Case Presentation

1. Case Presentation Beyond the global matrix brought to you by: Jens, Alberto, Lars, Shantanu, Jirka

2. Theory Behind the Matrix • Connected to the transnational MNC, the matrix is a way to organize when trying to achieve: • Local responsiveness, i.e. diversification, with learning as a key requirement • Scale and scope efficiencies in production etc Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

3. The Matrix • Basic philosophy: Operating decisions pertaining to particular product should be shared by the product division and the various regions of the firm. • Ex: Product offering in Country 2 for the products produced by Product group 2, determined by consultation between Country Mn and Product Mn. • Operational Mn report to both! Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

4. Combine efficient global integration and local response leads to scale, speed and lower unit cost Customized products More flexibility to changes in national needs. Better decisions (?) Complex the dual-hiererchy could lead to confusion and conflicts over responsibilities and decision making Time-consuming, clumsy and bureaucratic consensus takes time and could create an inflexible org. Hard to ascertainaccountability Strong need for a ”common culture” and informal Mn network. The Matrix - Pros and Cons Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

5. The Company • Engineering company • Emanated from merger between Brown Boveri (Switzerland) and ASEA (Sweden) in 1988 • Key figures (1997): • 215000 employees in more than 100 countries • Revenue $31.3 billion • Products Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

6. ASEA CONTRIBUTIONS Superior Profit Performance Sophisticated Management Control Marketing Agresiveness BBC CONTRIBUTIONS Strong Order Book High Technichal Expertise BEFORE 1988 – ASEA & BBC Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings As a result, it is created ABB that becomes worlds largest producer of engineering Products & Services, based on the principles of decentralization of responsibilities and individual accountability International Organizations and Management

7. Original objective was a transnational matrix structure Reconciling three dilemmas to “... create real organizational advantage” • Global and local • Big and small • Radically decentralized with centralized reporting and control ►GLOBAL INTEGRATION • OPTIMISE A BUSINESS GLOBALLY: Specialization in components, economies of scale, worldwide rotation of managers and technologists ►LOCAL RESPONSIVENESS • TO HAVE DEEP LOCAL ROOTS EVERYWHERE YOU OPERATE: product differentiation, local recruiting processes, local entrepreneurship, local contacts Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

8. THE STRUCTURE IN 1988 EXECUTIVE COMMITTEE Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings BUSINESS AREAS (50) COUNTRY ORG. (150) COMPANIES (1300) AND DIVISIONAL PROFIT CENTERS (5000) • Total company: 210.000 employees • Company average: 200 employees • Profit center: 50 employees International Organizations and Management

9. Balancing regional and business area interests Business area focus Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings Strategic task Linking customer satisfaction with core competences • Efficiency and product focus: • Worldwide results and profitability • Development of worldwide strategy • R&D and product development • Worldwide market allocation and sourcing • Price strategies and coordination • Purchasing coordination • Product and product allocation • Transfer of know-how • Acquisitions and divestments Geographic focus • -Customer-based regional strategies • Regional results and profitability • Day to day mgmt of profit centres • HR development • Local relationships / networking International Organizations and Management

10. 1988 - 1993: Organizational integration • Drivers for change: • EXTERNAL: Consolidation of industry. Establishment of the EU and NAFTA. • INTERNAL: Shift of focus from restructuring and integration to improve quality of products, services and customer orientation. Too complicated structure for employees to understand. Benefit from more permeable country borders • Growing challenges: • Make business segments more dominant • Increasing customer focus; improving process orientation, customer relations and quality management • The new Matrix structure: • Adding 3 regions to allow for lateral linkages within regional areas. • Simplifying with 5 Business segments and 39 BAs • Simplifying with “centers of excellence” concept • Customer Orientation Program • 1996: 4 Business segments. • 1996: Introduce tools to enhance country level networking; Cross Company Teams Open spaces concept, joint data bases, personell transfers etc. Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

11. 1993 - 1998: The Network Multidivisional • Drivers for change: • EXTERNAL: Deregulation and privatization of utilities. Customers developing into commercially-thinking market partners demanding complete turnkey plants with a full range of services. • INTERNAL: Still lack of understanding of the matrix and growing micropolitics (ineffective business segments, internal market mechanism, internal decision making), insufficient customer and sales orientation • Growing challenges: • Cooperation with internal market mechanisms to solve paradox of competition and cooperation. • Solving conflict and confusion with decision making • Better definitions of large business segments • Structural change into a network divisional matrix: • Dissolve regional layer and keeping the country dimension • 7 Business segments become the dominant dimension  PRODUCT ORIENTATION (product bias instead of country bias) • ...however, it has not been a dramatic reorganization: CONTINUITY AND CHANGE Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

12. ABB in 2003 • Drivers for change: • EXTERNAL: Market saturation, Declining economic conditions • INTERNAL: Drop in market value of ABB. Top management turnover. Performance is declining. 2001 was the first year in ABB history resulting in a loss. • Growing challenges: • Product and segment orientation • Develop total solutions • Achieve critical mass in each business field • Structural change: • More centralized the structure. • Business segments dominant line of authority. • 2001: Replacing business segments with 4 customer segments to avoid silos along product lines. • Networking among segments Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

13. The ABB building process (an overview) Change Continuity • Centralizing • Customer segmentation 2003 Network Multidivisional (critical mass in businesses, solution provider, financial services) • Focus on simplification • Service business and total solutions • Product orientation instead of country bias 1998 Global matrix with regional dimensions (implementing regions, customer focus) • Increased customer focus • Country level networking • Centre of excellence / Lead country concept 1993 Establishing merged global matrix (Turnaround mgmt, individual profit centres, internal markets, local responsiveness) • Matrix local entrepreneurship and strict managerial hierarchy • Internal global monitoring (ABACUS) and internal markets • Responsibilities, accountability, local freedom 1988 International Organizations and Management

14. Corporate Culture - Criteria • Clarity • Continuity • Consistency • Communication Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

15. Culture Related Issues • ’Think Global, Act Local’ • Customer Focus Program • Matrix Structure & Profit Center Philosophy • Networking Accross Segment • Performance Measurement Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

16. Cultural Problems • Inability to understand the matrix • Internal negotiation led to micro politics • Strong autonomy of front line companies • Lead country concept to led to micropolitics Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

17. Culture - Evaluation • Clarity – Failed to achieve • Continuity – Partly fulfilled • Consistency – Biggest weakness • Communication – Recent realization Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

18. Key Learnings • A matrix is complex structure with many pitfalls • locally: structure as simple as possible • globally: complexity cannot be avoided • Organizations evolve over time • Adaption to and of the environment • there is no ideal structure Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

19. Key Learnings (ctd.) • Conflicts are inherent parts of a matrix and organizational changes • Importance and influence of management control systems Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management

20. Open Questions • Learning possibilities served as main justification for diversification. Are there knowledge synergies? • Is ABB too diversified? How big is beautiful? • Possibility of / need for a uniform corporate culture within a very diversified organization? Matrix Theory Introduction to ABB ABB’s Implementation Corporate Culture Key Learnings International Organizations and Management