Lenovo: Acquisition of IBMs Personal Computer Division

1 Abstract
2 Introduction
21 Compan! bac"#round of Lenovo
Lenovo was previously known as Legend Group in Hong Kong in 1988. In 2004, te
!o"pany !anged its na"e to Lenovo Group. It "oved its ead#uarters $ro" Hong
Kong to %ur!ase, &ew 'ork in 200(. Lenovo pri"arily operates in &ort )"eri!a
and *ina. )$ter te a!#uisition wit I+,-s %ersonal *o"puter .ivision, it "oved its
ead#uarters in ,orrisville, &ort *arolina. Lenovo e"ploys 2(,100 people. Lenovo
"anu$a!tured personal !o"puters /%*s0, related I1 produ!ts, and servi!es. /2e$er to
)ppendi3 10
22 Compan! bac"#round of IBM
%rior to te deal, I+,-s %*s ad "ade little pro$it, and was o$ten losing "oney too.
I+, was undergoing a strategi! si$t $ro" selling !o""odity4produ!ts to selling
"ore servi!es, so$tware and ig4end !o"puters. It also "ade it easier $or I+, to sell
"ore servi!es in *ina.
1
$ %&e C&an#e
$1 'vervie(
Lenovo Group announ!ed in .e!e"5er 2004 te de$initive agree"ent tat te group
will a!#uire I+,-s %ersonal *o"puting .ivision. /2e$er to )ppendi3 20
$2 Aims of t&e C&an#e
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1e ai" was to 5ring I+,-s enterprise4!lass %* te!nologies to te !onsu"er "arket
and to "ake Lenovo a5le to rea! te "arkets outside *ina and )sia. 1is would
!o"e $ro" I+,-s glo5al 5rand re!ognition, an international and diversi$ied !usto"er
5ase, a world4!lass distri5ution network wit glo5al rea!, "ore diversi$ied produ!t
o$$erings, enan!ed operational e3!ellen!e and leading4edge te!nology.
2

$$ Parties involved in t&e c&an#e
.uring te a!#uisition o$ I+,-s %* .ivision /I+, %*.0, parties involved in!luded
Lenovo-s "anage"ent, I+,-s "anage"ent, <= govern"ent, and e3ternal
!onsultants.
$) Mana#ement
)$ter te a!#uisition, 'ang 'uan#ing 5e!o"es te *air"an and =tepen >ard
5e!o"es te *ie$ ?3e!utive @$$i!er.
$* +overnments
In order to i"ple"ent te a!#uisition, approval $ro" te govern"ent was needed.
%rior to te a!#uisition, <= national se!urity 5ody and *o""ittee on Aoreign
Invest"ents in te <nited =tates /*AI<=0 announ!ed tat te *inese %* "aker
Lenovo Group was allowed to 5uy I+, %* 5usiness.
), 'r#ani-ational .ubs!stem
)1 .ociotec&nical .!stem
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)11 %&e +oals and /alue .ubs!stem
Lenovo as a 5asi! goal o$ BLenovo. &ew >orld. &ew 1inking-
.9
+ased on tis
o5Ce!tive, te ele"ent o$ !ontinuous i"prove"ent to teir produ!ts and pro!esses !an
5e in$erred. Lenovo also ai" to 5e a B&ew >orld *o"pany- and tis glo5alised vision
ai"s to in!orporate talents all over te world to deliver iger #uality and innovative
%*s to satis$y !usto"ers worldwide.
)12 %ec&nical .ubs!stem
Lenovo operates in 1DD !ountries and as a5out 2(,000 e"ployees worldwide. 1e
$our "ain units in!lude Greater *ina, )"eri!a, )sia4%a!i$i!, ?urope, and te ,iddle
?ast and )$ri!a /?,?)0. ?a! unit as spe!i$i! set o$ $un!tional depart"ents tat
in!lude produ!tion, transportation, supply !ain "anage"ent, "arketing and sale
s4
.
)1$ .tructural .ubs!stem
*orporate 2estru!turing
*anges in organiEational stru!ture
Lenovo-s stru!ture ad 5een largely $un!tional. )$ter te a!#uisition, a "atri3
stru!ture was adopted instead in its "anage"ent wit two operations F Lenovo *ina
and Lenovo International. It was a ne!essary !ange 5e!ause te "atri3 stru!ture
supposedly ena5les $aster response and adaptation to te !o"petitive "arket 5y
!o"5ining te 5est o$ 5ot separate stru!tures, as well as "ake up $or te weaknesses
o$ $un!tional and de!entraliEed $or"s.
