Magazine article Business Credit

Quality Management: How Four European Companies Succeed

Magazine article Business Credit

Quality Management: How Four European Companies Succeed

Article excerpt

Four "excellent" European companies have been selected for this report. The criteria for being considered an "excellent" company include effectiveness of management structure and financial soundness. The organizational structure is effective when it creates a pleasant environment that motivates employees to perform at their highest level. Financial soundness requires these companies to have profit margins above the industry average and to have no major financial problems.

The four excellent companies are: Asea Brown Boveri A.G. (ABB), Bayerische Motoren Werke A.G. (BMW), Nestle Company Inc. (Nestle), and Unilever. Boveri in 1987. Prior to the merger, Asea was a major Swedish company in the electrical systems and equipment industry. Brown Boveri operated similarly in Switzerland. ABB now has approximately 240,000 employees on its payroll and generates more than $25 billion in revenues annually. Operating profit for fiscal 1991 was $2 billion. This is equivalent to 8 percent of sales. The company's return to equity in 1991 was 14.4 percent.

ABB is a multinational company with no geographic center. Its motto is "Think Globally, Act Locally." The firm is divided into 4,500 profit centers controlled by one centralized unit. However, the centers in decentralized locations and operate independently. In addition, ABB's philosophy is to show its local managers what has been achieved elsewhere. These managers are given access to ABB's extensive R&D expertise and allowed to implement their own systems. This strategy encourages creativity, allowing the firm to keep one step ahead of its competitors.

ABB has operations in more than 60 countries. To maintain its leadership position, it has research and development centers in many parts of the world. The findings at these R&D centers are available to all employees.

There is no competition between profit centers for information because each center is allocated a territory in which to operate. This structure contributes to the quality of the company as a whole, as it facilitates information sharing. ABB operates efficiently, placing just 100 of its 240,000 employees at corporate headquarters. A lean staff reduces costs and keeps employee responsibilities clear. For example, business-area managers craft the strategy and evaluate the performance of profit centers in their respective territories. Presidents of the local subsidiaries, on the other hand, are charged with maximizing profits. Each person is given well-defined sets of responsibilities, clear accountability, and the freedom to execute. Everyone's performance is noted and rewarded which increases creativity and motivation.

Another factor contributing to the company's management success is ABB's awareness of cultural differences. It must be responsive to such issues to succeed in a multinational market. Managers are encouraged to respect the fact that different countries do things differently. However, they are expected to sort through these cultural differences and find opportunities to innovate. Thus, ABB maintains good relationships with different countries and avoids paralysis in cultural differences. It also structures its operations to push cross-border economies of scale to create huge cost and quality advantages.

Customer service is also important at ABB. For example, management understands that the Swiss are concerned about the environment, so the company provides locomotives (which generate less pollution than trucks) for freight shipments through the Alps.

Effective communication skills contribute to the company's image. Executives meet every three weeks to analyze the company's status. Meetings with local managers are organized periodically to pass on information and hear complaints. ABB executives purposely over-inform to ensure new changes are passed along. This helps the company stay focused. In addition, ABB spends money to improve communications equipment. …

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