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ABB Chief Kindle: Firm Has Learned Much from Travails of Recent Past Sign Up to receive Daily News Alerts in your E-mail Inbox
Posted on Sunday, April 15, 2007 6:00:00 AM |
What do Swiss automation giant ABB and IBM have in common? Aside from the fact that they are both vendors of technology and services, and, in some cases, even partners, the more poignant parallel is that they both survived financial hardships that could have put them out of business.
In 1993, IBM faced the PC and client-server revolution that not only jeopardized its mainframe heritage, but put the company about $8 billion in the hole -- that was the annual net loss IBM reported that year. ABB's trials, on the other hand, were not related to technology innovation and competitive pressure; rather, the company had to contend with legal liability resulting from asbestos lawsuits hurled at its U.S.-based subsidiaries Combustion Engineering (CE) and ABB Lummus Global. Both companies not only have survived their tests, but they have thrived. A key to their successes? Loyalty -- as in loyalty to customers.
"Between 2001 and 2003, ABB went through a crisis," said Fred Kindle, ABB's president and CEO, during his opening keynote at the company's recent Automation World Conference, which hosted roughly 2,500 customers. The asbestos misfortune caused the company to incur a substantial amount of debt and ultimately forced ABB to file a bankruptcy plan for its CE subsidiary. The plan included setting up a $1.2 billion trust fund to handle all claims filed after the Chapter 11 reorganization. Due to a ruling by a U.S. court, Lummus Global was not included in the bankruptcy plan, but ABB quickly worked toward a resolution, which may have saved its reputation with both shareholders and customers.
Today, ABB has stabilized its balance sheet, having announced that 2006 net income rose 89% to $1.3 billion on revenue of $24 billion, up 11% over 2005.
ABB now sits on solid financial ground, but that wouldn't mean anything if the company didn't take something away from the asbestos experience. According to Kindle, who came on board as CEO in January 2005, the last few years have been an eye-opener. "It taught us a lesson. We're here to build value [for our] customers ... and to build relationships."
"Collaborate to cope" was Kindle's message, because, as he stated, "the world is becoming an uncertain place."
One of the influences that make it so, he said, is globalization, which is rapidly expanding beyond China and India into Brazil, Russia, Pakistan, and Vietnam. Another factor is the evolving Internet, in the form of Web 2.0, which has introduced wikis, blogs, wireless LANs, and personal area networks (PANs), such as Bluetooth. With these tools, industry observers suggest, the amount of digital content flowing around the world doubles every 12 hours. Then there are environmental elements, such as the fight for natural resources and the changing climate, which impact business. All of these influences require companies to think differently, Kindle said. And they require corporate partnerships.
ABB and IBM, in fact, have formed a strong partnership. In 2003, the duo struck a 10-year outsourcing deal that made IBM Global Services responsible for most of ABB's information systems infrastructure. ABB entered the partnership so that it could concentrate on its core industrial business.
IBM's service model is what allowed the company to reinvent itself after the PC revolution. And ABB is learning from its outsourcing partner by building out its own service business. To date, ABB employs roughly 11,000 people in services in its Process Automation business, which accounted for $5.4 billion of ABB's worldwide revenue in 2006.
The opportunity ABB seeks is to help companies reduce their energy expenses and increase manufacturing control through service-based applications, such as wireless condition monitoring, said ABB Chief Technology Officer Peter Terwiesch, in a presentation at the user conference in Orlando, FL, in March.
Wireless and services are not novel concepts, but Kindle implied that ABB brings a thoughtful and insightful level of experience and understanding to the table when it comes to working with customers.
As a CEO, "you can't fall prey to the vanity game and do something for short-term applause," Kindle said. Instead, you must make a long-term, collaborative investment. That's the corporate mind-set that ABB carries across its five business units: Power Products, Power Systems, Automation Products, Process Automation, and Robotics.
That business sensitivity -- along with strong technology and an evolving services arm -- is helping ABB to make more and more deals, ABB executives said. And in some respects, customers agree.
"A supplier needs to understand the customer's pain and be willing to address that," said Larry Jackson, vice president of strategic sourcing for Fluor Corp., during an executive panel at ABB Automation World.
Fluor, for example, won a government contract to restore electricity in Iraq, but the marching orders were intense: It had to be cheap and the grid had to be operational in 120 days, which left little room for error. Fluor and ABB engineers worked together to find a solution. "We locked them in a room, threw pizza under the door, and told them they couldn't come out" without having a solution. They did indeed devise a plan, and "ABB played a huge part," Jackson said.
This article originally appeared in the May 2007 issue of Managing Automation.
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