Term Paper on "Change Management Implications of Lenovo's Acquisition"

Term Paper 10 pages (3729 words) Sources: 1+

[EXCERPT] . . . .

Change Management Implications of Lenovo's Acquisition of IBM Computer's Personal Computer Division

Lenovo's takeover of IBM PC is described as a 'snake eating an elephant.' -- Ling Zhijun, "The Lenovo Affair: The Growth of China's Computer Giant and Its Takeover of IBM-PC," 2006

The epigraph above suggests that the recent acquisition of IBM Computer's personal computer division by the up-and-coming Chinese concern Lenovo was a painful affair, and the scholarly literature concerning change management bears likewise suggests that there were some difficult challenges involved throughout the process as well. The early history of Lenovo is fairly unremarkable, with the company being first established in 1984 to sell computer parts manufactured under the IBM label. By 1990, though, Lenovo was selling personal computers under its own brand name and in May 2005, Lenovo purchased IBM's computer division for $1.7 billion. Today, Lenovo holds more than 35% of the Chinese personal computer market, which is four times the market share held by Dell Computer in China. To determine how the company achieved this spectacular growth during a period when others struggled to survive, this paper provides a diagnosis of the situation, including a brief background of the company and the problem it encountered, a description of the intervention that was used, followed by an evaluation of the change and the strategy used to achieve it. A summary of the research and salient findings are presented in the conclusion.

Review and Discussion

Diagnosis.

Brief Background Information on the Organisation. According to the company's Web site, "Lenovo is a global company with executive offices in Raleigh, North Carolina, USA, Beijing, China, and Singapore. Its principal operations are in Beijing, China, and Raleigh, North Carolina, USA, with an enterprise sales organization worldwide. The company employs more than 19,000 people worldwide" ("About Lenovo, 2007, p. 2). In reality, the history of Lenovo is not so different from that of many major competitors in the computer industry today (Tucker, 2006). Just as Jobs and Wozniak worked on their first personal computers in their garages at home, Lenovo was founded in 1984 by 11 engineers who worked out of a small bungalow in Beijing and went on to become a major force in the today information technology (it) industry (Zhijun, 2006). According to this author, "Lenovo's story is far more than a simple business success story. It describes an astonishing period in China's contemporary history as an era of austere, authoritarian economic and political policies gradually gave way to a market economy system -- although it is a system that is still uniquely Chinese" (Zhijun, 2006 p. 62). The history of Lenovo can actually be traced by to 1956 when a group of 45 Chinese scientists visited the former Soviet Union to "see what a computer looked like" and "what applications it could be used for" (Zhijun, 2006 p. 62).

This information-gathering visit came during a tumultuous period in China's history, being conducted amidst the former Chairman Mao's "Great Leap Forward" initiative that caused so much havoc and devastation throughout the country (discussed further below). Amidst this political and social upheaval, though, the Chinese scientists managed to persevere and developed the country's first computer dubbed, "Number 104" (Zhijun, 2006). This original computer was placed in service almost immediately and went on to provide valuable computing services for massive civil engineering projects and the country's nuclear weapons programs (Zhijun, 2006). By 1971, new-generation computers were being built by these engineers and China was able to construct its first integrated circuit computer. Recognizing the unique opportunity that this convergence of time and place provided them, in 1984, these Chinese scientists-cum-entrepreneurs took advantage of the increasingly tolerant attitude towards private enterprise and created the Lianxiang company which was originally capitalized with the fees charged to organizations leasing time on these newly developed computers (Zhijun, 2006).

