By the time the recovery begins, CEO K K Kaura is counting on leading a leaner and meaner organisation.

By George Skaria

It was a rather sudden transition of power. At 10.00 a.m., on August 27, 1998, the 9-member board of directors of the Rs 1,084-crore ABB India (ABB) met at the company's headquarters in Delhi. Most of the directors had presumed that they would discuss the electrical engineering company's poor half-yearly results: the decline in net sales from Rs 472 crore in the first half of 1997 to Rs 382 crore in the corresponding period of 1998, and the fall in its net profits from Rs 19 crore in the first half of 1997 to Rs 15 crore in 1998.

Instead, they were stunned by the announcement that Arun K. Thiagarajan, 53, ABB's CEO for 4 years and a top-level ABB manager for 3 decades, had put in his papers. A week after the $35-billion ABB Worldwide announced a global restructuring on August 12, 1998, Thiagarajan had appraised ABB's Chairman, K.N. Shenoy, of his decision. Explains Thiagarajan: ''I had worked with the company for 31 years. If there was a time to move, it was now-not later.''

His golf partner, and the head of ABB's Power Division, Kuldip Kumar Kaura, was ''pleasantly surprised'' to be nominated as Thiagarajan's successor. Says the 51-year-old Kaura: ''In the restructured environment, the position will enable me to add greater value to my task.'' Perhaps. But Thiagarajan had felt that, in the new regime, the Country Manager would shift from being an operational head to a facilitator. That's because the new structure-which, ironically, buries former ABB Worldwide CEO Percy Barnevik's Matrix Model-hopes to attack the company's bureaucratic labyrinth in order to hasten the decision-making process.

To begin with, ABB Worldwide's regional headquarters-responsible for specific groups of countries-have been disbanded, and their offices in Brussels, Hong Kong, and Miami have been shut down. Now, the heads of businesses-which have been divided into 6, including Power Generation, Power Transmission, Power Distribution, and the 3 divisions of Industrial & Building Systems-in each country will report directly to ABB Worldwide's Zurich-based headquarters. And the role of Country Managers like Kaura will be restricted to gauging the business environment, and scouting for opportunities.

While this new structure will, definitely, save ABB Worldwide costs, the power-shift was unacceptable to the hands-on Thiagarajan. That said, this resignation could not have come at a more trying time for ABB. In the year ended December 31, 1997, the company's turnover dropped by 8.55 per cent to Rs 1,084.16 crore compared to the previous year, and profits (before extraordinary items and tax) slid by 29.70 per cent to Rs 86.35 crore. Only the Power Transmission and Distribution Division (share of revenues: 30 per cent) witnessed a growth in turnover, and contributed 40 per cent to net profits.

In the same year, the other 2 divisions-Power Generation (25 per cent) and Industrial & Building Systems (45 per cent)-registered lower revenues compared to 1996. Says Benoy Jacob, 48, the Chairman of the Triune Group, a Delhi-based engineering consultancy firm: ''Companies that are focused on the power sector can take off only when the government rationalises its regulations. But governments have been unable to get their act together until now.'' True.

For instance, ABB's Power Generation Division-which was projected to ''become the largest of the company's business in the future''-has suffered due to delays in several power projects. That was also reflected in ABB's sales of pollution- and environment-control equipment, which slipped from Rs 65.37 crore in 1996 to Rs 51.12 crore in 1997. And the Industrial & Building Systems Division-which offers comprehensive solutions for core sectors like steel, cement, mining, and aluminium, and was affected due to the deceleration in these sectors-witnessed a fall in revenues: from Rs 452.57 crore to Rs 230.98 crore.

Unfortunately, the slowdown in the economy continued to hit ABB in the first half of this year too. That explains why Kaura is hoping that, post-restructuring, ABB will become financially leaner. Explains Kaura: ''We have a two-part focus. First, hone internal efficiencies to cut costs. And second, enhance abilities in the medium-term to better-comprehend emerging scenarios, and translate them into cogent strategies.'' Adds Bharat Krishnan, 43, the Director of the Delhi-based Symatech Consultants, one of the advisors to ABB: ''If the restructuring helps ABB cut down the bureaucracy and the response-time to serve the customer better, it could take the lead in a process that could be repeated in other companies too.''

Cost-cutting became the new mantra of the company last year, with desperate attempts being made by ABB Worldwide to reduce flab. For instance, the company substituted most of its high cost working-capital bank loans of Rs 48.89 crore with Commercial Paper. By December 31, 1997, the company's loans had dwindled to a mere Rs 6 crore while outstandings against the issuance of Commercial Paper stood at Rs 30 crore. The result: interest costs fell from Rs 17.03 crore in 1996 to Rs 10.97 crore in 1997. Similarly, ABB's inventories stood at Rs 105.75 crore, on December 31, 1997, compared to Rs 161.69 crore a year ago. The advantages of the cost-cutting exercise were also reflected in increased cash-flows from operating activities: from Rs 12.48 crore in 1996 to Rs 82.74 crore the next year.

In addition, the benefits of the investments it has made in the last 2 years will accrue to ABB in the near future. For instance, the company invested Rs 50 crore to set up a new transformers unit in Vadodara-apart from a Rs 105-crore investment in a new turbine-making unit in 1996-which will commence production in the third quarter of this year. And the Rs 275-crore investments, including a Rs 36-crore loan, in 4 joint ventures-the Rs 250-crore ABB-abl (ABB's stake: 76 per cent), the Rs 40-crore ABB Instrumentation (90 per cent), the newly-formed Universal ABB Power Cables (74 per cent), and the Rs 40-crore ABB Lenzhom Services (51 per cent)-will further consolidate its position.

Says management consultant Mrithunjay Athreya, 56, who has been involved in several discussions regarding ABB's restructuring: ''The company knows that the fundamentals of the economy are strong. So, it has bet on large-scale investments, which will definitely bear fruit provided the physical infrastructure and the climate of confidence improves.'' Adds Aditya Srinath, 27, an analyst with the Mumbai-based SSKI Securities: ''Things will improve for the company by the third quarter of this year. By then, 2 additional fast-track power projects would have reached their financial closure.'' What is even better is that ABB's order-book position is improving: in 1997, the company secured new orders of Rs 1,936.50 crore compared to Rs 1,302.20 crore in the previous year. And the order backlog, as on December 31, 1997, was Rs 2,076.20 crore.

However, ABB still has to manage its internal reorganisation. For instance, there is only one vice-president in the Industrial & Building Systems Division, which will be split into three. Moreover, it is not clear if the Power Transmission and Distribution businesses will be bifurcated in India since they are relatively small in size. Finally, with business units dealing directly with their parents, what will happen to ABB's 4 regional marketing offices, which co-ordinate the marketing in all product-segments? Clearly, Kaura will have to manage the most challenging task of all at ABB to succeed: change.

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