How to Re-Invent a 60-Year-Old Company

Today, we review 400 executives every year. I personally go through 400 people. That’s massive work, but I need to do it. We came from $2.9 billion sales to $6 billion this year—in seven years—and our profitability is robust with a $22 billion auto backlog. This requires a different mindset, so we give people the opportunity to make mistakes, to take risks and see where they fail and where they succeed. At the same time, I’m a big believer in promoting from within.

That’s what we did at ABB. Creating a strong culture sends a signal that people can have a tremendous career here. Harman used to bring everybody from outside. But today, my board of directors is happy to see I’ve got not one, not two, but three or four people capable of replacing me. Taking 4,500 people out of a company of 12,000 couldn’t have made you very popular.

And 4,500 people were relocated. Do you think I would get positive notes from everybody? No. I told my head of communications, I won’t look at any of those internal messages until we get past this. I told people in a series of town hall meetings that these were difficult times. We’re changing the course of the company. We need to establish the right cost base, because without the right cost base and without the right innovation, there is no future.

The result is that we have shifted our business. It used to be a hardware, silver-box-driven business. In 2007, 75 percent of the value-added came from hardware. Today, it’s the reverse—75 percent of the value-added comes from applications, system design and system architecture solutions. When I came in, 100 percent of engineering was in five countries: Germany, UK, France, Italy and Switzerland. Today, 66 percent of engineering is in best-cost countries: Hungary, Poland, Romania, China, India, Mexico and Brazil. Eighty percent of our North American manufacturing is where it should be—in Mexico; we have 11 production lines in Hungary, two in China, two in Brazil and one we’re opening in India. We still have manufacturing in the U.S., and I want to keep it here because mission-critical things for BMWs, Audis and Porsches and Harley Davidsons contain ultra-high-end audio systems.