Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How a 114-Year-Old Engineering Company Pivoted to Software 3 Times
Transcript
- Lucas: We talk a lot on this show about companies that pivoted once, maybe twice. Today I want to talk about one that's done it three times across 114 years. And the first pivot was actually a merger that created an entirely new industry. Luna: Three pivots. That's practically a different company every generation. Who are we talking about? Lucas: ABB — Asea Brown Boveri. Formed in 1988 from the merger of a Swedish company, ASEA, and a Swiss company, Brown Boveri & Cie. Both were power-equipment makers — turbines, transformers, transmission gear. The merger itself was the first pivot: instead of competing in small European markets, they created a global giant overnight. Luna: I remember reading that the merger was considered incredibly risky at the time. Two different cultures, two languages. How did they even make it work? Lucas: They used what they called a 'matrix' structure — something that later fell out of fashion, but at the time it let them keep local responsiveness while gaining global scale. And it worked. Revenue doubled within five years. But then the second pivot came in the early 2000s, when they realised that selling hardware alone wasn't going to cut it anymore. Luna: So they moved into software. But didn't a lot of industrial companies just bolt software onto their hardware and call it a day? Lucas: ABB did something more interesting. They acquired a company called Elcomp in the 1980s — before the merger — and built their own distributed control system. By the time the merger happened, they had one of the most advanced industrial software platforms in the world. That became the backbone of their second pivot. Luna: So the software pivot wasn't even a reaction to decline — they were already ahead. That's rare. Lucas: It is. But here's the thing — they got complacent. By the mid-2010s, ABB had become a conglomerate with fingers in everything: power grids, robotics, automation, oil and gas. The stock price was flat for a decade. So in 2015, they did the third pivot — and this one was the hardest. Luna: This is the one I want to dig into. They sold their power grid business — which was basically their origin story — to Hitachi. That's like a car company selling its engine division. Lucas: Exactly. Power Grids represented about a quarter of ABB's revenue. But it was capital-intensive, low-margin, and cyclical. The new CEO at the time, Björn Rosengren, said they needed to focus on 'electrification and automation' — which sounds like a buzzword, but actually meant: get out of commoditised hardware, double down on software and services that make factories and grids smarter. Luna: And this pivot is still unfolding. But what's the concrete result so far? I've seen that their software-enabled services now account for about 40 percent of revenue. Is that right? Lucas: That's the number. And the margin on those services is significantly higher than hardware margins. So even though revenue dipped after the Power Grids sale, profitability improved. The market rewarded them — the stock doubled between 2019 and 2022. Luna: So the lesson might be: know what your core actually is, even if it means selling the thing you were founded on. Lucas: That's exactly it. But there's a subtler point. ABB's three pivots each came at a different stage of maturity. The merger pivot was about scale. The software pivot was about differentiation. The spin-off pivot was about focus. Each one required a different type of leadership. Luna: And I think that's what makes this case so useful for any business leader listening. Because most companies only do one pivot in their lifetime. ABB shows that if you survive long enough, you'll probably have to do it multiple times, and the playbook changes each time. Lucas: Right. The first pivot is about courage — the willingness to merge and integrate. The second is about foresight — seeing a technology shift before it's obvious. The third is about discipline — knowing what to let go. Luna: You know, speaking of discipline and knowing what to let go, this is actually a good moment to mention something that keeps this show going — listener support. We've never run ads, we don't have a corporate sponsor, and that's intentional. It lets us pick exactly the stories we think are worth telling. Lucas: And the way that works is simple. A couple of dollars a month from listeners who find value in these conversations — it genuinely makes the difference between us being able to keep doing this and not. If these episodes have changed how you think about a business decision, or helped you make one, consider throwing a coffee our way at buy me a coffee dot com slash fexingo. Luna: It's that direct. And we mean it when we say every little bit helps. Now, back to ABB — because there's one more piece I want to pull out. The software pivot in the 2000s — how did they actually get the organisation to adopt it? Lucas: They created a separate digital unit called ABB Ability, which operated almost like a startup inside the company. It had its own P&L, its own engineering teams, and it reported directly to the CEO. That prevented the hardware side from strangling the software side. Luna: So they structurally separated the new from the old. That's the opposite of what most companies do — they try to force innovation into existing silos. Lucas: Exactly. And it paid off. ABB Ability now has over 200 connected digital solutions — everything from predictive maintenance for motors to energy management software for entire buildings. One customer, a paper mill in Finland, reduced unplanned downtime by 30 percent using their sensors and analytics. Luna: That's a real number. And it's a reminder that for industrial companies, the pivot is never just about technology. It's about proving that the new thing actually works in a real factory, on a real floor. Lucas: And that's where ABB's longevity actually becomes an advantage. They have decades of domain expertise. They know how a motor fails, how a turbine wears down. A software startup can't replicate that institutional knowledge. Luna: So the takeaway for a company considering a pivot today: don't just look at your balance sheet. Look at what you know better than anyone else. That's your real asset. Lucas: And be prepared to do it more than once. ABB is already talking about a fourth pivot — this time into artificial intelligence and autonomous operations. They're building a lab in Sweden focused on AI for industrial control systems. I don't think they're done. Luna: Maybe the real lesson of ABB is that a pivot isn't a one-time event. It's a capability you have to build into the organisation itself. Lucas: That's a good way to put it. And it's also a good place to leave this. Thanks for listening, everyone. We'll be back next week with another company that chose to change.