615
• ISBN-13: 978-0273628613
• Product Dimensions: 9.5 x 6.4 x 1.1 inches
• Shipping Weight: 1.8 pounds
• Average Customer Review: 5.0 out of 5 stars  See all reviews (1 customer review)
• Amazon Best Sellers Rank: #609,136 in Books (See Top 100 in Books)
  • #51 in Books > History > Europe > Switzerland
  • #79 in Books > History > Europe > Sweden

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5.0 out of 5 stars Lessons from ABB's experience and Percy Barnevik., September 25, 2000

By 

Turgay BUGDACIGIL (Istanbul, Turkey) - See all my reviews

This review is from: ABB-The Dancing Giant: Creating the Globally Connected Corporation (Hardcover)

"Is ABB a model for other organizations?...Indeed, Percy Barnevik does have particular views on this question. In an interview in India, he said: 'More and more companies will see the need to develop this multidomestic combination for global coordination. The big American companies used to have a domestic and an international division. You cannot have an international division. In my company, the word does not exist because if you are foreign, you are foreign everywhere. The whole meaning of being domestic or foreign has lost its meaning. When I am sitting here in India, I am not an Indian citizen, but I represent an Indian company just like I represent a Spanish company when I am in Spain'...Is ABB a model for nations?...Warren Bennis says: 'The ability to align, create, and empower will characterize successful leaders well into tht twenty-first century. But there is another theme that surfaces provocatively in some of the interviews..., most notably in the remarks of Percy Barnevik of ABB. That is the emergence of federation as the structure uniquely suited to balancing the seemingly incompatible drives toward global cooperation and the putting down of deep local roots. This paradox is evident in world politics, where intense ethnic and national identities coexist with the widespread recognition that new economic and political alliances must be forged outside one's borders'...So, what are the lessons that other organizations and managers facing the challenges of globalization can learn from ABB's experience so far? We think that there are many lessons that are both explicit and implicit throughout this book. However, we asked Percy Barnevik for his views. He says: 'I do not believe that you can mechanically copy what another company has done. ABB itself has several variations on its organization and management depending on products and customers...However, there are some general principles to learn from and adapt to your own business: the need to be global-local, big-small, and decentralized-central control' "(from the Introduction).

In this context, Kevin Barham and Claudia Heimer summarize their objectives in writing this book: document the story of the merger, ABB's growth and global expansion; catch more than a glimpse of the real story behind the company's ongoing success; raise some key questions for the future of ABB; highlight some lessons from ABB's experience for managers in other organizations facing international and global challenges. And thus they organize their book into three main parts:

I. The Birth of A Modern Giant - In this part, by telling the story of the two main partners-ASEA of Sweden and BBC of Switzerland, and by outlining Percy Barnevik's concepts regarding the strategy, structure, control mechanisms and people development of the newly merged/emerged company, they describe early days of ABB.

II. Giant Steps to the Globally Connected Corporation - In this part, by defining ABB as a 'globally connected corporation' (global and local, big and small, and radically decentralized with central reporting and control), they show the stages of global expansion.

III. Reaping the Harvest - In this part, they look at the organization a decade after the merger to find out how the masterplan has worked out to date and at how ABB has started to reap the harvest resulting from all the hard work it has put into building its structure and implementing its strategy. And they also focus on CEO Goran Lindahl and his priorities for ABB in the future-innovation in human resources and information technology.

Finally, end of this invaluable study, they list 15 giant steps to a global organization. I briefly summarize these steps as follows:

1. You don't need to have all the answers when trying to achieve change on such grand scale as the ABB merger.

2. Decentralization to profit centres around the world is the key to creating an entrepreneurial mindset.

3. Stay close to customers around the world during a merger to reassure them and not lose market share.

4. Don't delude yourself that you can forecast the future-you can only see breaks in trend lines, and you won't always see those.

5. Understand which parts of the business are more global and which are more local and act accordingly.

6. Multiculturalism is not an ethical issue, it is a practical business need.

7. Set challenging targets, but don't keep changing the formal organization.

8. Communicate, communicate, communicate to 'fire people up'-even at the risk of competitors listening.

9. Globalization requires transparency and connectivity accross time zones and geography.

10. Every manager, including the CEO, should aim to have two to three succession candidates ready at all times.

11. You don't necessarily need lots of global managers-not everybody has to be global-but you do require a pool of cross-culturaly capable people from which you can draw your global managers.

12. Results-oriented learning on the job gives management development credibility and makes line management take responsibility for developing people.

13. Don't assume that all your organizational values are fully applicable across the world.

14. Keep it practical. Concepts are only 5 per cent of the building of a global organization. Execution and the ability to engage people around the world are 95 per cent.

15. Long-term shareholder value is the ultimate measurement of performance in a global company.

Highly recommended.