Rev. April 26, 1999
ABB’s Relays Business: Building and Managing A Global Matrix It was a casual conversation between the chairmen of Asea and Brown Boveri in 1987 about the dismal state of the utilities equipment market that eventually led to merger talks between these two giant power equipment companies. Within weeks of the announcement in August 1987, Percy Barnevik, the CEO of Asea who was asked to lead the combined operations, had articulated a strategic vision for Asea Brown Boveri (ABB). Convinced that the decade-long decline in new power generation capacity would soon reverse itself, he believed that the new technologies and scale economies required to meet the new demand could only be developed by companies operating on a global scale. At the same time, however, he felt that because of the high level of government ownership or control of power companies, the vast majority of new orders would continue to go to companies with a strong national presence. His strategy was to build a company that could exploit these two major industry trends. Having articulated his broad vision, Barnevik formed a 10-person top management work group to analyze how the operations of Asea and Brown Boveri could best be linked to achieve it. Because ABB would start operating as a merged company on January 1, 1988, Barnevik wanted quick action. Within two months, the top management team had decided on a matrix structure that would balance the global business focus of an organization built on approximately 60 global business areas (BAs) with the national market focus provided by 1,300 local companies grouped under the umbrella of several country-based holding companies (see Exhibit 1). Barnevik then set about selecting the management team that would staff the new organization. To select the 300 key managers who would lead the change process, Barnevik personally interviewed hundreds of Asea and Brown Boveri executives. He was seeking those with good technical and commercial backgrounds who were “tough skinned, fast on their feet, and able to lead” yet also “open, generous, and capable of thinking in group terms.” In January 1988, he assembled this hand picked group of 300 for a three-day meeting in Cannes. In presentations supported with 198 overhead transparencies (an approach that was to become a signature of his communications-intensive management style), Barnevik detailed industry trends, analyzed market opportunities, and profiled ABB’s economics and cost structures. But mostly he focused on how the new organization would allow ABB to manage three contradictions—to be global and local, big and small, radically decentralized with central control. (Exhibit 2 presents excerpts from some of his overhead slides.) At the end of the meeting, each manager received a 21page “policy bible” outlining the major policies and values to be communicated to the next level of the organization. Professor Christopher A. Bartlett prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1993 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
ABB's Relays Business: Building and Managing A Global Matrix
Barnevik’s management model focused on the twin principles of decentralized responsibility and individual accountability. To emphasize the former, he ensured that most of ABB’s key resources were controlled directly by the federation of 1,300 front-line companies,...