Re-engineering ABB Not As Simple As ABC

Dec. 21, 2004
Still, CEO Dormann foresees 'stronger position' by year-end.
Ten years ago Zurich-based ABB Ltd. was a business conglomerate often favorably compared with Jack Welch's General Electric Co. Not now. Since September 2002, Jrgen Dormann, ABB's CEO and president and former chairman of pharmaceutical firm Aventis SA, has been re-engineering ABB, downsizing it to just two industrial divisions with fewer than 100,000 employees.IW: What are the critical elements in ABB's comeback plan? Dormann: We are now focusing the business systematically on our core activities in automation and power technology. As a consequence, we are selling all non-core activities such as our Oil, Gas and Petrochemicals (OGP) division, the Building Systems business and the remainder of our former Financial Services division. We need to continue to improve the operational performance of ABB by making further progress with our cost-reduction program. Earlier this year we revised our savings targets upwards to US$900 million from the $800 million originally planned. The first positive operational improvements became visible in the first half of 2003. The ABB core businesses reached operating profit margins of around 7.5% and contributed some $380 million in cash. Another important element for ABB is to strengthen our balance sheet and reduce our debt. I can confirm that we are on track to sell the OGP division and most of the Building Systems business by year-end. Together with some remaining parts of our former Financial Services business, we aim for proceeds of some $2 billion. Finally, we need to resolve the asbestos issue . . . . IW: What do you expect ABB to have achieved by year-end 2003? Dormann: By year-end ABB will be in a stronger position than it has been for a long time. We will have a focused business portfolio and a strongly improved balance sheet. The company will also have an improved cost base. In addition, we are optimistic that the asbestos issue will be settled for good. IW: How has your Aventis experience helped in restructuring and repositioning ABB? Dormann: Aventis, of course, was never in a crisis situation. However, in order to be successful over a long time in business, one needs to have a certain skill set. This includes, for example, a sound understanding of strategic portfolio management, but it also requires working in a systematic manner to improve the operational performance of a business. And one should not underestimate the benefit of experience in how to communicate externally and internally, especially during turbulent times. One important insight was that it pays to have a good team. When I took over as CEO, among the first initiatives was to roughly halve the number of executive committee members in order to streamline the decision process and form a strong, focused team. It was also important to bring in outside people with a new perspective. . . . Three of the five present executive committee members, including me, come from outside ABB.

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