Organization theory and design 08 2013

organization @TC 2013

8 Making a Matrix Work


หัวข้อบรรยาย/กรณีศึกษา

6 Organizing Across Borders C 3 : Harvard Business Case / Merloni Elettrodomestici Spa : Building for Profit

7 Making a Matrix Work C 4 : Harvard Business Case / Smashing the Cube : Corporate Transformation at Ciba-Geigy,Ltd.

8 Making a Matrix Work C 5 : Harvard Business Case /ABB’s Relay Business ; Building and Managing a Golbal Matrix

9 Solving the Centralization—Decentralization Dilemma C 6 : Harvard Business Case /Johnson & Johnson (A)

10 Solving the Centralization—Decentralization Dilemma C 7: Harvard Business Case /AES Honeycomb (A)


BEYOND THE GLOBAL MATRIX


Theory Behind the Matrix

•  Connected to the transnational MNC, the matrix is a way to organize when trying to achieve:

–  Local responsiveness, i.e. diversification, with learning as a key requirement

–  Scale and scope efficiencies in production etc

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organization @TC 2013 5

The Matrix

•  Basic philosophy: Operating decisions pertaining to particular product should be shared by the product division and the various regions of the firm.

•  Ex: Product offering in Country 2 for the products produced by Product group 2, determined by consultation between Country Mn and Product Mn.

•  Operational Mn report to both!


The Matrix - Pros and Cons

•  Combine efficient global integration and local response

–  leads to scale, speed and lower unit cost

–  Customized products –  More flexibility to changes in

national needs. –  Better decisions (?)

•  Complex –  the dual-hiererchy could lead to

confusion and conflicts over responsibilities and decision making

•  Time-consuming, clumsy and bureaucratic

–  consensus takes time and could create an inflexible org.

•  Hard to ascertain accountability •  Strong need for a ”common culture”

and informal Mn network.


The Company

•  Engineering company •  Emanated from merger between Brown Boveri (Switzerland) and ASEA

(Sweden) in 1988 •  Key figures (1997):

–  215000 employees in more than 100 countries

–  Revenue $31.3 billion

•  Products


BEFORE 1988 – ASEA & BBC ASEA CONTRIBUTIONS

•  Superior Profit Performance •  Sophisticated Management Control •  Marketing Agresiveness

BBC CONTRIBUTIONS •  Strong Order Book •  High Technichal Expertise

As a result, it is created ABB that becomes worlds largest producer of engineering Products & Services, based on the principles of

decentralization of responsibilities and individual accountability


Original objective was a transnational matrix structure Reconciling three dilemmas to “... create real organizational advantage”

•  Global and local

•  Big and small

•  Radically decentralized with centralized reporting and control

►GLOBAL INTEGRATION –  OPTIMISE A BUSINESS GLOBALLY: Specialization in components, economies of scale,

worldwide rotation of managers and technologists ►LOCAL RESPONSIVENESS

–  TO HAVE DEEP LOCAL ROOTS EVERYWHERE YOU OPERATE: product differentiation, local recruiting processes, local entrepreneurship, local contacts


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THE STRUCTURE IN 1988

EXECUTIVE COMMITTEE

COUNTRY ORG. (150) BUSINESS AREAS (50)

COMPANIES (1300) AND DIVISIONAL PROFIT CENTERS (5000)

•  Total company: 210.000 employees •  Company average: 200 employees •  Profit center: 50 employees


Balancing regional and business area interests

Business area focus

Geographic focus

Strategic task Linking customer satisfaction with core competences

-Customer-based regional strategies - Regional results and profitability - Day to day mgmt of profit centres - HR development - Local relationships / networking

Efficiency and product focus: - Worldwide results and profitability - Development of worldwide strategy - R&D and product development - Worldwide market allocation and sourcing - Price strategies and coordination - Purchasing coordination - Product and product allocation - Transfer of know-how - Acquisitions and divestments


1988 - 1993: Organizational integration •  Drivers for change:

