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Critically analyse the industry and market environments of Lenovo and comment on
how well Lenovo is positioned to mitigate against potential adverse conditions, and/or
take advantage of opportunities that may arise in markets of interest to the company.
(You may use any models that
Lenovo creates and builds exceptionally engineered personal technology; Lenovo builds on
its dominant position in China to grow globally. A PESTLE analysis is a useful tool for
understanding the big picture of the environment in which LENOVO is operating.
Specifically a PESTLE analysis is a useful tool for understanding risks associated with the
Hi-tech market growth or decline, and as such the position, potential and direction, to help
make decisions and to plan for future events. . PESTLE analysis includes Political,
Economic, Social, Technological, Legal, and Environmental factors. This PESTLE analysis is
done only United States or neighbour countries as a foreign market.
Macro Factor
Generic Factor
Political
Government
Regulation
Legal Issues
Political stability
Economic
Social
Consumer attitude
Consumer buying
habits
Education
Technological
Innovation
Technology
Transportation
Legal
Employment Law
Environmental
regulation
Environmental
Ecological
Customer values
Management style
Stakeholder /
investor values
This PESTLE analysis is in effect an audit of Lenovo environmental influences with the
purpose of using this information to guide strategic decision-making.
The strategic position of Lenovo is concerned with the impact on strategy of the external
environment, internal resources and competences. Strategic group of Lenovo are clusters of
organisation that compete on the basis of a similar positioning, product quality and target
very similar customers, the strategic group of Lenovo providing strength to it and helping to
increase its market share, the potential strategic group of Lenovo are as follows;
HP with the 18.1% market share, Dell stand on second position with 15.6% of total market
share, Acer got 9.4% market share, other companies 49.1% share as contrast of Lenovo 7.8%
total market share.
In a generic group high risk industries earn high return, because they focus on developing
new products and they spend heavy amount on their R&D
In order to get a better sense for Lenovos outlook in terms of the corporate market and the
impending loss of the IBM branding, SWOT would be discussed after the PESTEL analysis,
it is helpful to analyze the companys strengths, weaknesses, opportunities and threats in
terms of the problem. These key parameters are
summarized here, Strengths and weaknesses are often internal to the organization, while
opportunities and threats generally relate to external factors.
Strength
National Image (China)
Knowledge about local market (due
to the acquisition with IBM
Mass manufacturing capability
Quick responsiveness
Low cost (manufacturing plant in
Weakness
Poor global perception
Low inventory turnover
China)
Lenovos major strengths lie in its current brand image and market share. On the
international scale, Lenovo ranks third in corporate sales behind Hewlett-Packard and
Dell. It shows tremendous capability for improvement, however, due to its clearly
superior reputation for high quality, high end products inherited from IBM. In
addition, executives maintained from IBMs notebook division provide the valuable
experience that a relatively new foreign player normally would not have in the
corporate (especially US) market. However, Lenovo already has a strong base in China,
with a 29% share of Chinas PC market, and continuing innovation in the high-end
market makes products like the ThinkPad X300 a Strengths
Furthermore Lenovo is a computer maker, not a computer manufacturer. It buys from a group
of concentrated hi-tech component manufacturers. Lenovo has a significant weakness in
targeting the college and school student segment of the market and also Lenovo lack a large
amount of relationship with educational institution.
SWOT analysis is lacks detailed structure, so key elements may get missed, but in the light of
above mention Strength and Weakness Lenovo is an up growing star of Hi-tech industry,
because after getting home advantage it would become an international star and overcome its
weaknesses by good leadership quality, innovation and R&D.
In addition to and in combination with SWOT analysis, the Five Forces model by Porters
provides another analysis tool to identify opportunities and risks when entering untapped
territory in market. Porters Five Forces model, other than a SWOT analysis, provides clear
action for analysing the competitive strength.
New Market
Entrants
Bargaining
power of
Suppliers
Rivalry among
competing firm
in industry
Bargaining
power of
Buyers
Threats of
substitute
Economies of scale
Decreasing profitability due to high competition
A few larger suppliers (there are few suppliers wchich are trustable, recognized and
provide good quality raw material such as Foxconn, Intel, Hitachi).
