ASEA BROWN BOVERI (ABB), SWEDEN, 2004:

This case evaluates Asea Brown Boveri’s (ABB)

global operations within the topics of its complex

organizational structures and control systems. The

primary objective of this case is to examine ABB’s

problems that arose because of its organizational

structure and management reshuffling in early 2000.

The company incurred massive losses, eventually shedding

16,000 jobs worldwide.

Case Synopsis

In the last fifteen years, academics and business

practitioners studying multinational corporations (MNCs)

and global companies often admired ABB because of its

outstanding growth, sophisticated management, and

peculiar corporate structure.

Above all, ABB became famous for its unique

horizontal organizational system and global

networking that was based on lateral

communication across the company’s 1,000 entities

around the globe.

Almost every international management and

international business textbook analyzed ABB’s

global structure that incorporated matrix and other

organizational structures based on decentralization

and horizontal systems.

Case Synopsis

The phrase “think global, act local” became synonymous

with ABB and its former chairman, Percy Barnevik who
aggressively advocated and practiced the concept that
did very well in the first ten years but later brought
control problems and weakened operations. For a long
time, the global corporate image and operations that
ABB management projected looked outstanding
although the company had problems in its matrix and
control systems. Eventually, ABB incurred heavy losses
and became a major liability to stockholders.
Discussion Questions
1. What are your views of ABB’s position in the global infrastructure industry?
As discussed in the case, ABB was a major global player in the infrastructure and
other industrial products.

The merger of Asea and Brown Boveri was a perfect business

strategy since both companies sold complementary products and
targeted the same markets. In the post-merger era, the company
had excellent growth and carried long-term prospects. In the
nineties, the ABB Group reached to a point where it was a global
force to be reckoned with. Of course, East Asian markets were
ripe for the company’s Infrastructural projects. During the East
Asian Crisis, ABB was poised to add additional non-core
products to its portfolio of 1,000 entities worldwide.

The company’s organizational structure looked solid and its

worldwide operations were benchmarked in studies by
academics and other companies.
2. Analyze and evaluate ABB’s organizational structure and its control systems
during the tenures of Percy Barnevik and Jürgen Dormann (see Figure 1). Also,
draw a chart to discuss the company’s strengths and weaknesses.

Chart showing ABB’s strengths and weaknesses. The data can

be collected from the company Web site (see annual reports)
and online business publications.

In addition, Figure 1 should be used to compare and contrast

the company’s CEOs, Percy Barnevik and Jürgen Dormann
since both sought different organizational structures and control
systems. Barnevik was infatuated with global expansion while
Dormann was hired to rescue ABB from its bankruptcy. A good
source of information on the Infrastructural industry can be
obtained from Value Line, Standard & Poor’s Industry Surveys,
Hoover’s Company Reports, and other trade publications.
3. What specific strategies does ABB need to undertake in the coming years to be
a key player in the industry?

ABB strategies can be divided into two areas. In the

short-term, the company should concentrate on
seeking new projects and expand the business
opportunities. In the long-term, ABB should fix its
organizational structure which seems complex and
ineffective. ABB should shed some of its non-core
operations although Dorman has implemented this
strategy by selling oil and gas operations. Another
area which seems important is creating a new image
after Barnevik’s pension scandal.
4. What did you learn from ABB’s complex organizational structure and its global
operations?

Regarding organizational structures and control systems, ABB

case is important in three areas. First, organizational structures
are never permanent. Companies need to reconfigure and
redesign their global operations because of changing markets
and business environments. It is critical to bring changes from
time to time. Although efficient in some companies, horizontal
and networking-type of organizational systems are known for
their problems at the global level when companies operate
vertically and horizontally. In the coming years, ABB is expected
to regain its lost markets but the company will never have those
prospects that were available in the nineties. Finally, it will be
interesting to see if ABB’s new management is able to
turnaround the company by seeking alliances and joint ventures
or just keep shedding its businesses to stay profitable.