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Human Engineering at ABB Leads to Operating Principles for Global Management
by Michael Maccoby
Published in: Research Technology Management, Vol. 38, No. 5 September-October, 1995. pp. 58-60.
In 1988, ABB was formed by a merger of two electrical engineering giants, ASEA of Sweden and Brown Boveri of Switzerland. Other companies were subsequently acquired, including Westinghouse's power transmission group and Combustion Engineering in the U.S.A. In 1989, I began to work with Göran Lindahl, executive vice president and head of the Power Transmission and Distribution segment on what Lindahl calls "human engineering." From this ongoing collaboration, we have developed some operating principles for the management of a complex global company (doing business in 128 countries).
By "human engineering", we do not mean treating people like machines to be programmed and controlled. To the contrary, we have tried to take soft concepts such as values, style, and culture and create useful language, measurements and shared understanding about the logics that determine human behavior. The purpose is to improve communication and teamwork.
Lindahl recognized from the start that an extremely complex global company could not be managed mechanistically. Top management, led by Percy Barnevik had pared away the bureaucracy to a minimum. They had designed a matrix of business areas coordinated in the segments (also including Power Generation, Industrial and Building Systems and Transportation) and companies incorporated in countries and coordinated by regional management Europe, the Americas, and Asia Pacific. (See "Managing Multidomestic R&D at ABB," RTM. Jan-Feb. 1995. pp. 30-33)
The ABB strategy has been to make use of a global engineering and production capability combined with insider presence in the different countries. The slogan "think global, act local" means that local companies should respond creatively to the local business environment in collaboration with the business areas which are responsible for product and process development and production strategy.
The success of this strategy depends not only on defining roles and responsibilities and measuring the right things. It also requires people who are both independent and interdependent, who accept responsibility to act and at the same time communicate openly and honestly with one another. ABB's Mission, Values, and Policies booklet states:
'Every ABB manager must be a driving force for change and development. Taking action and doing the right thing is obviously best. Taking action, doing the wrong thing, and quickly correcting it is second best. Creating delays or losing opportunities is the worst course of action.'
Willingness to act requires freedom from fear of being punished. Cooperation among strong, autonomous people requires a high degree of commitment to the company strategy, combined with mutual understanding and trust. Given the different nationalities involved, mutual understanding depends on shared concepts and meanings. Although English is the corporate language at ABB, it is a second or third language for most managers. Because the chances of misunderstanding are so high, Lindahl discourages writing memos when there are disagreements and encourages his managers to pick up the phone and talk through a problem. However, he encourages them to communicate the achievements of others in writing with copies to several people. By affirming the success of the cooperation and practicing recognition, they are building a motivating corporate culture.
To construct a common business logic or framework for dialogue, ABB managers have to balance industrial and political logic. Industrial logic dictates where and how products can best be manufactured. Business area managers take the lead with this logic. Political logic modifies this according to demands made by large customers such as utilities for local content in production and developing countries for opportunities to strengthen their technical skills.
In making decisions, managers sometimes must struggle against human nature, or psychologic. There is a natural interest on the part of people in all cultures to favor their home country, to protect the employment of people they know, and to maintain control over production, even though products can be manufactured at lower cost elsewhere.
Cultural values can also interfere with communication and cause distrust unless they are well understood. From the start, Lindahl observed differences in managerial style according to nationality. Consequently, he asked Bo Ekman of SIFO, a Swedish research and consulting company and me to interview key managers from Sweden, Switzerland, Germany, Norway and the USA to see how they viewed each other. We found that differences in culture did cause misunderstandings. Distinct histories and traditions influenced national approaches to business, engineering and teamwork. For example, Swedes had an engineering tradition based on some pioneering work in power technologies. Oriented to international trade because of their small home market, they formed supportive teams strengthened by shared values and close relationships outside of work. Thus, they were able to send good people abroad and without much communication, trust their judgement.
From the German point of view, the Swedes were good at business but rather backward technically. The German focus was mainly on the perfection of the German infrastructure. German engineers were used to dealing with technical complexity and they valued continuous improvement toward a goal of perfection. Suppliers and customers might both have doctorates and work closely together on system development.
Within the German organization, there were strict lines of authority. Outside of work, German managers frowned on social contacts which might produce friendly relationships that interfered with objective judgment. While professionals were expected to argue strongly for the right solution, once a decision was made, they marched in line. Germans viewed Swedish consensus as too quick agreement without integrity; the Swedes, while admiring German technical depth, distrusted German commitment to the common corporate purpose as opposed to personal self-interest.
Like the Germans, the Swiss enjoyed a protected market with close relations to customers, and they also placed a high value on engineering excellence. Like the Swedes, their home market did not absorb their capability, and they developed a strong export orientation. Swedish managers sometimes assumed that a Swiss manager had agreed to a decision only to discover that it was being discussed and reconsidered. The informal organization, practicing traditional democratic values and respect for diversity was not geared for rapid consensus. Swedes felt frustrated by the slow deciding Swiss who while admiring Swedish efficiency, disapproved of what they considered a short-term, overly impatient attitude.
By describing these national differences and others in terms of historical and economic context, production orientation, and organizational and personal values, Lindahl was able to increase mutual understanding and improve communication. He described our findings in a series of meetings with managers. Whereas national stereotypes had before been privately expressed, they now were openly discussed with the result that managers began to understand one another better.
While describing value differences, Lindahl affirmed the common values essential to ABB's success. These include: corporate unity; high ethical standards and business ethics; customer focus including total quality management; fairness, openness and respect in employee relations; product and service quality; environmental protection; and action orientation.