Supplier concentration to firm concentration ratio
supplier switching cost relative to firm switching cost is high
There is also difficulty in re-producing specalized technology (which becomes
competitive advantage of supplier)
Strength of distribution channel
High number of customers who are fragmented (customers are
highly fragmented so to provide products to them is not an easy
task, that is why suppliers bargain highly)
Rivalry (High):
High Fixed cost (cost for setup of manufacturing units increased fixed cost which
makes difficult for existing players to exit)
Constant changes in product and price makes intercategory competition stiffer
Two big players hold the top two market share spots in the computer industry (HP &
Dell)
Low switching cost increases rivalry
Low levels of product differentitation are associated witth higher levels of rivalry
High exit barriers place a high cost on abandoning the product. the firm must
compete. high exit barriers cause a firm to remain in an industry, even when the
venture is not profitable.
Porters Five forces model targets the assessment of the structural attractiveness of the
analysed industry, finally the Five Forces analysis pinpoint strength and weaknesses in a
accompany and discovers opportunities of threats within the industry.
Question 2.
Apply the BM Canvas model to illustrate Lenovo business model and critically
comment on the Lenovo model. In addition, highlight and discuss the Resources;
Activities and Competences of Lenovo that help give the company the competitive
advantage that it so clearly has in the Mobile market place. (You should pay particular
attention to their ecosystem; modularisation and platform technologies. However, in
addition, you may use any other models which you consider appropriate to illustrate
your points)
Core competencies
Core competencies identify and specify areas of operations that Lenovo does very well for
example mass production and low cost. Therefore these were competencies should be fully
exploited and matched with our strategic choices for example Lenovo enjoys low cost
production, cost which can be exploited in following cost leadership strategy.
Lenovo Ecosystem
Ecosystem refers to the interaction between an organisation and its stakeholders, organisation
cannot succeed on their own but need to interact with other stakeholders so that common
objectives are achieved.
Such stakeholders include the following;
1. Shareholder capital contribution
2. Employees
3. Customers
4. Suppliers
Therefore in considering its strategic choices Lenovo need to ensure that there is a fit
between its choices and ecosystem for example in developing new product it need to ensure
that
1. There are supliers available to provide the necessary inputs
2. Shareholder can contribute capital and the new products can generate return on capital
invested
The plan implemented by a Lenovo to generate revenue and make a profit from operations.
The model includes the components and functions of the business, as well as the revenues it
generates and the expenses it incurs.
Key partners
HARD WARE
PROVIDER
Sony ----- Screen
Compaq J.V
Intel ----- Processor
SOFTWARE
PROVIDER
Intel ---- Graphics
Microsoft OS
OTHER SERVICES
PROVIDER
Nec ----- Marketing
Partnership
Key Activities
R&D
Low cost manufacturing
Modular production
Economy of scale
Bundling
Customer relationship
management
High quality and
reliability
Key Resources
Value Proposition
Innovation
Laptop
Tablets
Desktop computer
Workstation
Servers
Services
Warranty
Protection
Disposal & Recycling
Deployment
Customisation modular
Differentiation -- design
Customer
Relationship
Customer service
support
Networking support
Warranty
B2B
B2C
Customer Segment
Chanels
Retailing
E-tailing
E-commerce
Firm adversible
resources
Acquisition with IBM
Cost Structure
Revenue Stream
Competitive price
Direct sale
Retail & online sale
Promotional bundle
Business Model Canvas for Lenovo starting from all the peoples (Commercial users, personal
users and students) and organisations for which are Lenovo creating values such as laptos,
workshtation, tablet or other services, these values are providing to the customer by the
different channels such as direct selling or by a third party, customer relationship are like a
bond between customer and Lenovo, for making it strong Lenovo provides very good after
sales services, as a result of these its revenue is increasing numerously due to the increasing
market share Lenovo setup new manufacturing plant and invest upto 13% on R&D
As I define above the opportunities and threats of SWOT analysis could only be found after
evaluating and analysing the external environmental factors on the business, because these
related to the external environment of Lenovo. Lenovo is a $US21 billion personal
technology company and the second largest PC company in the world, serving customers in
more than 160 countries and have a lot of opportunities to become number one in the world.
Opportunity
Pc sales are expected to grow
Threats
Competition threats from local and
international competitor
Price war
Threat of price completion with clone
PC makers
Industry reaching maturity
Personal computer are being purchased and used more than ever before. The market for
laptop, in particular, is growing much faster than of desktop computers. This general trend
lends itself as a great opportunity for Lenovo laptop business to grow in all segments.
Another great opportunity for all the target segments relates to the first trend that was
mentioned, customers are more educated about personal computers therefore focus on
students.
The Boston Consulting Group (BCG) Matrix is a simple tool to assess a companys position
in terms of its product range. It helps a company think about its products and services and
make decisions about which it should keep, which it should let go and which it should invest
in further.
