Strategic Plan For ABB

Mission, goals and objectives

ABB is a public traded limited company which deals in heavy electrical equipment, robotics, and automation technology and power areas. The company was formed by the merger of ASEA (which is Swedish company) and Brown, Boveri & Cie (which is a Swiss company) in the year 1988. Headquarter of the company is located in Zürich, Switzerland. It is the largest builder of electricity grids in the world (Birkinshaw, et. al., 2007). The matrix structure is followed by ABB. The company is having four production divisions i.e. electrification products, robotics and motion, industrial automation and power grids and one corporate division. The company has the history of innovation of more than 130 years; it is currently focusing on the future of industrial digitalization. There exist two main objectives of the company, the first is to transfer the electricity from any power plant to any plug, and the second one is to bring the automation in the industries from the natural resources to the final products. The company is providing their services in more than 100 countries in the world. They are the world leader in the digital technologies. The company has installed more than 70,000 controlling systems that are connecting more than 70 million devices. The company believes in bringing the continuous innovation in their products, services, and systems so that they increase the efficiency, productivity, and reliability for their customers.

The purpose of this work is to understand the nature of strategic management and its competitive and institutional context. To understand that how the strategic analysis and the formulation contribute to the performance of the organizations. The main purpose of this report is to discuss the strength and limitation of the strategic analysis and how it fits into the overall strategy process. We will also going to write the strategic plan for the selected company.  

The one strategic challenge that the company is facing right now is the related to the common goals. As the company has the history of merger and acquisitions in the past, therefore, there exist many other companies as well that are working under the name of ABB. For the other companies, having a proper synchronization with the aims and objectives of the parent is not always easy (wright, 2017). They are used to of working with other objectives and possess different core values. Therefore, in order to bring them together and get the most from them, it is important for the strategic managers of the company to find the ways so that they can get over this challenge.

Macro environment analysis

ABB wants their customer to enhance their operating performance, their reliability on the power grid along with the productivity while at the same time lowering the consumption of energy and reducing the impact on the environment (GROUP, 2017). The focus of the company is on customer satisfaction. Bringing the innovation and maintaining the quality is the main characteristics of the company’s products, services, and systems.

The focus of the company’s mission is on the improvement of customer performance and reliability and not on the sustainability. They are not motivated to hire and retain the skilled employees in their mission statement.

The mission of ABB to empower their customers by increasing their operating performance and their reliability on the power grid while lowering their energy consumption by introducing the innovation and maintaining the quality in their products and services. Also the company wants to attract skillful and talented employees and retaining them into the company by providing them attractive and global wok environment and take care of sustainability, reducing the impact on environment and considering business ethics in practices are at their core which also reflect in their operations as well.

ABB is the leading engineering company in the world, and help their customers to use the electrical power more efficiently, increase the productivity of the industries and take care of the reduction of the impact on the environment, “Power and productivity for the better world”.

The vision statement of the company is customer orientated and has environmental value.

There exist nine objectives in the annual Group Sustainability report of the company. These are;

• Products, services, and solutions
• Safe operations
• Climate actions
• Resource efficiency
• Right materials
• Responsible sourcing
• Integrity
• Human rights
• Our people and community

The political stability issues can play the important role in the operations in this industry. As we know that the company is dealing in all over the world, therefore, there is a high probability that they face trouble in the counties where there is uncertainty in the politics. Also, the companies have to deal with the corruption in many countries which is part of regulations of industrial goods sector (Makos, 2015). The trade regulations and tariffs that the government charges for the industrial goods also vary. Not all the companies are business friendly. Therefore, we can say that, the political factor is a threat for the companies in this sector.

There are various macro environment factors like savings rate, inflation rate, foreign exchange, interest rate, and the economic cycle. All these factors help in identifying the possible demand and the required investment in a particular economy (Rothenberg, et. al., 2011). The economic system that the companies are using, plays an important role in order to find out that what are strategies required for the operations in that economy. Hence, the economic factor is more of a mix of threat and opportunity for the companies.

Industry Analysis

The cultural environment of the market is an important factor that has a great impact on the organizations. The people living in various places do not have the same skill set. As their mission is to manufacture only the quality products and provide the quality services to their customers, therefore, they have to maintain the same level of skill throughout their branches (Newton, 2014). For the organizations, the social factor is mostly a threat for them.

The technology is the most important pillar in the mission and the vision of the organizations. But as we all know, that the technology is changing every day, and it is hard for the company to keep up with those changes. The competitors of ABB are the biggest threat to the company in terms of technology evolution (Recklies, 2006).). But as the company is using the most innovative method in their business operations, hence, the technological factors will be more like opportunity for them.

As we have mentioned in the vision of the company, that their goal is to take care of the reduction of the impact on the environment as much as possible. And for that purpose, they have to think constantly to find the ways to achieve that vision. The organizations in this sector do face issues in dealing in different companies because of the different environmental law. Apart from that, change weather and climate, waste management, are the main factors that affect the operations of the company. Hence, this factor is the threat for them.

