HBS case study 4: Asea Brown Boveri

Source: http://www.abb.com/

Company Structure

ABB, Asea Brown Boveri, is a worldwide electrical engineering giant, employing approximately 215,000 people in 100 countries. Even thought in 21th Century, managing the multinational company is still complicated. The structure of company contributed to the success of company. The group structure were divided into five including board of directors, executive committee, group functions, divisions managers and region managers. (1) From headquarters to local companies, each department has its own responsibility and duty to achieve the goals that top managers offered. For example, BA management was responsible for setting worldwide strategy and allover operating objectives, local company managers controlled operations and were responsible for profits. Local company managers have to report to BA managers and group executive managers will have meetings with BA managers regularly to control and understand local or regional operating situations. The cooperation of headquarters and regional companies made whole company can work fluently.

        

Source: http://scienceworld-frontiers.blogspot.com/2012/04/simple-organisms-cooperate-with.html

What can we learn: Percy Barnevik’s Philosophy

1.     Only a leader with visionary plans can create a sustainable company. Percy Barnevik developed and operated the company with global scale so he focused on three contradictions in the new organization including global and local, big and small, and radically decentralized with central control. The visionary plans created the future direction and missions including improving performance, driving innovation, attracting talent and acting responsibly.(2)

2.     Definitely understanding where the target customers are:  Percy Barnevik knew the vast majority of the new orders would continue to go to companies with a strong national presence because of the high level of government ownership or control of power companies. As a result, the company adjusted company R&D to satisfy customers’ needs. For example, in the project of changing landscape in the transmission market with build, own, operate and transfer(BOOT)model, (3) the company know government may not be open to new technologies and methodologies, so the transparency of projects in government have to be achievable.

3.     Decentralized responsibility and individual accountability: “30/30/30 rule” decreed the all downsized regulation by modulating the company structure and also reduced the human costs by outsource and laying off the additional employees. The headquarters personnel relocated to the front-line companies is as increasing the army in frontline battlefield. This made the company have more production.

4.     Providing the organization a clear vision of the expectations and pushing for result by data: A leader should give all company a clear regulation and expectation so every manager and employee can understand and achieve the goals of company. Moreover, when examining the performance of the department or employee, supervisors should regulate the achievement by data that employees should be followed such as how many sales the sales department should make or how many percentage customer service department have to approach so every employee can definitely know what their problems are. For example, ABB listed all the overall performance and ranking in 15 countries including gross margin, S&A revenues, EAFV revenues and so on. Those on the bottom of table desperately sought out ways to improve their standing, seeking input and support from their higher-ranked colleagues.

5.     7-3 formula: “just do it” is a very important action especially in this changing and competitive society especially in the high-technology industry. It was better to decide quickly than to search for the perfect solution and better roughly and quickly than carefully and slowly. The company which first published the creative product or thoughtful service usually can catch customers’ eyes. Many amendments can implement after the main plans carry out.  

Source: http://chrisjerickchua.wordpress.com/2011/06/28/the-organizational-system/

Suggestions

1.     Reduce horizontal and vertical manages:  The multinational company is easy to have a huge managing groups to supervise all kind of departments in all over the world. In addition, too many managers in the same horizontal structure will frustrate the employees especially when two managers’ priorities don’t coincide. As a result, even through the enormous managers are required to administrate so huge company, it is more important to implement flat organizations. Flat structure facilitates a greater level of communication between employees and management. They tend to be more democratic and offer a greater level of innovation. Communication is usually faster, more reliable and more effective than in tall structures

2.     Restructuring the business after acquiring a company: There are many advantages of acquiring a company such as gaining the technology, customers and the patent rights from other company. After the mergers and acquisitions, company has to restructure the systems, the culture and the structure of two companies. For example, after more and more acquisitions, ABACUS system in ABB was no long afford huge information to exchange in the company, so ABB have to develop a new operating system to provide all operation in the company can fluent and to pay attention to the security of information.

3.     The company should operate as a transnational company: Transnational company with a flexible structure is needed. The whole idea is to find the most adequate business model that balances the operation efficiency, asset diversification and company’s ability to adapt to the changing market. 

Transnational Company

Source : http://arifinfo.com/2011/04/26/four-international-operations-strategies/

Reference

1.http://www.abb.com/cawp/abbzh252/9c53e7b73aa42f7ec1256ae700541c35.aspx

2.http://www.abb.com/cawp/abbzh252/5f47d0088b5396dec125702a004c96b0.aspx

3.http://www05.abb.com/global/scot/scot311.nsf/veritydisplay/e3cc68d16ef33514482579b300148f8b/$file/pt05-20-9_apw.pdf

HBS case study 3: Hungerit

Source: http://www.hungerit.hu/hu/public/

Domestic Market Analyze

The poultry consumption in Hungary decreased 19.1 percent to 276,000 tons from 2000 to 2007(Table 1). The human population also went down from 10.2 millions in 2000 to 10.0 millions in 2010 and forecast to reduce to 9.9 millions in 2015. As a result, the demand of poultry in Hungary was declined. However, the production of poultry meat in Hungary increased 3.8 percent to 490,000 tons from 2001 to 2006 (Table 2). Hungry already can be sufficient by itself in poultry market from 2000 to 2004 (Table 3) and has more production to export to other countries.

