Asea Brown Boveri

1. What do you think of the organizational structure that Barnevik had chosen to manage ABB?
Barnevik had chosen the Matrix Structure as the organizational structure to manage
ABB. In matrix Structure, organization assigns the employees based on functions and products. It
gives the combined advantage of both Functional structure and Divisional structure.


In the case of ABB, Aseas 65,000 employees were combined with BBCs 85,000 to
create a combined identity of ABB with comprising of 850 legal entities spread over 140
countries.
It was oversimplified yet complex structure with Centralized reporting system, Abacus.
The new complex structure was based on twin principles.
1. Decentralization of responsibility
2. Individual accountability
This matrix structure is divided in two dimensions
1. In 1
st
dimension, ABB was organized in 1300 separate operating companies. Each of
these companies has legal identity and domiciled in one of those 140 countries. Each
company has its separate balance sheet with separate responsibility of its cash flow
and dividends. Each operating company had a president and its managing board.
These 1300 companies were managed by Regions. Company manager reports to
regional managers who were 11 executive vice presidents of the ABB.
2. In 2
nd
dimension, ABB was divided in 65 business areas. Every business area focused
on distinct worldwide product. For example a Power transformer was one of the
business areas. Business area managers work was focused on worldwide market of
the product. Each business manager reported to one of the 11 executive vice
presidents of ABB who were responsible for the individual business segments
(Clusters of related business areas).
In this oversimplified model, Business area managers were responsible for developing
worldwide product and technologies, designing and developing strategies. Regional managers
were responsible for executing these strategies based on unique needs of local market.
This two dimensional reporting matrix structure required two bosses for each operating
manager. One with regional responsibilities and other with product responsibilities.

2. What is he trying to achieve through such a complex model?
Bernevik had responsibility of ABB, a huge enterprise with operations divided nearly
into 1200 companies with an average of 200 employees. These companies are further divided in
4500 profit centres with average 50 employees.
To manage this big organization, Bernevik used the organizing principles of
decentralization and accountability as the foundation for his strategic vision of world class
competitor build on strong national companies.
He believed that new orders in his field will be awarded only to the strong nation
companies. He believed in strong work ethics, constant communication and decisiveness.
He also believed in decentralization. He wanted to give his managers defines set of
responsibilities, clear accountability and maximum amount of freedom to execute.
He wanted ABB to be competitive based on organizational structure based on three
paradoxical structures.
1. Global and Local.
2. Big and Small.
3. Radically Decentralized with centralized reporting and control.

3. How effective do you believe it will be?
Matrix structure has both sides attached to it. In matrix structure, each operating
manager has two bosses which made it complicated.
Though matrix structure has advantage of both Functional structure and Divisional
structure, it has many flows. Its drawbacks are as follow.
1. Costly Reporting requirement: Each manager has to report to two bosses so wasting
their most of the time on centralized reporting.
2. Uncertainty and lack of chain of command: Many managers can not perceive who is in
charge.
Matrix structure resulted in ambiguity and disarrangement. For example, A Functional
manager told subordinate to do something and business area manager to do something else.
This will result in confusion and employee dissatisfaction. Here because confusing chain of
command, it will slow the process and make the organization less efficient.


4. How does ABB organization work?
The ABB works on twin principles of
1. Decentralisation of responsibility
2. Individual accountability
It works in a matrix structure.
It believes in an economy of scale. That is the reason for rapid expansion. Its a
glocalised company. When it structures local operations, it always pushes to create separate
legal entities, with real separate balance sheets. Its operations are divided into about 1300
companies with 200 employees on an average, domiciled in one of 140 countries. These
companies are divided into 4500 profit centres with an average of 50 employees. Each
operating company has a president and management board. These 1300 companies were
managed by region. Thus a company manager would focus his/her efforts on the business
operations in one country and be responsible for
1) Customer-based regional strategies
2) Regional results and profitability
3) Day-to-day management of individual profit centres
4) HR development within the regional unit
5) Relations with local govt., communities, labour unions, and the media.
This can be said as the horizontal axis of the matrix.
While, the vertical matrix reflects the clustering of activities of the enterprise into 65
Business areas. Each business area represented a distinct worldwide product market. Eg. The
power transmission activities of ABB were classified into 7 BAs:
1) Cables
2) Distribution Transformers
3) High Voltage Switchgear
4) Network Control and Protection
5) Protection Systems
6) Power Transformers
7) Electric Metering
Each Business unit manager is responsible for creating strategies:
Developing worldwide product and development strategies
Worldwide market allocation and sourcing according to how healthy businesses
and markets are
Converting local currency into dollar denomination, and then depending upon
the pricing coordination between countries, deciding upon pricing strategies
Transfer of know-how in production, design and quality
Acquisition and divestments in markets
Purchasing coordination
To obtain robust worldwide results and profitability
Each BA manager reports to one of 11 executive V-Ps responsible for individual business
segments.
Since ABB works on a 2-D matrix, thus a regional manager needs two bosses, one for
regional responsibilities, and other for product responsibilities.
ABB uses ABACUS management information system which allows you to collect
performance data on 4500 centres, compare budget allotted and performance given, allows
you to work the data and aggregate, disaggregate results by business segments, countries and
companies within countries.
5. What are the key roles of level managers?
Key roles of Operation level managers are divided into two dimensions.
1. Functional Dimension: In this dimension, Operational level manager is focused on business
of his company in particular country and executing strategy of particular product. They are
responsible for all the activities of company in that country, its P&L statement, and its cash
flows. They are dealing with main operational part nearest to the customers and responsible
to execute root level strategy. They are reporting to the Regional head for functional
dimensional reporting.
2. Business area (Product) dimension: In this dimension, Operational level manager is focused
on carrying out the new ideas and strategy made by Business area head and they report to
BA head for this dimension for any info about the particular products performance in their
country.

6. What are the key roles of middle level country and BA managers?
The key roles of middle level country and BA managers are as follow.
Middle level country manager: Their key role is managing all the ABB companies in their
country. For example country manager in US is managing all ABB companies regardless of their
business area. They are reporting to 1 of the 11 Executive vice presidents of ABB. Their key roles
include,
1. Customer based regional strategies.
2. Regional results and profitability.
3. Day-to-day management of individual profit centre.
4. Human resource development within regional companies.
5. Relationship with local government, communities, labour union and media.
BA manager: They are responsible for all activities related to only their product
regardless of regional boundaries. Their key roles include,
1. Worldwide result and profitability.
2. Development of worldwide strategy.
3. R&D and product development.
7. What are the key roles of frontline company and business unit managers?
The key roles of Frontline Company under the power transmission activities are:
Cables
Distribution Transformers
High Voltage Switchgear
Network Control and Protection
Protection Systems
Power Transformers
Electric Metering

Each Business unit manager is responsible for creating strategies:

Developing worldwide product and development strategies
Worldwide market allocation and sourcing according to how healthy
businesses and markets are
Converting local currency into dollar denomination, and then depending
upon the pricing coordination between countries, deciding upon pricing
strategies
Transfer of know-how in production, design and quality
Acquisition and divestments in markets
Purchasing coordination
To obtain robust worldwide results and profitability