–  EXTERNAL: Consolidation of industry. Establishment of the EU and NAFTA. –  INTERNAL: Shift of focus from restructuring and integration to improve quality of products, services and

customer orientation. Too complicated structure for employees to understand. Benefit from more permeable country borders

•  Growing challenges: –  Make business segments more dominant –  Increasing customer focus; improving process orientation, customer relations and quality management

•  The new Matrix structure: –  Adding 3 regions to allow for lateral linkages within regional areas. –  Simplifying with 5 Business segments and 39 BAs –  Simplifying with “centers of excellence” concept –  Customer Orientation Program –  1996: 4 Business segments. –  1996: Introduce tools to enhance country level networking; Cross Company Teams Open spaces concept,

joint data bases, personell transfers etc.

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1993 - 1998: The Network Multidivisional •  Drivers for change:

–  EXTERNAL: Deregulation and privatization of utilities. Customers developing into commercially-thinking market partners demanding complete turnkey plants with a full range of services.

–  INTERNAL: Still lack of understanding of the matrix and growing micropolitics (ineffective business segments, internal market mechanism, internal decision making), insufficient customer and sales orientation

•  Growing challenges: –  Cooperation with internal market mechanisms to solve paradox of competition and cooperation. –  Solving conflict and confusion with decision making –  Better definitions of large business segments

•  Structural change into a network divisional matrix: –  Dissolve regional layer and keeping the country dimension –  7 Business segments become the dominant dimension ⇒ PRODUCT ORIENTATION (product bias instead

of country bias) –  ...however, it has not been a dramatic reorganization: CONTINUITY AND CHANGE


ABB in 2003

•  Drivers for change: –  EXTERNAL: Market saturation, Declining economic conditions –  INTERNAL: Drop in market value of ABB. Top management turnover. Performance is declining. 2001 was

the first year in ABB history resulting in a loss.

•  Growing challenges: –  Product and segment orientation –  Develop total solutions –  Achieve critical mass in each business field

•  Structural change: –  More centralized the structure. –  Business segments dominant line of authority. –  2001: Replacing business segments with 4 customer segments to avoid silos along product lines. –  Networking among segments

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The ABB building process (an overview)

Change

Global matrix with regional dimensions (implementing regions, customer focus)

Network Multidivisional (critical mass in businesses, solution provider, financial services)

Establishing merged global matrix (Turnaround mgmt, individual profit centres, internal markets, local responsiveness)

Continuity

•  Increased customer focus •  Country level networking •  Centre of excellence / Lead country concept

•  Focus on simplification •  Service business and total solutions •  Product orientation instead of country bias

•  Matrix local entrepreneurship and strict managerial hierarchy •  Internal global monitoring (ABACUS) and internal markets •  Responsibilities, accountability, local freedom

•  Centralizing •  Customer segmentation

1988

1993

1998

2003


Corporate Culture - Criteria

• Clarity

• Continuity

• Consistency

• Communication


Culture Related Issues

•  ’Think Global, Act Local’

•  Customer Focus Program

•  Matrix Structure & Profit Center Philosophy

•  Networking Accross Segment

•  Performance Measurement


Cultural Problems

•  Inability to understand the matrix

•  Internal negotiation led to micro politics

• Strong autonomy of front line companies

•  Lead country concept to led to micropolitics


Culture - Evaluation

• Clarity – Failed to achieve

• Continuity – Partly fulfilled

• Consistency – Biggest weakness

• Communication – Recent realization


Key Learnings

•  A matrix is complex structure with many pitfalls -  locally: structure as simple as possible -  globally: complexity cannot be avoided

•  Organizations evolve over time •  Adaption to and of the environment

Ø  there is no ideal structure


Key Learnings (ctd.)

• Conflicts are inherent parts of a matrix and organizational changes

•  Importance and influence of management control systems


Open Questions

•  Learning possibilities served as main justification for diversification. Are there knowledge synergies?

•  Is ABB too diversified? How big is beautiful?

•  Possibility of / need for a uniform corporate culture within a very diversified organization?


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