Lenovo: Strategic Effect of IT

ITSP End Term Project

2/16/2014

Group 1
Deepak Arora
Nikhil Gurg
Mohit Malik
Neerav Sachdeva
Group 1/ITSP End Term Project 2014

Table of Contents
Timeline of Lenovo........................................................................................................................................ 3
Business Strategy .......................................................................................................................................... 3
Value Dimension of Lenovo .......................................................................................................................... 4
IT Strategy aligned to Business Strategy ....................................................................................................... 4
SWOT Analysis for Lenovo ............................................................................................................................ 6
Dynamic Resource Model ............................................................................................................................. 7
Mcfarlan’s Strategic grid ............................................................................................................................... 7
Porter 5 forces analysis ................................................................................................................................. 8
Balance Score Card for Lenovo ..................................................................................................................... 9
Creating Strategy Map .............................................................................................................................. 9
Creating Scorecard Measures ................................................................................................................. 13
Benefits of Acquisition of ThinkPad ............................................................................................................ 17
Conclusion and Recommendations ............................................................................................................ 17
References .................................................................................................................................................. 17

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Timeline of Lenovo

History of Lenovo:-

1984 – The Lenovo was established in 1984, “with an initial capital outlay of only RMB200,000.

1986 – Backward integration and forward integration

1990- The very first Legend PC is launched in the market.

1996:-Legend becomes the market share leader in China for the first time.

2002-Lenovo acquired technologies from Microsoft, Acquisitioned the many middle and small size PC
companies in China.

2005- It successfully acquisitioned of IBM, “making it a new international IT competitor and the third-
largest personal computer company in the world.

2012-Dropped the IBM tag what next for Lenovo?????

What Lenovo Says

• Personal Computers: Lead in PCs and be respected for our product innovation and quality.

• Convergence: Lead the industry with an ecosystem of devices, services, applications and
content for people to seamlessly connect to people and web content.

• Culture: Become recognized as one of the best, most trusted and most well-respected
companies to work for and do business with.

Business Strategy
 Business model built on innovation, operational efficiency and investment in emerging markets.
 Sustaining a Competitive Advantage:-By increasing market share internationally through innovation
and strategic acquisitions.
 Protect and Attack Strategy

Initial Challenges Faced By Lenovo

 Lenovo has failed to meet a key objective of the merger: leveraging the combined strength of
the two companies to grow volume and market share.
 To generate the demand through more aggressive sales teams.
 To improve the channel strategy.
 Increased market spending and better execution outside of China.

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What Transform the Lenovo’s Business?

 Disintermediation (cutting out the middleman):- JDA Software's E-commerce Application

 Enhancing customer value :- Unique distribution strategy
 Process and operations innovation: ThinkLink Application
 Let data do the driving :- SAP BI/DW IQ

Value Dimension of Lenovo

Operation Excellence– Business Context

 What: More competitive pricing to customers

 How: Customer satisfaction and innovation so that they can give competitive pricing.
 Why: To grow market share and compete with other top 2 players HP and Dell

Business Capabilities needed

 Information and tools for Managers so that they can align the strategy globally.

 Integrated systems so that they can use the information and deliver the quality and service
consistent.

 Investments for R/D so that they can cut down the costs.

IT Contribution

 Innovation and 5 R/d Centres Globally

 Business Intelligence Tool SAP BI/DW IQ tool

 Distribution network and effective supply chain tools

IT Strategy aligned to Business Strategy

Innovation Strategy

ThinkPad T42 Innovation: - Field agents to receive new case information packets and provide case status
updates via the Internet. Scanned files are now uploaded into a searchable database that any authorized
user can access from the offices or remotely through a Virtual Private Network connection. It saves huge
amount of costs.

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• ThinkCentre A50 Innovation:- Employee to access client databases from their own desktop. So
no physical access.

• Rescue and Recovery Innovation :- protect users' data, allowing them to recover deleted or lost
files, folders

Operations Excellence

 ThinkVantage Technologies

 IT infrastructure:-reduction in overtime, IT service costs and increased business efficiencies.

 CSAT System:-Information Management and The Customer Satisfaction index numbers to check
customer satisfaction.

 Distribution Network

 In house manufacturing specialization.

 JDA Agile Business Process Platform (ABPP)

 extremely configured order process

 end-to-end customer service value chain

 Advanced pricing structures such as volume-based and special customer discounts, promotions
and other assorted pricing adjustments.

