On January 1, 2006, ABB Group will reshuffle its organizational structure, starting the year with new business units that are intended to revive its vertical focus and adding an executive committee function to drive integration and strategy execution.
The announcement was made at the same time ABB released its mid-term targets through 2009, forecasting a 5% compound annual growth rate (CAGR) for the company, which reported earnings of $1 billion on revenues of $20.7 billion last year.
It was in 2004 that ABB first began its initiative to streamline business operations, whittling its automation group from six business areas to three. Shortly thereafter, the company initiated a similar change in its power division, reducing five business areas to two. On Jan. 1, 2005, the same day a new CEO, Fred Kindle, took office, ABB was operating with just two core divisions: Power Technologies and Automation Technologies.
Under Kindle's new business plan, those two divisions will be eliminated and their respective business areas --power products, power systems, automation products, process automation and robotics -- will become independent divisions.
"The new structure is intended to create the most direct possible link between the three automation-related businesses, the customers they serve and the marketing and technology functions that support them," said sources inside ABB. Because the restructuring is still underway, ABB officials declined to comment on the record; however, Kindle did address the reorganization as part of the mid-term target release.
"This is an evolution of our strategy, not a revolution," Kindle said in a statement. "We remain focused on our core power and automation businesses. The strategy involves a balanced approach to value creation by widening our focus beyond growth to higher margins, greater return on capital and cash generation. Above all, the emphasis will be on better execution to deliver results more consistently and reliably."
While industry spectators might interpret the latest restructuring as an undoing of the earlier business alignment, industry experts say it is actually the next logical step for the company to get closer to customers.
The earlier reorganization, says Larry O'Brien, an analyst at ARC Advisory Group (Dedham, MA) was a way for the company to deal with fewer divisions as ABB got its internal house in order. Over the past few years, ABB has been dealing with divestitures, discontinued operations and lawsuits related to asbestos liability.
"Now that their internal restructuring work is done, I think it makes more sense for them to organize the way they have," O'Brien says. "ABB still maintains a strong vertical industry focus which is necessary, but the previous organization did not do enough to focus on the various businesses in their core competencies. For example, it makes more sense for ABB to separate the robotics business from the rest of the products business since they are so distinct from each other."
In addition to breaking out the divisions to focus on core competencies, a new function and title was added into the mix. The role of president of Global Markets and Technology will be filled by Dinesh Paliwal, who currently heads up the Automation Technologies division and the North American region. He will focus on tapping the growth opportunities in eight key regions and trading areas. His responsibilities will include ensuring ABB expertise and resources are applied across national borders and that existing local support resources are effective.
"In his new role of guiding ABB regions worldwide, Dinesh will have an additional role of overseeing both group account management and corporate R&D which will help ensure tight coupling between emerging customer needs and ABB research efforts," according to ABB sources.
The executive team heading up the new divisions will include: Bernhard Jucker (Power Products), Samir Brikho (Power Systems), Tom Sjoekvist (Automation Products), Veli-Matti Reinikkala (Process Automation) and Anders Jonsson (Robotics). Both of the power groups and the Automation Products division will be based in Zurich, Switzerland, which is ABB's corporate headquarters. The Process Automation division will be located in Norwalk, CT, while the Robotics division will be run from Shanghai, China.
"Although each is definitely a global business, these headquarters locations are based on analyzing a combination of established ABB footprint, expertise, installed base and perceived market opportunities," according to ABB sources.
Going forward, the company has aspirations of growing its North American business to $5 billion from the current $3.5 billion in annual revenues.
Process automation -- which together with the automation products and robotics group accounted for $11 billion in revenue in 2004 -- will contribute to that growth. The company forecasts 5% CAGR for the U.S.-based Process Automation division through 2009.
This article was repurposed from the November 2005 issue of Managing Automation magazine.