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"We are a federation of national companies

with a global coordination center.


We are not homeless. We have many homes."

The Logic of Global Business:


An Interview with ABB's Percy Barnevik
by William Taylor

Percy Barnevik, president and CEO of ABB Asea Brown sion and distribution operation in a transaction involving
Boveri. is a corporate pioneer. He is moving more aggres- 25 factories and businesses with revenues of $1 billion.
sively than any CEO in Europe, perhaps in the world, to That same year, it spent $1.6 billion to acquire Combus-
build the new model of competitive enterprise - an orga- tion Engineering, the manufacturer of power-generation
nization that combines global scale and world-class tech- and process-automation equipment.
nology with deep roots in local markets. He is working to Ibday ABB generates armual revenues of more than $25
give substance to the endlessly invoked corporate mantra, billion and employs 240,000 people around the world. It
"Think global, act local" is well balanced on both sides of the Atlantic. Europe
Headquartered in Zurich, ABB is a young company accounts for more than 60% of its total revenues, and its
forged through the merger of two venerable European husiness is split roughly equally between the European
companies. Asea, created in 1890, has been a flagship of Community countries and the non-EC Scandinavian
Swedish industry for a century Brown Boveri, which took trading bloc. Germany, ABB's largest national market,
shape in 1891, holds a comparable industrial status in accounts for 15 % of total revenues. The company also gen-
Switzerland. In August 1987, Barnevik altered the course erates annual revenues of $7 billion in North America.
of both companies when he announced that Asea. where with 40,000 employees. Although ABB remains under-
he was managing director, would merge with Brown represented in Asia, which accounts for only 15% of total
Boveri to create a potent new force in the European market revenues, it is an important target for expansion and in-
for electrical systems and equipment. vestment. And ABB's business activities are not limited
The creation of ABB became a metaphor for the chang- to the industrialized world. The company has 10,000 em-
ing economic map of Europe. Bainevik initiated a wrench- ployees in India, 10,000 in South America, and is one of
ing process of consolidation and rationalization - layoffs, the most active Western investors in Eastern Europe.
plant closings, product exchanges between countries - In this interview, Percy Barnevik, 49, offers a detailed
that observers agreed will one day come to European guide to the theory and practice of building a "multi-
industries from steel to telecommunications to automo- domestic" enterprise. He explains ABB's matrix system,
biles. And soon more than a metaphor, Barnevik's bold a structure designed to leverage core technologies and
moves triggered a wholesale restructuring of the Conti- global economies of scale without eroding local market
nent's electrical power industry. presence and responsiveness. (See the insert "The Or-
The creation of ABB also turned out to be the first step ganizing Logic of ABB.") He describes a new breed of
in a trans-Atlantic journey of acquisition, restructuring, "global managers" and explains how their skills differ
and growth. ABB has acquired or taken minority posi- from those of traditional managers. He reckons candidly
tions in 60 companies representing investments worth with the political implications of companies such as ABB.
$3.6 billion - including two major acquisitions in North The interview was conducted at ABB's Zurich head-
America. In 1989, ABB acquired Westinghouse's transmis- quarters by HBR associate editor William Taylor.

DRAWINGS BY ROBERT RISKO


PERCY BARNEVIK

HBR: Companies everywhere are trying to become powerful advantages. You want to be able to optimize
global, and everyone agrees that ABB is more global a business globally - to specialize in the production
than most companies. What does that mean! of components, to drive economies of scale as far as
you can, to rotate managers and technologists
Percy Bamevik: ABB is a company with no geograph- around the world to share expertise and solve prob-
ic center, no national ax to grind. We are a federation lems. But you also want to have deep local roots
of national companies with a global coordination everywhere you operate - building products in the
center. Are we a Swiss company? Our headquarters countries where you sell them, recruiting the best
is in Zurich, but only 100 professionals work at local talent from the universities, working with the
headquarters and we will not increase that num- local government to increase exports. If you build
ber. Are we a Swedish company? I'm the CEO, and I such an organization, you create a business advan-
was bom and educated in Sweden. But our headquar- tage that's damn difficult to copy.
ters is not in Sweden, and only two of the eight
members of our board of directors are Swedes. Per- What is a business that demonstrates that ad-
vantage}
"Are we a Swiss company? Transportation is a good one. This is a vibrant
Are we a Swedish company? business for us, and we consider ourselves number
Perhaps we are an one in the world. We generate $2 billion a year in
revenues when you include all of our activities: lo-
American company" comotives, subway cars, suburban trains, trolleys,
and the electrical and signaling systems that sup-
haps we are an American company. We report our port them. We are strong because we are the only
financial results in U.S. dollars, and English is ABB's multidomestic player in the world.
official language. We conduct all high-level meetings First, we know what core technologies we have to
in English. master, and we draw on research from labs across
My point is that ABB is none of those things - and Europe and the world. Being a technology leader in
all of those things. We are not homeless. We arc a locomotives means being a leader in power electron-
company with many homes. ics, mechanical design, even communications soft-
ware. Ten years ago, Asea beat General Electric on
Are all businesses becoming globaU a big Amtrak order for locomotives on the Metro-
liner between New York and Washington. That win
No, and this is a big source of misunderstanding. caused quite a stir; it was the first time in one hun-
We are in the process of building this federation of dred years that an American railroad bought loco-
national companies, a multidomestic organization, motives from outside the United States. We won
as I prefer to call it. That does not mean all of our because we could run that track from Washington to
businesses are global. We do a very good business in New York, crooked and bad as it was, at 125 miles
electrical installation and service in many countries. an hour. Asea had been pushing high-speed design
That husiness is superlocal. The geographic scope of concepts for more than a decade, and Brown Boveri
our installation business in, say, Stuttgart does not pioneered the AC technology. That's why our X2
extend beyond a ten-mile radius of downtown tilting trains are running in Sweden and why ABB
Stuttgart. will play a big role in the high-speed rail network
We also have businesses that are superglobal. scheduled to run throughout Europe.
There are not more than 15 combined-cycle power Second, we structure our operations to push cross-
plants or more than 3 or 4 high-voltage DC stations border economies of scale. This is an especially big
sold in any one year around the world. Our competi- advantage in Europe, where the locomotive industry
tors fight for nearly every contract - they battle us on is hopelessly fragmented. There are two companies
technology, price, financing - and national borders headquartered in the United States building loco-
are virtually meaningless. Every project requires motives for the U.S. market. There are three compa-
our best people and best technology from around nies in Japan. There are 24 companies in Western
the world. Europe, and the industry runs at less than 75% of
The vast majority of our businesses - and of most capacity. There are European companies still mak-
businesses - fall somewhere between the superlocal ing only 10 or 20 locomotives a year! How can they
and the superglobal. These are the businesses in compete with us, when we have factories doing ten
which building a multidomestic organization offers times their volume and specializing in components