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However, tis $or" o$ stru!ture introdu!es dual autority and tere5y tends to 5reed
a"5iguity and !on$li!t. Aor proper i"ple"entation o$ su! a stru!ture, power as to
5e sared e#ually 5etween te produ!t "anagers and te $un!tional "anagers. 'et,
power saring is a deli!ate proposition and en!e, we tink tat su! a stru!ture is
ard to "aintain.
Integration was also done to te various se!tions o$ te supply !ains and te di$$erent
produ!t groups. )ll tese e$$orts were ai"ed to tie in wit Lenovo-s strategy o$
innovation and to !ater to te iger de"ands o$ !usto"ers.
,ove"ents a"ong e"ployees
=oon a$ter te Lenovo-s sareolders- approved o$ te transa!tion, I+, announ!ed
tat it would lay o$$ 10,000 to 19,000 workers, "ostly in ?urope. 1e reason was due
to te uni"pressive #uarterly earnings in Ae5ruary 200( and te pri!e o$ its sares
plunged. I+, portrayed te "ove as "ainly an evolution in its strategy o$ glo5aliEing
its operations 5y "oving 5a!k4o$$i!e work like a!!ounting and pro!ure"ent to low4
!ost lo!ations and eli"inates operations in ig4!ost and slower4growt "arkets like
Aran!e, Ger"any and Italy.
1e a!#uisition resulted in te trans$er o$ anoter 10,000 I+, %* e"ployees to
LenovoHs payroll.
In 1D ,ar! 200D, Lenovo laid o$$ 1,000 e"ployees. 1o $urter de!rease
redundan!ies, yet again in 200I, Lenovo announ!ed to e"5ark on a redu!tion o$
resour!es o$ 1,400 !ontra!tors and e"ployees worldwide witin te ne3t 12 "onts.
@$ tis, over al$ will 5e in a $or" o$ trans$er to e"erging "arkets, resulting in only
D(0 Co5 loss. @ne o$ te reasons $or tese !uts was tat Co5s !ould 5e "oved !loser to
te "anu$a!turing 5ase in *ina, wi! is !onsistent wit te "ove"ents o$ its
!o"petitors.
In order to in!rease "arket sare and attra!t !usto"ers $ro" !o"petitors, pri!es o$
note5ook produ!ts ad to 5e kept low. Hen!e, Lenovo outsour!ed its note5ook
produ!tion to 1aiwan to "aintain a low "anu$a!turing !ost. )s a result, e"ployees
ended up losing teir Co5s.
1is see"s to 5e a trend tat o!!urs annually. 1e !onse#uen!es o$ tis "ay in!lude
e"ployees developing a strong sense o$ un!ertainty, lost o$ sense o$ identity and
!o""it"ent towards te !o"pany, 5e!ause tey do not know wen teir turns will
5e. =pe!ulations o$ retren!"ent "ay !ir!ulate, as !ontinual e"ploy"ent appeared to
5e independent o$ te a"ount o$ ard work. Hen!e, Lenovo sould address tis issue
5y providing assuran!e its tea" o$ workers. 1is !an 5e done ver5ally or troug
!on!rete a!tions wi! translate tis "essage. @ne way to "otivate and i"prove
e"ployees- per$or"an!e is to provide in!entives and rewards $or i"pressive
per$or"an!es. =i"ilarly, e"power"ent in te $or" o$ giving autono"y to "ake
de!isions, !an o$ten i"prove #uality, produ!tivity, and e"ployee !o""it"ent. 2e!ent
use o$ e"power"ent in !o"panies like .elta )ir, Aederal ?3press, and >al4,art
suggests tat tis "etod pays o$$. +esides, te "anage"ent !an introdu!e periodi!
dialogue sessions wit e"ployees to seek potential i"prove"entsJ oterwise, surveys
!an 5e used to repla!e dialogue su! sessions. =urveys !an elp identi$y opportunities
$or i"prove"ent and elp evaluate te i"pa!t o$ !anges 5eing i"ple"ented. Aro"
tere, te "anage"ent tea" "ay realise tat tey ave 5een "issing out on 5etter
alternatives and tat tey sould slow down to revise teir a!tions.
)1) Ps!c&osocial .ubs!stem
*ultural *ange
Henry ,igliore identi$ied several !ara!teristi!s to "easure an organiEational !ulture.
1ey are ,e"5er Identity, 1ea" ?"pasis, %eople Ao!us, )utono"y, *ontrol and
2isk 1oleran!e.
