BUSINESS: The Ultimate Resource

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MANAGEMENT GIANT
Percy Barnevik
Timeline
1941 1966 1975 1980 1987 Born. Joins the Johnson Group. Moves to the United States as president of Sandviks U.S. operations. Joins ASEA of Sweden as president and C.E.O. Orchestrates ASEA and Brown Boveri merger to form ABB. Becomes president and C.E.O. 1996 Becomes chairman of ABB. 1997 Becomes nonexecutive chairman of ABB and chairman of Investor AB. 1998 ABB has 213,000 employees in 1,000 companies in 150 countries. 1999 Becomes chairman of AstraZeneca plc.

Summary
Percy Barnevik, born in 1941, may be the best-known nonAmerican C.E.O. of our times. Creator and manager of the Swedish-Swiss engineering group Asea Brown Boveri (ABB), Barnevik revolutionized its organization and performance until he was succeeded by Gran Lindahl in 1997 (Lindahl was succeeded in 2000 by Jrgen Centerman). Barnevik now runs the powerful Swedish investment group Investor. Barneviks claim to fame is building an agile group of 1,300 companies employing 210,000 people in 150 countries. His constantly repeated aim has been to reap the advantages of being a large organization while also having the advantages of smallness. Although ABBs complex matrix structure has been hailed as a new organizational model, Barnevik himself argues that the matrix system is simply a formal means of recording and understanding what happens informally in any large organization. The spiders web of the matrix is a fact of life.

Background and Rise

Born in Sweden in 1941, Percy Barnevik obtained an MBA from the School of Economics, at Gothenburg in 1964 before traveling to the United States to study at the Stanford graduate School of Business. Between 1966 and 1969, he worked his way up through the Johnson Group. Then he moved to Sandvik AB, where initially he was head of administration and group operations. In 1975 he became president of the companys U.S. operations, and in 1983 became chairman of the board. However, Barnevik is best known for his role at the Swedish company Asea, which he joined in 1980 as president and C.E.O. For the next few years after this appointment, Barnevik concentrated on turning Asea around. By 1987 he had transformed Asea from a $2-billion company into a $9-billion company, ranked in
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the top ten companies in its field worldwide. It was a credible performance, but Barnevik had bigger things on his mind. Swiss-German-Italian company Brown Boveri had competed with Asea for over a century. Why be rivals, thought Barnevik, when together they could be the dominant force in their market?

Defining Moments
When the merger was announced on August 10, 1987, the corporate world was stunned. The Wall Street Journal said that it was a merger born of necessity, not of love. This overlooked the uncanny fit between the two companies. It was truly a marriage made in corporate heaven. Brown Boveri was international; Asea was not. Asea excelled at management; Brown Boveri did not. Technology, markets, and cultures fitted together (whether by luck or insight, no one knows for sure). Then, quite simply, Barnevik made it work. Four months after the deal was signed, Barnevik called a meeting in Cannes, France. Attending were over 300 executives he had handpicked to manage the new company. Barnevik and his directors had spent hours interviewing hundreds of executives and sifting through corporate documents to distill the strengths of the two companies. From this they compiled ABBs bible, a corporate blueprint containing the goals and values of the organization. This was what Barnevik presented to the troops in Cannes. The ink on the merger was barely dry when the new company acquired 15 more companies. Within two years, it had added the power transmission and distribution operations of the Westinghouse Electric Corporation, and purchased the Combustion Engineering Group, along with about 38 other companies. Focus then shifted to Eastern Europe, parts of the former Soviet Union, and Asia. By 1998, ABB had 213,000 employees in 1,000 companies in 150 countries. Its major business segments included power generation, power transmission and distribution, industrial and building systems, financial services, and rolling stock. Incorporating over 1,000 companies within one streamlined, entrepreneurial organization with as few management layers as possible was a major challenge for Barnevik. It required a radical rethinking of organizational structure and management practice. To enable it to happen, Barnevik introduced a complex matrix structurewhat his successor as C.E.O., Gran Lindahl, called decentralization under central conditions. The company was run by an executive committee, with the organization below divided by business areas, company and profit centers, and country organizations. The aim was to reap the advantages of being a large organization while also having the advantages of smallness. ABBs matrix structure has been the source of much debate. Though it has been hailed as a new organizational model and Barnevik as GMs Alfred P. Sloan, Jr. reincarnated, Barnevik himself argues that the matrix system is simply a formal means of recording and understanding what happens informally in any large organization. Barneviks changes in the company are inspirational in other ways. ABBs management style and philosophy could be summarized as management for and by grown-ups. The company is seemingly free of pointless in-fighting; constructive debate is welcomed; managers from different countries work together effectively. One gets the impression that decisions are thought
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through, backed by analysis, then made and carried out decisively. ABB is a ringing endorsement for professional management. Barnevik has been compared favorably with General Electrics Jack Welch. In 1997 Barnevik moved on to new challenges. He remained a nonexecutive chairman of ABB, but day-to-day running of the conglomerate was handed over to Lindahl. His achievements at ABB were reevaluated in the years after his departure and it wasnt all good news. An article in Forbes magazine in 1999 noted that Barnevik left behind a tired manufacturing firm mired in 19th-century assets. The numbers spoke. Net profit margin was down to 1.8% in Lindahls first year in office, and Lindahl moved to reduce costs and decisionmaking time. He cut 13,000 workers, shut 12 factories, and then axed 100 managers. Lindahl stepped down in 2000, acknowledging the companys growing involvement in the information technology industry. IT, he said, was at the heart of the strategy to transform the industrial group from one that is dependent on heavy engineering assets, into an agile, knowledge-based company dependent on intellectual assets. ABBs new C.E.O., Jrgen Centerman, has spent his career in ABBs high-tech automation division, rather than the heavy engineering side of the business. Barnevik meanwhile has joined Swedish industrial holding company Investor AB, owned by the Wallenberg family. His role as chairman involves overseeing an empire that includes companies such as Scania, AstraZeneca, Incentive, ABB, Enso Stora, Ericsson, Atlas Copco, SKF, Electrolux, and SAS. In 1999, he became chairman of drugs company AstraZeneca.

Context and Conclusions

Percy Barnevik is probably the most well-known European manager of our times. After turning Swedish company Asea around, he orchestrated the biggest European cross-border merger of all time. By 1998, the conglomerate he constructed employed 213,000 employees in over 1,000 companies in 150 countries. If the companys size was impressive, Barneviks handling of it was more so. He created a complex matrix structure spinning out over 5,000 profit centers, which were both independent and interconnected. The ABB merger and restructuring has become one of the most dissected business case studies of all time. Barnevik is also famous for his 30% rule: on taking over a company, 30% of headquarters staff are fired; 30% moved to other companies in the group; 30% spun off into separate profit centers; and 10% get on with the work.

For More Information

Book: Kets de Vries, Manfred F. R., with Elizabeth Florent-Treacy. The New Global Leaders: Richard Branson, Percy Barnevik, David Simon, and the Remaking of International Business. San Francisco: Jossey-Bass, 1999.
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