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How ABB turned around in India
Meenakshi Radhakrishnan-Swami | October 11, 2005
Ravi Uppal's eyes widen with delight at the memory. Sitting in his quiet office on Bangalore's tree-lined Race Course Road, he recalls a visit to crowded Rajouri Garden in west Delhi.
A car was stuck, parked between two others, with apparently no way out. "These two burly young men came out of nowhere and lifted it on to the road," he remembers with a grin.
As a resident of west Delhi, I'm not surprised. But I see similarities between how those two young men behaved and what Uppal has done at ABB India, the company he heads as vice chairman and managing director.
When he returned to the power and automation technologies company after a five-year stint as managing director of Volvo India, ABB was chugging along morosely at what analysts dismiss as the "Hindu rate of growth".
Four years on, the share price is at an all-time high; the company achieved all its targets 18 months ahead of schedule; and employee productivity has almost trebled. Crudely put, Uppal caught ABB by the scruff of its neck and dragged it kicking and screaming into the real world.
"Uppal's approach is focused. The way he's restructured the business is great," agrees Jigar Mistry, a research analyst at brokerage house Prabhudas Lilladher. Adds another Mumbai-based analyst, "ABB has taken some big decisions over the past three-four years, all of which were in line with the targets it had set itself."
On paper, the targets were simple; within five years, ABB would substantially increase profits and double its turnover. Behind the scenes, though, the outlook was grim: the economy was in a recession and ABB was on the slippery slope: from over Rs 1,000 crore (Rs 10 billion) in 1997, turnover had dropped to Rs 800 crore (Rs 8 billion) in 2000; in the same period, profits fell from Rs 64.8 crore (Rs 648 million) to Rs 54 crore (Rs 540 million). "The global management was unhappy with ABB's growth in India," accepts Uppal.
It can't have much cause for complaint now. In calendar year 2004, ABB India declared revenues of Rs 2,300 crore (Rs 23 billion) and profit after tax of Rs 150.5 crore (Rs 1.5 billion); earnings per share had climbed to Rs 35.5 (from Rs 13 in 2000); and employee productivity is up 2.8 times, from Rs 24 lakh (Rs 2.4 million) an employee in 2000, to Rs 67 lakh (Rs 6.4 million) an employee in 2004.
When Uppal came on board in October 2001, ABB's share was at a low Rs 188 on the Bombay Stock Exchange; on October 5, 2005, it was traded at Rs 1,787. Dinesh Paliwal, chairman, ABB India, and country manager, ABB US, agrees: "India is one of the fastest growing operations within the group today. ABB views it as a 'high-priority focus' country."
That comment is particularly significant, given that the Swiss/Swedish parent is restructuring its entire operations in January 2006, with Paliwal named as president-designate for global markets and technology and Uppal to become the regional head for south Asia.
How did Uppal engineer this success?
More power to products
The first to go was the old business model. Previously, ABB India derived close to 80 per cent of its revenue from electrification and automation projects commissioned by public and private sector companies.
Such excessive reliance on a line of business that's economy-led was "outrageous". Also, while projects have a higher return on capital employed, margins are lower - 5-6 per cent - compared to products and services (8-12 per cent and 15 per cent, respectively).
Uppal brought down the contribution of projects to the bottomline to about 60 per cent, with products and services making up the gap. Eventually, he wants an equal division.
ABB India cherry picked from the global portfolio and brought in products such as compact secondary substations, railway circuit breakers and low and medium voltage drivers in the power technologies segment.
On the automation front, a range of distribution electricals, such as distribution boards, MCBs and line protection devices were introduced. For the first time, ABB also reached consumers' homes, with electric switches.
That meant ramping up the channel network from about 100 in 2000 to over 500 at present. To ensure the new relationships didn't suffer for lack of resources, it opted for channel financing -- where it introduced potential channel partners to banks who provided working capital and post-shipment finance based on ABB's recommendation.
To reach a larger audience, the company also initiated e-commerce initiatives, creating an e-portal for all 500-channel partners.