92 HARVARD BUSINESS REVIEW March-April 1991


The Organizing Logic of ABB
ABB Asea Brown Boveri is a global organization of and communication. The BA leader for power trans-
staggering business diversity. Yet its organizing princi- fonners, who is responsible for 25 factories in 16 coun-
ples are stark in their simplicity. Along one dimension, tries, is a Swede who works out of Mannheim, Ger-
the company is a distributed global network. Execu- many. The BA leader for instrumentation is British.
tives around the world make decisions on product strat- The BA leader for electric metering is an American
egy and performance without regard for national bor- based in North Carolina.
ders. Along a second dimension, it is a collection of Alongside the BA structure sits a country structure.
traditionally organized national companies, each serv- ABB's operations in the developed world are organized
ing its home market as effectively as possible. ABB's as national enterprises with presidents, balance sheets,
global matrix holds the two dimensions together. income statements, and career ladders. In Germany, for
At the top of the company sit CEO Percy Bamevik example, Asea Brown Boveri Aktiengesellschaft, ABB's
and 12 colleagues on the executive committee. The national company, employs 36,000 people and gener-
group, which meets every three weeks, is responsible ates annual revenues of more than $4 billion. The man-
for ABB's global strategy and performance. The execu- aging director of ABB Germany, Eberhard von Koerber,
tive committee consists of Swedes, Swiss, Germans, plays a role comparable with that of a traditional Ger-
and Americans. Several members of the executive com- man CEO. He reports to a supervisory board whose
mittee are based outside Zurich, and their meetings are members include German bank representatives and
held around the world. trade union officials. His company produces financial
Reporting to the executive committee are leaders of statements comparable with those from any other Ger-
the 50 or so business areas (BAs), located worldwide, man company and participates fully in the German
into which the company's products and services are apprenticeship program.
divided. The BAs are grouped into 8 business segments, Tbe BA structure meets the national structure at the
for which different members of the executive commit- level of ABB's member companies. Percy Barnevik
tee are responsible. For example, the "industry" seg- advocates strict decentralization. Wherever possible,
ment, which sells components, systems, and software ABB creates separate companies to do the work of the
to automate industrial processes, has 5 BAs, including 50 business areas in different countries. For example,
metallurgy, drives, and process engineering. The BA ABB does not merely sell industrial robots in Norway.
leaders report to Gerhard Schulmeyer, a German mem- Norway has an ABB robotics company charged with
ber of the executive committee who works out of Stam- manufacturing robots, selling to and servicing domes-
ford, Connecticut. tic customers, and exporting to markets allocated by
Each BA has a leader responsible for optimizing the the BA leader.
business on a global basis. The BA leader devises and There are 1,100 such local companies around the
champions a global strategy, holds factories around the world. Their presidents report to two bosses - the BA
world to cost and quality standards, allocates export leader, who is usually located outside the country,
markets to each factory, and shares expertise by rotat- and the president of the national company of which
ing people across borders, creating mixed-nationality the local company is a subsidiary, At this intersection,
teams to solve problems, and building a culture of trust ABB's "multidomestic" structure becomes a reality.

for locomotives across the Continent? For example, explains the willingness to invest so heavily to get
one of our new plants makes power electronics for freight moving on trains through the mountains to
many of the locomotives we sell in Europe. That spe- Italy or Germany and off polluting trucks. We had
cialization creates huge cost and quality advantages. better understand the Alpine terrain and what it
We work to rationalize and specialize as much as we takes to build engines powerful enough to haul
can across borders. heavy loads. We had better understand the effects of
Third, we recognize the limits to specialization. drastic temperature changes on sensitive electronics
We can't ignore borders altogether. We recently won and build locomotives robust enough to keep work-
a $420-million order from the Swiss Federal Rail- ing when they go from the frigid, dry outdoors to
ways - we call it the "order of the century" - to build extreme heat and humidity inside the tunnels.
locomotives that will move freight through the Alps. There are other advantages to a multidomestic
If we expect to win those orders, we had better be a presence. India needs locomotives - thousands of lo-
Swiss company. We had better understand the depth comotives - and the govemment expects its suppli-
of the Swiss concern for the environment, which ers to manufacture most of them inside India. But

HARVARD BUSINESS REVIEW March-April 1991 93


PERCY BARNEVIK

the Indians also need soft credit to pay for what is


imported. Who has more soft credit than the Ger-
mans and the Itahans? So we have to he a German
and an Itahan company, we have to he able to huild
locomotive components there as well as in Switzer-
land, Sweden, and Austria, since our presence may
persuade Bonn and Rome to assist with financing.
We test the horderlines all the time: How far can
we push cross-border specialization and scale
economies? How effectively can we translate our
multidomestic presence into competitive advan-
tages in third markets?

Is there such a thing as a global manager}

Yes, hut we don't have many. One of ABB's higgest


priorities is to create more of them; it is a crucial
hottleneck for us. On the other hand, a glohal com-
pany does not need thousands of global managers.
We need maybe 500 or so out of 15,000 managers to
make ABB work well - not more. I have no interest in
making managers more "glohal" than they have to

"A global company does


not need thousands of
global nnanagers. We need
500 to make ABB work."
he. We can't have people ahdicating their nationali-
ties, saying "I am no longer German, I am interna-
tional." The world doesn't work like that. If you are
selling products and services in Germany, you hetter
he German!
That said, we do need a core group of glohal man-
agers at the top; on our executive committee, on the
teams running our business areas (BAs), in other key
positions. How are they different? Global managers
have exceptionally open minds. They respect how
different countries do things, and they have the
imagination to appreciate why they do them that
way. But they are also incisive, they push the limits
of the culture. Glohal managers don't passively ac-
cept it when someone says, "You can't do that in
Italy or Spain because of the unions," or "You
can't do that in Japan hecause of the Ministry of
Finance." They sort through the debris of cultural
excuses and find opportunities to innovate.
Global managers are also generous and patient.
They can handle the frustrations of language barri-
ers. As I mentioned earlier, English is the official lan-
guage of ABB. Every manager with a global role
must be fluent in English, and anyone with re-
gional general management responsihilities must

