Case Study: ABB In China
The Problem ABB is multinational company and is the world leader in electrical engineering. Like other companies, ABB does not want to miss the opportunity to expand its market to China because China has good market potential such as its high population, its growing economy, and its distinct economic trend compare with other Asian countries. In 1979, ABB decided to establish its first permanent office as representative office in this country. Unfortunately, ABB faces several problems when doing its business in China.
One of the problems is that the company's decision-making policy in its matrix organizational structure, which is fully decentralized, is no longer efficient for ABB's business.
Analysis As a fully decentralized company, ABB represented by national companies in many home market, which use profit center philosophy, to have full advantage of its economies of scales. Profit centers (individual companies) are measured on its own performance and needs. It is recognized that the profit centers are efficient for decentralization and that the organization can act relatively fast to local market. But this profit center philosophy made individual companies only think about its own objective, performance and benefit, not ABB Company as a whole.
Because of every business action and policy could affect their performance, individual companies face barriers in doing their business. For example, in internal transaction, technology partner charge high cost to ABB local for components, because it has to make profits after invested high R&D cost. ABB China had to close ABB School in Beijing, which was used to transfer company culture to local employee, because the high training cost will affect its financial performance. Furthermore, if same problem occurred among individual companies, they won't exchange information each other. If individual company suggests changes according to the problem to licensor, the licensor will evaluate on the basis of benefit to itself
One of the problems is that the company's decision-making policy in its matrix organizational structure, which is fully decentralized, is no longer efficient for ABB's business.
Analysis As a fully decentralized company, ABB represented by national companies in many home market, which use profit center philosophy, to have full advantage of its economies of scales. Profit centers (individual companies) are measured on its own performance and needs. It is recognized that the profit centers are efficient for decentralization and that the organization can act relatively fast to local market. But this profit center philosophy made individual companies only think about its own objective, performance and benefit, not ABB Company as a whole.
Because of every business action and policy could affect their performance, individual companies face barriers in doing their business. For example, in internal transaction, technology partner charge high cost to ABB local for components, because it has to make profits after invested high R&D cost. ABB China had to close ABB School in Beijing, which was used to transfer company culture to local employee, because the high training cost will affect its financial performance. Furthermore, if same problem occurred among individual companies, they won't exchange information each other. If individual company suggests changes according to the problem to licensor, the licensor will evaluate on the basis of benefit to itself