(
In tis se!tion, we will 5e using so"e o$ tese !ara!teristi!s to
identi$y Lenovo-s organiEational !ulture.
Member Identit!
) $or"er e"ployee des!ri5ed Lenovo-s !ulture as 5eing very *inese. Aor e3a"ple,
wen te !o"pany is still 5eing ead#uartered in +eiCing, all e"ployees are igly
en!ouraged to parti!ipate in a daily e3er!ise a!!o"panied 5y a song known as
K&u"5er =i3 +road!ast ?3er!ises-.
D

Lenovo as a !o"pany song and te song will 5e sung 5y e"ployees at te start o$
!o"pany4wide "eetings.
1is !ulture "ay not suit wit I+,-s !ulture wi! is "ore )"eri!an.
)$ter =teve >ard was 5eing appointed as te !ie$ e3e!utive o$$i!er o$ Lenovo, e
led te wole "anage"ent glo5ally. 1ogeter wit te relo!ation to &ort *arolina,
=teve >ard also esta5lised a new !ulture were everyone sows respe!t to one
anoter, possess integrity, and to !o"pro"ise. )s Lenovo as 5een glo5alised, it is
a5le to tap on e3pertise and talents $ro" di$$erent parts o$ te world. In addition, in
order to avoid !ulture !on$li!t, Lenovo de!ided to "ake ?nglis te !o""on
(
.onald +rown, .on Harvey. )n ?3periential )pproa! to @rganiEational .evelop"ent. *apter 9
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language in te !o"pany. )s a result, tese $a!tors work togeter to a!ieve te
ulti"ate goals and values o$ Lenovo.
0is" %olerance
) $or"er e"ployee des!ri5ed te !ulture as very "ilitaristi! were5y all e"ployees
"ust do wat tey are told and tere is little roo" $or !reativity.
I
2isk 1oleran!e
Lenovo-s e"ployees are en!ouraged to 5e innovative and entrepreneurial. 1is is
re$le!ted in its new !ore values were5y te !o"pany seeks to !ontinually i"prove
and never 5e satis$ied wit anyting less tan a !o"petitive advantage in te!nology,
pri!e, #uality delivery, responsiveness, speed and e$$i!ien!y.
8
Lenovo did not $or!e di$$i!ult people de!isions too #ui!kly. Aor e3a"ple, $airly senior
e"ployees wo initially ad di$$i!ulties adapting to te new !ulture and tus "ay not
per$or" well as a result. However Lenovo was gentle wit te" and gave te" ti"e,
and today tose sa"e people are per$or"ing very well.
In addition, te "anage"ent "akes sure tat tere is a "i3 o$ *inese and
international sta$$ in ea! lo!ation so as to elp its e"ployees to adCust, respe!t and
learn $ro" oters.
Control and %eam 1mp&asis
+e$ore !ange, ow is te !ontrol like:
)$ter !ange, ow is te !ontrol like :
2eviews are !ondu!ted every two weeks $or ea! individual e"ployee. 1ea"
"e"5ers "ust report on teir progress toward getting te savings tat was targeted as
well as te progress o$ teir tea"Hs develop"ent.
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)1* Mana#erial .ubs!stem
Leadersip *anges
In every a!#uisition, te inevita5le #uestion o$ wo will el" te !o"pany will arise.
1op "anage"ent leadersip positions "ay 5e an indi!ation or a signal to te newly F
$or"ed !o"pany e"ployees, on wi! $or"er !o"pany yields "ore power over te
oter. >e o5served tat in su! a politi!ally sensitive area, Lenovo as treaded well in
pla!ing $or"er I+, senior "anagers in top leadersip positions F a "ove wi! we
tink 5odes well to relieve any possi5le tensions and an3iety a"ongst e"ployees in
te new union.
)!!ording to te ++* news reports, $or"er I+, senior vi!e president =tepen >ard,
Lenovo-s !ie$ e3e!utive in 200(. 1e !urrent %resident and *?@ position o$ Lenovo is
eld 5y ,r >illia" M. )"elio, wo was $or"erly wit I+, 5etween 19I9 and 199I.
@ter top leadersip positions eld 5y $or"er I+, sta$$ in!lude te =enior Ni!e %resident
and *ie$ ,arketing @$$i!er. >e noted tat su! leadersip roles were given not 5ased on
teir $or"er asso!iation wit I+,, nor does it see" as a deli5erate atte"pt to !reate an
i"pression o$ B$airness- in autority. 2ater, in te !ase o$ ,r ,ilko Nan .uiCl, %resident
o$ Lenovo ?,?) and =enior Ni!e %resident o$ te Lenovo Group, is previous role o$
vi!e president at I+,-s %ersonal *o"puting .ivision yielded !onsidera5le results and
su!!ess, en!e, te "an was sele!ted to $ill in te leadersip role in te new $ir".