94 HARVARD BUSINESS REVIEW March-April


be competent in English. When I write letters to say, "Let's come back to that point later, let me
ABB colleagues in Sweden, I write them in English. review it with my colleagues." A Swede would prefer
It may seem silly for one Swede to write to anoth- to confront the issue directly. How do we undo hun-
er in English, but who knows who will need to see dreds of years of upbringing and education? We
that letter a year from now? don't, and we shouldn't try to. But we do need to
We are adamant about the language requirement - broaden understanding.
and it creates problems. Only 30% of our managers
speak English as their first language, so there is great Is your goal to develop an "ABB way" of managing
potential for misunderstanding, for misjudging peo- that cuts across cultuial differences^
ple, for mistaking facility with Enghsh for intelli-
gence or knowledge. I'm as guilty as anyone. I was Yes and no. Naturally, as CEO, I set the tone for the
rushing through an airport last year and had to company's management style. With my Anglo-
return a phone call from one of our managers in Ger- Saxon education and Swedish upbringing, I have a
many. His English wasn't good, and he was speaking certain way of doing things. Someone recently asked
slowly and tentatively. I was in a hurry, and finally I if my ultimate goal is to create 5,000 little Percy
insisted, "Can't you speak any faster?" There was Barneviks, one for each of our profit centers. I
complete silence. It was a dumb thing for me to say. laughed for a moment when I thought of the horror
Things like that happen every day in this company. of sitting on top of such an organization, then I real-
Glohal managers minimize those problems and ized it wasn't a silly question. And the answer is no.
work to eliminate them. We can't have managers who are "un-French" man-
aging in France because 95% of them are dealing
Where do these new managers come froml every day with French customers, French colleagues,
French suppliers. That's why global managers also
Global managers are made, not bom. This is not a need humility. A global manager respects a formal
natural process. We are herd animals. We Uke people German manager - Herr Doktor and all that - be-
who are like us. But there are many things you can cause that manager may be an outstanding perform-
do. Ohviously, you rotate people around the world. er in the German context.
There is no substitute for line experience in three or
four countries to create a global perspective. You al- Let's talk about the structures of global business.
so encourage people to work in mixed-nationality How do you organize a multidomestic enterprise^
teams. You force them to create personal aUiances
across borders, which means that sometimes you ABB is an organization with three internal contra-
interfere in hiring decisions. dictions. We want to be global and local, big and
This is why we put so much emphasis on teams in small, radically decentralized with centralized
the business areas. If you have 50 business areas and reporting and control. If we resolve those contradic-
five managers on each BA team, that's 250 people tions, we create real organizational advantage.
from different parts of the world - people who meet That's where the matrix comes in. The matrix is
regularly in different places, bring their national per- the framework through which we organize our activ-
spectives to bear on tough problems, and begin to ities. It allows us to optimize our businesses globally
understand how things are done elsewhere. I ex-
perience this every three weeks in our executive
committee. When we sit together as Germans, "ABB has three internal
Swiss, Americans, and Swedes, with many of us liv- contradictions. We want to
ing, working, and traveling in different places, the
insights can be remarkable. But you have to force be giobai and iocal big
people into these situations. Mixing nationalities
doesn't just happen.
and snnaii, decentralized
You also have to acknowledge cultural differences with centralized reporting."
without becoming paralyzed by them. We've done
some surveys, as have lots of other companies, and and maximize performance in every country in
we find interesting differences in perception. Eor which we operate. Some people resist it. They say
example, a Swede may think a Swiss is not com- the matrix is too rigid, too simplistic. But what
pletely frank and open, that he doesn't know exactly choice do you have? To say you don't like a matrix is
where he stands. That is a cultural phenomenon. like saying you don't like factories or you don't like
Swiss culture shuns disagreement. A Swiss might breathing. It's a fact of life. If you deny the formal

HARVARD BUSINESS REVIEW March-April 1991 95


Power Transformers - The Dynamics of Global Coordinafion
ABB is the world's leading manufacturer of power needs of domestic customers. In short, the company
transformers, expensive products used in the transmis- deploys the classic tools of flexible, time-hased man-
sion of electricity over long distances. The husiness agement in an industry that has traditionally competed
generates annual revenues of $1 billion, nearly four on cost and volume.
times the revenues of its nearest competitor. More to As with many of its business areas, ABB built its
the point, ABB's business is consistently and increas- worldwide presence in power transformers through a
ingly profitahle - a real achievement in an industry that series of acquisitions. Thus one of Karlsson's johs is to
has experienced 15 years of moderate growth and spread the new model of competition to the local com-
intense price competition. panies ABB acquires.
Power transformers are a case study in Percy "Most of the companies we acquired had volume
Barnevik's approach to glohal management. Sune problems, cost prohlems, quality prohlems," he says.
Karlsson, a vice president of ABB with a long record in "We have to convince local managers that they can nm
the power transformer field, runs the business area [BA) smaller operations more efficiently, meet customer
from Mannheim, Germany. Production takes place in needs more flexibly - and make money. Once you've
25 factories in 16 countries. Each of these operations is done this 10 or 15 times, in several countries, you
organized as an independent company with its own become confident of the merits of the model."
president, budget, and balance sheet. Karlsson's job is Karlsson's approach to change is in keeping with the
to optimize the group's strategy and performance inde- ABB philosophy; show local managers what's been
pendent of national borders - to set the glohal rules of achieved elsewhere, let them drive the change process,
the game for ABB - while allowing local companies make available ABB expertise from around the world,
freedom to drive execution. and demand quick results. A turnaround for power
"We are not a global business/' Karlsson says. "We transformers takes ahout 18 months.
are a collection of local businesses with intense global In Germany, for example, one of the company's trans-
coordination. This makes us unique. We want our local former plants had generated red ink for years. It is now a
companies to think small, to worry about their home growing, profitable operation, albeit smaller and more
market and a handful of export markets, and to leam to focused than before. The work force has heen slashed
make money on smaller volumes." from 520 to 180, throughput time has been cut by one-
Indeed, ABB has used its global production weh to third, work-in-process inventories have decreased by
bring a new model of competition to the power trans- 80%. Annual revenues have fallen $70 million per year
former industry. Most of ABB's 25 factories are remark- to a mere $50 million - but profits are up substantially.
ably small hy industry standards, with annual sales Today the German manager who championed this
ranging from as little as $10 million to not more than company's changes is in Muncie, Indiana, helping
$150 million, and 70% of their output serves their local managers of a former Westinghouse plant acquired by
markets. ABB transformer factories concentrate on ABB to refonn their operation.
slashing throughput times, maximizing design and ABB's glohal scale also gives it clout with suppliers.
production flexibility, and focusing tightly on the The company buys up to $500 million of materials each

matrix, you wind up with an informal one - and with bis colleagues, the BA manager establishes and
that's much harder to reckon with. As we leam to monitors the trajectory of the business.
master the matrix, we get a truly multidomestic The BA leader is a business strategist and global
organization. optimizer. He decides wbich factories are going to
make what products, what export markets each fac-
Can you v/alk us through hov/ the matrix works} tory will serve, how the factories should pool their
expertise and research funds for tbe benefit of the
Look at it first from tbe point of view of one busi- business worldwide. He also tracks talent - the 60 or
ness area, say, power transformers. The BA manager 70 real standouts around the world. Say we need a
for power transformers happens to sit in Mannheim, plant manager for a new company in Thailand. The
Germany. His charter, however, is worldwide. He BA head should know of three or four people -
runs a business with 25 factories in 16 countries and maybe there's one at our plant in Muncie, Indiana,
global revenues of more tban $1 billion. He bas a maybe there's one in Finland - who could belp in
small team around him of mixed nationalities - we Thailand. (See the insert "Power Transformers - The
don't expect superheroes to run our 50 BAs. Together Dynamics of Global Coordination.")

