Strategy can be explored from a variety of different perspectives and there are many definitions of what strategy is. It is important to understand these different strategic perspectives to gain a holistic understanding of strategy formulation and implementation. It is often the case that the opening chapter of any generic strategy textbook will include an initial definition and interpretation of strategy. The following books make specific reference to some of the main conceptualizations and perspectives on strategy (Johnson, Scholes, & Whittington, 2005).
II. Lenovo/IBM Acquisition
Can a company molded in the tradition of socialist state-owned enterprises, and which still holds twice-daily exercise sessions and company sing-along, transform itself into a global computer powerhouse?
Lenovo stunned observers with it’s acquisition of IBM’s personal computer division. The case examines the Lenovo group from the time the company was established and considers how Lenovo became the leading Chinese computer company. The case considers the challenges faced by the company with increasing trade, liberalization in China and the case details the initial Stages of Lenovo’s international strategy. The case concludes with Lenovo’s acquisition of IBM’s personal computer business and considers the issues that must be addressed as Lenovo enters into global competition (Bacani, 2005).
2.1. Value Chain Analysis
Firms can create a competitive advantage to analyze the specific activities, it is useful to model the firm as a chain of value-creating activities In order to better understand the activities leading to a competitive advantage, one can begin with the generic value chain and then identify the relevant firm-specific activities. Process flows can be mapped, and these flows used to isolate the individual value-creating activities (Wolfe, 2005).
IBM’s decision to sell its PC business to Chinese manufacturer Lenovo will increase competition in the market and drive down prices. Analyst predicts that slower growth rates and reduced profit margins in the PC industry will result in seller consolidation. By combining their personal computing division with its own, highly complementary business, Lenovo will be much better positioned to capture the opportunities in the PC industry (Wolfe, 2005).
Under the terms of the deal, Lenovo can use the IBM brand for five years, and the company leaps to third place in the sector. The company must retain the status of IBM’s notebooks while developing a range of desktops that can challenge their competitor, especially Dell’s. Its immediate goal is to retain the IBM core business in enterprise notebooks and use the IBM brand in other geographies to grow volume business. Competitors will have to accept that the Chinese market will become even harder to crack, while international markets will now include a player with a cost structure that can compete with Dell’s (Wolfe, 2005).
For IBM, dropping the low-margin PC business will continue to make it a more focused provider of IT services, as well as improving its profitability. IBM wants to move up the value chain, and sees its future in higher end consultancy and IT services, as well as the higher value hardware and software products, which appeal to its core corporate customers. In today’s marketplace, you are either an Accenture or a Dell. It has just become even more difficult to justify being both. In addition, observers are already questioning what role HP plays in the future will of the PC market (Wolfe, 2005).
2.2. Porter’s Generic Business Strategies
By applying these strengths in either a broad or a narrow scope, three generic strategies result: cost leadership, differentiation, and focus. They are called generic strategies because they are not firm or industry dependent. Cost leadership strategy calls for being the low cost producer in an industry for a given level of quality. The firm sells its products either at average industry prices to earn a profit higher than that rival does, or below the average industry prices to gain market share (‘Strategy’, 2005).
A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The focus strategy concentrates on narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly (‘Strategy’, 2005).
The new Lenovo’s strategy is based on what their customers want high-quality products and excellent service. They are committed to delivering the highest quality, most innovative PC products and services to their customers, to providing the best working environment for their employees, and to creating value for their shareholders (‘IBM Partnerworld’, 2004).
The company’s strengths include global brand recognition, through the combination of the highly regarded “Think” brand notebook franchise and Lenovo’s leading brand recognition in China, enhanced service and support for consumers and enterprise clients, and consumer strength and market leadership in China, the world’s fastest growing IT market. Lenovo has one-third of the emerging China PC market and leading shares in enterprise PC markets around the world (‘IBM Partnerworld’, 2004).
