Lenovo: Acquisition of IBM’s Personal Computer Division

1 Abstract 2 Introduction 2.1 Company background of Lenovo Lenovo was previously known as Legend Group in Hong Kong in 1988. In 2004, the company changed its name to Lenovo Group. It moved its headquarters from Hong Kong to Purchase, New York in 2005. Lenovo primarily operates in North America and China. After the acquisition with IBM’s Personal Computer Division, it moved its headquarters in Morrisville, North Carolina. Lenovo employs 25,100 people. Lenovo manufactured personal computers (PCs), related IT products, and services. (Refer to Appendix 1)

2.2 Company background of IBM Prior to the deal, IBM’s PCs had made little profit, and was often losing money too. IBM was undergoing a strategic shift from selling commodity-products to selling more services, software and high-end computers. It also made it easier for IBM to sell more services in China.1

3 The Change 3.1 Overview Lenovo Group announced in December 2004 the definitive agreement that the group will acquire IBM’s Personal Computing Division. (Refer to Appendix 2)
1

http://news.cnet.com/IBM-sells-PC-group-to-Lenovo/2100-1042_3-5482284.html?

tag=mncol

more diversified product offerings. Yang Yuanqing becomes the Chairman and Stephen Ward becomes the Chief Executive Officer. US government. This would come from IBM’s global brand recognition. enhanced operational excellence and leading-edge technology.4 Management After the acquisition. a world-class distribution network with global reach. 3.com/news/sg/en/2005/04/acquire_pcd. Prior to the acquisition.3.lenovo. IBM’s management. US national security body and Committee on Foreign Investments in the United States (CFIUS) announced that the Chinese PC maker Lenovo Group was allowed to buy IBM PC business. and external consultants. parties involved included Lenovo’s management. an international and diversified customer base.2 Aims of the Change The aim was to bring IBM’s enterprise-class PC technologies to the consumer market and to make Lenovo able to reach the markets outside China and Asia. approval from the government was needed.5 Governments In order to implement the acquisition. 3. 2 http://www.html .2 3.3 Parties involved in the change During the acquisition of IBM’s PC Division (IBM PCD).

1 The Goals and Value Subsystem Lenovo has a basic goal of ‘Lenovo. and the Middle East and Africa (EMEA).0 Organizational Subsystem 4. America. Asia-Pacific. as well as make up for the weaknesses of functional and decentralized forms. New Thinking’. After the acquisition.1.2 Technical Subsystem Lenovo operates in 166 countries and has about 25.3 Structural Subsystem Corporate Restructuring Changes in organizational structure Lenovo’s structure had been largely functional.1. Each unit has specific set of functional departments that include production. Europe.com/sg/en/ www. supply chain management.1. transportation.1 Sociotechnical System 4. 4.000 employees worldwide. It was a necessary change because the matrix structure supposedly enables faster response and adaptation to the competitive market by combining the best of both separate structures. a matrix structure was adopted instead in its management with two operations – Lenovo China and Lenovo International. the element of continuous improvement to their products and processes can be inferred. The four main units include Greater China.4. marketing and sales4. Lenovo also aim to be a ‘New World Company’ and this globalised vision aims to incorporate talents all over the world to deliver higher quality and innovative PCs to satisfy customers worldwide. New World.pmi. 3 Based on this objective.org/PDF/Lenovo%20case%20study. 3 4 http://www.doc .lenovo. 4.

The acquisition resulted in the transfer of another 10. IBM portrayed the move as mainly an evolution in its strategy of globalizing its operations by moving back-office work like accounting and procurement to lowcost locations and eliminates operations in high-cost and slower-growth markets like France. The reason was due to the unimpressive quarterly earnings in February 2005 and the price of its shares plunged. Yet. power sharing is a delicate proposition and hence. To further decrease redundancies. power has to be shared equally between the product managers and the functional managers. IBM announced that it would lay off 10.000 IBM PC employees to Lenovo's payroll.000 employees.000 workers.400 contractors and employees worldwide within the next 12 months. In 16 March 2006. All these efforts were aimed to tie in with Lenovo’s strategy of innovation and to cater to the higher demands of customers. For proper implementation of such a structure. yet again in 2007. Movements among employees Soon after the Lenovo’s shareholders’ approved of the transaction. this form of structure introduces dual authority and thereby tends to breed ambiguity and conflict. . Germany and Italy. mostly in Europe.However. Integration was also done to the various sections of the supply chains and the different product groups. we think that such a structure is hard to maintain.000 to 13. Lenovo laid off 1. Lenovo announced to embark on a reduction of resources of 1.