In a number of countries, the company can face the issue of not having robust protection for the intellectual property rights of the company, because of the weak legal framework. Health and safety law, employment law, discrimination law, are some of the examples by which the company faces issues in doing their business in multiple countries. Therefore, this is also the threat for the operations of them.

There are so many new companies that are ready into the market of diversified machinery. They also bring innovation into the industry and use various strategies like providing products and services at lower prices, finding ways to reduce the cost involved in the operations and providing valuable services to their customers (Grundy, 2006). The companies have to deal with all the challenges that the new companies bring into the market in order to be on top. Although it is a threat for the organizations, but it will help them in improving their business consistently, which is a good opportunity for them.

Capability analysis

The organizations who are dealing in the diversified machinery are dependent on the raw materials in order to manufacture their products. When the supplier gets in the dominant position, the company has to suffer from the decrease in the margins which they can earn from the market (Porter, 2008). It not only impacts the company economically but also has the impact on its productivity. Therefore, this can act as a threat for the companies.

Buyers have a nature of demanding more products and services and want to pay the minimum possible price for their needs. This affects the profitability of organizations for the longer duration of time. It generally comes into the light when the customer base of the company is quite small (Narayanan & Fahey, 2005). It provides higher bargaining power to them, and demands for the discounts and offer. If the companies are able to form good strategies, they can convert this threat into opportunity.

When the new or the existing competitor bring the new product in the market that offers the same features, or more, then it hurts the profitability of the industries. Due to this, the market of the companies gets divided. Hence, it is a threat for the organizations in this industry.

When the rivalry between the companies gets more intense, then it results in lowering down of the prices and thus decreases in the productivity with the profitability. Competitors of organizations can affect the long-term profitability of them (Barney, 2014). Therefore, increase in competition will help in bring the enhancement in the company, which is a good opportunity for them.

The critical success factors can be understood as the factors that are necessary for the success of the business. In ABB, the company has a state of the art technology in order to assist their customers in increasing their efficiency and productivity. For that purpose, ABB engineering services supply a wide range of consulting services for their customer who is doing their business in the manufacturing operations as well as in engineering. The services that the ABB provides also consist of the implementation of the project and their management (GROUP, 2017). The company is providing their services to its customers who are working in the chemical, oil and gas, petrochemical, pharmaceutical and various consumer industries that are located worldwide.

In order to do so, ABB takes a very comprehensive approach for the assessment of the industrial processes. They have a wide range of innovative technological tools that help them in getting the information about the project and finding the opportunities for the companies in days, which can take months to other company. This wide range of opportunities and information helps the decision maker of the client companies to have a rapid and an independent view of the enhancement possibilities for their performance and processes. Therefore, with their help, the companies are able to establish the well planned sustainable change programs (JOHNSON, WHITTINGTON, & SCHOLES, 2014). The method that they used in order to find the key issues and the possible opportunities for the enhancement is by benchmarking their current performance and processes in various fields such as,

• Manufacturing,
• Supply chain,
• Waste,
• Safety,
• Maintenance,
• Environment,
• Quality,
• HR,
• Strategy,
• Yield,
• Energy, and
• Competitive position.

Proposed strategy

They have the assessment database of more than 500 plants all over the world. Their team has surveyed over $25 billion and providing the client benefits of more than $100 million per year. Their benchmarking approach has helped them in making the efficient operational enhancements even by spending less financial assets of their customers. Their tested manufacturing enhancement processes to provide the step change improvements in order to assert the performance and productivity of their company.

In the petrochemical business, they have performed their project on the operational improvement and manufacturing excellence, which has provided the outcomes of more than $26m per annum in value. In the continuous chemical plants, they have completed their projects of manufacturing improvements teams, which has provided the outcomes of more than $1 million per annum (Morosini & Lioulias). In the specialty chemicals, they have executed the projects of batch plant OEE and polymer processing, which have provided the outcomes of more than $10 million per annum. And in the catalyst manufacturer, they have executed the project of operational excellence of more than $4 million per annum.

V- VALUE, i.e., “Is this resource or capability valuable to the firm?”

Yes, the benchmarking capabilities of the company are valuable to them. The benchmarking technique that the company uses has helped in creating the new opportunities for the company and diminishing the possibilities of threat from their competitors. Therefore, we can say that it is the strength of the company (Cardeal & Antonio, 2012). The opportunities that the firm have attempted in order to exploit them are technological change, economic climate, and legal and political condition as well.

In addition to that, the threats that the benchmarking technique of the ABB Ltd. is able to mitigate are threats of rivalry, threats of buyers and threats of a substitute.

R- RARITY, i.e., “Is control of the resource/capability in the hands of a relative few?”

The benchmarking technique that the company is using is unique and does not possess by any other competitors. Due to this, this works as the valuable source for the company and provide them with a competitive advantage over the others. Despite the various adversities faced by the company in terms of economic crisis and political instability in some countries, the company was able to endure this technique over time in order to get the sustained benefits over others.

I-IMITABILITY, i.e., “Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain, develop, or duplicate the resource/capability?”

