ABB has launched Stage 3 of its so-called “Next Level” strategy which aims to drive company-wide growth via four entrepreneurial divisions, while realizing the group’s full digital potential and improving operational efficiencies.
“Over the last two years, ABB has become faster, leaner and more efficient. We have continuously improved margins and further strengthened our cash generation,” said ABB CEO Ulrich Spiesshofer. “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.”
Effective January 1, 2017, ABB will shape its divisional structure into four divisions: Electrification Products, Robotics and Motion, Industrial Automation and Power Grids – empowered as entrepreneurial units within ABB. The divisions will maintain sales collaboration orchestrated by regions and countries as well as from the group-wide digital offering; ABB’s G&A structure and costs; common supply chain management; and corporate research centers. ABB said it will continue active portfolio management, including pursuing strategic additions, transforming business models and pruning non-core businesses.
“Entrepreneurial spirit is the base for our future operating model,” Spiesshofer said. “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.”
A Digital Leap
The newly launched ABB Ability combines the group’s portfolio of digital solutions and services across all customer segments, and aims to better support the competiveness of ABB’s four entrepreneurial divisions.
ABB also announced a far-reaching strategic partnership with Microsoft to develop next-generation digital solutions on an integrated cloud platform. ABB intends to combine its domain knowledge and portfolio of industrial solutions with Microsoft’s Azure intelligent cloud and B2B engineering competence to drive digital transformation in customer segments across ABB’s businesses such as robotics, marine and e-mobility.
“This partnership will provide unique benefits to our customers in utilities, industry, transport and infrastructure, building on the combined strength of Microsoft and ABB,” Spiesshofer said. “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.”
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.
A Single Corporate Brand
In a transition expected to take up to two years, ABB will adopt a single corporate brand that consolidates all of its brands under one umbrella and unifies its portfolio of companies. ABB said the unified brand plays a key part in realizing the value potential of its digital offering, as it increases customer loyalty, price premiums and purchase probability. 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.
A white-collar productivity savings program launched by ABB has outperformed expectations since its launch last year, the company said. As a result, ABB has increased the program’s cost reduction target by 30 percent to $1.3 billion, which ABB said is achievable within the initial timeframe and with unchanged restructuring and implementation costs. ABB said it is continuing its regular cost-savings programs, leveraging operational excellence and world-class supply chain management to achieve savings equivalent to 3-5 percent of cost of sales each year.
Additionally, a 1,000-day working capital program is in place to free up approximately $2 billion by the end of 2017, and is well on track and focuses on improving inventory management by optimizing the entire value chain, from product design to manufacturing, and by optimizing other net working capital measures.
ABB announced plans for a new share buyback program of up to $3 billion from 2017 through 2019. On September 30, 2016, ABB announced the completion of its recent share buyback program in which it returned $3.5 billion to its shareholders. Over the last three years, ABB has returned $8.7 billion to shareholders in the form of dividends and share buybacks.
Active portfolio management remains a key aspect of ABB’s operating pattern as demonstrated in the recent portfolio pruning and bolt on acquisitions as well as the cable business divestiture and business model changes in Power Grids, the company noted.
According to ABB, its capital allocation priorities remain unchanged: 1) funding organic growth, R&D and capital expenditures at attractive cash returns; 2) paying a steadily rising, sustainable dividend; 3) investing in value-creating acquisitions; and 4) returning additional cash to shareholders.
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,” Voser said. “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.”