A.B.B., the world's leading power engineering company, is one of the most lauded and publicly dissected businesses of our time. Case studies abound. Those paying homage include Sumantra Ghoshal and Christopher A. Bartlett in their book, The Individualized Corporation: A Fundamentally New Approach to Management, and Tom Peters, prolific author of management books.
A.B.B. is routinely decorated with corporate baubles as Europe's most admired company. Scholars of modern management and commentators praise; analysts purr.
Kevin Barham and Claudia Heimer, authors of A.B.B., The Dancing Giant: Creating the Globally Connected Corporation, seek to examine the reality behind the burgeoning mythology. Dr. Barham, who is director of the Ashridge Centre for Management and Organisation Learning at Ashridge College in Britain, and Dr. Heimer, who is business director and a member of the management team at Ashridge Consulting, succeed in producing a balanced, accurate and carefully argued response to the hyperbole.
First come the facts. Asea, a Swedish company founded in 1883, and B.B.C. Brown Boveri Ltd., a Swiss company founded in 1891, created A.B.B. Asea Brown Boveri Ltd. in 1987. With the ink of this 50-50 merger hardly dry, the new company acquired 15 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, A.B.B. had 213,000 employees in 1,000 companies around the world. Its major business segments include power generation; power transmission and distribution; industrial and building systems; financial services, and rolling stock.
When the A.B.B. Group was created, it was the biggest cross-border merger since Royal Dutch Shell's coupling. Percy Barnevik, who had been in charge of the Swedish company, became the C.E.O. of the A.B.B. Group and revolutionized its organization and performance. He was succeeded by Gören Lindahl in 1997.
Along the way, Mr. Barnevik has been compared with John F. Welsh Jr., who became chief executive officer of the General Electric Company when he was 45 years old. There are similarities. Both men have a long-held and passionate disdain for bureaucracy. Mr. Barnevik is famous for his 30 percent rule (on taking over a company, 30 percent of headquarters staff are fired, 30 percent moved to other companies in the group, 30 percent spun off into separate profit centers; 10 percent get on with the work). Both Mr. Barnevik and Mr. Welch are inveterate and powerful communicators who have managed to maintain a heady tempo of change. They have changed — then changed again.
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 fit together (by luck or insight, no one knows for sure). Then, quite simply, Mr. Barnevik made it work.
"The challenge set by Mr. Barnevik was to create — out of a group of 1,300 companies employing 210,000 people in 150 countries — a streamlined, entrepreneurial organization with as few management layers as possible," write Dr. Barham and Dr. Heimer.
To enable this to happen, Mr. Barnevik introduced a complex matrix structure — what Mr. Lindahl has 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.
A.B.B.'s matrix structure has been the source of much debate. It has been hailed as a new organizational model and Mr. Barnevik as the General Motors Corporation's Alfred P. Sloan reincarnated. (Perhaps this is what G.M. had in mind when it appointed Mr. Barnevik as a non-executive director.) Dr. Barham and Dr. Heimer shrewdly ignore such debates and concentrate on the nitty-gritty of understanding just why Mr. Barnevik introduced the system and how it can actually work. Mr. Barnevik argues that the matrix system is simply a formal means of recording and understanding what happens informally in any large organization. The spider's web of the matrix is a fact of life.
Natural or not, the truth is that A.B.B.'s structure is complex and ambiguous. "A.B.B., The Dancing Giant" can give the impression that A.B.B. will not work as a corporate role model. ("I do not believe that you can mechanically copy what another company has done," advises Mr. Barnevik. And indeed, Mr. Lindhal tweaked the system in September 1998 to suit his management style and goals.)
As a sophisticated means of managing A.B.B., though, Mr. Barnevik's system proved highly effective. What holds this "globally connected" company together, Dr. Barham and Dr. Heimer write, is deep-rooted local presence; global vision; cross-border understanding; global values and principles for managing creative tension; global connection at the top, and global ethics. In addition, it requires a chief executive officer with the rare dynamism and intelligence of Mr. Barnevik. Imitators beware.
While it may prove unwise to slavishly copy A.B.B., the company is inspirational in other ways. A.B.B.'s 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 through, backed by analysis, then made and carried out decisively. A.B.B. is a ringing endorsement for professional management at the end of the 20th century.
None of this happened overnight or easily. But, it all happened deliberately. Throughout, there is a keen feel for commonsensical managerial decisions leading to a greater corporate destiny. Certainty, clarity and communication are the key themes that emerge from Dr. Barham's and Dr. Heimer's book. These are the basic gifts of Mr. Barnevik and the gifts he has given to A.B.B. He possesses a rare certainty of judgment. He communicates constantly and brings absolute clarity to his decisions. A.B.B. does much the same, and the fact that Mr. Barnevik managed the succession of Mr. Lindahl so adroitly and sensitively suggests that it will continue to do so.
Stuart Crainer ([email protected]) is a U.K.-based business journalist and a contributing editor to strategy+business. Mr. Crainer is author and editor of numerous management books, including the Financial Times Handbook of Management (Financial Times Prentice Hall, 2001) and The Management Century: A Critical Review of 20th Century Thought and Practice (Jossey-Bass, 2000).