What Strategy of Management does Lenovo use for the Mainland Chinese PC Markets? Strategic Management of Lenovo in Mainland China PC Market
The aims and objectives
The Lenovo Group, which has originally been established by native Chinese nationals as a company which embraces traditional Eastern business values, recognizes the needs for it to revolutionize its strategic business orientations and directives as globalization of business operation has become an inevitable trend for corporations to stay ahead of fellow competitors in the fiercely competitive market for personal computers. As far as the acquisition is concerned, the group now has to face the potential clashes between traditional Eastern values and prevailing Western values which are, by and large, very dissimilar from what the group has experienced in its early years of expansion and growth. A phase of adaptation and assimilation is necessary for the group to digest and incorporate new sets of values into its incumbent ones. The primary objective of this research report is to embark on a thorough investigation on the existing strategic management strategies practiced within the Group. By looking at related general guidelines and corresponding statistics, data, financial and sales records, the report is intended to illustrate on the importance of strategic management in gaining a company certain competitive advantages in the contemporary business environment. In addition to that, this research report will critically evaluate the above-mentioned practices currently being deployed in the Group; henceforth constructive recommendations for future improvement in the field of strategic management could be suggested and a feasible model which aligns generic corporate strategies with appropriate strategic management might be constructed.
Lenovo Group Limited is ranked as China's largest and the world's fourth biggest personal computer manufacturer, after Hewlett-Packard and Dell of the U.S. and Acer of Taiwan. The group is a key manufacturer of desktops, laptops, servers, handheld computers, imaging equipment, and mobile phone handsets. Lenovo also provides information technology integration and support services, and its QDI unit offers contract manufacturing. Its executive headquarters are based in Beijing, China and in Morrisville, North Carolina, USA.
The company was founded in 1984 by a group of eleven Chinese engineers, headed by Liu Chuanzhi, in Beijing. Originally known as Legend Group Ltd and New Technology Developer Incorporated, the company had since undertaken an adventurous move towards globalizing its operations in acquiring IBM's PC Division by which the group has now been transformed into a major international personal computer manufacturer. As a result of the acquisition in 2005, Lenovo has gained the rights to the product lines as well as licensed trademarks for a range of products such as ThinkVision, ThinkPad, ThinkVantage, ThinkCentre, Aptiva, and NetVista.
For the purpose of this final research report, I have attempted to assemble relevant data in terms of tables, figures and data concerned with Lenovo Group Limited's operational records through the following channels:
- Lenovo Group Limited's official website, which provides a comprehensive coverage on the operations of the company including materials on financial records, market share, total annual revenues and dividend information. These above-stated real-time financial records can be coupled with theoretical concepts on strategic management in formulating a more vivid picture of such practices.
- Feedback gathered from various publications on the reputation and customer satisfaction index about the company. I have duly carried out this aspect of my research through extensive reviews on Lenovo Group Limited's past performances which must have had a direct impact on its investors' confidence about the company.
- Past newspaper articles, financial or economic reviews and interviews with key company appointment-holders published on Lenovo Group Limited have also been included in my research. From this perspective, I shall be able to gather what is the general public opinion about the company and in which aspects the company should attempt to better itself the most.
- Scholastic research papers will be included in order to acquire an up-to-date knowledge on the latest trends in development of strategic management practices.
General definition of corporate strategic management:
Corporate strategic management is generally defined as the science, art and craft of formulating, implementing and evaluating cross-functional decisions. It is the process of specifying an organization. The function of strategic management is to seek to coordinate and integrate the activities of the various functional areas of a business in order to achieve long-term organizational objectives. Strategic management mainly focuses on building a solid underlying infrastructure to a business set-up that will subsequently be reflected through the combined efforts of every individual the organization employs. As a matter of fact, strategy management consists of competitive moves and business approaches to produce successful and profitable performances for an organization. The entire process of strategic management should be regarded as an on-going and continuous process.
More often than not, strategic management is considered as the top-most level of managerial function. Corporate strategies are typically planned, crafted or guided by the chief executive officer (CEO), approved or authorized by the organization's board of directors, and then implemented and executed under the close supervision of the organization's top management team or senior executives. The foremost function of corporate strategic management is to provide overall direction to the whole business enterprise and is closely related to the field of organization studies. The advantages of having a business plan embracing strategic consistency are that an organization's competitive position can be strengthened, customers' demands can be readily satisfied, and a clear path in achieving corporate objectives can be laid out for everyone involved in the organization.
