ABB Strategy: Next stage of unlocking value

Ulrich Spiesshofer, ABB CEO

Ulrich Spiesshofer, ABB CEO

ABB signaled a shift in corporate business strategy three years ago with the appointment of Ulrich Spiesshofer as CEO replacing a suddenly departed Joe Hogan. This is far-reaching and bold movement.

Spiesshofer wasted little time jettisoning divisions attempting to bring some focus to the industrial conglomerate. While there have been some acquisitions, the strategy has focused on spinning off divisions and righting the capsizing ship known as Power.

The company unveiled its “Stage 3 of its Next Level” strategy at a recent analyst and investor conference held in Europe. A couple of centerpieces: huge corporate reorganization; and, emphasis on digitalization–which includes joining the stampede of industrial companies aligning with Microsoft Azure.

Company news

ABB launched Stage 3 of its Next Level strategy to unlock value for customers and shareholders. The core elements of this include: shaping ABB’s divisions into four market-leading, entrepreneurial units, including continuing to transform the Power Grids division under ABB’s ownership; realizing ABB’s full digital potential; accelerating momentum in operational excellence; and strengthening ABB’s brand.

Spiesshofer said, “Over the last two years, ABB has become faster, leaner and more efficient. We have continuously improved margins and further strengthened our cash generation. In Stage 3 of our Next Level strategy, we are building on our successful transformation momentum and strengthening our position as a pioneering technology leader and global digital champion. With our four simplified, market-leading, entrepreneurial businesses, combined with “ABB Ability”, we address customers’ needs in the Energy and Fourth Industrial Revolutions in a more focused and agile way.”

Peter Voser, chairman of ABB’s Board of Directors, said, “The successful execution of our Next Level strategy to date has led to significantly improved operational and financial performance and a more externally focused, simpler ABB. The entire board worked with the management and external advisors on all elements of Stage 3, which will unlock value for customers and all shareholders while ensuring the company’s long-term success. The continued transformation of our Power Grids division under ABB’s management is the best of all carefully assessed options for shareholders. We firmly support the management team and the action plan presented today.”

Driving growth in four entrepreneurial divisions

ABB is shaping and focusing its divisional structure into four “market-leading” divisions: Electrification Products, Robotics and Motion, Industrial Automation and Power Grids, effective January 1, 2017. The divisions will be empowered as entrepreneurial units within ABB, reflected in an enhancement of its performance and compensation model focusing on individual accountability and responsibility. They benefit from sales collaboration orchestrated by regions and countries as well as from the group-wide digital offering; ABB’s leading G&A structure and costs; common supply chain management; and corporate research centers. ABB will continue to strengthen its divisions through active portfolio management. This includes pursuing strategic additions, transforming business models and pruning non-core businesses.

“Entrepreneurial spirit is the base for our future operating model,” said Spiesshofer. “Our four market-leading businesses, led by empowered entrepreneurs, will drive sustainable value creation, supported by regions and Group oxygen such as ABB Ability and our leading G&A cost level.”

Electrification Products

Bringing together all electrification components, mainly by transferring businesses from the existing Discrete Automation and Motion (DM) division, EP will be the global #2 in that segment, offering a one-stop shop for customers.

The electric vehicle charging, solar, and power quality businesses will be transferred from the DM division to serve as growth platforms within the Electrification Products division. The necessary investment to continue the growth momentum of these businesses will initially have a dampening impact on the division’s profit margin.

Robotics and Motion

ABB’s leading offering in industrial motors and drives as well as its strongly performing robotics business are the building blocks of this newly shaped division which succeeds the former Discrete Automation and Motion division.

By focusing on the fast-growing robotics market and leveraging ABB’s technology platform and global scale, the company is ideally positioned to move from its current #2 position in robotics to #1 in this highly attractive market.

ABB will continue to invest in and shape its #1 position in industrial motors and drives by focusing on fast-growing segments and moving into light industry and emerging growth areas like Asia.

Intelligent services and a leading digital offering are already a strong pillar of the division’s performance and open significant growth opportunities. ABB will strengthen divisional profitability through continued focus on operational excellence and value chain optimization.

