CEO Of The Year

Dec. 21, 2004
It's Gran Lindahl, and he's restlessly repositioning ABB.

Gran Lindahl's charm is genuine. But so, too, is the smiling Swede's solid determination to complete his strategic repositioning of the ABB Group, an engineering-and-technology enterprise that comprises 1,000 companies operating in 100 countries. Described by others at Zurich, Switzerland-based ABB as tough and impatient -- and self-described as "restless" -- Lindahl, IW's 1999 CEO of the Year, is working decisively through the list of acquisitions, divestitures, and other major moves he compiled in the months just before he succeeded the near-legendary Percy Barnevik as president and CEO of ABB on Jan. 1, 1997. Trying to capitalize on the $30.8 billion company's global presence and reputation for technological excellence, Lindahl is aggressively pursuing leadership in such business segments as industrial-control systems, deep-water oil and gas exploration, intelligent electrical systems, and services. These are potentially faster-growing and more-profitable markets than the power- generation and other heavy-industrial sectors with which the company traditionally has been identified. "There is no doubt, despite his great charm and warmth, he has a clear analytical understanding of the portfolio," says an admiring Peter Lorange, president of the International Institute for Management Development (IMD), Lausanne, Switzerland. "He is not a glorified adding machine. He understands damn well how he needs to run the place." Lindahl's most dramatic repositioning moves, as he puts his mark on ABB, have been this year's transfer of most of ABB's power-generation business to ABB Alstom Power NV, a 50-50 joint venture with Alstom SA of France, and 1998's $2.1 billion acquisition of Elsag Bailey Process Automation NV, an automation-systems firm. But Lindahl also has sold ABB's 50% interest in ABB Daimler-Benz Transportation Group, a rail-transportation joint venture, to DaimlerChrysler AG for $472 million in cash. He has cut payrolls by 13,600 people, closed a dozen factories, and simplified ABB's capital structure by creating a single class of publicly held shares. He even has taken ABB out of the 50-year-old business of making frozen-food cabinets, arguing it wasn't even close to the company's core competencies. "That's one of the difficulties with engineers -- they fall in love with a business. They don't see that there's an option to dispose of it," says Lindahl, an electrical engineer by education. Earlier in this decade, when Lindahl was executive vice president of ABB and responsible for the power-transmission-and-distribution segment of the business, he got directly involved with strategy and customers, recalls Howard Pierce, then country manager in China. Pierce predicts Lindahl as CEO will continue to be involved -- though "in fewer but bigger things." For example, "In the Alstom joint venture he probably did the lion's share of putting the whole thing together," notes Pierce, who is now president and CEO of ABB Inc., Norwalk, Conn. With ABB's individual businesses having been made more efficient under former CEO Barnevik, Lindahl's "challenge" is to create and sustain synergism, believes Christopher A. Bartlett, a professor at Harvard Business School, Boston, and a veteran ABB watcher. He's talking about an environment in which a product in one business is linked to an idea in another business, leveraged with a resource in a third business, and the combination delivered to market as an integrated system. Financially, Lindahl's strategic approach appears to be paying off. ABB's net income for 1999's first nine months, including a $162 million net capital gain from the power-generation transfer, was $1.108 billion, a stunning 31% higher than profits for the first three quarters of 1998. Revenues of $17.8 billion for this year's first nine months ran 9% higher than January-to-September last year. Third-quarter 1999 orders were up an impressive 11%, compared with last year's third calendar quarter. For 1999's first nine months, new orders of $18.94 billion were 3% better than the comparable 1998 period. And operating cash flow more than doubled to $493 million. Part of Lindahl's restlessness stems from his belief that the world is already globalized -- and not still in the process of globalizing. Indeed, for him, a 21st century of basically boundaryless opportunities began a decade ago when the Berlin Wall fell in the autumn of 1989 and what he terms "this new world with a common marketplace" arose. Significantly, some 13 months ago Lindahl tore down a wall of ABB's own, eliminating the layer of regional management that for five years had been integral to the success of ABB's much-imitated think-globally/act-locally strategy. "He needed [to simplify the chain of command] because he was going to take the company in a different direction," observes ABB's Pierce. "In most countries where we have customers we [now] have local expertise," explains Lindahl. "We have local brainpower that can look after the added value. So we don't need to have an extra management layer." Specific benefits from the structural flattening will be greater speed and lower costs, Lindahl expects. "Wherever you find a cost element that is not necessary to the business, [you must] take it out," he insists. And ABB headquarters in Zurich is no exception. Including Lindahl, the staff numbers