Finance

In the case study titled “ABB’s Relay Business: Building and Managing a Global Matrix”, the author attempted an examination of the success and challenges that occurred as a result of the decision to merge two medium scale telecommunications companies - Asea and Brown Boveri. The merger was necessitated by the depression in the utility equipment market. As a result of this, the chairmen of both companies met and decided it was in the best interest of the two companies to come together in forming an allegiance that will place them in a position where they can operate on a global scale. The merger was completed in 1987 when Asea Brown Boveri was birthed and the former chairman of Asea chosen to be the leader of the transition process.

As expected from any merger, the new company, under the leadership of Percy Barnevik, planned a process that will bring about a radical change in the afore existing companies, Envisioned and equipped with the right frame of mind, Barnevik sought to bring about a much needed change that had brought the two companies together. His vision was informed by two major facts - that the declining trend in the power generation capacity will soon reverse itself and only companies that operate on a global scale can maximize this change that is about to occur and the fact that government hold much control and ownership of power companies and that only companies that have a strong national presence will eventually stay in business.

With the formation of the new company came a new philosophy. After painstakingly choosing the managers who will lead the company in the change process at different levels, Barnevik built an organization that was accommodating and allowed the workers in the company to work at their optimum level. The workforce was reduced in order to increase productivity and ensure that every worker brought value into the company. The new company was run on the principles of decentralized duty and personal accountability and there was a system that constantly checked if the company was still in alignment with the vision on which it was built. On the overall, the change process was successful and the new system introduced worked. Within four years of operation, the company grew internally and made acquisition of other distressed companies, becoming the giant in the industry.

The success of ABB can be attributed to some specific principles. The first is the autonomy given to the managers of the acquired companies which afforded them the privilege of controlling their resources and direct management of employees. Apart from this, the structure of the company allows freedom of expression of subordinate workers and all workers are carried along in the management process. Core to the company’s philosophy is the idea that team spirit and teamwork is necessary for organizational growth and a bias for accountability in order tom ensure the full participation of all employees. In the place of total restructuring, managers of the newly acquired companies report to certain departmental heads that play supervisory roles.

However, the newly introduced system had its own disadvantages. For instance, the company’s philosophy of decentralization created a sort of duplication of roles. Managers often had a problem with who to report to between the BA and the Head of Management of each country. Apart from this, there was managers experienced competition from within the organization in the sense that there were several companies in the same organization that produced the same products and competed in the same market. In addition to this, the idea of reporting to centralized bodies clashed with the founding principle of Barnevik company of ‘Better roughly and quickly than carefully and slowly”. Also, there was the problem of meeting set deadlines and participating in the company’s amalgamation processes that appears to be time consuming.

In solving these problems, my recommendations are as follows; that role of the central management body should be totally separated from that of the national management body. This can be done by clearly stating the extent of power and responsibility of the two positions. Also, companies that are involved in the same kind of production should ensure that they exchange ideas and technologies in order to maximize output. In this sort of situation, there should be a system that encourages the proper relations between companies that are involved in the same kind of production. Staffs may be occasionally transferred from one company to the other to help buffer the expertise that is lacking in the other company. Finally, the role of the central body should be reduced to a supervisory role in order to ensure faster decision making. Managers of companies should be left with the sole responsibility of making decisions. They should also be given the power to take matters in their hands if they perceive that the BA is taking more time than necessary.