ABB is mining profits from the business of doing more with less. It is led by a man with dreams of a healthier, more energy-efficient world.
A power in efficiency revolution
When the Swiss engineering company ABB recruited an American healthcare marketing specialist to lead the venerable European power and automation group, the rumour mill went into overdrive.
It was September 2008, just before the collapse of the US investment bank Lehman Brothers triggered the global credit crisis. Joe Hogan, the former chief executive and president of GE Healthcare, a unit of General Electric, had acquisitions experience and it was assumed his appointment as the chief executive of ABB heralded a shopping spree. That was seven months after the shock departure of ABB's previous boss, the respected Swiss businessman Fred Kindle, over what the board called "irreconcilable differences of opinion about how to lead the company".
Mr Kindle, who had rescued ABB from near bankruptcy in the middle of the last decade, was a conservative money manager who urged caution over acquisitions back in early 2008, even as the company achieved record financial results. Mr Hogan, speculators suggested, would take a run at the US company Rockwell Automation, which had been tipped as a takeover target. Instead, the recession hit, the robotics business was dragged down by the crisis sweeping car making, and Mr Hogan, the 52-year-old son of a crane driver, turned out to be no more a profligate spender than his predecessor.
Rather than snapping up assets from distressed competitors, he hoarded a cash pile that exceeded US$7.1 billion (Dh26.07bn) by the end of last year. He also cut staff and costs at ABB, and set about building a reputation for the company as one that knew how to do more with less. The "more", Mr Hogan said while visiting Abu Dhabi this month, flowed from ABB's legacy of "an engineering culture with strong technology and very good project execution"; the "less" from his personal mission to make technology the key to building a healthier and more energy-efficient world.
"I spent roughly 10 years in health care and encountered huge problems that society has to solve," he said. "Energy and sustainability is the other huge area that society needs to address. I feel privileged to have been given the opportunity to make a difference in both." Mr Hogan had a personal epiphany not long ago in Switzerland, where he moved his family after accepting the job at ABB: "I have seen the glaciers melting with my own eyes. Global warming is a fact."
Now he hopes ABB's brushed-up corporate image as a super-efficient global company with a strong environmental ethic will be a selling point with clients from some of the dirtiest industries on Earth - oil extraction, mining and heavy manufacturing. "We deliver an entire package of electrical infrastructure that also saves electricity," Mr Hogan said. "The trick is to have all the parts working together. The parts have to spell a solution in some way, and you have to understand the customer's value chain.
"If we introduce a programme to cut energy costs, it is fascinating to see how profitable the measures can be. For example, if we replace an old engine with a new, energy-saving model, this sort of investment often pays for itself in the first year or less, which is good for our customers, good for the environment, and also good for our shareholders." An example of the energy-efficiency work ABB does is a project it recently finished at the Jumeirah Beach Hotel in Dubai. The fixed-speed motors running the hotel's airconditioning system were replaced with motors using variable-speed drives. That allows a system that accounts for more than 60 per cent of the hotel's energy consumption to respond to variations in power demand dictated by time of day, season and weather.
An example of where the package approach can be crucial is in wind farms, where many moving and fixed parts must work together with a high potential for one faulty windmill to disrupt the operation of its neighbours. "We're one of the largest companies supplying the wind market," Mr Hogan said. "It can be a real problem if the parts don't fit. Projects can be delayed. Efficiencies can't be delivered."
Another of ABB's specialities is designing and installing power grids. As the technology for electricity transmission evolves and starts to incorporate digital enhancements that harness the power of the internet, grids are becoming more efficient, but also vastly more complex. That means some of the best opportunities for capturing energy savings from efficient new transmission webs lie in developing countries, which in some cases can leap ahead of industrialised states with obsolescent power grids in need of retrofitting.
"It's terrific if you're putting in a new grid," Mr Hogan said. "Today it's a lot easier to put in an efficient power grid in a developing country than in one with a well-established grid." As a result, China has the most efficient electricity transmission system in the world, and some of the best opportunities to invest in electrical infrastructure are in the Middle East, India and Africa. The UAE is one Middle East country making large infrastructure investments. As a result, ABB, which recently won a $104 million contract from the Federal Electricity and Water Authority to build electrical substations in the Northern Emirates, has about 1,000 staff including 400 engineers stationed here.
In Abu Dhabi, Mr Hogan has been impressed by the "world leadership position" in energy-efficiency technology that Masdar, the government-owned clean energy company, has taken through its flagship project to build the carbon-neutral Masdar City. ABB was in talks over possibly leasing space in Masdar City, he said. Now ABB is focusing on opportunities in the developing world. Last year for the first time, more than half of the company's revenue came from emerging countries.
The group's revenue was $31.8bn last year, on which it earned $2.9bn of net income. "The Middle East is a very important region for ABB," Mr Hogan said. "This is an area that is undergoing huge infrastructure growth, and ABB is an infrastructure company. "What I want to do is enhance our position in emerging markets, not just in distribution, but also in manufacturing and engineering. I want to make sure we look at this region not just as a location for a parts store, but as somewhere we can have all the parts fit together."