ABB, Asea Brown Boveri, was formed in 1988 by the merger of two giant power equipment companies, Asea of Sweden and Brown Boveri of Switzerland. Since then, the company has gone through aggressive acquisition, restructuring and growth. In 1994, the company reported the revenue of $29,718 million and 207,557 employees worldwide. ABB is renowned for its organization structure of global matrix that balance the global business focus of each business areas (BAs) with the national market focus of 1,300 local companies grouped under the umbrella of several country-based holding companies.

The Philosophy and the Structure of Matrix Organization

ABB’s global matrix is a structure designed to leverage core technologies and global economies of scale without eroding local market presence and responsiveness. Along one dimension, ABB is a distributed global network with each executive make decision on a certain product from anywhere in the world. Along another dimension, it is a collection of national companies.

The twin principle that make this global matrix organization unique yet workable are decentralized responsibility and individual accountability. The CEO, Percy Barnevik’s belief in decentralized organization is based on the assumption that local presence and quick decision-making are crucial in power industry where the customers are only nationals. Remarkably small corporate staff, only 150 for over 200,000 employees worldwide and transparent reporting system “ABACUS” enable the company to commit to the two principles while keeping necessary central control. ABACUS, Asea Brown Boveri Accounting and CommUnication System, is the direct transmission system of financial results from 4,500 profit centers of 60 BAs to corporate headquarters.

More intensive than the information system ABACUS is the communication to the managers by Barnevik, who travels 200 days a year with his large bag of overhead transparencies. This communication-intensive tendency spreads to other executives like Goeran Lindahl, EVP for power transmission group which includes relay business, who encouraged managers to grow out of administrators and become leaders of self-driven, self-renewing organization. While the responsiveness and the local presence are secured by this decentralization, the economy of scale and technological excellence are achieved by cross-fertilizations and healthy internal competition within BA’s function councils across countries.

The Challenges in Building a True Global Matrix

The unique and novel organization structure, however, pose several challenges regarding cultural differences, resource allocation, and global/local optimization.

ABB has achieved the worldwide presence mostly by acquisitions, which mean the unification of once bitter competitors. The coordination of vastly different management cultures is critical to this type of organizations arrangement. So far, the company seems to have managed this issue well by intense communication.

Second issue is, as I call, two-bosses problem. Except for the very senior executives, every manager has two superiors to report to along the two dimension of the matrix. If the bosses having different interests, conflicts in resource allocation arises and resolved by any ambiguous and stressful manner, often resulting in local optimums. (see the case #1 below)

Lastly, it is difficult to draw the line for how far the company wants to go global and how much it retains the local adaptation. Pre-designed global task allocation often does not fit to actual opportunities in the local market. Similarly, global efforts can eroded the profits (at least in short-term) as well as the independence of the local companies. Because there is no framework to resolve these issues, managers tend to make by decision case-by-case basis. (please see the case #2,3)

Case #1: Bouncing the investment burden

American relay business company, with the support of BA, asked for approval of $1million for new product development, but was rejected by the regional holding company. The regional company wanted to cover the loss of other business by withholding the investment, and suggested BA to develop the product in other region.

Case #2: Swiss company’s low value-adding involvement in the Mexico project.

According to the global task allocation in relay BA, project management should be done by Swiss, but, in this case, Mexico company was able to provide total service to the customer. There was a little adding value for Swiss company’s involvement in this project in which the product was sourced from elsewhere. BA decided to make exceptions to the task allocation rule in the cases of local company’s having enogh expertise.

Case #3: Comsys project of relay BA

The BA’s development project for a global base of hardware and software took away substantial R&D resources from local companies without any forseeable success in years ahead. The project was not only eroding R&D capabilities and profitability of local companies (at least in short-term) but also polluting their feeling of independent initiative.