`Mr. Barnevik, Aren't You Happy Now?'
In late August, energy and engineering giant ABB Asea Brown Boveri Ltd. announced new plans. It is carving its global operations into three superregional groups for Europe, the Americas, and Asia, paring down its executive board, and folding six industrial divisions into four. The moves are part of a second radical restructuring since Sweden's Asea merged with Switzerland's Brown Boveri in 1987. Chief Executive Officer Percy Barnevik spoke with BUSINESS WEEK Bonn Correspondent Gail Schares about the perpetual revolution inside the $30 billion behemoth.
Q What's the purpose of this most recent reorganization?
A Some changes were needed. One is to better handle plant business in some areas. The other is to handle the regional challenge in the Americas, in the new Europe--East and West--and in Asia; to really be able to cross borders. Utilities and railways used to be national. Now, trains run into different countries on each other's tracks. Utilities are buying into each other.
Q Didn't you have a massive restructuring in the late 1980s?
A I try to make people at ABB accept that change is a way of life. I often got the question from Swiss and Germans: "Mr. Barnevik, aren't you happy now? Can't we relax a bit?" They see new targets as a threat or an inconvenience. But I say you must get used to the idea that we are changing all the time.
Then, there's the cut in people. The fact is, Western Europe is in the third year of its worst recession since World War II. On top of that, we have East-West integration, and it means, in the short term, certain difficulties for those whose jobs will move to Eastern Europe. But it means also that combined, we will be stronger, just like Mexico and the U. S.
Q The new structure seems to concentrate power in fewer hands. Is this a reversal from decentralization?
A It's not a reversal. We're combining certain areas under common management to better handle turnkey plants. We already do this in trains and power plants. It's a third dimension. You have a country dimension, a product dimension, and a turnkey plant dimension. We call it economy of scope. If you can offer everything in your smorgasbord--the boiler, the turbine, the air-pollution control, automation-control system--then you can offer the customer economy of scope.
The second thing we did was concentrate management under three regions.
Q So geography is key.
A We've got more and more cross-border issues that can't be resolved by one country manager or by one global manager. We want to be a regional player. The European region has a role to play in East-West relations, in Brussels, and when it comes to sending electricity from one country through another to a third-country customer. In Asia, we have tremendous growth. There are regional common issues you can't just leave to each individual country.
The same thing in North America, [now that we have] NAFTA emerging. I see a clear opening to the south and a bigger interest of the U.S. in South America. We already have a $1 billion business there that can thrive better under common regional management. We are no longer a Europe-based company. We are a triad company with representation in the three regions.
Q Can Europe regain its competitiveness against Japan and the U. S.?
A We are lagging, but I think you see all over Europe a determined effort [by the region] to lift itself up: in autos, in our industry. Another mentality is emerging, more focused on customers.
Q The Germans are dangerously tardy in launching restructuring efforts.
A Yes, but it would be worse if they were standing still. I see no reason why we should be behind the Japanese in any aspects of quality and time-based management. Japan has no inherent national advantage. Now, they have a high yen and their share of difficulties.
Q How much will you invest in Asia?
A We are committed to a $1 billion investment program over a few years. But the big thing is not the money, it's the people. You need many expatriates to train them. You need to bring technology. That's an enormous effort. We do the same thing in eastern Europe, for example, because we believe that we should have Polish managers in Poland.
Q Is it possible to transplant ABB's multidomestic philosophy to American companies such as IBM?
A Yes. Big companies must find a way to run in a decentralized manner. The advantage we have is that there are 17 nationalities in our headquarters. Most companies have strong roots in one country. ABB has come together by merging 50 companies with 100 years of tradition in a number of different countries.