Table 1: Human population of Europe and poultry meat consumption

Source: FAO

Table 2: production of poultry meat (in 1000 tons) in EU countries

Source: http://www.healthy- poultry.org/Results%20of%20the%20project/chapter3.pdf

Table 3:  Self sufficiency rate (%) for poultry meat in EU countries: The self-sufficient rate shows which country has an oversupply (higher than 100) or shortage (lower than 100) of poultry meat.

Source: http://www.healthy- poultry.org/Results%20of%20the%20project/chapter3.pdf

Domestic competitors

There were four large poultry processing companies in Hungry including SaGa Foods Rt, Mast-Good, Gallicoop and Hungerit. The shares of domestic poultry sales are N/A, 11.2%, 6.1% and 5.7% respectively in 2008. On the other hand, the shares of export poultry sales are 17.4%, N/A, 8.2% and 14.4% separately in 2008. Hungerit has more market share in export than in domestic market. Mast-good is the biggest competitor in the domestic market.

International Market Analyze

The EU plays an important role in chicken consumption market in the world. From 1999 through 2006, the EU constituted 14% of the world share of chicken consumption. According to the data published by FAO (Food and Agriculture Organization of Union Nations) described that poultry consumption in the Europe has increased dramatically from 2000 to 2007 in the uptake in Eastern Europe countries. The consumption in Europe of around 20.3 kg per person per year is more than the global average, only 12.6kg in 2007(Figure 1). As a result, the poultry market in EU has huge demand.  

Although the demand of poultry in EU was increasing, almost every country in EU produced poultry by itself (Figure 2). The countries importing poultry in EU are Austria, Greece, Sweden, Czech Republic, Germany and the UK. However, Northlands, Belgium, Denmark, France and Poland export the poultry to other countries. The production in Germany doesn’t afford the demand so Germany is the largest importing country in EU. The UK has the second largest importing market. The Netherlands is mainly exporting fresh poultry meat to Germany and the UK. In addition, they also import deboned frozen poultry meat from outside the EU (Brazil and Thailand).

About 15% of Hungarian poultry production was exported and three-fourths of poultry exports went to other EU countries. 75% of the poultry exporting to EU exported to Germany. As a result, Germany is the target market and the biggest competitor in EU is Netherlands and outside the EU are Brazil and Thailand.

Figure 1: Per-capita poultry meat consumption in the Europe compared to the global average

Source: www.thepoultrysite.com/articles/1793/european-chicken-meat-consumption-trends-2010

Figure 2: Production, export and import of poultry meat in EU countries.

Source: http://www.healthy-poultry.org/Results%20of%20the%20project/chapter3.pdf

Advantages in Hungary

Hungary is located in the middle of Europe. It is so convenient to transport or deliver the goods to all of Europe from Hungary and to serve the emerging Central and Eastern European because of geography and familiarity with the demographics. As a result, even though Brazil and Thailand have low-cost foreign poultry imports, Hungary still has absolute predominance because shipping times from Brazil or Thailand generally prevented fresh product from being sourced. Furthermore, Hungry and Poland have the cheapest labors in EU. Hourly compensation cost in Hungry and Poland is only one tenth of Norway. The cost of producing poultry in Hungry is relatively lower than other country in EU.

Suggestion

According to the analysis of international market and domestic market, I agree that Magyar focused on the strategies in international market because of the future demand and the advantages the company had. However, the EU market is more competitive and Magyar has to spend much money improving the facilities in Hungerit and marketing because the brand was not as popular in EU as in Hungary. The company also has to do more survey to understand the cooking culture and habits in other EU countries to satisfy the need of target customers. As for domestic market, Hugerit already was a leading company in Hungary and had perfect management such as operational plan, R&D and product development, customer service and sales plans. The company can focus on the amendments in future products to fit in the change that people cook.

Holding Company or Joint Ventures

To enhance the competition with other countries in EU, Magyar wanted to organize the Hungarian processing companies into a largest holding company.  The holding company can produce nearly twice as much further processed product as now. However, associating so many companies into a holding company is much more difficult than having a joint venture with the local company in other country especially these companies are current competitors. Joint ventures and merger & Acquisition are most effective methods to enter a new country. The local company must possess certain dominant position to satisfy the company that want to enter and adapt the business environment in a new country.

Products

Hungerit only has 5.7% shares of domestic poultry sales so there still are many potential customers Magyar has to discover. As a result, Magyar not only has to focus on how to sustain the existing customers but also has to pay closed attention to the difference between the new customers and old customers to develop new products. For example, housewives and young people now do not have time to cook or even don’t know how to cook. The demand of value-added products such as breaded, stuffed, or smoked meats and the microwaveable nuggets will increase. In addition, the margins on fresh products were between 3% and 3.5 % while the margins on precooked and value-added products was 7 %, Hungerit have to focus on valued-added product market.

Responsibility

Hungerit produced 8% of the world’s foie gras each year, second to France’s 78% of worldwide production and derived about a third of its total forint annual revenues from foie gras sales. However, people start to concern the environment and treatment to raise the chickens, gooses and ducks because of higher education and the morals. Hungerit should improve the way to feed the poultry more humane instead of only thinking from a businessman. 

Small Volume and Vacuum Package

Vacuum package not only can extend the shelf life of fresh and chilled products from eight to 16 days but also can reduce the probability that bacteria entered into the food and resulted in rotting the food. Moreover, it is much easily to box the vacuum-packaging products. Besides fresh and good quality products, customers also hope low price. Reducing the size of products can meet the lower price points. In addition, the family members are less and less, small volume packaging provided that food can be finished each time and keep the food fresh.