High
STARS
QUESTION MARKS
Rate
of
market CASH COWS
growt
h
These products are said to have high
profitability, and require low investment,
the cash cows are hold and harvest,
Lenovo laptops and desktop computers
are milk extracting units, they provide
the cash required to run question marks
DOGS
Lenovo cell phones are close to this
category, Dogs have a low market share
and a low growth rate and neither
generates nor consumes a large amount
of cash.
DIFFERNTIATION FOCUS
DIFFERENTIATION
Degree
of
product COST FOCUS
diff.
Here a business seek a lower-cost
advantage in just on or a small number of
market segment. The product will be
basic perhaps a similar product to the
higher priced and featured market leader.
Low
High
Lenovo has focused on cost leadership strategy, for to achieve its goal Lenovo trying to beat
its competitor by decrease in its price, Lenovo prices are 40% less as compare to market
leader (Dell).
If we discussed about the way of choice to grow Lenovo Business Ansoffs model is best
tool that explain the choices that Lenove has in order to grow its business in term of
increasing sales, market share and profit. The model specific four choices shown in the
following diagram.
existin
g
Product
New
MARKET PENETRATION
MARKET DEVELOPMENT
Market Penetration
This growth strategy implies that Lenovo can grow its business by selling more of its existing
product to its existing market by means of aggressive advertising and sales promotion such as
in China, and other parts of Asia. This strategy helps Lenovo to;
Persuading existing customers to buy more of the product by increasing their usage.
This strategy is used most commonly by firms because it is the least risky.
Diversification
This strategy is risky and expensive but can be profitable, this is very suitable strategy for
Lenovo to enter in Europe or US because here customers are not price sensitive, in this
strategy a lot of research is needed to get things right and perhaps consultancies will be called
in to help educate the business about its new challenges.
Value Chain Analysis
Value chain is defined as the links between key value adding activities and their interface
with the support activities. Value chain has been implied as a strategic evaluation tool used
for distinguishing the strength and weaknesses in value adding processes. The value chain of
Lenovo has been demonstrated in the following digram;
Firm infrastructure
HRM
Technological
Development
Procurement
Inbound
Logestic
s 20%
Operatio
n
30%
Outboun
d
Logestic
s 15%
Marketin Inbound
Margin 20%
g and
Logestic
sales
s 5%
10%
Inbound Logistics
The overall cost leadership strategic management of Lenovo is exhibited in its lean and agile
inbound logistics function
Operations Management
Lenovo has been praised by a number of supply chain management critics for its effective use
of IT systems that facilitate the companys low cost leadership strategy.
Outbound Logistics
Lenovo holds leadership position in online and offline sales, which is due to its efficient and
effective outbound logistics.
Marketing and Sales
Loyalty programs like Lenovo protection, warranty, disposal and recycling are being
introduced which dissuade the customers from switching over to their competitors
Services
Lenovo has been pursuing a dual strategy of cost leadership and differentiation, which has led
to an increased importance placed on customer service
Question 3
The BCG Matrix method can help understand a frequently made strategy mistake: havng a
one-size-fits-all-approach to strategy, such as a generic growth target (9 percent per year) or a
generic return on capital of say 9,5% for an entire corporation.
If we discussed about the Chinese technological king (Lenovo) the most appropriate strategy
for US or Europe is Product Differentiation because Lenovo has the opportunity to provide a
broad spectrum of services specially to the corporate market with a reasonably high-quality,
low cost (this is because of low labour and less raw material cost in China) computers in the
Lenovo 3000 line. Lenovo has the potential to become a one-stop-shop in the corporate
market. At the same time Lenovo needs to continue to focus on providing the most features in
their high-end machines, not only for executives but also mid-spectrum machines for nonexecutive home or personal users, ensuring that they maintain the reputation that the high-end
Thinkpad series has built. An executive purchasing a computer is less likely to worry about a
$100 difference in prices than about the number of features a computer provide.
USA and European are the biggest corporate clients of computer and in this region of world
the buyers are not price sensitive they need quality and new valuable features for their use
which make their work more cosy and efficient to achieve this specific goal.
As well as continue its current strategy (Cost Leadership) for Asia region because mostly
Asian customers are price sensitive specially India, China, Pakistan and Malaysia are
developing countries, and they all have big population and the level of education is increasing
very rapidly therefore in this region core customers of computer are students who need
efficient machine in affordable or low price