The next step was to determine whether these values were in fact practiced throughout the company. In 1991 at a meeting in Seoul, managers began to discuss the gaps between stated values and practice. The role of leadership in living the values and creating a motivating culture was emphasized. But there were differences in how these values were interpreted in some countries, notably in Asia. In 1993, when Lindahl was responsible for Asia-Pacific as well as the Power Transmission segment, he asked me to interview managers in China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Taiwan and Thailand. He asked me to explore the following questions. How did local managers and expatriates view strategy and values? How did they view one another? What should be done to develop local managers to become global executives?
In each country I started out by giving a seminar on strategy and organization using a 7s model. I then asked the managers to fill out a questionnaire that described elements of strategy, structure (e.g. clear roles) systems (e.g. rewards that support strategy, information), skills (e.g. technical, managerial, business), style (e.g. empowering, teambuilding), and shared corporate values. On scales of 1 to 5, they rated the importance they gave to each element and its level of implementation. I also asked them to rate expats and locals in terms of a 7th S, social character, in terms of traits such as confident, caring, hierarchical, realistic, idealistic, etc. In individual sessions lasting one and one half to two hours, I interviewed the managers about their background and aspirations, personal values and philosophy of management. I asked them to explain the gaps and what they thought should be done to close them. I asked them to elaborate their judgements about social character.
Although I had been warned by academics in the U.S. that Asians would not be willing to express their criticisms of the company and management, this turned out not to be the case. Most ABB managers I have met in the West and East share the value of understanding and improving the organization. They all have the engineer's commitment to objective analysis. However, the people being interviewed will be open only when they experience the interviewer as someone without preconceptions who is sincerely interested in learning how things look from their point of view, and who respects their cultural and religious values.
Lindahl used the results of the study to educate management about East-West differences (For some of the findings, see Creating Quality Cultures in the East and West, He was able to clarify differences in the various countries and to describe how Asian customs, religion and philosophy (Confucian, Buddhist, and Muslim) influenced views not only about ideal leadership and organization, but also relationships with customers.
The next step was a meeting of more than 100 segment managers from all over the world which took place in Raleigh, N.C. in June, 1994. There we reported the results of a gap survey used to measure perceptions of how well ABB values were being practiced. Managers were positive about ABB's product quality, technological leadership, action orientation, ethics, and corporate unity, but they indicated gaps in the softer areas such as open dialogue, teamwork across boundaries, and trust. There was also a consensus that ABB needed to improve its understanding of the changing needs of its customers and be able to respond more creatively.
Lindahl accepted this advice and decided to invest in developing a more open dialogue within his core team of 17 business area and local segment managers. To prepare for the meeting, he asked me to interview team members using the following questions: Do we have common goals? Do we have the right measurements? Do our relationships support our goals? What values should be practiced within the core group? What are your main priorities? How do you evaluate Göran Lindahl in his leadership role? What are his strengths? How would you like to see him act differently?
The results affirmed the need to improve the dialogue within the team. Managers emphasized that the operating values of the core team should include both openness and generosity in dealing with each other. While some managers argued that problems would be solved by increasing the authority of one or another part of the matrix, Lindahl was convinced that traditional control would not work. Better decisions would result only from better relationships. The ABB organization required managers who could listen well, create trust, and be convincing in explaining their point of view.
The managers appreciated Lindahl's business leadership, but they wanted more coaching and open discussion about strategy in the group. At a meeting in Madrid in January, 1995, Lindahl responded directly to the specific criticisms, thus modeling the openness he expected from his team. The team then dived right into the issues of relationships, trust, and openness. The managers were subdivided into groups and asked to discuss their personal ways of acting, what could and should be changed, and the unresolved issues between group members. Discussions proved to be open, yet generous. The groups reported their conclusions back to the whole team. There was agreement to continue the process periodically.
At the next team meeting, in Zurich in May, 1995, teammembers reported moderate to good improvements in communication and problem solving across the matrix. The process was showing results.
In strengthening the human side of managing a complex global business, we have begun to develop operating principles. While some other large and complex companies have been focussing on elements of human engineering, it seems to me that Lindahl has with energy and conviction taken the lead in developing a new and effective approach to global management. In a sense, the use of operating principles for complexity is consistent with discoveries by the distinguished economists, physicists, and computer scientists at the Santa Fe Institute who have questioned the applicability of mechanistic theories for understanding and predicting how complex economies function. (see M. Mitchell Waldrop, Complexity, The Emerging Science at the Edge of Order and Chaos, New York, Simon & Schuster, 1992). We can summarize these operating principles in terms of four I's: Innovation, Integration, Interactivity and Implementation. These combine ways of thinking, interacting, and acting.
Innovation requires creativity and is essential to generate responsiveness to customer needs throughout the value chain. This became obvious at an early stage in the process and actually goes back all the way to the ideas of W. Edwards Deming, the pioneer of quality management.
Integration means continually aligning organization and strategy and developing shared business logics. Structure must follow strategy rather than, as in the case of some organizations, the reverse. At ABB of Canada, managers have led the way in redesigning organization and training to support strategic partnerships with large customers.
Interactivity requires the kind of openness and engagement Lindahl is developing in his core team.
Implementation refers to ABB's action orientation and the steps in the human engineering process that are crucial to creating a motivational environment and stimulating changes in management style and behavior. This includes in-depth reflection about results and the continuous questioning about assumptions which is essential for organizational learning.
Taken together, these four I's focus managers of a complex company on their governing function of maintaining and improving the organization as a social system. We have tried to keep these principles as clear and simple as possible, so there will be a minimum of misunderstanding among managers from different cultures. But this does not lessen their importance for directing managerial thought and action. Only senior management can work the I's effectively and only by practicing these principles will a complex global company gain the full benefit of its human assets.
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