Abstract:

The case discusses the organizational problems faced by ABB India, a subsidiary of ABB Group, the Swiss-Swedish electrical engineering conglomerate, in the late 1990s, which significantly affected its financial performance. It examines the restructuring exercise initiated by Ravi Uppal, the new managing director of the company. The restructuring mainly focused on changing the work culture, overcoming beauracracy, introducing performance based compensation system, increasing the number of channel partners, cost-cutting and thrust on exports and services. The case then describes the benefits of the restructuring exercise and the challenges for ABB India in the near future.

Issues:

» Understand the organizational problems faced by ABB India in the late 1990s

» Examine the restructuring exercise implemented by ABB India to revive its financial performance

» Critically analyze the strategies adopted by Ravi Uppal to enable the makeover of ABB India

» Chart a growth strategy for ABB India in the near future

Contents:

  Page No.Introduction 1Background Note 2The Restructuring 3The Result 7Looking Ahead 7Exhibits 9

Keywords:

Case, ABB India, Restructuring Plan, Organizational Problems, Cost Cutting, Channel Partners, Work Culture, Performance based Compensation System, Growth Strategy and Corporate Revivals.

In the past couple of years, ABB India has posted strong top and bottom line performance and in fact, today it is one of our fastest growing operations in the Group." 1

- Dinesh Paliwal, Chairman, ABB India in 2004.

"Our aim is to make ABB known to the wider public. We want the common man to see and use ABB products." 2

- Ravi Uppal, Managing Director, ABB India in 2004.

Introduction

ABB India Limited (ABB India), a subsidiary of the ABB Group, a Swedish-Swiss engineering conglomerate, was going through a bad phase in the late 1990s. The company's financial performance was declining, with revenues going down from Rs 10.842 bn in the fiscal 1997 to Rs 7.933 bn in the fiscal 1999.

Profit after tax declined from Rs 648.5 mn to Rs 372.0 mn in the same period (Refer Exhibit I for 1997-99 financial statements). ABB India attributed the sluggishness in the power and industrial sectors as the primary reason for its dismal performance. Apart from the lacklustre financial performance, ABB India was facing organizational problems. Over the years, the company's workforce had become lethargic and was unconcerned about the company's poor financial performance. ABB India faced organizational culture-related problems as well. The company was not expecting much financial support from its headquarters as the parent company too was going through an equally dull phase due to global recession and internal organizational restructuring difficulties.

The turn of the millennium heralded a new era for ABB India under the leadership of Ravi Uppal (Uppal), the former managing director of Volvo India.3 He was hired by ABB as its managing director in September 2001.

Uppal transformed ABB India from a project-centric company to a customer-centric one. He was given the challenging task of doubling the revenues of ABB India in less than five years. Uppal aimed at accomplishing this task by implementing a major restructuring plan. After its implementation, ABB India's financial results improved. The company's revenues rose from Rs 8.068 bn in the fiscal 2000 to Rs 15.031 bn in the fiscal 2003. The company's profit after tax rose from Rs 540.1 mn to Rs 1008.9 mn in the same period. Industry experts felt this was a significant achievement for the company as the power and automation technology industry was still facing

severe recession.

Background Note

The history of ABB, the Swedish-Swiss construction-based conglomerate, could be traced back to the mid-1880s. In 1883, Ludvig Fredholm established 'Elektriska Aktiebolaget' in Stockholm, Sweden, to manufacture electrical lighting and generators.

In 1890, the company merged with 'Wenstroms & Granstroms Electriska Kraftbolag' to form 'Allmanna Svenska Electriska Aktiebolaget', later known as 'Asea'. In 1891, Charles EL Brown and Walter Boveri established Brown, Boveri and Cie (BBC) in Baden, Switzerland. Brown-Boveri was the first company to transmit high-voltage AC power. In 1988, Asea and BBC merged to form ABB (Asea Brown Boveri Limited), one of the world's largest electrical engineering companies. The company was headquartered at Zurich, Switzerland. In the first year of the merger, ABB acquired nearly 40 companies and later embarked on a large-scale expansion program in Central and Eastern Europe, Asia and both the Americas through strategic investments, joint ventures and acquisitions.

By 2003, the ABB Group of companies operated in around 100 countries with a workforce of 115,000.4

ABB Limited was a global provider of power and automation technology to utility and industry customers. The power technology division offered a broad range of products, systems and services for efficient and environment-friendly power transmission and distribution. 

The automation technology division delivered products and services for industrial control and enabled plant and process automation across all major industrial sectors. Since the late 1990s, BB had shifted focus from large-scale solutions to alternative energy solutions and advanced products and technology in power and automation...

The Restructuring

In spite of its remarkable history, the ABB Group's future looked bleak as several business operations were discontinued across the globe due to a worldwide slump in the engineering industry. In addition, legal action filed against ABB's Combustion Engineering unit in the US tarnished the company's image . The year 2001 was tough for the company as it suffered its first ever loss of $691 mn since its formation in 1988. Moreover, 2002 turned out to be worse as losses further rose to $787 mn. As the ABB Group's revenues were stagnant in the US and Europe, it was looking towards India and China for growth...

The Result

The restructuring programme yielded positive results. On April 27, 2004, ABB India declared that for the first quarter ending March 2004, the net profits nearly doubled compared to the corresponding period the previous year.

The company registered a 56 per cent rise in revenues, amounting to Rs 4413.6 mn for the same period. However, improvement was not merely in terms of financial performance. Bearing testimony to its all round business performance, ABB India won the 'Asiamoney's Award' in February 2004, for the best small capitalization company from India for 2003. Commenting on the 'best to date' quarterly performance of the company, Uppal said, "ABB India continues on its committed path of profitable and sustainable growth, with a constant quest for higher productivity and operational efficiencies. Our focus on value based projects, exports, standard products and services have paid good dividends and shall continue unabated..."

Looking Ahead

When Uppal initiated the restructuring exercise at ABB India, the market for capital goods was stagnant and power sector reforms had not yet begun. These reforms, started in 2001, shifted the focus from power generation to power transmission and distribution. As part of the reforms, the Indian Government allotted nearly Rs 90 bn to the Accelerated Power Development and Reforms Programme (APDRP) to improve power distribution in the southern states of Andhra Pradesh, Karnataka and Tamilnadu...