Barneviks Formula For Change

These insights emerged during a talk on the experience of ABB as a global company in the transformation of eastern Europe. Addressing the Indian corporate leadership under the CII banner on Monday evening was Percy Barnevik, chairman and CEO of the European conglomerate.

Barnevik, scholarly in style and mathematically precise in his accented prose, summed up ABB's experience in Brno in the Czech republic thus: "Productivity can grow by 20-30-40 per cent a year for the first few years and we can typically raise productivity four times in 5-7 years." At Brno, a unit cost of $ 26 in 1992 fell to $ 9.5 in 1996.

 

"Once this is achieved, the unit becomes a formidable challenge to its local and foreign competitors. "The Brno experience is similar to the achievement in Poland where a units order book of $ 48 million in 1990 became $ 700 million in 1996.

The task involved in transforming Eastern Europe was unique because most of it and the CIS states "were not poor". They had many trained people but low productivity, motivation and almost no delegation. A population as large as western Europe's, had, for example, the same installed power generating capacity but a fraction of the others' income.

ABB's strategy was to go into countries with already developed industrial traditions like the Czech republic and Poland and then change these companies, primarily through the infusion of management and organisation.

Barnevik described how the top management was first selected among the young. (Often 30-35 years) who were not too far gone in the old tradition of not taking decisions. They were positioned as champions and catalysts who were given crash courses in English skills and basic knowledge by expatriates.

In running operations only local managers were used and enormous training programmes were introduced, sometimes costing more than physical investments. Computers were introduced crucially to ensure quality in a tradition which produced rockets before the Americans but could not produce a batch of a million pieces of consistent quality. The overall aim was to impart not just knowhow but also knowwhy.

The management restructuring involved reducing head office staff, improving supply management, reducing inventories and directing focus on not just domestic sales but exports also. The enormity of the change can be gauged from the question new Polish sales staff asked in all innocence: How do you sell? Do you have to beg the customer to buy ? And the attitude of the Polish workers was reflected in their first demand: not for more pay but shares in the company.

The foregoing can be termed the second wave of skill formation in which Poles and Czechs acquire skills in the same way as Singapore has already and India and Brazil are acquiring. These then become regional technology transfer agents. For example, Brazilian experts impart skills to Chile, Singapore to China and India to the rest of Asia after the NICs. It is Polish and Czech experts who go to Russia and Uzbekistan, not expatriates from the west. These two rounds of skill transfer are set apart from the conventional first wave of the eighties and nineties which involved north-south (Americans) and east-west (Europe) arrangements.

In this global scheme of ABB, said Barnevik, India occupies a key position. It is important both for its domestic potential and a second-stage skill transfer agent, whereby it picks up the requisite business and manufacturing culture and passes it on. India's new economic policies create a growth potential which ABB wishes to use in making it an engine of export to the rest of Asia and elsewhere. India as a partner for third countries provides a good platform for growing R&D ABB's first Indian research centre has been set up in Bangalore.

ABB's own global plan revolves round correcting the present mismatch between where capacity is located (developed economies) and where most fresh demand is located (Asia and Latin America). Hence it has shed 54,000 jobs in the former and created 46,000 jobs in the latter. In 1991 the eastern hemisphere, accounted for 10 per cent of ABB's business; by 2000 this will be a third. By 2010 the company's major business are likely to be in the USA, Germany, India, China, Italy, Sweden - in that order.

This reorganisation of global business does not come easy for the developed countries which have to shed low skill jobs. Even the developing countries cannot stand still and enjoy their low cost advantage. Poland, which first went down the labour intensive route, is now into systems engineering. Singapore has traversed this route quite a bit. It is now costlier to manufacture in Korea than in the UK.

In a reversal of a key global concept, Barnevik redefined the white man's burden as the "high wages in industrial countries" which are exporting jobs. He readily acknowledged that "non-tariff barriers are an evil that we have, unfortunately even offer Gatt." Social and environmental dumping are "hidden barriers building up in the west".

How has ABB coped with this change? In its management organisation, "We are light years away from where we were seven years ago". It has managed to get rid of bureaucracy, move decision-making down and work across borders. "We went too far and so are merging some operations now without losing transparency."