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CHAPTER 1

The Challenges of International Human Resource Management

Global Challenges at ABB
n 1988, a merger between ASEA of Sweden and Swiss firm Brown Boveri created one of the world’s largest engineering firms, ABB. Both companies already had extensive international operations, Brown Boveri having begun to establish subsidiaries around the world immediately after World War II, and ASEA having started foreign operations during the 1960s. The newly merged company had sales of over US$15 billion and 160,000 employees. Under the leadership of its Swedish CEO, Percy Barnevik, ABB went through a rapid transformation. In Western Europe, plants were closed and the number of employees was reduced, while the firm grew its operations in Asia, Eastern Europe, and North America. Over the next 10 years, ABB bought a large number of companies as it expanded geographically and diversified into new business areas, including engineering contracting and financial services. The company set up numerous joint ventures with local companies in China and other emerging markets, and established a 50–50 joint venture in power generation with the French firm Alstom. Barnevik’s vision was to create an international company that was able to deal effectively with three internal contradictions: being global and local, big and small, and radically decentralized with centralized reporting and control.1 The key principle was local entrepreneurship, so most of the decision making was to be done at the lowest possible level, in the 5,000 independent profit centers, the business units (BUs) that became the foundation of the ABB organization. Beyond the BUs, the firm was structured as a matrix of business segments and regions. Operations within a country were controlled by influential country managers.

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CHAPTER 1: The Challenges of International Human Resource Management

ABB also established business steering committees and functional councils to coordinate the different units, exploit synergies, and help transfer knowledge and best practices across the network of local units. The firm developed a management information system called ABACUS that contained data on the performance of the profit centers. Barnevik and his team of top managers traveled extensively to ensure communication and knowledge sharing across units, while international assignments helped instill all units with the corporate ethos that Barnevik was pursuing: initiative, action, and risk taking. However, after becoming one of the most admired companies in the world during its first 10 years, ABB encountered significant problems in its second decade. The company was affected by the economic downturn in Europe, while in the United States it became the target for many expensive asbestos-related damage claims linked to a firm it had acquired in 1989. Most importantly, limitations in the firm’s management started to emerge. Many of the smaller acquisitions—often initiated by aggressive and virtually independent local managers—were not well integrated with the rest of the firm, leading to different standards and systems as well as product overlap. The firm was flexible and responsive to the contexts in which it was operating, but had failed to achieve sufficient global synergies and efficiency. The structure did not work as intended, and conflicts between business areas and national units meant that many managers felt decision making was unclear. The local profit centers continued to operate their own human resources management systems, which were at best aligned at national levels but not at regional or global levels. Barnevik’s successor Göran Lindahl (1997–2001) attempted to impose more clarity and discipline by eliminating the regions and giving more power to global businesses. This only aggravated the confusion, since the divisions had neither the tools nor the experience to control the local units. Next came Jörgen Centerman, who made even more radical changes....
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