Lenovo expects to generate synergies in procurement and marketing expenses, as well as significant medium-term synergies resulting from new market expansion and product launches, manufacturing optimization and supply-chain integration (‘IBM Partnerworld’, 2004).
2.3. Ansoff-Growth Vectors Model
Ansoff’s matrix presented a matrix that focused on the firm’s present and potential products and markets (customers). Ansoff’s matrix provides four different growth strategies: Market Penetration, Market Development, Product Development, and Diversification (‘More Recommendations’, 2005).
By applying customer segmentation analysis and Ansoff’s Matrix, we can see that Lenovo has applied the four strategies: market penetration, market extension, product development, and diversification. Lenovo has numerous internal strengths with a few internal weaknesses. However, there are several factors that provide Lenovo with a competitive advantage, including:
Its focus on the PC market;
The breadth and depth of their software offerings;
The quality and performance of their products;
Exceptionally high-quality customer service;
The ability to implement and integrate solutions in record time;
The overall value and benefits the software provides to customers (‘More Recommendations’, 2005).
Lenovo has implemented several steps to counter what their competitor analysis has discovered by offering customers a unique three-tier technology design that provides Flexibility; Scalability and Data Integrity. Sales and Marketing teams market and sell their software directly to potential customers. Their efforts are complemented by alliances with strategic partners (‘IBM sought’, 2004).
When a firm chooses to diversify beyond a single industry and to operate businesses in several countries, it uses a corporate-level strategy of growth and expansion to target international markets. Lenovo has adopted this approach to grow and expand globally. On becoming a publicly listed company, the decision made at corporate level was one of aggressive market penetration, market development and product development. To expand locally and internationally, Lenovo’s strategy was to acquire industry leaders with strong brand and market profiles and add them to the Lenovo stable. Lenovo bought several firms that added a number of customers worldwide and brought mature established relationships with it (‘IBM sought’, 2004).
In the past Lenovo had adopted a low level of diversification where a major part of its revenue was from a single business or product. By applying the growth vector analysis, Lenovo’s restructuring policies and strategies adopted have been quite aggressive to achieve high levels of market penetration, market development and product development. There are a number of motives for Lenovo to follow this strategy, including market penetration and transferring core competencies, thereby achieving economies of scope. Probably the biggest motives were for efficient internal capital allocation and to create further shareholder value (‘IBM sought’, 2004).
2.4. Resource and Industrial Organization Mode
2.4.1. Resource Organization Mode
The appropriate analysis of data sets that reside within every organization could lead to making better resource management decisions. The resources affected may range from economic to social to biological. Today, full time staff is frequently occupied responding to current needs or are experts in fields other than data analysis.
Many Asian companies have prospered based largely on what can be termed “resource-based” advantages: access to low-cost raw materials and labor, preferential access to capital, and government licenses obtained through local relationships. Lenovo would not be good examples. These companies is not came to dominate their home markets. These types of resource-based advantages, however, are mobile (‘No national security’, 2005).
A company that succeeds because of low raw material costs or access to a government license can potentially export its product competitively. However, a company that relies on resource-based advantages will have little to bring to an overseas market when it establishes a subsidiary there (‘No national security’, 2005).
2.4.2. Industrial Organization Mode
China has experienced a considerable influx of knowledge and foreign investors extracted technology because of direct investment from other countries, but until very recently most of the value added. Recent signs, however, point toward a reversal of this trend and the evolution of the Chinese economy from a mere imitator and importer to a creator and exporter in several key high-technology sectors. The most important such sign is the emergence of several highly successful Chinese companies that are competitive not only domestically but also internationally: Lenovo (personal computers) (‘IBM and Lenovo Group Limited’, 2004).
Economists and industry analysts are remarkably divided in their opinions regarding the significance of these developments. Skeptics point to the inadequacy of China’s economic institutions. In particular, a well-functioning legal system that protects intellectual property rights is essential to successfully encourage innovative activities in the aforementioned sectors. Optimists, on the other hand, point to the strong and clear commitment of the Chinese government to develop internationally competitive high-technology industries at all costs illustrated, for example, by its focus last year on the country’s successful space program (‘IBM and Lenovo Group Limited’, 2004).