The corporate mission and objectives:
A clear layout of corporate mission and objectives is necessary for any organization as the gist of corporate strategic management hinges upon answering the three basic questions concerning corporate managerial function in general. The three questions are what the business venture's objectives are, what the best ways are to achieve those pre-determined objectives, and what resources are required to make that happen. Henceforth, it is important to unambiguously map out corporate mission and objectives so that everyone involved with the organization knows clearly what responsibilities and duties are expected from him/her. The process of formulating an organization's core objectives can have several phases. Firstly, it is essential to assess the landscape within which the organization will be operating in, and determine the set of roles of which the company will be playing within the landscape identified. This step is commonly known as the mission statement identification phase. Secondly, the organization should move on to the phase of establishing practical and feasible objectives which are explicitly defined to address some of the unmet challenges, projecting both a long- and short-term perspective of what the organization is capable to offer to its clients and what are the limitations of the organization's operations. This phase is commonly known as the vision statement identification phase. Last but not least, it is vital to stipulate the goals the organization has set for itself, both in terms of financial and strategic objectives. Once these three steps have been taken, a strategic plan should begin to emerge.
Strategic management planning process:
Corporate strategic management is a combination of three main processes; they are namely strategy formulation, strategy implementation, and strategy evaluation respectively. This three-step corporate strategic management formation process is sometimes referred to as the determinant to assess what the organization's current market position is at, where the organization is heading towards, and by what strategies and measures the organization is ready to deploy to get there. These three questions basically constitute the essence of strategic planning.
The strategy formulation phase encompasses performing a primary situation analysis, an objective self-evaluation analysis, and a thorough competitor analysis which covers both internal and external. Concurrent with this assessment, organizational objectives are laid out and finalized. These objectives should be parallel to a timeline; some are in the short-term category whereas others fall into the long-term category. This involves crafting vision statements. These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan in turn will provide the details of how to achieve these pre-set objectives. Once a set of strategies has been determined, the subsequent strategy implementation phase kicks off.
The strategy implementation phase includes allocation and management of various resources of which an organization has in its possession, e.g. financial, human/personnel, time, technology and et cetera. The organization must then establish a chain of command or some other alternative management structures such as cross-functional teams. The top management team of the organization has to assign responsibilities concerned with specific tasks or processes to specific individuals or teams. This particular phase within strategic management also involves the process of managing itself. This aspect includes monitoring results, comparing to benchmarks and optimal practices, evaluating the efficacy and efficiency of the process, controlling of variances, and making proper adjustments whenever necessary to the process as situations arise. When implementing specific programs, this involves acquiring the requisite resources, developing the process, conducting training regimes, process testing, documentation, and integration with, e.g. and/or conversion from, legacy processes. Thus, it becomes inevitable that problems are bound to occur during this phase of strategy implementation. Contingency plans should be put in place to back up any potential short-coming existing in the main plan.
The strategy evaluation phase is about measuring the effectiveness of the prevailing organizational strategy. It is an extremely important component in the corporate strategic management function as this phase involves conduction of a SWOT analysis or a PESTEL analysis to examine the strengths, weaknesses, opportunities and threats, e.g. both internal and external, of the entity in question. All these may require certain precautionary measures to be in place to safeguard the integrity of the entire strategic management plan. Occasionally, the evaluation phase will call for a total overhaul to alter the entire strategy plan so that the alignment between corporate objective and corporate strategic management can be better achieved.
The general approaches in strategic management:
Generally speaking, there are two main approaches involved with strategic management practices, each of them is somehow opposite or contradictory to one another but complements each other in some other ways. The first approach is known as the industrial organizational approach which is based on the economic theory that deals with issues like competitive rivalry, resource allocation, economies of scale. This particular approach makes certain assumptions about rationality, self-discipline behaviour, and profit maximization. The second approach concerned with corporate strategic management is known as the sociological approach which deals primarily with human interactions. An excellent example of a company that currently operates in this way is Google. Cost under-estimation and benefit over-estimation are major sources of error involved in this type of strategic management practices. The proposals that are approved form the main body. Nowadays, some organizations have started to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions.