Protect and Attack Strategy

Keep the business strategy align globally

 A Business Simulation Builds Execution Capabilities: - Simulator application to build its leader.
 BTS Lenovo on a tailored business simulation designed to develop the execution capabilities of
high level leaders across global locations

Deploying in the cloud: - JDA and SAP BI/DW IQ

 JDA Cloud Services, Lenovo has achieved faster deployment, rapid time to value, investment
protection and an improved cost structure

 DA Cloud Services to optimize the Web commerce solution based on feedback it receives from
its customers

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SWOT Analysis for Lenovo

Strengths

 Vertical Integration: Helps in keeping cost low and control inventory.

 Low Cost Production: It manufactures nearly half of its hardware and has set up its
production plants in low cost region such as china, Brazil and Argentina to benefit from
higher margins.
 Strong Patents portfolio : With acquisitions of Compaq, IBM etc and firm’s R&D, it has
gathered important patent portfolio related to its PC and Software business
 Competency in Mergers and Acquisitions
 Synergy of knowledge and diverse workforce: Instead of traditional headquarter model,
it manages 3 centers of excellence – US, China and Singapore. Combining different skills
and resources results in synergy and premium quality products

Weakness

 Poor brand perception in developed economies like US and European countries

 Focus earlier mainly on china, Limited Knowledge of global market
 Low Differentiation: Lenovo products are little differentiated from competitor’s
products and are in competitive disadvantage if the price offered by competitor is
lower.
 Market share growth is Slow due to competition, fake products/imitations affects sales

Opportunities

 Growing India’s Smartphone market

 Growth of Tablet Market: Lenovo is 4th largest tablet seller, it could increase its market
share by introducing better quality products.
 Internet boom - Increase in demand of PC’s
 Government organizations increasing their spending on IT

Threats

 Profit margin decline on hardware products: Lenovo major source of income is from
hardware products, due to rising raw material cost and competition, profit margin will
shrink in future.
 Saturated Smartphone market in developed countries
 Intense competition – Price wars
 Fake products market

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Dynamic Resource Model

Dynamic Resource Model

IT Infrastructure-App, Innovation
,Supply chain and In house
manufacturing specilaization

Resources Sustainable
Initial
Start for
Advantage
advantage advantage

Cost +Innovation, BTS

simulation App-Global
•Inefficient legacy IBM aligned strategy
infrastructure to the JDA
platform. IBM brand name and IBM
•JDA Software's Web resources
commerce solution. R/D centres
•Distribution network and Think lInks Apps
supply chain applications SAP BI/DW IQ App
Reinvestment in R/D

Mcfarlan’s Strategic grid

 This grid will help in evaluating “where does and will IT give added value “.
 Use of IT is of strategic importance for Lenovo as these are critical to future success, use
of IT has led to disintermediation of middlemen, reduction in service costs, improving
supply chain, vertical integration, and CSAT systems to measure customer satisfaction
and provide better customer value.
 All these benefits of IT had helped Lenovo in providing better customer value.

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Strategic
Factory
Lenovo

Support Turnaround

X axis: Impact on Strategy

Y axis: Impact on Business operations

Porter 5 forces analysis

Threat from existing competition – Very High

 Large number of players in the market – Dell, HP, Apple, Sony, Samsung etc

Threats from new entrants – Low

 Vertical integration of existing players leading to high switching costs

 Huge initial investments
 Difficult to achieve economies of scale to be competitive

Bargaining Power of Suppliers- low

 Lenovo manufactures its own material to great degree

 Large number of suppliers in the market

Bargaining power of buyers – low to moderate

 High switching cost - Main customers are enterprises, which purchases in bulk
 Improving product and service quality, offering extra feature and maintaining strong
customer relationship is key to success

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Threats from Substitute products – medium

 Products like ultra-light laptop and ultra-mobile PCs attract young customers and affects
B2C sales
 In case of B2B, enterprise don’t see them as useful to organization

Balance Score Card for Lenovo

Balance Score Card has been one of the main features of IT strategy implemented by Lenovo. It
has been one of the strategic initiatives of the organization where not only the financial health
of the firm but also the intangible assets like supply chain partnership, delivery goodwill can
also be mapped and valuated. Secondly it has been of great help in terms of communicating the
IT and Business strategy of the firm both internally and externally. Thirdly, it helped the
company into streamlining its activity with its strategy and thus leading to acquisition of
ThinkPad division from IBM. Finally, it has become one of the strategic advantages for the
company as it has been implemented into many other divisions for performance Evaluations.

The balance Scorecard for Lenovo is developed as following,

1. Strategy Mapping
2. Creating Scorecard Measures
3. Implementing Scorecard

Creating Strategy Map

It is a generic architecture for describing strategy followed by an organization. The strategy Map for
Lenovo is as following,

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STRATEGY MAP

It defines the Mission, Vision, Business Strategy and the effects of four perspectives of balance
scorecard are as following to obtain the output for business strategy.

The following four images describe how the business strategy can be obtained using the four
perspective of the balance score card.

