Competitive Environment: Industry changes and threats in 1997 Deregulation of electricity markets: In US and European Union New customers and market opportunities Privatizations Changes in job market: Shift of the labor force from US and Europe to Asia Technological development Growing industrial automation processes Creation of new markets Financial crisis : Currency crisis in Thailand Financial turmoil in Asia Bad financial prospects

Strategy, key elements. Big bang In the 90 th new business model : switch from mature manufacturing to value added and service based offerings. First steps: During 1997 ABB started to reduce capacity, closing 13 factories. Result: highest capacity utilization rates in the industry. Strengthened key global processes – financial services, IT, knowledge management Investment on solution business in automation and electrical power distribution., hired engineers. 2. Acquisitions and investments :Following the new approach, In 1998 acquired Elsag Bailey fromFinmeccanica, a leader in process control automation market. JV with Alstom in power generation business – 11 Bn deal- biggest global player. Divestment – sold shares of Adtranz for 1,5B + non core transport business. Diversification- With the money obtained from divestment ABB invested in fast growing oil and petrochemical. 3 Goal: faster knowledge, service based global and intense shift from slow – growth, capital intensive business into fast growing high technology areas. Strong growth, 11% rise net income, 1,3B

Challenges\obstacles, FEDE Matrix structure Structure Features: – It had a multi-domestic structure – Three regional chief executives shared responsibilities with heads of ABB´s core business segments. – Structure designed to decentralized, consensual and team-based management. Main Drawbacks: – In some occasions local business managers found themselves reporting to two bosses. – Important decisions turned into political conflicts or into unfocused and mediocre compromise. – Poor performing units Decreasing support of the main shareholders – Shares substantially under-performed the market in 1997 – Main largest investors began to reduce their protective shares – New largest shareholder Slow to turn profit – Excessive risks of the company´s strategy of rapid expansion in Asia and Eastern Europe – Too much emphasis on mature manufacturing business – Increase of value-added and service-based offerings Lack of specific knowledge in new areas New entrants to the market after liberalization – Power generation faced overcapacity and technological development that favored small and flexible entrants – Competitors did aggresive investment plans, upgraded technology and increased their operational efficiency and productivity.

Actions: building an empire 1. changes in ownership structure: – simplify the securities issued: first step towards a US listing? 2. Expand the core: – Divest from declining businesses – JVs and acquisition in the core non business 3. Create a new core: knowledge revolution – IS global system – diversification in non-core activities (europeloan.com etc.) 4. Restructure the organization to support the new strategy – from matrix to7 product areas – Reduced managers, recruited new people – Standardization and central control – financial, administrative, IT and procurement

Organizational Structure/HR Impact Matrix organization – Strategic changes led to organizational and reporting confusion – Divided organization into 7 divisions Majority employees - managers and engineers – Downsized from 500  400 managers – 140 new hires; fresh growth and talent Specialized in Capex intensive technology – Moved to growth in services – Temporary cost  overall growth 24% increase in net income, 4 % increase in revenue