The Identification of the Problem/Opportunity. When the Lianxiang company, Lenovo's predecessor, was formed, there were approximately 110,000 personal computers in China, almost all IBM models and all of them operating in English. According to Zhijun, "Perhaps the Lianxiang company's most important initial achievement was to recognise the importance of developing a Chinese character computer system allowing 1.3 billion Chinese to enter the computing age. Lianxiang had the vision to opt for a character function that had what is described as 'linked thought' functionality" (2006 p. 63). This approach was congruent with one of Lianziang's core competencies, which was importing IBM and other branded computers from the West on which the company installed this Chinese character function and began supplying China's domestic market (Zhijun, 2006). This author concludes that, "Using the brand name Legend, Lianxiang promoted PC usage throughout China by enabling the translation of English software into Chinese characters. And from such comparatively modest beginnings a company was born that currently employs more than 19,000 people worldwide with $13 billion in annual revenues. In 1994, Legend was successfully listed on the Hong Kong Stock Exchange and in 2003 the company re-branded itself as Lenovo" (Zhijun, 2006 p. 63). In fact, the company went on to acquire more than 25% of the Chinese it market share in 2004 (Zhijun, 2006). These spectacular results reflect the original aims and objectives of the company to expand their domestic market while gaining access to the international market, and these issues are discussed further below.

Aims and Objectives of the Change. According to Dessler (2006), "Managers in China face an intensely competitive global industrial environment. With revenue streams still supported by fast-growing but increasingly competitive domestic demand, Chinese firms such as Lenovo Group are expanding abroad" (p. 11). As a result, Dickie (2005) suggests that Lenovo's decision to acquire IBM's personal computer division "was driven in large part by eroding margins in the PC business and the steady encroachment of foreign brands such as Dell into Lenovo's dominance of a liberalizing Chinese market" (p. 4).

Brief Summary of the Change Strategy. The company's change strategy in the acquisition of IBM's personal computer division in 2005 reflected the goals of Lenovo's leadership to gain access to the international marketplace, but it is likely that few observers would have expected such an aggressive tactic from this up-and-comer.

Selection of the Change Strategy. The change strategy selected for the acquisition of IBM's personal computer division can be attributed to Liu Chuanzhi, one of the original 11 founders of the company, in response to increasing market demand for state-of-the-art personal computers at home and abroad. According to Zhijun (2006), "The battle between China and the West actually created the space for the creation of an indigenous company able to offer PCs on the Chinese market at an affordable price. The principal driving force behind the Lenovo company (or the Lianxiang company as it was first known in China), was one of its 11 founder members, Liu Chuanzhi," who Zhijun describes as one of China's most creative and decisive business leaders (p. 63). The U.S. business journal, Business Week, also ranked Liu Chuanzhi amongst the world's top two-dozen businessmen (Zhijun, 2006).

Implications of the Change for the Organisation. The company's unprecedented acquisition of IBM's PC division in 2005 represented a major step for the company as well as a major incentive for Chinese industry across the board. Indeed, the acquisition of the IBM division was proof-positive that Chinese companies are not only capable of being competitive in their domestic markets but can also compete at a global level (Zhijun, 2006).

Intervention.

Description of the Change Management Process.

Like with any other type of corporate merger, the decision to acquire IBM's personal computer division was the first step in the instant change management initiative.

The second step for Lenovo was to formulate a company-wide strategy and business model that would take the company in the right direction according to the dual goals of increasing its domestic market share while simultaneously gaining increased access to the international marketplace. To this end, Lenovo developed a new business model called it termed the "Dual Business Model" to achieve the goals of both the enterprise market (the relationship model) and the consumer market (the transaction model). According to Liao (2006), "The relationship model will be based on offering customized offerings and services to meet the needs of the larger enterprise customers. On the other hand, the transaction model will use a more efficient and reliable value chain, strong demand generation on attractive offerings, and the ability to adjust and react to market changes and competitor activities to deliver new Lenovo products" (p. 3).

The final step involved in the acquisition of the IBM PC business division was to resolve any remaining conflicts in corporate culture that might have existed between the Western managers and the new Chinese owners and develop a strategic alliance that could take advantage of both companies' core competencies. In this regard, Wu (2005) noted early on, "Successfully integrating and sustaining the IBM brand will be a litmus test of Lenovo's management savvy in the coming critical months" (p. 26). To achieve this crucial aspect of the change,… READ MORE

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