96 HARVARD BUSINESS REVIEW March-April 1991


PERCY BARNEVIK

year - an enormous presence that gives it leverage on n The BA's management hoard resembles the executive
price, quality, and delivery schedules. Karlsson has committee of an independent company. Karlsson
made strategic purchasing a priority. ABB expects zero- chairs the group, and its members include the presi-
defect suppliers, just-in-time deliveries, and price dents of the largest power transformer companies -
increases lower than 75% of inflation - major advan- people from the United States, Canada, Sweden, Nor-
tages that it is in a position to win with intelligent way, Germany, and Brazil. The board meets four to six
coordination. times a year and shapes the BA's glohal strategy, moni-
Sunc Karlsson believes these and other "hard" advan- tors performance, and resolves big problems.
tages may be less significant, however, than the "soft" D Karlsson's BA staff in Mannheim is not "staff" in
advantages of global coordination. "Our most impor- the traditional sense - young professionals rotating
tant strength is tbat we have 25 factories around the through headquarters on their way to a line jub. Rather,
world, each with its own president, design manager, it is made up of five veteran managers each with world-
marketing manager, and production manager," he says. wide responsibility for activities in critical areas such
"These people are working on the same problems and as purchasing and R&D. They travel constantly, meet
opportunities day after day, year after year, and leaming with the presidents and top managers of the local com-
a tremendous amount. We want to create a process of panies, and drive the coordination agenda forward.
continuous expertise transfer. If we do, that's a source n Functional coordination teams meet once or twice a
of advantage none of our rivals can match." year to exchange information on the details of imple-
mentation in production, quality, marketing, and other
Creating these soft advantages requires internal
areas. The teams include managers with functional
competition and coordination. Every month, the
responsibilities in all the local companies, so they
Mannheim headquarters distributes detailed informa-
come from around the world. These formal gatherings
tion on how each of the 25 factories is performing on
are important, Karlsson argues, but the real value
critical parameters, such as failure rates, throughput
comes in creating infomial exchange throughout the
times, inventories as a percentage of revenues, and
year. The system works when the quality manager in
receivables as a percentage of revenues. These reports
Sweden feels compelled to telephone or fax the quality
generate competition for outstanding performance
manager in Brazil with a problem or an idea.
within the ABB network - more intense pressure,
Karlsson believes, than external competition in the "Sharing expertise does not happen automatically,"
marketplace. Karlsson emphasizes. "It takes tmst, it takes familiari-
The key, of course, is that this internal competition ty. People need to spend time together, to get to know
be constructive, not destmctive. Since the creation of and understand each other. People must also see a pay-
ABB, one of Sune Karlsson's most important johs has off for themselves. I never expect our operations to
been to build a culture of trust and exchange among coordinate unless all sides get real benefits. We have to
ABB's power transformer operations around the world demonstrate that sharing pays - that contributing one
and to create forums that facilitate the process of idea gets you 24 in retum."
exchange. At least three such forums exist today: - WiUiam Taylor

It is possible to leave the organization right there, local companies, maintaining productive relations
to optimize every business area without regard for with top government officials.
ABB's broad collection of activities in specific coun- So we bave a Norwegian company, ABB Norway,
tries. But think about wbat we lose. We have a power witb a Norwegian CEO and a headquarters in Oslo,
transformer company in Norway that employs 400 to make these connections. The CEO has tbe same
people. It builds transformers for the Norwegian responsibilities as the CEO of a local Norwegian
market and exports to markets allocated by the BA. company for labor negotiations, bank relationships,
But ABB Norway bas more tban 10,000 other em- and high-level contacts with customers. Tbis is no
ployees in the country. There are tremendous bene- label or gimmick. We must he a Norwegian compa-
fits if power transformers coordinates its Nor- ny to work effectively in many businesses. Norway's
wegian operation with our operations in power oil operations in tbe North Sea are a matter of great
generation, switchgear, and process automation: national importance and intense national pride. The
recruiting top people from the universities, building government wouldn't - and shouldn't - trust some
an efficient distribution and service network across faraway foreign company as a key supplier to those
product lines, circulating good people among the operations.

HARVARD BUSINESS REVIEW March-April 1991 97


PERCY BARNEVIK

The opportunities for synergy are clear. So is tbe the game by which they run their businesses. They
potential for tension between the business area also have their country boss, to whom they report in
structure and the country structure. Can't the the local setting. I don't want to make too much of
matrix pull itself apart^ this, in all of Germany, where we have 36,000 peo-
ple, only 50 or so managers have two bosses. But
BA managers, country managers, and presidents of these managers have to handle that ambiguity. They
the local companies have very different jobs. They must have the seU-coniidence not to become para-
must understand their roles and appreciate that they lyzed if they receive conflicting signals and the
are complementing each other, not competing. integrity not to play one boss off against the other.
The BA managers are crucial people. They need a
strong hand in crafting strategy, evaluating perfor- Isn't all this much easier said than donei
mance around the world, and working with teams
made up of different nationalities. We've had to It does require a huge mental change, especially
replace some of them - people who lacked vision or for country managers. Remember, we've built ABB
cultural sensitivity or the ability to lead without through acquisitions and restructurings. Thirty of
being dictators. You see, BA managers don't own the the companies we've bought had been around for
people working in any business area around the more than 100 years. Many of them were industry
world. They can't order the president of a local com- leaders in their countries, national monuments.
pany to fire someone or to use a particular strategy in Now they've got BA managers playing a big role in
union negotiations. On the other hand, BA managers the direction of their operations. We have to con-
can't let their role degrade into a statistical coordina- vince country managers that they benefit by being
tor or scorekeeper. There's a natural tendency for part of this federation, that they gain more than they
this to happen. BA managers don't have a con- lose when they give up some autonomy.
stituency of thousands of direct reports in the same
way that country managers do. So it's a difficult bal- What's an example^
ancing act.
Country managers play a different role. They are Finland has been one of our most spectacular suc-
regional line managers, the equivalent of the CEO of cess stories, precisely because the Finns understood
a local company. But country managers must also how much they could gain. In 1986, Asea acquired
respect ABB's global objectives. The president of, Stromberg, the Finnish power and electrical prod-
say, ABB Portugal can't tell the BA manager for low- ucts company. At the time, Stromberg made an
voltage switchgear or drives to stay out of his hair. unbelievable assortment of products, probably half
of what ABB makes today. It built generators, trans-
formers, drives, circuit breakers - all of them for the
"We have to convince Finnish market, many of them for export. It was a
country nnanagers that classic example of a big company in a small country
that survived because of a protected market. Not
they benefit by being surprisingly, much of what it made was not up to
part of this federation." world-class standards, and the company was not very
profitable. How can you expect a country with half
He has to cooperate with the BA managers to evalu- the population of New Jersey to be profitable in
ate and improve what's happening in Portugal in everything from hydropower to circuit breakers?
those businesses. He should be able to tell a BA Stromberg is no longer a stand-alone company. It
manager, "You may think the plant in Portugal is up is part of ABB's global matrix. The company still
to standards, but you're being too loose. Turnover exists - there is a president of ABB Stromberg - but
and absenteeism is twice the Portugese average. its charter is different. It is no longer the center of
There are problems with the union, and it's the the world for every product it sells. It still manufac-
managers' fault." tures and services many products for the Finnish
Now, the presidents of our local companies - ABB market. It also sells certain products to allocated
Transformers in Denmark, say, or ABB Drives in markets outside Finland. And it is ABB's worldwide
Greece - need a different set of skills. They must be center of excellence for one important group of prod-
excellent profit center managers. But they must also ucts, electric drives, in which it had a long history of
be able to answer to two bosses effectively. After all, technology leadership and effective manufacturing.
they have two sets of responsibilities. They have a Stromberg is a hell of a lot stronger because of this.
global boss, the BA manager, who creates the rules of Its total exports from Finland have increased more