and employee commitment. prices of notebook products had to be kept low. lost of sense of identity and commitment towards the company. Hence. over half will be in a form of transfer to emerging markets. This can be done verbally or through concrete actions which translate this message. This seems to be a trend that occurs annually. The consequences of this may include employees developing a strong sense of uncertainty. One of the reasons for these cuts was that jobs could be moved closer to the manufacturing base in China. Similarly. as continual employment appeared to be independent of the amount of hard work. Recent use of empowerment in companies like Delta Air. Surveys can help identify opportunities . because they do not know when their turns will be. As a result. Lenovo should address this issue by providing assurance its team of workers. productivity. In order to increase market share and attract customers from competitors. resulting in only 650 job loss. the management can introduce periodic dialogue sessions with employees to seek potential improvements. Federal Express. and Wal-Mart suggests that this method pays off. Besides. One way to motivate and improve employees’ performance is to provide incentives and rewards for impressive performances. surveys can be used to replace dialogue such sessions. Speculations of retrenchment may circulate. Hence. which is consistent with the movements of its competitors. employees ended up losing their jobs. otherwise. can often improve quality.Of this. empowerment in the form of giving autonomy to make decisions. Lenovo outsourced its notebook production to Taiwan to maintain a low manufacturing cost.

when the company is still being headquartered in Beijing. we will be using some of these characteristics to identify Lenovo’s organizational culture.1. This culture may not suit with IBM’s culture which is more American. 4. For example.html?partner=yahoo&referrer= . 5 Donald Brown. People Focus.forbes.4 Psychosocial Subsystem Cultural Change Henry Migliore identified several characteristics to measure an organizational culture. From there. Don Harvey.com/technology/feeds/general/2004/12/14/generalcoxnews_2004_12_14_engcoxnews_eng-coxnews_093428_6883557114389138522. Autonomy. An Experiential Approach to Organizational Development.for improvement and help evaluate the impact of changes being implemented. They are Member Identity. Control and Risk Tolerance. Team Emphasis. 5 In this section. the management team may realise that they have been missing out on better alternatives and that they should slow down to revise their actions. Chapter 3 (Pp 71) 6 http://www. 6 Lenovo has a company song and the song will be sung by employees at the start of company-wide meetings. all employees are highly encouraged to participate in a daily exercise accompanied by a song known as “Number Six Broadcast Exercises’. • Member Identity A former employee described Lenovo’s culture as being very Chinese.

html?partner=yahoo&referrer= 8 http://www. As Lenovo has been globalised. As a result. 7 Risk Tolerance Lenovo’s employees are encouraged to be innovative and entrepreneurial. and to compromise. In addition. responsiveness. This is reflected in its new core values whereby the company seeks to continually improve and never be satisfied with anything less than a competitive advantage in technology. For example.com/technology/feeds/general/2004/12/14/generalcoxnews_2004_12_14_engcoxnews_eng-coxnews_093428_6883557114389138522.com/ww/lenovo/procurement/core_values. it is able to tap on expertise and talents from different parts of the world. Lenovo decided to make English the common language in the company. in order to avoid culture conflict. quality delivery. Together with the relocation to North Carolina.After Steve Ward was being appointed as the chief executive officer of Lenovo.pc. possess integrity. fairly senior employees who initially had difficulties adapting to the new culture and thus may not 7 http://www.ibm.8 Lenovo did not force difficult people decisions too quickly. speed and efficiency. he led the whole management globally. • Risk Tolerance A former employee described the culture as very militaristic whereby all employees must do what they are told and there is little room for creativity. these factors work together to achieve the ultimate goals and values of Lenovo. price. Steve Ward also established a new culture where everyone shows respect to one another.forbes.html .

• Control and Team Emphasis Before change. respect and learn from others. .5 Managerial Subsystem Leadership Changes In every acquisition. However Lenovo was gentle with them and gave them time. the inevitable question of who will helm the company will arise. Lenovo has treaded well in placing former IBM senior managers in top leadership positions – a move which we think bodes well to relieve any possible tensions and anxiety amongst employees in the new union.1. Top management leadership positions may be an indication or a signal to the newly – formed company employees. how is the control like ? Reviews are conducted every two weeks for each individual employee. how is the control like? After change. on which former company yields more power over the other. 4. Team members must report on their progress toward getting the savings that was targeted as well as the progress of their team's development. We observed that in such a politically sensitive area. the management makes sure that there is a mix of Chinese and international staff in each location so as to help its employees to adjust.perform well as a result. and today those same people are performing very well. In addition.