ABB's IT department created the customised portal and trained these dealers to create online accounts with which they could browse product literature, place orders, track their shipments and even compare notes with each other. Sales through this route have boomed, crossing Rs 100 crore (Rs 1 billion) in 2004; equally important, selling online does away with the need to expand the sales force.
The other important decision was to increase the emphasis on exports. In 2000, ABB's export orders were just Rs 54 crore (Rs 540 million), or 6.7 per cent of revenues. In four years, that figure had climbed to Rs 330 crore (Rs 3.3 billion), which is over 14 per cent of income. The goal now is to take that ratio to 20 per cent.
How will that come about? ABB India has been designated the group's Asian centre for excellence in cement and metals, based on cost structures, quality and efficiency parameters. It will benefit from sub-contracts for related projects from its sister organisations.
In products, ABB India is already the global sourcing hub for three product lines: high voltage circuit breakers, medium voltage outdoor circuit breakers and magnetic actuators; all ABB markets source transformers from India and China.
"By leveraging our global optimisation philosophy, we are moving away from the traditional Made in India or Made in USA concept to 'Made in ABB'," points out Paliwal.
Before he embarked on turning ABB's existing strategies on their heads, Uppal needed to establish some ground rules with the parent company. Earlier, all business decisions were made at Zurich or Frankfurt.
Arguing that no one could understand the Indian market better than Indian managers, Uppal got the global management's consent that all business decisions would henceforth be taken by the country managers. (Incidentally, only India and China have this independence.)
But that wasn't enough. ABB India has close to 25 business units. They were converted into individual profit centres, responsible for target setting, orders, profitability and productivity. "We created 25 CEOs," remarks Uppal.
Pluralistic leadership doesn't mean an absence of control, however. Systems have been put in place to integrate all stakeholders.
"This has helped improve the speed and quality of decision making," declares K Rajagopal, CFO.
Following the organisation-wide implementation of enterprise software SAP, at 6:30 every evening, Uppal's computer flashes a single-screen analysis of the day's work, across 10 factories, six regional offices, 27 branches and nearly 40 projects.
The real-time position on inventories, receivables, expenses and profitability is available at a glance. "It's a bahi khata (traditional ledger)," he laughs.
Automation of processes through SAP has also helped ABB to get rid of paper trails. The enterprise portal allows employees to retrieve mission-critical information quickly from anywhere in the system, helping productivity.
Even routine HR functions have been automated; employees can track their records, from leave status to tax and salary, online. "This empowers both managers and employees," says P C Rajiv, head, human resources, ABB India.
Automatic for the people
In 2002, ABB India decided to move its headquarters from New Delhi to Bangalore, where its application software teams would be particularly vulnerable to headhunters. Building employee loyalty was critical.
At the time, ABB was "highly regimented", with five managerial layers, three levels of supervisors and seven classes of workers. Your status determined your perks -- travel by plane or train, cubicle or cabin, the make of car... "The artificial distinctions had to go."
The employee pyramid was flattened, the Bangalore office has open-plan seating and compensation is now on the basis of cost-to-company. Everyone now travels by train or flies economy, stays at company guest houses and buys their own cars. "I get the same travel allowance as my engineers," says Uppal.
Changes have been made on the shop floor, too. All workmen now have to be qualified, with diplomas from technical institutes.
While the rise in knowledge and skill levels has boosted productivity, the average age on the shopfloor has also dropped, since qualified technicians want to move on after a few years on the job, making room for a younger crop. "There is churn but energy levels are high," says Rajiv.
Uppal's managed to lift this car on to the road. Now, if he can just keep his foot pressed firmly on the accelerator.
Uppal's unconventional thinking has trickled down the ranks at ABB India. The HR department, for instance, is now looking at innovative recruitment. It visits 35 campuses every year: a huge outgo of time and money.
Also, since placement week is held almost simultaneously across campuses, visiting one meant skipping another.
This year, though, that changed. On a pre-appointed date in July, over 500 students from 23 colleges went to the Reliance Web World near them. There, through video conferencing, they participated in a live, pre-placement discussion by ABB officials and sat for online tests immediately.
Apart from slashing the recruitment process to just 12 days, from three months earlier, the new method has also meant considerable savings and a chance approach a better crop of students.