Running head: E-BUSINESS PLAN – PART II

E-Business Plan Part II

Velda Eaton

December 20, 2010

E-BUSINESS PLAN – PART II 2

ABB: Strategic Rise, Decline and Renewal (1988-2008)

Strategic Analysis and Market Justification

ABB has five divisions, which operate across two key markets, the power market and the

automation market. The power market uses products, systems and services designed primarily to

deliver electricity. Electricity is generated in power stations and is then fed into an electricity grid,

from where it is transmitted and distributed to consumers. The portions of an electricity grid that

operate at the highest voltages are transmission systems, while those that operate at lower voltages

are distribution systems (ABB press release, 2002).

Identifying the best places in the world to develop the business, locate manufacturing

facilities and buy supplies is a dynamic part of the organizational strategy of ABB. ABB’s global

footprint enables this organization to serve customers wherever they are and keeps ABB flexible

and responsive with the ability to make the most of opportunities, wherever they arise. Sometimes

operating costs are the deciding factor, sometimes expertise, proximity to customers and suppliers,

or other factors. Emerging markets are the current engine of global economic growth, so ABB has

developed its presence in these regions. At the end of 2009, more than 48 percent of the company’s

employees were in emerging markets, compared with 26 percent in 2006 (Annual Report, 2010).

International Opportunity

ABB took advantage of an invitation to bid on an international contract to provide power

supply infrastructures and equipment for several floating, production, storage and offloading

(FPSO) vessels. ABB won the contract, which consisted of several sub-awards and orders

collectively worth $42 million. The vessels will produce crude oil off the coast of Brazil and will be

operated by several oil and gas producers, with Petrobras as the end customer. The orders were

booked during the third quarter. ABB’s comprehensive power equipment delivery for each vessel

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will ensure a reliable power supply onboard. Each delivery includes a containerized E-House

(electrical house) for the complete power system, related power generation and distribution

equipment, engineering and installation services (Press Release, 2010).

Economy and Market

ABB’s first quarter revenues steady despite economic and market challenges within the gas

and oil industry. The recent oil and gas spillages affected the large order base, which was offset by

the strong decline in base orders. The order backlog is up to $1.2 billion versus the end of the fourth

quarter in 2008. The local-currency revenues will show a growth after backlog execution and the

base business will decrease EBIT at $862 million, with cost take-out target increased to $2 billion

by 2010, and net income at $652 million (Press Release, 2010). ABB’s first-quarter 2009 revenues

rose 3 percent in local currencies as execution of the solid order backlog offset lower sales of

standard products and declining base business compared to the same quarter in 2008.

Economic Landscape

The Swiss electrical-engineering company ABB Ltd. on reported a 25.1% drop in third-

quarter net profit but said it was confident it will benefit from a sustained economic recovery.

The Zurich-based company said net profit for the three months ended September 30 fell to $774

million from $1.03 billion a year earlier, when ABB benefited from reserve releases of more than

$400 million. While revenue remained flat at about $7.9 billion, orders—which reflect future

revenue growth—rose 16% to $8.2 billion from $7.06 billion

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Visibility in ABB’s markets for the remainder of 2009 remains limited. Significant

uncertainty remains surrounding the key demand drivers for the company’s products and systems.

The business environment improved in the third quarter but it is too early to say whether this

represents a bottom to the market downturn within the slumped economy. In addition, the year-on-

year comparison of results in the second quarter of 2009 will be particularly challenging because of

the very high levels of growth and earnings reported in the prior-year period (Annual Report, 2010).

The need for power transmission infrastructure in all regions – both equipment replacement

and new transmission projects – has not changed in recent quarters. However, the cost and scarcity

of project funding have delayed many power investment decisions, and ABB is unable to precisely

forecast when the various government stimulus programs will have an impact or when the

availability of funding will improve (Annual Report, 2010). The demand in ABB’s industrial end

markets depends to a large extent on GDP growth and capital spending, together with commodity

prices. The customers’ need to steadily improve efficiency and productivity to meet increasing

competition also drives orders, along with demand in construction and in general industry.

Market Trends

ABB realigns business segments to tap market trends and names new group executive

committee. In Zurich, Switzerland - ABB, the international engineering group, announced changes

in its Group management structure aimed at boosting business growth areas, creating new synergies

E-BUSINESS PLAN – PART II 5

and ensuring greater responsiveness in local and globalized markets where deregulation and

privatization are opening up new opportunities (Press Release, 2009).