98 HARVARD BUSINESS REVIEW March-April 1991


than 50% in three years. ABB Stromberg has become bility for cash flow and dividends. With real balance
one of the most profitable companies in the whole sheets, managers inherit results from year to year
ABB group, with a return on capital employed of through changes in equity. Separate companies also
around 30%. It is a recognized world leader in drives. create more effective tools to recruit and motivate
Stromberg produces more than 35% of all the drives managers. People can aspire to meaningful career
ABB sells, and drives are a billion-dollar business. In ladders in companies small enough to understand
four years, Stromberg's exports to Germany and and be committed to.
France have increased ten times. Why? Because the
company has access to a distribution network it What does that mean for the role of headquarters^
never could have built itself.
We operate as lean as humanly possible. It's no
This sounds enormously complicated, almost un- accident that there are only 100 people at ABB head-
manageable. How does the organization avoid get- quarters in Zurich. The closer we get to top manage-
ting lost in the complexity}

The only way to structure a complex, global orga- "We operate as iean as
nization is to make it as simple and local as possible. hunnanly possibie. You can
ABB is complicated from where I sit. But on the
ground, where the real work gets done, all of our gotoanytraditionai
operations must function as closely as possible to corporate headquarters
stand-alone operations. Our managers need well-
defined sets of responsibilities, clear accountability, and cut staff by 90%."
and maximum degrees of freedom to execute. I don't
expect most of our people to have "global mind- ment, the tougher we have to be with head count. I
sets," to do things that hurt theii business but are believe you can go into any traditionally centralized
"good for ABB." That's not natural. corporation and cut its headquarters staff by 90% in
Take Stromberg and drives in France. I don't want one year. You spin off 30% of the staff into free-
the drive company president in Finland to think standing service centers that perform real work -
about what's good for France. I want him to think treasury functions, legal services - and charge for it.
about Finland, about how to sell the hell out of the You decentralize 30% of the staff - human resources,
export markets he has been allocated. Likewise, I for example - by pushing them into the line organi-
don't expect our profit center manager in France to zation. Then 30% disappears through head count
think about Finland. I expect him to to do what reductions.
makes sense for his French customers. If our French These are not hypothetical calculations. We
salespeople find higher quality drives or more cost- bought Combustion Engineering in late 1989.1 told
effective drives outside ABB, they are free to sell the Americans that they had to go from 600 people
them in France so long as ABB gets a right of first to 100 in their Stamford, Connecticut headquarters.
refusal. Finland has increased its shipments to They didn't believe it was possible. So I told them
France because it makes economic sense for both to go to Finland and take a look. When we bought
sides. That's the only way to operate. Stromberg, there were 880 people in headquarters.
Today there are 25. I told them to go to Mannheim
But how can an organization with 240,000 people and take a look at the German operation. In 1988,
all over the world be simple and locaU right after the creation of ABB, there were 1,600 peo-
ple in headquarters. Today there are 100.
ABB is a huge enterprise. But the work of most of
our people is organized in small units with P&L Doesn't such radical decentralization threaten the
responsibility and meaningful autonomy. Our oper- very advantages that ABB's size creates^
ations are divided into nearly 1,200 companies with
an average of 200 employees. These companies are Those are the contradictions again - being simul-
divided into 4,500 profit centers with an average of taneously big and small, decentralized and central-
50 employees. ized. To do that, you need a structure at the top that
We are fervent believers in decentralization. When facilitates quick decision making and carefully
we structure local operations, we always push to cre- monitors developments around the world. That's
ate separate legal entities. Separate companies allow the role of our executive committee. The 13 mem-
you to create real balance sheets with real responsi- bers of the executive committee are collectively

HARVARD BUSINESS REVIEW March-AprLl 1991 99


PERCY BARNEVIK

responsible for ABB. But each of us also has re- But I want to have informed dialogues with the
sponsibility for a business segment, a region, some appropriate executives.
administrative fi.mctions, or more than one of these.
Eberhard von Koerber, who is a member of the exec- Let's go back to basics. How do you begin building
utive committee located in Mannheim, is responsi- this kind of global organization}
ble for Germany, Austria, Italy, and Eastern Europe.
He is also responsible for a worldwide business area, ABB has grown largely through mergers and strate-
installation materials, and some corporate staff gic investments. For most companies in Europe, this
functions. Gerhard Schulmeyer sits in the United is the right way to cross borders. There is such mas-
States and is responsible for North America. He sive overcapacity in so many European industries
is also responsible for our global "industry" segment. and so few companies with the critical mass to hold
Naturally, these 13 executives are busy, stretched their own against Japanese and U.S. competitors. My
people. But think about what happens when we former company, Asea, did fine in the 1980s. Rev-
meet every three weeks, which we do for a full day. enues in 1987 were 4 times greater than in 1980,
Sitting in one room are the senior managers col- profits were 10 times greater, and our market value
lectively responsible for ABB's global strategy and was 20 times greater. But the handwriting was on
performance. These same managers individually the wall. The European electrical industry was
monitor business segments, countries, and staff crowded witb 20 national competitors. There was up
functions. So when we make a decision - snap, it's to 50% overcapacity, high costs, and little cross-bor-
covered. The members of the executive committee der trade. Half the companies were losing money.
communicate to their direct reports, the BA man- The creation of ABB started a painful - but long over-
agers and the country managers, and the implemen- due - process of restructuring.
tation process is under way. That same restructuring process will come to other
We also have the glue of transparent, centralized industries: automobiles, telecommunications, steel.
reporting through a management information sys- But it will come slowly. There have been plenty of
tem called Abacus. Every month. Abacus collects articles in the last few years about all the cross-bor-
performance data on our 4,500 profit centers and der mergers in Europe. In fact, the more interesting
compares performance with budgets and forecasts. issue is why there have been so few. There should be
The data are collected in local currencies but trans- hundreds of them, involving tens of billions of dol-
lated into U.S. dollars to allow for analysis across lars, in industry after industry. But we're not seeing
borders. The system also allows you to work with it. What we're seeing instead are strategic alliances
the data. You can aggregate and disaggregate results
by business segments, countries, and companies
within countries. "Everyone taiks about
cross-border nnergers in
What kind of information does the executive com-
mittee use to support the fast decision making
Europe. The reai issue is, why
you need} are there so few nnergers?"
We look for early signs that businesses are becom- and minority investments. Companies buy 15% of
ing more or less healthy. On the tenth of every each other's shares. Or two rivals agree to cooperate
month, for example, I get a binder with information in third markets but not merge their home-market
on about 500 different operations - the 50 husiness organizations. I worry that many European alliances
areas, all the major countries, and the key compa- are poor substitutes for doing what we try to do -
nies in key countries. I look at several parameters - complete mergers and cross-border rationalization.
new orders, invoicing, margins, cash flows - around
the world and in various business segments. Then What are the obstacles to such cross-border re-
I stop to study trends that catch my eye. structuring}
Let's say the industry segment is behind budget. I
look to see which of the five BAs in the segment are One obstacle is political. When we decided on the
behind. I see that process automation is way off. So I merger between Asea and Brown Boveri, we had no
look by country and leam that the problem is in the choice but to do it secretly and to do it quickly, with
United States and that it's poor margins, not weak our eyes open about discovering skeletons in the
revenues. So the answer is obvious - a price war has closet. There were no lav^^ers, no auditors, no envi-
broken out. That doesn't mean I start giving orders. ronmental investigations, and no due diligence. Sure,