To succeed, PC companies need to have global scope, leading-edge technology and highly efficient operations Through acquiring IBM’s global PC business and forming a strategic alliance with IBM, Lenovo will absorb and integrate the skills from both sides and acquire global brand recognition, an international and diversified customer base, a world-class distribution network with global reach, more diversified product offerings, enhanced operational excellence and leading-edge technology (‘IBM and Lenovo Group Limited’, 2004).
2.5. Power and politic
IBM and Lenovo will work together in a unique marketing and services alliance, through which Lenovo’s PCs are marketed through IBM’s powerful worldwide distribution and sales network. The new Lenovo will be the preferred supplier of PCs to IBM, which will continue to offer a full range of end-to-end integrated IT solutions to its enterprise and small- and medium-sized business clients. IBM will be the new Lenovo’s preferred supplier of services and financing (Burke, S., 2005).
2.6. Stakeholders Analysis
A stakeholder analysis is a technique you can use to identify and assess the importance of key people, groups of people, or institutions that may significantly influence the success of your activity or project. You can use this technique alone or with your team members (‘Effective Requirements’, 2004)
The federal government approved IBM’s sale of its PC division to the Chinese company Lenovo, but the investigation that preceded the decision indicates U.S. companies will face hurdles if they want to sell assets to China (‘Lenovo: Bringing’, 2005).
They wanted to make a point: Although China is part of the global economy, it is still a communist country and, they argue, an enemy of the United States. The Chinese government is Lenovo’s largest stakeholder (‘Lenovo: Bringing’, 2005).
The argument that PCs are vital to national security rings hollow. Most laptops are made in China anyway, and if the Chinese want to reverse engineer the systems, place bugs or surreptitious monitors in them, or withhold shipments in a supply chain strike, they are already in a position to do so. Nevertheless, the inquiry demonstrates that acquisitions of U.S. intellectual property by Chinese companies will be subject to more examination in the future (‘Lenovo: Bringing?’, 2005).
Lenovo is losing market share to Dell in China, and the IBM business unit it acquired, while prestigious, has lost money in the past few years. Some analyst worries that customers could be hurt if the economics of the deal do not work out.
2.7. Strategic Intent
Strategic intent is a high-level statement of the means by which your organization will achieve its vision. It is a statement of design for creating a desirable future (stated in present terms). Simply put, a strategic intent is your company’s vision of what it wants to achieve in the long term (‘Strategic Intent’, 2005).
Lenovo do in fact describe the product life cycle, the experience curve, product portfolios, and generic strategies to be “reasonable concepts”. However, they add the models also tend to limit the number of strategic options considered by managers. They create a preference for selling businesses rather than defending them. They yield predictable strategies that rivals easily decode. As will be shown, this argument holds some validity for several of the major strategy models (‘IBM-Lenovo deal wins’, 2005).
2.7. Core Competencies
Core competencies arise from the integration of multiple technologies and the coordination of diverse production skills like Philip’s expertise in optical media and Sony’s capability to miniaturize electronic. Without core competencies, a large corporation is just a collection of discrete business. Core competencies serve as the glue that bonds the business units together into a coherent portfolio (‘Core Competency’, 2005).
A competence which is central to the business’s operations but which is not exceptional in some way should not be considered as a core competence, as it will not differentiate the business from any other similar businesses. For example, Lenovo do process which uses common computer components and is staffed by people with only basic training cannot be regarded as a core competence. Such a process is highly unlikely to generate a differentiated advantage over rival businesses. However, it is possible to develop such a process into a core competence with suitable investment in equipment and training (‘Lenovo: Bringing’, 2005).