only 135 people. But by no means is Lindahl living by ledgers alone. He's a CEO very much concerned about how the company gets to the bottom line. Notably, he has just finished leading ABB through a nearly-two-year multicultural revision of its values statement. "Diversity in reaching the goal is one of the most important factors for being successful in a globalized environment," Lindahl emphasizes. "In some cultures, you're not allowed to talk about interest on borrowed money," he relates. "And you can say, 'They are wrong. They are crazy.' They may be, or they may not be, but that's not the issue. The issue is how can you include that value in your way of managing." In fact, the ABB values statement is a working document rather than a collection of touchy-feely principles. For 20 pages, it covers 10 specific areas -- including customer success, innovation, sustainable development, and business ethics. It's designed to help managers capitalize on their business strengths and overcome their management shortcomings. And it figures into their performance reviews. "They're measured on several of the subjects discussed in this document," states Lindahl. Lindahl expects to see diversity at work, with "being local" not necessarily meaning that all employees are nationals of the business' host country. And in ABB's executive ranks, Lindahl places a similar premium on diversity. Highly regarded Pierce, a native of Wales, for example, has led businesses in Europe as well as in China and the U.S. Indeed, the 175,000 people of ABB are very much on Lindahl's mind these days. "These are the people who can make the difference for our customers. But the key problem is that our company, like many other companies, is run by middle-aged people like myself," says its 54-year-old CEO. Not so incidentally, he believes that information technology and human resources will be the most important factors in any enterprise's success five or 10 years from now. He contends that the best that he and his contemporaries can do is to retool and play technological catch-up while making it possible for a younger group to push the business envelopes. "We can create an environment where the young talent sees a future in our company and wants to come here -- to sort of develop with the company and have the freedom to innovate within the boundaries that define our company," says Lindahl. Lindahl began in 1997 by doing a seemingly small thing. During his first year as CEO, he invited only 375 of ABB's 10,000 managers to the annual management forum. The other 25 places at the prestigious 400-person annual event went to "youngsters," nonmanagers with three to five years' experience at ABB. He asked them to observe and tell him and other senior managers what was wrong with the ABB message, what turned them off. "They tell you the truth, because at that age, they are not afraid, they are not concerned," he notes. However, some senior managers were concerned -- and "all hell broke loose," recalls Lindahl. Some managers were put-out at not receiving a coveted invitation as they had in previous years. Others could not understand why a "youngster" with no P&L responsibility was attending and a person managing a $200-million-a-year business was not. Yet Lindahl brought in even more "youngsters" in 1998 and included a similar group this year. "People have seen that I was determined to do this. And now, whenever they have a management conference somewhere in the company, they invite some young people," he says. Young people "are inexperienced, yes. But they can contribute. And it is their future, in a way, that we are building. And it's extremely motivating for these people to be allowed to tell what they think." Lindahl laments that not enough women take part in the ABB management forum, partially because, he says, too few women are attracted to engineering. Nevertheless, "I intend to set aside a number of seats for women, because we have a number of women in the company, and [we need] to bring them in," Lindahl says. "And that, too, will be a strong signal." Lindahl really does know how to motivate people, says IMD's Lorange. "He's challenging, but he's also behind them." However, suggests Lorange, Lindahl still has to win over some "large pockets of rather conservative" ABB managers who are not in a rush to embrace "faster-moving, service-driven, higher-value businesses." What will ABB be in the future? Five years from now, its CEO says, ABB will still be a manufacturing and engineering company, building on core strengths. But it will not be doing all the things it has done or is doing today. "Because we are not the best in all of the bits and pieces, we will outsource [some] manufacturing," he expects. And ABB's engineering will be more in the realm of systems architecture. "We will be a true service company and a true technology company," but one that "still cares for the system, the complete process," he vows. "We are on the move. We have $8 billion [about 25% of total revenues] in services right now. But it should be half of the company five years from now," he says. "We have been in transformation for more than two years, trying to respond to the globalized environment where you have exponential change. We need another two years or so until we have a 'New ABB.' We are not finished yet. We are maybe halfway through [our] process."

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