100 HARVARD BUSINESS REVIEW March April 1991


we tried to value assets as best we could. But then we because of all the tensions with Switzerland. We had
had to make the move, with an extremely thin legal to rationalize the production overlaps, especially
document, because we were absolutely convinced of between Switzerland and Germany. We needed lots
the strategic merits. In fact, the documents from the of new managers, eager people who wanted to be
premerger negotiations are locked away in a Swiss leaders and grow in the business.
bank and won't be released for 20 years. The reaction was intense. Von Koerber faced
Why the secrecy? Think of Sweden. Its industrial strikes, demonstrations, barricades - real confronta-
jewel, Asea - a 100 year-old company that had built tion with the unions. He would turn on the televi-
much of the country's infrastructure - was moving
its headquarters out of Sweden. The unions were
angry: "Decisions will be made in Zurich, we have "Ourtopexeoutive
no influence in Zurich, there is no codetermination in Gernnany faced stril<es.
in Switzerland." dennonstrations, barricades-
I remember when we called the press conference
in Stockholm on August 10. The news came as a real confrontation."
complete surprise. Some journalists didn't even
bother to attend; they figured it was an announce- sion set and see protesters chanting, "Von Koerber
ment about a new plant in Norway or something. out! Von Koerber out!" After a while, once the
Then came the shock, the fait accompli. That start- unions understood the game plan, the loud protests
ed a communications war of a few weeks where we disappeared and our relationship became very con-
had to win over shareholders, the public, govern- structive. The silent resistance from managers was
ments, and unions. But strict confidentiality was our more formidable. In fact, much of the union resis-
only choice. tance was fed by management. Once the unions got
on board, they became allies in our effort to reform
Aie there obstacles besides politics} management and rationalize operations.
Three years later, the results are in. ABB Germany
Absolutely. The more powerful the strategic logic is a well-structured, dynamic, market-oriented com-
behind a merger - the greater tbe cross-border syner- pany. Profits are increasing steeply, in line with ABB
gies - the more powerful the human and organiza- targets. In 1987, BBC Germany generated revenues of
tional obstacles. It's hard to tell a competent country $4 billion. ABB Germany will generate twice that
manager in Athens or Amsterdam, "You've done a by the end of next year. Three years ago, the man-
good job for 15 years, but unfortunately this other agement structure in Mannheim was centralized
manager has done a better job and our only choice is and functional, with few clear responsibilities or
to appoint your colleague to run the operation." If accountability. Today there are 30 German compa-
you have two plants in the same country running nies, each with its own president, manufacturing
well but you need only one after the merger, it's director, and so on. We can see who the outstanding
tough to explain that to employees in the plant to be performers are and apply their talents elsewhere.
closed. Restructuring operations creates lots of pain If we need someone to sort out a problem with cir-
and heartache, so many companies choose not to cuit breakers in Spain, we know who from Germany
begin the process, to avoid the pain. can help.
Germany is a case in point. Brown Boveri had
operated in Germany for almost 90 years. Its Ger- What lessons can other companies learn from the
man operation was so big - it had more than 35,000 German experience}
employees - that there were rivalries with the Swiss
parent. BBC Germany was a technology-driven, low- To make real change in cross-border mergers, you
profit organization - a real underperformer. The for- have to be factual, quick, and neutral. And you have
mation of ABB created the opportunity to tackle to move boldly. You must avoid the "investigation
problems that had festered for decades. trap" - you can't postpone tough decisions by study-
ing them to death. You can't permit a "honeymoon"
So what did you do} of small changes over a year or two. A long series of
small changes just prolongs the pain. Finally, you
We sent in Eberhard von Koerber to lead the effort. have to accept a fair share of mistakes. I tell my peo-
He made no secret of our plans. We had to reduce the ple that if we make 100 decisions and 70 turn out to
work force by 10%, or 4,000 employees. We had to be right, that's good enough. I'd rather be roughly
break up the headquarters, which had grown so big right and fast than exactly right and slow. We apply