Strategy evaluation

ABB has got the competitive advantage over its other competitors because of this technique. The techniques used by others in order to find the opportunities for the customer and provide an improvement in their current processes are not that effective as of ABB.

O- ORGANIZATION, i.e., “Is the firm organized, ready, and able to exploit the resource/capability?” “Is the firm organized to capture value?”

There are many elements to this question of organization, such as the formal reporting structure of the ABB, various compensation policies, and management control systems. The reporting structure of the company includes the information about who will report to whom within the organization. In the management control system, it is making sure that the decisions of the managers must align with the goals and objectives of ABB (Knott, 2009). Providing incentives to the employees on their excellent performance comes under the compensation policies. 

• Large customer base with customers of long term contracts
• Superior brand value opens the opportunity of aftermarket sale
• Has root in all over the world

• In the past, the company has overpaid for the their acquisitions
• Margin is not enhancing on shorter term

• Initiatives taken by government will help in increase the demand in power sector
• The company is strong in terms of finance and has a huge cash flows

• The economy’s bad outlook can have a negative impact on the cash flows
• The government is under the pressure for cutting down the financial cost for the project. 

The issues have been found in the context of the company that company has some internal weakness such as less of productivity. However, the company has great opportunity to enter in new market but due to lack of attentiveness company have to struggle in entering to the new market. Strict regulations can be dealt by having the long-term contract with the government companies in the new market.

ABB has one of the widest ranges of products and services which they offer to the customers I the field of electrification of the products, robotics, and automation, power grid. Therefore, they can enter the new markets such as developing countries and provide them with their wide range of services to their businesses. This will help in the expansion of the company which in results will be a profitable step for the company.

As ABB will be going to enter the new market, the company have to deal with the strict business, trading and environmental regulations, as not all of the companies are business friendly. Hence, in order to deal with them, it would be helpful for them if they can have the contract with the government or public companies of that market. Their long-term contract will provide their government assurance that they will be here for a longer period of time.  Due to that, the government might loosen the regulations for ABB.

The strategy that has been proposed in the TOWS matrix will help in taking the full use of opportunities that we have discussed. The wide range of products and services of the company will help them in entering the new markets like developing countries. The reason behind this, in the developed countries, the demand for the new technology and innovation is higher than that of the developing countries. The company cannot survive for much longer with the same technology in the developed market than they can in the developing nation. Therefore, by entering into that market, they do have to worry about the innovation much, and they can focus on the services and products that they are already having. Penetrating the market first will be helpful for them in order to avoid any threats.

The strategies that have been proposed here will be helpful for the organization in order to meet the expectations of the stakeholders. The new market will work as the land of opportunity for the ABB. They will be able to generate more profits and the risk of threats will be minimal. They can be more involved in the decision making of the strategies in the company.

The resources that are required for the successful implementation of all the strategies are already possessed by the company. They just have to give the direction to those resources and they will bring the desired profits and help in accomplishing the goals of the company.

References

Birkinshaw, J., Bouquet, C. and Ambos, T.C., 2007. Managing executive attention in the global company. MIT Sloan Management Review, 48(4), p.39.

Makos, J. 2015. An Overview of the PESTEL Framework. PESTLE Analysis, 18.

Rothenberg, E., Goldberg, K., Salak, W.J. and Draper, J., Salak William J, 2011. Computer-processing system scoring subjects relative to political, economic, social, technological, legal and environmental (pestle) factors, utilizing input data and a collaboration process, transforming a measurement valuation system regarding the value of subjects against an agenda. U.S. Patent Application 12/905,521.

Newton, P. (2014). What is the PESTLE Analysis?.

Recklies, D. (2006). PEST Analysis.

Barney, J. B. (2014). Gaining and sustaining competitive advantage. Pearson higher ed.

Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces model. Strategic Change, 15(5), 213-229.

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.

Narayanan, V.K. and Fahey, L., 2005. The relevance of the institutional underpinnings of Porter’s five forces framework to emerging economies: An epistemological analysis. Journal of Management Studies, 42(1), pp.207-223.

Cardeal, N. and Antonio, N.S., 2012. Valuable, rare, inimitable resources and organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage?.

Knott, P., 2009. Integrating resource-based theory in a practice-relevant form. Journal of Strategy and Management, 2(2), pp.163-174

GROUP, A. (2017). Introduction of ABB Czech Republic. ABB.

JOHNSON, G., WHITTINGTON, R., & SCHOLES, K. (2014). Exploring Strategy. Harlow: Pearson Education Limited.

Morosini, P., & Lioulias, P. (n.d.). ABB (A): FACING THE CHALLENGES OF THE NEW MILLENNIUM. Retrieved JUNE 27, 2018, from IMD: https://www.imd.org/research/publications/education-publications-case-studies/1279/abb-a-facing-the-challenges-of-the-new-millennium/

wright, t. (2017, NOV 14). 3 Of The Biggest Business Strategy Challenges We All Share. Retrieved JUNE 27, 2018, from CASCADE: https://www.executestrategy.net/blog/3-of-the-biggest-business-strategy-challenges-we-all-share/

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