Analysis of Results
General analysis methodology:
This is the section on how conceptual theories from literature review section shall be mapped onto real-time strategic management practices observed in Lenovo Group Limited's corporate operations. Probably the most influential strategist of the last decade is Michael Porter. He introduced many revolutionary theoretical concepts including5 forces analysis, generic strategies, the value chain concept, the strategic groups theory, and the theory of clusters. In the 5 forces analysis, Michael Porter has identified the various forces that help shape an organization's strategic environment. It is something similar to a SWOT analysis with analysis aiming to examine both the structure and purpose involved in an organization's operations. It shows how a firm can utilize these forces to obtain a sustainable long-term competitive advantage. An organization will be successful only to the extent that it contributes to the industry's value chain. This measurement of organizational success against industrial value chain has been widely embraced by the global business community ever since.
SWOT & PEST analysis models:
The SWOT analysis model is a popular strategic planning method used to evaluate the strengths, weaknesses, opportunities, and threats involved in a project or in a business venture. The PEST analysis model is another such analysis tools intended to examine issues from differing perspectives. The abbreviation PEST stands for, political, economic, social and technological. The model describes a framework of macro-environmental factors used in the environmental scanning component of strategic management of an organization. The political aspect in the PEST analysis is concerned with taxation policies, employment laws, environmental regulations, trade restrictions and imposition of specific tariffs involved in Lenovo Group Limited's daily operations in mainland China. The general political environment in mainland China, e.g. existing communism and intended socialism, must be taken into consideration as this research report is centered on the organization's activities in mainland China. The economic aspect in the PEST analysis is concerned with economic growth rates, interest rates, exchange rates and inflation rates associated between various financing sources and Lenovo Group Limited. The social aspect in the PEST analysis is concerned with cultural implications, health consciousness, population growth rates, age distribution, career attitudes and safety concerns between Lenovo Group Limited, as an employer and its employees. The technological aspect in the PEST analysis is concerned with various determinant factors such as barriers to entry, minimum efficient production level, R&D activities, level of automation, technology incentives and the rate of technological change involved in Lenovo Group Limited's technological advancements in upgrading its existing technologies.
Resource and Support
A substantial group of management theorists have expressed their opinion on the area where most Eastern business set-ups are most lacking is product quality. People like W. Edwards Deming, Joseph M. Juran, A. Kearney, Philip Crosby, and Armand Feignbaum have suggested quality improvement techniques like Total Quality Management (TQM), continuous improvement, lean manufacturing, Six Sigma, and Return on Quality (ROQ) to rectify such issues. An equally large group of management theorists have felt that poor customer service is the root of the problem.
Carl Sewell, Frederick F. Reichheld, C. Gronroos, and Earl Sasser have showed us that how a competitive advantage could be found in ensuring that existing customers return again and again over time. This has come to be known as the loyalty effect after Reicheld's book of the same name in which he broadens the concept to include employee loyalty, supplier loyalty, distributor loyalty, and shareholder loyalty.
Arie de Geus (1997) undertook a similar study and obtained similar results. He identified four key traits of companies that had prospered for 50 years or more. They are:
- Sensitivity to the business environment, i.e. the ability to adapt, learn and adjust,
- Cohesion and identity, i.e. the ability to build a community with personality, vision, and purpose,
- Tolerance and decentralization, i.e. the ability to build mutually respectable relationships,
- And conservative financing with an emphasis on budgetary planning.
An organization with these key characteristics is known as a living company because it is able to sustain and perpetuate itself. If a company emphasizes knowledge rather than finance, and considers itself as an ongoing community of human beings, it has the potential to attain the status of greatness and endure for decades. Such an organization is an organic entity capable of self-learning, i.e. Geus has called it a "learning organization", and capable of creating its own processes, goals, and persona.
Findings and Recommendation
Many experts in the field of organizational management have argued that internal organizational resources management is the key factor in strategic management. In 1992, Jay Barney, for example, regarded strategy as an assembly of the optimum mix of resources, including human, technology, and supplies; and subsequent configuration in unique and sustainable ways. Management experts such as Michael Hammer and James Champy have felt that these resources need to be restructured and re-aligned in order to achieve optimal results for an organization. This process that they have labelled as re-engineering, involves organizing the entire organizational assets around holistic processes rather than individual tasks. In this way, a team of people will be able to see a project through, from its inception to completion. This would avoid functional silos in which isolated departments have limited opportunities to communicate with each other. It also helps resolve the issue of redundancy due to functional overlaps and inadequacies in inter-departmental communications.
In 1989, Richard Lester and the researchers at the MIT Industrial Performance Center identified seven best practices and concluded that organizations must accelerate the shift away from industries concentrating on mass production of low cost standardized products to highly value-added products of sophistication and quality. The seven areas of best practice include simultaneous continuous improvement in cost, quality, service, and product innovation; breaking down organizational barriers between departments; eliminating layers of management and creating relatively flatter organizational hierarchies; forging closer relationships with customers and suppliers; promoting intelligent uses of new forms of technology; adopting a global and far-reaching focus; and improving human resource skills.