The large Industrial and Building Systems segment will be divided into three new segments

- automation; oil, gas and petrochemicals; and products and contracting. The power transmission

and distribution segment becomes two separate segments - power transmission and power

distribution. The power generation and financial services segments will remain unchanged and will

keep a steady base cash flow to help cover the bottom-line (Annual Report, 2009).

Customer Preferences, Current and Anticipated Competition

ABB has implemented a system evolution commitment underlying a customer evolution

planning process. ABB believes a successful evolution program must begin with a solid plan driven

by customer business goals. Good planning helps to minimize the negative production impact from

any upgrade and is critical for any incremental, stepwise evolution. It simplifies and improves

yearly budgeting, and facilitates planning for system upgrades and plant shutdowns. Individual

planning is essential.

At ABB, there is "one size fits all" approach. The organization recognizes that different

industries invariably have different strategies and business issues going forward. ABB account

managers and technical experts work with individually with new and existing customers to address

all of the customer’s need. A collaborative relationship lets has mapped out the best strategies for

each operations process (Annual Report, 2010). After a comprehensive audit of the existing system,

and an understanding of the business drivers: ABB will submit a 3-5 year plan to be reviewed and

revised as necessary to meet current and anticipated competitors. The incremental approach

supports flexibility, and allows for changes to the plan as may be required over the course of time to

ensure a competitive edge. The organization will identify and target which facilities are at greatest

E-BUSINESS PLAN – PART II 6

risk for production loss and those that have the greatest potential for increased production. As each

phase is identified, ABB will provide value assessments and Return-on-Investment support for

consideration in order to facilitate successful project appropriation requests. The long-term plan is

reviewed periodically and updated as required to reflect the changing business needs, and new ABB

solutions. This approach takes the guessing out of the budgeting process: as part of the planning,

specific projects are identified and initiated (ABB, 2010).

Business Model

The business model of ABB, the leading power and automation technology group, is the

vision of the organization, which is to contribute to a better living standard for the world by

producing technically advanced products which are essential to ensure the safe and reliable supply

of electric power. Through an acquisition, ABB acquired Baldor to fulfill critical strategic and

financial goals within this vulnerable market and unstable economy. Baldor is the global leader in

industrial motion and the leader in North American industrial motors. Baldor is a well-managed

business with a strong reputation that will re-secure ABB’s business model structure with the

market and industry (ABB, 2009).

The above exhibit demonstrations the stability of Baldor and its marketplace. Baldor provides

indispensable equipment across key industries as depicted in the exhibit below (Press Release,

2010).

E-BUSINESS PLAN – PART II 7

Baldor is the supplier of choice in North America and are close to customers across the

region. Baldor’s reputation is a key differentiator. Baldor is a strong performer with a resilient

future growth potential. Industrial motion has a $35 billion global market that will support the

movement and control for industrial applications (ABB, 2010).

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The products and geography of ABB and Baldor is a perfect match and forming a global leader in

industrial motion will ensure market access (ABB, 2010).

Cost synergies represent 50 percent of total synergies. Below is a summary of 2015 EBITDA

impact that ABB and Baldor will have on the market if ABB drives are combined with Baldor

motors (ABB, 2010).

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Summary and Technology

Within the key value creation levers, there is low-risk integration into the realigned DM

division. The business model developed between Baldor and ABB will have an unmatched portfolio

in the industrial motion industry. The portfolio is designed based on technology software acquired

through a collaborative agreement with IBM. The software is designed to serve both customer bases

of local and global customers. The software will allow the high-performing executive team of

Baldor retained by ABB that are highly motivated with key roles in integration of business models,

software, and penetrating market share. With this business model, ABB will be able to sustain in the

unstable economy. Because both ABB and Baldor have a substantial market share, the acquisition

of Baldor will align ABB with marketability for the next 5 to 10 years (Annual Report, 2010).

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References

ABB Ltd. (2004). United States Securities and Exchange Commission, Form 20-F (2004) 16–33,

http://www.excite.brand.edgar.com.

ABB press release (2002), ABB’s operational and financial restructuring on track.

http://www.abb.com/cawp/seitp202.

ABB press release (2009), ABB’s operational and financial restructuring through acquisitions.

http://www.abb.com/cawp/se295.

ABB press release (2010), ABB’s remodeling, restructuring for advancement.

http://www.abb.com/cawp/pbs8523.

Deresky, H. (2011). International management: Managing across borders and cultures (7th ed.).

Boston, MA: Prentice Hall.