The skill development among employees will lead to integration of leading edge manufacturing
of various Lenovo products which will lead to reduction in cost and time to delivery and
maintenance. This will further help in generating more orders for the company and effectively
supply quality products and service through use of IT and learning. Similarly for other images
also.

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Once the strategy mapping has been made, it is well defined for making the balance scorecard
as strategy mapping is basically a blueprint which defines the pathway from each perspective to
finally obtaining business strategy.

Creating Scorecard Measures

The scorecard consist of four perspectives,

1. Financial
2. Customer
3. Internal Process
4. Learning and Growth

For each of the perspective objectives are defined and for each objective there can be various measures
to check if that objective has been completed or not. Each measure consists of one to one mapping with
a specific target. Each of which can be obtained through various initiatives.

The four perspective, their objective, measure, target and initiatives are as following,

A) Financial Perspective

Objective Measure Target Initiative

% of order from various XX% BU1 1. Generate

Broaden Revenue Mix
BU Awareness of
XX% BU2
Brand.

2. Provide
3. Save managed
Innovative
cost and unused
Solution to
1. ROE capacity.
customers.
Increase shareholder
value 2. Cost Reduction 4. Save direct
3. Public
in each BU material and
success
labor cost
stories in
through IT
media.

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1. Reach X% market 4. Increase the

share models and
1. % market Share
types.
2. 2-2 major
Technology and Market 2. No of Innovative
products of each
Leader products and services
BU
3. % of green products
3. X% reduction in
next FY 2014

B) Customer Perspective

Objective Measure Target Initiative

1. X% increase in
1. No of innovations 1. Collaboration
innovations
Develop new made. with institutes
technology space 2. Milestone and Universities.
2. New SCA
achieved in SCA
resources found 2. Leveraging
resources
Information
Expert Systems
Increase Customer Customer Attain X% customer 3. Increase
Satisfaction Satisfaction Survey satisfaction customer focus
of sales
organization.
1. No of 3. X% Discount
collaboration Budget 4. Efficient Supply
Customer with partners. chain system for
Retention 4. X% market
Retention and
2. Sales Vertical
Responsiveness
Discounts penetration.

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Responsiveness to X% reduce in
Delivery in time
Customer complaints

C) Internal Process Perspective

Objective Measure Target Initiative

1. Improve 5. Organize R%D

3. Reduce cycle
manufacturing teams for
Timely provide time by X%.
capacity future
safe and Quality 4. Lowest 10% projects.
Products 2. Supplier
supplier
Ratings for 6. Implement
rejected.
quality Design
Commonality
Increase for
Training Cost for
productive X week training per standardizatio
Manufacturing Floor
efficiency at low quarter n.
Crew
cost
7. Internal
Surveys for
Standardization of Inventory Cost X% reduction by next improving
Services Reduction FY manufacturin
g capacity.

Number of Discovery 8. Effective

Increase IT X number of projects
and Portfolio supply chain
Portfolio initiated
Investments management.

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D) Learning and Growth Perspective

Objective Measure Target Initiative

3. At least X%
1. No of training training
hours per hours. 5. Hire Key
Employee education annum. Technical
4. Cross training
and skill level 2. Employee of Employees.
skill management 6. Improve
assessment. and technical Employee skills
knowledge and work
conditions.

Employee Employee Achieve more than 7. Celebrate and

satisfaction scores Satisfaction Surveys X% in FY reward
individuals.

Knowledge No of idea created 8. Tie incentives

At least X number to idea and
management and published in
per annum qualities.
systems system
9. Mentorship
programs.
Diversified Number of cultural Achieve X activity per
Workforce activities occurred month.

Thus above was the entire balance score card for Lenovo.

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Benefits of Acquisition of ThinkPad

• Learning new methodologies and better business processes

• Getting access to new markets

• Increase in market share

• Making use of past data for making better informed decisions

Conclusion and Recommendations

• Use data mining to reduce the process turnaround time for higher efficiency.

• Timely review of IT applications to monitor their use and effectiveness in the current
scenario and make necessary changes as per requirement.

• Integrate business process and IT applications in vertical acquisition or vertical supply

chain.

References
http://www.lenovo.com/in/en/

http://en.wikipedia.org/wiki/Lenovo

http://en.wikipedia.org/wiki/ThinkPad

http://news.lenovo.com/article_display.cfm?article_id=1755

http://www.bbc.co.uk/news/business-25956864

http://www.computerworld.com/s/article/9245907/Lenovo_s_Motorola_IBM_server_buys_will_likely_
get_strict_U.S._security_review

http://www.fool.com/investing/general/2014/01/27/why-lenovo-is-buying-ibms-server-business.aspx

http://www.china.org.cn/english/NM-e/115844.htm

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