To incorporate such ideology into the aspect of strategic management, Lenovo Group Limited has implemented numerous service enhancement programs to its operations in order to improve the qualities of its products and services rendered to its customers.
Many corporate management experts have realized that businesses are generally spending much more on acquiring new customers than on retaining the currently existing ones.
As demonstrated by IT company in Silicon Valley US, Lenovo Group Limited has much to learn on value building among its employees.
Lenovo Group Limited is not in the typical category of a state-owned company in mainland China. In recent years, Lenovo Group Limited has suffered some setbacks. It has attempted to branch out into new product lines only to retreat after it has failed to keep focusing on its core business and subsequently conceded market share in mainland China. To reclaim lost share, Lenovo has started a painful price war. It has been noted Lenovo is still able to defend its domestic market share, but still the Group urgently needs economies of scale that the IBM acquisition will be able to provide to compete both in mainland China and abroad. With appropriate strategic management practices put in place, the Group should be much better equipped to deal with issues such as investment appraisal directives so that it will not be tempted into another price war which could hurt the organization financially.
Over time, Lenovo Group Limited will have to confront shrinking profit margins in the global PC business and perhaps follow IBM's lead by branching out into product development and services. It will also have to navigate the challenges of acquiring a larger entity than its own. In addition to its massive workforce, IBM has US$9 billions in PC sales compared to US$3 billions for Lenovo. In the end, however, the acquisition deal is likely to go down as a win-win situation and Lenovo Group Limited has opened the door towards becoming a global player in the worldwide PC market. While there are suggestions about Lenovo Group Limited's management will have to learn the methods involved with Western-style capitalism, the Group is confident that they will be able to overcome those obstacles effortlessly. Lenovo Group Limited's executives will also have to learn to be among the top echelon of corporate management team in the world.
For Beijing-based Lenovo, the acquisition of IBM's PC business has signalled the arrival of mainland China as a global player in key industries. Lenovo Group Limited has since gained access to the worldwide PC market and quickly become a major computer manufacturer with more than US$12 billions in annual sales. It also gets exclusive access to the IBM logo for five years and permanently acquires the ThinkPad brand as a result of its acquisition. The aspect of public relations (PR) is an integral component of traditional Chinese management and consequently the general Chinese public will see this as a reverberating victory for China. However, the acquisition of IBM's PC lines has posed numerous challenges to Lenovo as it can no longer operate within a "closed-door" environment, i.e. a government-sanctioned environment such as that of mainland China, the Group has to revamp its strategic management regime in order to meet the inevitable challenges faced by all organizations who intend to expand globally into unfamiliar territories and economic systems. As the recently-retired Lenovo chairman Liu Chuanzhi has noted, globalization is the only option for Lenovo Group Limited which has very little growing space left in the domestic Chinese market. However, he has also added that globalization of the Group operations would present potential risks mainly in three areas: "One is whether the new Lenovo will be accepted by IBM's former clients and the global PC market; second is whether IBM employees will still be proud as employees of a new organization with a totally dissimilar background, and third, whether the two corporate cultures, i.e. IBM and Lenovo, can be successfully consolidated and incorporated." Indeed, critics have noted the challenges that Lenovo faces does not just exist in trying to combine two different cultures, but also in managing highly complicated logistics and supply chains, and moving forward in an industry with increasingly shrinking profit margins. In order for Lenovo of China to be Lenovo of the world, the newly-appointed chairman of Lenovo, Yang Yuanqing has stated that the Group will not be satisfied with the number three position it current occupies. The Group will formally mount a serious challenge to the other two major competitors in the global PC market. Yang Yuanqing has added that the Group's top management team has analyzed in-depth on the reasons why there is no profit for IBM's PC business. IBM has evolved into a service-oriented company over the years with focuses on products/services generating high returns to investments. But the PC business is still at a stage where efficiency spells success, and that is the fundamental causation why IBM's previous business model has not worked according to expectations. In order to attain high efficiency, there has to be grand-sized product scale. IBM has only chosen to focus on the big corporate clients, with less coverage for the middle-sized clients. This has hurt IBM in the fierce competition with its rivals like Dell. On the other hand, Lenovo Group Limited is traditionally strong where IBM is weak and that is why the Group is confident about the future.
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