However, we !autioned in te negle!t o$ possi5le dual autority !ir!u"stan!es. )$ter all,
te !air"an o$ te Lenovo is still a *inese, and in tis uni#ue !ase o$ a!#uisition,
leadersip !anges not only dealt wit te politi!ised issue o$ te Ba!#uired- and
Ba!#uirer-, te stark !ultural 5a!kgrounds 5etween te B>esterners- and B*inese-
presented yet anoter issue o$ !ultural di$$eren!es in leadersip.
* Plannin# t&e acquisition
*1 Advocates of C&an#e
)s dis!ussed a5ove in se!tion 9.9 and 9.4, te !ange "anage"ents in!lude 5la 5al...
*2 %ime 2rame
Lenovo and I+, engaged in talks $or a total o$ 19 "onts prior to te de!ision "ade
$or te integration pro!ess
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. 1e o$$i!ial announ!e"ent o$ Lenovo a!#uiring te I+,
%*. was "ade in .e!e"5er 2004. 1e duration o$ te a!#uisition pro!ess took a5out
a year as it was !o"pleted in te late #uarters o$ 200(.
*$ De#ree of C&an#e
1e trans$er o$ ownersip o$ I+, %* unit to Lenovo was te "ost evident !ange. )
part o$ te agree"ent is a strategi! allian!e in wi! I+, will 5e te pre$erred
provider o$ servi!e and $inan!ing to Lenovo. Lenovo will 5e te pre$erred supplier o$
%*s to I+,. %eraps te "ost visi5le parts o$ te deal are a $ive4year 5rand li!ensing
agree"ent and an ownersip o$ te K1inkO $a"ily o$ trade"arks.
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>e !ould dedu!e
tat te 5u$$ered period o$ $ive years was to give !onsu"ers ti"e to a!!ept te !ange
o$ 5rand.
1e !ange o$ leadersip was anoter di"ension tat underwent great !anges.
=tepen >ard was te alu"ni o$ I+, *?@ and was "ade *?@ o$ Lenovo a$ter te
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"erger. In .e!e"5er 200(, >illia" )"elio was ired to take over =tepen >ard
11
.
1is sudden repla!e"ent o$ >ard !ould !ause un!ertainty a"ong !usto"ers as te
presen!e o$ I+, as te top "anage"ent !ould no longer 5e $elt.
Lenovo Group as relo!ated te ead#uarters and I0 Co5s to te 1riangle 2esear!
%ark, situated in &ort )"eri!a. *all !entre operations and a unit in +oulder ave
5een relo!ated to &ort *arolina too. 1e 1riangle used to ouse $or"er I+, workers
5e$ore te "erger and wit tis initiation, !lose to 9(0 workers were asked to leave.
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In te perspe!tive o$ te e"ployees, te greatest degree o$ !ange would 5e te
displa!e"ent o$ workers $ro" 5ot !o"panies.
Head#uarters
4 &ew 'ork
4 &o "ore ead#uarter
) new o$$i!e is 5eing set up in 1aipei 101, one o$ 1aiwan-s !riti!al land"ark. 1is
signi$ies Lenovo-s desires to e3pand 5eyond *ina and it as strategi!ally !osen to
set up one o$ its 5ran!es in a pro"inent 5uilding. 1e a!t is seen as an e$$ort to
in!rease sta$$ "orale and to 5oost produ!t i"age.
) >arton "anage"ent pro$essor wo as studied *inese !o"panies was s!epti!al
a5out Liu *uanEi-s retire"ent $ro" te new "anage"ent tea" and stepping aside
as a !air"an. He $eels tat e is a5le to !onne!t well wit te *inese govern"ent
and a$ter and is Kan e3traordinarily !apa5le personO. >e $eel tat te re"oval o$ tis
strategi! $igure into te non e3e!utive 5oard "ay pose pro5le" $or Lenovo. It as
5een a5le to esta5lis a strong standing in *ina all tese wile is partly due to te
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part tat tere ad 5een well4"aintained relationsips wit te govern"ent. It is
i"portant to sustain tis, sin!e Lenovo is planning to ave its "anu$a!turing 5ase
situated in te low4la5our !ost *ina.
3 Conclusion
4 learning points