Organization theory and design

1. 8 Making a Matrix Work
organization @TC 2013

2. 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)
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3. BEYOND THE GLOBAL MATRIX
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4. 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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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!
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6. 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
and informal Mn network.
culture”
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7. 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
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8. 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
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9. 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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10. THE STRUCTURE IN 1988
EXECUTIVE COMMITTEE
BUSINESS AREAS (50)
COUNTRY ORG. (150)
COMPANIES (1300) AND DIVISIONAL PROFIT
CENTERS (5000)
•
•
•
Total company: 210.000 employees
Company average: 200 employees
Profit center: 50 employees
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11. Balancing regional and business area interests
Business area focus
Strategic task
Linking customer satisfaction Efficiency and product focus:
with core competences
- Worldwide results and profitability
- Development of worldwide strategy
- R&D and product development
- Worldwide market allocation and
Geographic focus
sourcing
-Customer-based regional strategies
- Price strategies and coordination
- Regional results and profitability
- Purchasing coordination
- Day to day mgmt of profit centres
- Product and product allocation
- HR development
- Transfer of know-how
- Local relationships / networking
- Acquisitions and divestments
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12. 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:
–
–
–
–
–
–
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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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13. 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
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14. 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:
–
–
–
–
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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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15. The ABB building process (an overview)
Continuity
2003
Change
1998
Network Multidivisional
(critical mass in businesses, solution
provider, financial services)
1993
Global matrix with
regional dimensions
Establishing merged
global matrix
(Turnaround mgmt, individual
profit centres, internal
markets, local
responsiveness)
1988
(implementing regions, customer
focus)
• Centralizing
• Customer segmentation
• Focus on simplification
• Service business and total solutions
• Product orientation instead of country bias
• Increased customer focus
• Country level networking
• Centre of excellence / Lead country concept
• Matrix local entrepreneurship and strict managerial hierarchy
• Internal global monitoring (ABACUS) and internal markets
• Responsibilities, accountability, local freedom
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16. Corporate Culture - Criteria
• Clarity
• Continuity
• Consistency
• Communication
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17. Culture Related Issues
• ’Think Global, Act Local’
• Customer Focus Program
• Matrix Structure & Profit Center Philosophy
• Networking Accross Segment
• Performance Measurement
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18. 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
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19. Culture - Evaluation
• Clarity – Failed to achieve
• Continuity – Partly fulfilled
• Consistency – Biggest weakness
• Communication – Recent realization
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20. 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
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21. Key Learnings (ctd.)
• Conflicts are inherent parts of a matrix and
organizational changes
• Importance and influence of management control
systems
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22. 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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