Case Presentation
Beyond the global matrix
brought to you by:
Jens, Alberto, Lars, Shantanu, Jirka
Theory Behind the Matrix
Matrix Theory
Introduction to ABB
• Connected to the transnational MNC, the
matrix is a way to organize when trying to
achieve:
ABB’s
Implementation
Corporate Culture
– Local responsiveness, i.e. diversification,
with learning as a key requirement
Key Learnings
– Scale and scope efficiencies in production
etc
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International Organizations and Management
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The Matrix
Matrix Theory
Introduction to ABB
ABB’s
Implementation
Corporate Culture
Key Learnings
•
•
•
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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!
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The Matrix Pros
and
Cons
Matrix Theory
Introduction to ABB
ABB’s
Implementation
Corporate Culture
Key Learnings
• 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 ascertain
accountability
•
Strong need for a
”common culture” and
informal Mn network.
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The Company
Matrix Theory
Introduction to ABB
ABB’s
Implementation
Corporate Culture
Key Learnings
• 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
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BEFORE 1988 – ASEA & BBC
Matrix Theory
Introduction to ABB
ABB’s
Implementation
Corporate Culture
ASEA CONTRIBUTIONS
• Superior Profit
Performance
• Sophisticated
Management Control
• Marketing
Agresiveness
BBC CONTRIBUTIONS
• Strong Order Book
• High Technichal
Expertise
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
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Original objective was a transnational
matrix structure
Reconciling three dilemmas to “... create real organizational advantage”
Matrix Theory
•
Global and local
Introduction to ABB •
Big and small
ABB’s
Implementation
Radically decentralized with centralized reporting and control
Corporate Culture
Key Learnings
•
►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
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THE STRUCTURE IN 1988
EXECUTIVE COMMITTEE
Matrix Theory
Introduction to ABB
ABB’s
Implementation
BUSINESS AREAS (50)
COUNTRY ORG. (150)
Corporate Culture
Key Learnings
COMPANIES (1300) AND DIVISIONAL PROFIT
CENTERS (5000)
•
•
•
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Total company: 210.000 employees
Company average: 200 employees
Profit center: 50 employees
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Balancing regional and
business area interests
Business area focus
Matrix Theory
Introduction to ABB
ABB’s
Implementation
Strategic task
Linking customer
satisfaction with core
competences
Corporate Culture
Key Learnings
Geographic focus
-Customer-based regional strategies
-Regional results and profitability
-Day to day mgmt of profit centres
-HR development
-Local relationships / networking
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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
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1988 - 1993:
Organizational integration
•
Drivers for change:
–
Matrix Theory
–
Introduction to ABB
ABB’s
Implementation
•
Key Learnings
Growing challenges:
–
–
Corporate Culture
•
Make business segments more dominant
Increasing customer focus; improving process orientation, customer
relations and quality management
The new Matrix structure:
–
–
–
–
–
–
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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
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.
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1993 - 1998:
The Network Multidivisional
•
–
Matrix Theory
Introduction to ABB
ABB’s
Implementation
Drivers for change:
–
•
Growing challenges:
–
Corporate Culture
–
–
Key Learnings
•
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:
–
–
–
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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
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
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ABB in 2003
•
Drivers for change:
–
–
Matrix Theory
Introduction to ABB
ABB’s
Implementation
•
Key Learnings
Growing challenges:
–
–
–
Corporate Culture
•
Product and segment orientation
Develop total solutions
Achieve critical mass in each business field
Structural change:
–
–
–
–
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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.
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
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The ABB building process
(an overview)
Continuity
2003
Change
Network Multidivisional
1998
(critical mass in businesses,
solution provider, financial
services)
1993
Global matrix with
regional dimensions
Establishing merged
global matrix
(Turnaround mgmt,
individual profit centres,
internal markets, local
responsiveness)
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1988
(implementing regions,
customer focus)
• Centralizing
• Customer segmentation
• Focus on simplification
• Service business and total solutions
• Product orientation instead of country bias
• Increased customer focus
• Country level networking
• Centre of excellence / Lead country concept
• Matrix local entrepreneurship and strict managerial hierarchy
• Internal global monitoring (ABACUS) and internal markets
• Responsibilities, accountability, local freedom
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Corporate Culture - Criteria
Matrix Theory
• Clarity
Introduction to ABB
ABB’s
Implementation
• Continuity
Corporate Culture
Key Learnings
• Consistency
• Communication
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Culture Related Issues
• ’Think Global, Act Local’
Matrix Theory
Introduction to ABB
ABB’s
Implementation
• Customer Focus Program
• Matrix Structure & Profit Center Philosophy
Corporate Culture
Key Learnings
• Networking Accross Segment
• Performance Measurement
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Cultural Problems
Matrix Theory
• Inability to understand the matrix
Introduction to ABB
ABB’s
Implementation
Corporate Culture
Key Learnings
• Internal negotiation led to micro politics
• Strong autonomy of front line companies
• Lead country concept to led to
micropolitics
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Culture - Evaluation
Matrix Theory
• Clarity – Failed to achieve
Introduction to ABB
ABB’s
Implementation
Corporate Culture
Key Learnings
• Continuity – Partly fulfilled
• Consistency – Biggest weakness
• Communication – Recent realization
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Key Learnings
Matrix Theory
• A matrix is complex structure with many
pitfalls
- locally: structure as simple as possible
- globally: complexity cannot be avoided
Introduction to ABB
ABB’s
Implementation
•
Organizations evolve over time
Corporate Culture
Key Learnings
• Adaption to and of the environment
 there is no ideal structure
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Key Learnings (ctd.)
Matrix Theory
Introduction to ABB
• Conflicts are inherent parts of a matrix
and organizational changes
ABB’s
Implementation
Corporate Culture
Key Learnings
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• Importance and influence of
management control systems
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Open Questions
Matrix Theory
Introduction to ABB
• Learning possibilities served as main
justification for diversification. Are there
knowledge synergies?
ABB’s
Implementation
Corporate Culture
• Is ABB too diversified? How big is beautiful?
Key Learnings
• Possibility of / need for a uniform corporate
culture within a very diversified
organization?
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