2 Time Frame Lenovo and IBM engaged in talks for a total of 13 months prior to the decision made for the integration process9.txt .html?tag=mncol. However. President of Lenovo EMEA and Senior Vice President of the Lenovo Group.. nor does it seem as a deliberate attempt to create an impression of ‘fairness’ in authority. who was formerly with IBM between 1979 and 1997.According to the BBC news reports. former IBM senior vice president Stephen Ward. leadership changes not only dealt with the politicised issue of the ‘acquired’ and ‘acquirer’. Amelio. The official announcement of Lenovo acquiring the IBM 9 http://news.1 Advocates of Change As discussed above in section 3. his previous role of vice president at IBM’s Personal Computing Division yielded considerable results and success. the chairman of the Lenovo is still a Chinese. After all. and in this unique case of acquisition.com/IBM-sells-PC-group-to-Lenovo/2100-1042_3-5482284.4. the stark cultural backgrounds between the ‘Westerners’ and ‘Chinese’ presented yet another issue of cultural differences in leadership. The current President and CEO position of Lenovo is held by Mr William J. Planning the acquisition 5. 5. Lenovo’s chief executive in 2005.cnet.3 and 3. Other top leadership positions held by former IBM staff include the Senior Vice President and Chief Marketing Officer. hence. the change managements include bla bal. we cautioned in the neglect of possible dual authority circumstances.. 5. Rather. the man was selected to fill in the leadership role in the new firm. in the case of Mr Milko Van Duijl. We noted that such leadership roles were given not based on their former association with IBM.

html? tag=mncol 12 http://localtechwire. This sudden replacement of Ward could cause uncertainty among customers as the presence of IBM as the top management could no longer be felt.10 We could deduce that the buffered period of five years was to give consumers time to accept the change of brand.PCD was made in December 2004. William Amelio was hired to take over Stephen Ward11.com/IBM-sells-PC-group-to-Lenovo/2100-1042_3-5482284. The Triangle used to house former IBM workers before the merger and with this initiation.3 Degree of Change The transfer of ownership of IBM PC unit to Lenovo was the most evident change.html?tag=mncol 11 http://news.cnet.com/Lenovo-says-changing-execs-is-part-of-a-plan/2100-1003_3-6004396. Lenovo Group has relocated the headquarters and 70 jobs to the Triangle Research Park. A part of the agreement is a strategic alliance in which IBM will be the preferred provider of service and financing to Lenovo. Perhaps the most visible parts of the deal are a five-year brand licensing agreement and an ownership of the “Think” family of trademarks. 5. Stephen Ward was the alumni of IBM CEO and was made CEO of Lenovo after the merger.cnet.com/business/local_tech_wire/news/story/1166395/ . Call centre operations and a unit in Boulder have been relocated to North Carolina too.12 10 http://news. Lenovo will be the preferred supplier of PCs to IBM. In December 2005. close to 350 workers were asked to leave. situated in North America. The change of leadership was another dimension that underwent great changes. The duration of the acquisition process took about a year as it was completed in the late quarters of 2005.

A Wharton management professor who has studied Chinese companies was sceptical about Liu Chuanzhi’s retirement from the new management team and stepping aside as a chairman. since Lenovo is planning to have its manufacturing base situated in the low-labour cost China. Headquarters New York No more headquarter A new office is being set up in Taipei 101. It has been able to establish a strong standing in China all these while is partly due to the part that there had been well-maintained relationships with the government.In the perspective of the employees. the greatest degree of change would be the displacement of workers from both companies. one of Taiwan’s critical landmark. This signifies Lenovo’s desires to expand beyond China and it has strategically chosen to set up one of its branches in a prominent building. It is important to sustain this. He feels that he is able to connect well with the Chinese government and after and is “an extraordinarily capable person”. . The act is seen as an effort to increase staff morale and to boost product image. We feel that the removal of this strategic figure into the non executive board may pose problem for Lenovo.

6. Conclusion .learning points .