Industrial Automation

This division succeeds the former Process Automation division.

ABB will drive digitalization across industry sectors, building on its #1 position in process control through software and services. By focusing on growing segments and bringing together maintenance, operation and control, ABB will drive penetration of strongholds and create differentiation for customers.

Power Grids

Following a comprehensive strategic portfolio review, the Board and Executive Committee of ABB have concluded that the transformation of Power Grids under ABB ownership will unlock maximum shareholder value compared to other ownership options such as sale, IPO, spin-off or joint venture.

Key factors in the decision-making process included market attractiveness, the existing and future product offerings, business model opportunities and best ownership, as well as all alternative value creation options for ABB shareholders. This review included independent analyses from McKinsey and independent financial advice from Goldman Sachs and Credit Suisse.

The division, which is #1 globally, will take advantage of the Energy and Fourth Industrial Revolutions. These are creating significant demand for Power Grids’ products, systems, software and services, and support the portfolio shift towards digitalization.

To realize the full potential of the division and continue the ongoing transformation, “Power Up,” a massive program covering key aspects of the business, was introduced. It will drive growth and enhance earnings accretion by focusing on core operational strengths and high growth segments as well as digitally enabled services and software.

A key element of the division’s ongoing transformation is the de-risking of the business model and tapping of growth opportunities through two strategic partnerships announced today – with Fluor for large electrical substations, and Aibel for offshore wind connections. Both partnerships combine ABB’s market leadership in power technologies with the respective partner’s expertise – Fluor’s in managing large engineering, procurement and construction (EPC) projects, and Aibel’s in offshore wind projects.

Another key element is ABB’s pruning of niche non-core businesses such as the recently announced sale of ABB’s cable business to NKT cables while preserving access to technology through a strategic partnership.

As a consequence of the transformation, ABB is raising the operational EBITA margin target corridor for the division from 8-12% to 10-14%, effective 2018.

“In our strategic portfolio review we have listened carefully to all stakeholders and all expressed views. After a very thorough and detailed process, supported by leading advisors, we have concluded that the continued transformation of Power Grids under ABB’s ownership creates the highest value for our shareholders and customers. Building on the transformation success and momentum to date, the Power Grids division is ideally positioned within ABB to drive long-term, profitable growth during the Energy and Fourth Industrial Revolutions and is an integral part of our offering,” Spiesshofer said.

Digitalization In The Cloud

The newly launched ABB Ability offering combines ABB’s portfolio of digital solutions and services across all customer segments, cementing the group’s leading position in the Fourth Industrial Revolution and support the competiveness of ABB’s four entrepreneurial divisions.

It announced a far-reaching strategic partnership with Microsoft, the world’s largest software company, to develop next-generation digital solutions on an integrated cloud platform. Customers will benefit from the unique combination of ABB’s deep domain knowledge and extensive portfolio of industrial solutions and Microsoft’s Azure intelligent cloud as well as B2B engineering competence.

“This partnership will provide unique benefits to our customers in utilities, industry, transport & infrastructure, building on the combined strength of Microsoft and ABB,” said Spiesshofer. “Building on ABB’s installed base of more than 70 million connected devices and more than 70,000 installed control systems, the next step is to develop one of the world’s largest industrial cloud platforms.”

“Together with ABB, we are providing industrial customers with the digital technology and cloud platform to empower every person, team and business system within an organization to glean new insights and drive faster decision-making to seize new growth and opportunities,” said Satya Nadella, CEO, Microsoft.

ABB’s digital transformation will be led by Guido Jouret, a pioneer in the Internet of Things, who began his role as Chief Digital Officer, reporting directly to the CEO, on October 1, 2016.

Strengthening the global ABB brand

ABB will adopt a single corporate brand, consolidating all its brands around the world under one umbrella. ABB’s portfolio of companies will be unified, showcasing the full breadth and depth of the company’s global offering under one master brand. This transition is expected to take up to two years.

One master brand allows ABB to better present its strategy to relevant stakeholders, emphasizes the Group’s customer-first, digital-first thinking and makes it easier to interact with existing and future customers.

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