When agility trumps scale: Creating fully accountable businesses and a lean corporate center

Overview

A global industrial leader’s business was stagnating, and management and shareholders were unhappy with performance
The key to business transformation was tackling its complex multi-dimensional structure and its large corporate organization, which limited end-to-end accountability and slowed down decision making
AlixPartners was there when it mattered, to help create independent and fully accountable businesses and a lean corporate center while achieving $500m in savings in 12 months

The situation: Global tech leader stagnating through complex business structure transformed and implemented a new “Operating System (OS)"

Asea Brown Boveri (ABB) is a global technology leader, operating in 120 countries, with a 130-year history of innovation. In 2018, it saw revenues of $29bn and employed 150,000 people in four divisions and 18,800 at its Zurich headquarters.

But it was stagnating, only seeing single-digit growth, below its competition, despite a good market position. Large costs in its divisions were making investment in ABB unattractive, and shareholders were pushing to improve performance and shareholder return after years of sluggish performance.

A major problem was the complexity of the organization, with a multi-dimensional structure of businesses, countries and functions leading to slow decision-making and redundancy. Its large central functions, financed through cost allocations, created a lack of financial transparency, limited ownership, accountability and incentive to take risks, and flawed decision making. Multiple stakeholders also impeded agility and pragmatic decision-making.

The approach: Implementation of a new Operating System (OS) with end-to-end accountable businesses and a lean corporate center at its core

ABB embarked on the largest transformation in its history, implementing a new operating system—ABB-OS—with a significantly simplified structure and organizational blueprint driven by individual businesses rather than corporate functions and a separate geographical dimension.

The transformation was implemented in parallel to the sale of 80% of its largest division, Power Grids. Four independent businesses were created—Electrification, Industrial Automation, Motion, and Robotics & Discrete Automation and the geographical dimension was folded into the new business-led structure.

Through a zero-based approach, businesses were put in charge of defining what activities and resources they needed to become independent and fully accountable for their markets, people and cost. The role of the corporate center has been redefined to focus on group-level strategic and financial responsibilities. Businesses also took over responsibility for their countries and shared services were expanded and are now governed by the businesses.

Changes were implemented quickly to limit disruption, moving from design of the target blueprint to full implementation in 120 countries in 12 months, with the help of local transition teams. Savings targets were overachieved and realized ahead of time.

The solution: A new way of working with the center of gravity in fully accountable businesses

Working hand-in-hand with the client, AlixPartners’ hands-on transformation support was applied to create a fully accountable business-led organization that has already started operating in a much more agile way. The new lean corporate center now only requires c.1,300 instead of more than 18,000 head count to govern the company. Corporate cost allocations to business are being fully eliminated.

The joint client-AlixPartners central, active and very senior program management has steered the transformation with a strong tracking methodology avoiding "project shadow accounting" and ensuring results are sustainable and savings calculated as net of counter effects. Businesses now fully own customer relationships, while shared services have been strengthened, governed by the businesses.

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When it really matters: Accelerated transformation that creates full accountability and a lean corporate center that trumps scale

The "fiction of scale" has led to increasing consolidation and centralization of often diverse portfolios of operating companies at the expense of simplicity, accountability and agility. Many companies are now re-evaluating their operating models and driving greater end-to-end accountability and independence into operating units as the solution.

This case demonstrates the benefits of implementing an organizational structure of this kind at speed.

By transforming our client’s complex multi-dimensional matrix structure, AlixPartners has helped build a fully accountable organization, enabling agile decision making while achieving $500m sustainable net savings in a 12-month period.

This case demonstrates the benefits of implementing an organizational structure of this kind at speed.