HARVARD BUSINESS REVIEW March-April 1991 101


PERCY BARNEVIK

Change Comes to Poland - The Case of ABB Zamech


Last May, Zamech, Poland's leading matitifacturer of blurred managerial authority, confused product-line
steam ttirbines, transmission gears, marine equipment, profitability, and slowed decision making. Within four
and metal castings began a new life as ABB Zamech - weeks, ABB Zamech was reorganized into discrete prof-
a joint venture of ABB (76% ownership), the Polish it centers. Tbere are now three business areas (BAs) -
government (19% ownership), and the company's em- the casting foundry, turbines and gears, and marine
ployees (5% ownership). ABB Zamech employs 4,300 equipment - as well as a finance and administration
people in the town o4 Elhlag, outside Gdansk. In department and an in-bouse service department. Each
Septemher, two more Polish joint ventures became offi- area bas a leadersbip team tbat generates the husiness
cial - ABB Dolmel and Dolmel Drives. These compa- plans, budgets, and performance targets by which tbeir
nies manufacture a wide range of generating equipment operations are judged. Tbese teams made final deci-
and electric drives and employ some 2,400 workers. sions on which employees would stay, which would
The joint ventures are noteworthy for their size go, wbat equipment they would need - tough-minded
alone. ABB has hecome the largest Westem investor in business choices made for tbe first time so as to maxi-
Poland. But they are perhaps more significant for their mize productivity (employee and capital) and business
managerial implications, in particular, how ABB is re- area profitability.
vitalizing these deeply troubled operations. The com- The reorganization was a crucial first step. The sec-
pany intends to demonstrate that the philosophy of ond big step was installing ABB's standard finance and
business and managerial reform it bas applied in places control system. For decades, Zamecb had heen run as a
like Mannbeim, Germany and Muncie, Indiana can giant overhead machine. Roughly 80% of tbe compa-
also work in tbe troubled economies of Eastern Europe. ny's total costs were allocated hy central staff ac-
Tbat philosophy has at least four core principles: countants ratber tban traced directly to specific prod-
1. Immediately reorganize operations into profit cen- ucts and services. Managers had no clear idea what
ters with well-defined budgets, strict performance tar- tbeir products cost to make and thus no idea which
gets, and clear lines of autbority and accountability. ones made money. Tight financial controls and maxi-
2. Identify a core group of change agents from local mum capital productivity are critical in an economy
management, give small teams responsibility for with interest rates of 40%.
championing high-priority programs, and closely mon- Eormal reorganization and new control systems, no
itor results. matter how radical, won't have much of an effect with-
3. Transfer ABB expertise from around tbe world to out big changes in who is in charge, however. ABB made
support tbe cbange process, without interfering with it two important decisions. First, there would be no "res-
or running it directly. cue team" from Westem Europe. All managerial posi-
4. Keep standards high and demand quick results. tions, from the CEO down, would be held by Polish
Barbara Kux, president of ABB Power Ventures, nego- managers from the former Zamech. Second, managers
tiated the Polish joint ventures and plays a lead role in would he selected without regard to rank or seniority;
the turnaround process. "Our goal is to make these indeed, there would be a premium on young, creative
companies as productive and profitable as ABB's opera- talent. ABB was looking for "hungry wolves" - smart,
tions worldwide," she says. "We don't make a 'dis- ambitious cbange agents who would receive intense
count' for Eastern Europe, and we don't expect tbe training and be the core engine of Zamech's revival.
change process to take forever. We provide more tech- Most of the new leaders came from tbe ranks of mid-
nical and managerial support than we might to a com- dle management. Tbe company's top executive, general
pany in the United States, but we are just as demand- manager Pawel Olecbnowicz, ran the steel castings
ing in terms of results." department prior to the joint venture's creation - a
ABB Zamech bas come the furthest to date. The position that put him several layers below the top of the
change program began immediately after the creation 154ayer management hierarchy. Employees had
of the joint venture. Eor decades, tbe company had been already elected him general manager shortly before tbe
organized along functional lines, a structure that creation of ABB Zamech, so he looked like a good

102 HARVARD BUSINESS REVIEW March-April 1991


choice. The marine BA leader had been a production uisite for effective expertise transfer was creating tbe
manager in the old Zamech, another low-level position, infrastructure to make it possible. ABB has linked
and the turhines and gears BA manager had been a tech- Zamech and Dolmel by satellite to its Zurich bead-
nical director. quarters for reliable telepbone and fax communica-
"We put in place a management team that lacked the tions. [It is now easier to communicate hetween
standard husiness tools," Kux explains. "They didn't Zamecb and Zurich and Dolmel and Zuricb than it is
know what cash flow was, they didn't understand between Zamech and Dolmel.) In January, ABB
much ahout marketing. But their ambition was incred- Zamecb began electronically transferring three month-
ible. You could feel their hunger to excel. When we ly performance reports to Zurich - anotber big step to
hegan the talent search, we told our Zamech contacts make communications more intensive and effective.
that we wanted to see the 30 people they would take Once it created the communications infrastructure,
along tomorrow if they were going to open their own however, ABB bad to reckon witb a second language
business." barrier - the language of husiness. To introduce ABB
Next came the process of developing a detailed agen- Zamecb's "hungry wolves" to basic husiness concepts
da for reform. The leadership team settled on 11 priori- and to enahle them to transfer tbese concepts into tbe
ty issues, from reorganizing and retraining the sales ranks, ABB created a "mini MBA program" in Warsaw.
force to slashing total cycle times and redesigning the The program began in September, covers five key mod-
factory layout. Each project was led by a champion - ules (business strategy, marketing, finance, manufac-
some from top management ranks, some from tbe turing, human resources) and is taught hy faculty mem-
other "hungry wolves." A steering committee made up bers of INSEAD, tbe French business school. Sessions
of the general manager, tbe deputy general manager, run from Thursday evening through Saturday noon, use
the business area managers, and Kux meets monthly to translated copies of Westem business scbool cases, and
review these critical projects. closely resemble wbat goes on in MBA classes every-
To support tbe cbange initiatives, ABB created a team where else.
of high-level experts from around tbe world - authori- Tbe change program at ABB Zamech has heen under
ties in functional areas like finance and control and way for less tban a year, and much remains to be done.
quality, as well as technology specialists and managers But it is already generating results. Tbe company is
witb heavy restructuring experience. Team members issuing monthly financial reports that conform to ABB
do not live in Poland. Kux says it is unrealistic to expect standards - a major achievement in light of the simple
top people to spend a year or two in the conditions they systems in place before the joint venture. Cycle times
would find in Elblag. But tbey visit frequently and stay for the production of steam turbines have been cut in
updated on progress and problems. half and now meet tbe ABB worldwide average. A task
The logistics of expertise transfer are more compli- force is implementing a plan to reduce factory space by
cated tban they sound. For example, most of the Polish 20% - an important step in streamlining tbe operation.
managers spoke little or no English - a serious harrier ABB will draw on the Zamech experience as it begins
to effective dialogue. So ABB began intensive language the reform process at Dolmel and Dolmel Drives.
training. "If Polish managers want to draw from the "You can change these companies," Kux says. "You
worldwide ABB resource pool, they must speak can make tbem more competitive and profitable. I can't
English," Kux empbasizes. "Most communication believe tbe quality of the reports and presentations
doesn't bappen face-to-face wbere you can bave an tbese people do today, bow at ease they are discussing
interpreter. Last May, I couldn't simply pick up tbe tbeir strategy and targets. I have worked witb many cor-
pbone and talk to the general manager. Today we speak porate restructurings, but never have I seen so much
in English on tbe pbone almost every day." change so quickly. The energy is incredible. These peo-
Of course, speaking on tbe telepbone in English ple really want to learn; they are very ambitious. Basi-
assumes a working telephone system - a dangerous cally, ABB Zamech is their husiness now."
assumption in tbe case of Poland. Thus anotber prereq- - William Taylor