There is a fundamental distinction between strategy and operational effectiveness. Strategy is about making choices, trade-offs; it is about choosing to be different. Operational effectiveness is about things that you really should not have to make choices on; it is about what is good for everybody and about what every business should be doing.
People argued that strategy was not what was important; you just had to produce a higher-quality product than your rival, at a lower cost, and then improve that product relentlessly. If you had a strategy, it was rigid and inflexible. Moreover, it was outdated by the time you produced it. It reflects a deeply flawed view of competition. Nevertheless, that view has become very well established.
The irony, of course, is that when we look at the companies that we agree are successful, we also agree that they all clearly do have strategies. Look at Dell, or Intel, or Wal-Mart. We all agree that change is faster now than it was 10 or 15 years ago. Does that mean you should not have a direction? Well, probably not. For a variety of reasons, though, many companies got very confused about strategy, and about how to think about it.
For analyze this case, I choose to applied Core Competencies Strategic in this paper. Core Competencies are the knowledge, skills and behaviors that differentiate superior (managerial) performance, and which are demonstrated through the achievement of results. Core Competencies will form the foundation for many human resources tools and practices for managers and leaders, including recruitment, selection, promotion, training, pay and reward systems, performance appraisal, performance management, succession and career planning (‘Core Competencies’, 2005).
As mentioned in the discussion, Lenovo think a company’s core competency to be fixed within the organization. Defining core competency is not an easy task, but it can be said to be a bundle of organizational and technological capabilities that collectively capture expertise and are capable of being deployed to provide unique functionality and sustain advantage in the market place. This knowledge may evidently include tacit knowledge, which perhaps is most evident in traditionally clan-structured organizations.
The core competencies identify the core requirements for successful software project management. They are broken down into three main categories. First, Product competencies deal with assessing and selecting development methods, processes, and tools, as well as product, requirement, and quality definitions. Seconds, Project competencies include things like estimating and managing cost, effort, and risk, along with traditional project management tasks like tracking progress via metrics. And the third, People competencies are largely concerned with managing people, and include areas like recruiting, performance evaluation, negotiation, and even handling intellectual property (Futrell, Shafer, ; Shafer, 2002).
The Chinese say they are being careful and targeting their overseas investment towards corporate core competencies. In the case of the Lenovo-IBM transaction, it was IBM, not the Chinese, which initiated the deal. The world’s biggest computer maker has not made serious money out of its PC operations for years, and has been not so quietly trying to unload them.
Lenovo, for its part, has been losing market share – and money – on its home turf. Whether two struggling PC makers can make a go of it as one remains, at best, an open question. (‘Lenovo: Bringing’, 2005)
Following the Lenovo-IBM partnership, the union of Chinese companies with global giants reached a new height. The tide reflects Chinese companies’ ambition to move upwards in the global industrial chain, international giants’ choice of teaming up with Chinese counterparts for their manufacturing strength, and finally the closer integration of the Chinese economy with the world (‘Lenovo: Bringing’, 2005).
I will use another example of company that uses Core Competencies as their approaches. The Acer Foundation is a non-profit organization formed to assist the industry in building core competencies to ensure success in today’s competitive world markets. Taking reference from Acer’s experiences, core competencies of companies in developing countries should center on high-tech management and effective globalization efforts (‘About ACER Foundation’, 2004).
Objectives of the Foundation are threefold: first, to transfer valuable experience through the collection and dissemination of successful case studies regarding technological development and business management; second, to improve global competitiveness by providing training, services and consultation in technology development and business management; and third, to magnify the benefits resulting from the first two objectives by publishing articles, and/or by sponsoring various awards, seminars, special programs, and events in universities and research institutions (‘About ACER Foundation’, 2004).
It expected Lenovo to be more competitive in the PC market. Lenovo has historically great effort to maintain profitability in PCs. However, we have to believe that it could become a more difficult competitor as it grows in scale, expands its geographic presence, and invests in more efficient manufacturing and distribution processes.
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