Asea Brown Boveri - From Bureaucratic to Matrix Organization structure

Submitted by: Ankur Agrawal, U111067

Introduction: The ABB group was formed in 1988 as a result of the merger between
Sweden based engineering group, Asea AB and Switzerland- based Brown Boveri Limited. Mr. barnevik, earlier CEO of Asea became CEO of ABB group. He globalized the ABB with operation in around 100 countries and established it as a dominant player in Industrial electrical equipment industry and competing with companies such as GE, Emerson Electric and ITT. Now challenge for the organization was integration and same time responsiveness across the countries. To consolidate ABB as a group, management went through frequent organization restructuring from matrix organization to customer-oriented sector based organization, which led to strategy failure, functional level problems and poor performance. Mr. Barnevik narrowed down his management strategy as ABB- to be global and local, radically decentralized with central control. This hybrid structure (Decentralization with central control) facilitated development of global strategies and same time able to consider local conditions to increase the proximity with customers and quick decision making process. Whenever ABB ventured in ne market, local company managers would be responsible for overall management of each centre. It allowed ABB to become a global player with local touch. So we can conclude that geographical diversification in matrix structure exploited the economy of scope with a synergy trade-off between business segments and functions. To revert back to better synergy across the business segments, ABB adopted sector based organization structure (similar to divisional structure). Questions for Discussion: 1. Matrix Organization Structure: No, matrix organization can¶t be successful in every situation. As in case of ABB itself one of the challenges was to integrate the work cultures of two massive organizations- Asea (Sweden-based) and Brown Boveri (Switzerland based). The company had to induce a change in the attitude of employees who were used to a bureaucratic culture. Although dual reporting system of matrix structure ensured that both geographical and product specific interests were considered well, but it also led to slow decision making and response to customer requirement. In contrast a sector based structure led to: y Simplification of management structure y Quick response to customers¶ requirement and faster decision making y Synergy across the business segments y Better project and work co-ordination y Expansion co-ordination by providing the scope for dissolving regional structures. 2. Examples of two major matrix structure failures are ABB itself and Unilever. Reasons for ABB are explained in Question-1. Unilever on same lines as ABB has been going through frequent organization structure change from 1996. Reason was the same, slower response to customers and sluggish decision process. Same times there are also examples of high performers with matrix structure like P&G, IBM, Nokia and CISCO.

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