HARVARD BUSINESS REVIEW March-April 1991 103


PERCY BARNEVIK

these principles everywhere we go, including in So what do you dol


Eastem Europe, where we now have several change
programs under way. [See the insert "Change Comes You don't inform, you overinform. Tbat means
to Poland - The Case of ABB Zamech.") breaking taboos. Tbere is a strong tendency among
Why emphasize speed at the expense of precision? European managers to be selective about sbaring
Because the costs of delay are vastly greater than the information.
costs of an occasional mistake. I won't deny that it We faced a huge communications cballenge rigbt
was absolutely crazy around here for the first few after tbe merger. In January 1988, just days after the
birtb of ABB, we bad a management meeting in
Cannes witb tbe top 300 people in tbe company. At
"Why emphasize speed over tbat meeting, we presented our policy bible, a 21-
precision? Because the page book tbat communicates tbe essential princi-
ples by wbicb we run tbe company. It's no glossy
costs ot deiay exceed the brochure. It's got tougb, direct language on tbe role
costs otmistai<es." of BA managers, tbe role of country managers, tbe
approacb to cbange we just discussed, our commit-
months after the merger. We had to get the matrix in ment to decentralization and strict accountability. I
place - we couldn't debate it - and we had to figure told tbis group of 300 tbat they bad to reacb 30,000
out which plants would close and which would stay ABB people around the world within 60 days - and
open. We took ten of our best people, the superstars, tbat didn't mean just sending out tbe document. It
and gave them six weeks to design the restructuring. meant translating it into tbe local languages, sitting
We called it the Manhattan Project. I personally witb people for a full day and basbing it out.
interviewed 400 people, virtually day and night, to Cannes and its aftermatb was a small step. Real
help select and motivate tbe people to run our local communication takes time, and top managers must
companies. be willing to make the investment. We are tbe "over-
bead company." I personally bave 2,000 ovcrbead
Once you've put the global pieces together and have slides and interact witb 5,000 people a year in big
the matrix concept working, what other problems and small groups. Tbis afternoon, I'll fly up to Lake
do you have to wrestle withi Constance in Germany, wbere we bave collected 35
managers from around tbe world. They've been
Communications. I have no illusions about bow tbere for tbree days, and I'll spend tbree bours witb
bard it is to communicate clearly and quickly to tbem to end tbeir session. Half tbe executive com-
tens of thousands of people around the world. ABB mittee has already been up tbere. Tbese are active,
bas about 15,000 middle managers prowling around working sessions. We talk about bow we work in tbe
markets all over tbe world. If we in the executive matrix, bow we develop people, about our programs
committee could connect witb all of tbem or even around tbe world to cut cycle times and raise quality
balf of tbem and get tbem moving in rougbly tbe I'll give a talk at Lake Constance, but tben we'll
same direction, we would be unstoppable. focus on problems. Tbe manager running bigb-volt-
But it's enormously difficult. Last year, for exam- age switcbgear in some country may be unbappy
ple, we made a big pusb to squeeze our accounts about tbe BA's researcb priorities. Someone may
receivable and free up working capital. We called it tbink we're paying too mucb attention to Poland.
tbe Casb Race. Tbere are 2,000 people around tbe Tbere are lots of tougb questions, and my job is to
world witb some role in accounts receivable, so we answer on tbe spot. We'll bave 14 sucb sessions dur-
bad to mobilize tbem to make tbe program work. ing tbe course of tbe year - one every three weeks.
Three or four months after tbe program started - Tbat means 400 top managers from all over tbe
and we made it very visible wben it started - I visit- world living in close quarters, really communicating
ed an accounts receivable office wbcre 20 people about tbe business and tbeir problems, and meeting
were working. Tbese people badn't even heard of witb the CEO in an open, bonest dialogue.
tbe program, and it should bave been their top pri-
ority. Wben you come face-to-facc witb tbis lack of Let's discuss the politics of global business. For
communication, tbis massive inertia, you can get senior executives, the world becomes smaller every
horrified, depressed, almost desperate. Or you can day. For most production workers, though, the
concede that tbis is tbe way tbings are, tbis is bow world is not much different from the way it was 20
tbe world works, and commit to doing something years ago, except now their families and communi-
about it. ties may depend for jobs on companies with head-

104 HARVARD BUSINESS REVIEW March-April 1991


quarters thousands of miles away. Why shouldn't basis. Combustion represents 80 years of excellence
these workers worry about the loss of local and in this technology. Unfortunately, the company
national controU sank quite a bit during the 1980s, like many of
its U.S. rivals, because of the steep downturn in
It's inevitable that a global business will have the industry. It had hecome a severely weakened
global decision centers and that for many workers organization.
these decision centers will not be located in their Today, however, the business is coming back, and
community or even their country. The question is, we have a game plan for the United States. We plan
does the company making decisions have a national to beef up the Windsor research center to three or
ax to grind? In our case the answer is no. We have four times its current size. We want to tie Windsor's
global coordination, but we have no national bias. work in new materials, emissions reduction, and
The 100 professionals who happen to sit in Zurich pollution control technology with new technologies
could just as easily sit in Chicago or Frankfurt. We're from our European labs. That will let us respond
not here very much anyway. So what does it mean to more effectively to the environmental concerns here.
have a headquarters in Zurich? It's where my mail Then we want to combine Combustion's strengths in
arrives before the important letters are faxed to boilers with ABB's strengths in turbines and genera-
wherever I happen to be. It's where Abacus collects tors and Westinghouse's strengths in transmission
our performance data. Beyond that, I'm not sure if it and distribution to become a broad and unique sup-
means much at all. plier to the U.S. utility industry. We also have an
Of course, saying we have no national ax to grind ambition for Combustion to be much more active in
does not mean there are any guarantees. Workers world markets, not with sales agents but througli the
will often ask if I can can guarantee their jobs in ABB multidomestic network.
Norway or Finland or Portugal. I don't sit like a god- What counts to this production worker is that we
father, ailoeating jobs. ABB has a global game plan, deliver, that we are increasing our market share in
and the game plan creates opportunities for employ- the United States, raising exports, doing more R&D.
ment, research, exports. What I guarantee is that That's what makes an American worker's life more
every member of the federation has a fair shot at the secure, not whether the eompany has its headquar-
opportunities. ters in the United States.

Let's say you're a production worker at ABB Com- Don't companies like ABB represent the beginning
bustion Engineering in Windsor, Connecticut. TWo of a power shift, a transfer of power away from na-
years ago, you worked for a company that you knew tional government to supranational companies}
was an "American" company. Today you are part of
a "federation" of ABB companies around the world. Are we ahove govemments? No. We answer to gov-
Shouldyou behappy about that} ernments. We obey the laws in every country in
which we operate, and we don't make the laws. How-
You should be happy as hell about it. A production ever, we do change relations between countries. We
worker in Windsor is probably in the boiler field. He function as a lubricant for worldwide economic
or she doesn't much care what ABB is doing with integration.
Think back 15 years ago, when Asea was a Swed-
ish electrical company with 95% of its engineers in

I
"I don't Sit like a Sweden. We could complain about high taxes, ahout
godfather aliooating jobs how the high cost of living made it diffieult to
recruit Cermans or Americans to come to Sweden.
omong oountries/' But what could Asea do about it? Not much. Today I
ean tell the Swedish authorities that they must cre-
process automation in Columbus, Ohio, let alone ate a more competitive environment for R&D or our
what we're doing with turbines outside Gdansk, researeh there will decline.
Poland. And that's fair. Here's what I would tell that That adjustment process would happen regardless
worker: we aequired Combustion Engineering of the creation of ABB. Global companies speed up
because we believe ABB is a world leader in power the adjustment. We don't create the process, but we
plant technology, and we want to extend our lead. push it. We make visible the invisible hand of global
We helieve that the United States has a great future competition. ^
in power plants both domestically and on an export Reprint 91201

HARVARD BUSINESS REVIEW March-April 1991 105