Lenovo Business Strategy Report

This report provides a comprehensive analysis of Lenovo's business strategy, examining its competitive positioning, the impact of the IBM acquisition, and future scenarios. It utilizes various strategic frameworks, including SWOT, Ansoff, BCG, GE, and SPACE matrices, to assess Lenovo's strengths, weaknesses, opportunities, and threats. The report delves into Lenovo's competitive landscape, highlighting key competitors like Apple, HP, and Dell, and comparing their respective strategies. The analysis also explores Lenovo's licensing agreements and supply chain. A significant portion of the report focuses on the implications of Lenovo's acquisition of IBM's x86 server business, evaluating both the benefits and challenges associated with this major strategic move. Finally, the report concludes with a discussion of potential future scenarios for Lenovo, considering factors such as technological advancements, market fluctuations, and competitive pressures. The report suggests that while Lenovo has achieved significant success, it needs to continue focusing on innovation, cost management, and brand building to maintain its competitive edge in the global market.

BUSINESS STRATEGY

TABLE OF CONTENTS
INTRODUCTION................................................................................................................................4
POSITIONING OF LENOVO.............................................................................................................4
IBM ACQUISITION BY LENOVO GROUP LTD...........................................................................13
FUTURE SCENARIOS FOR LENOVO...........................................................................................14
CONCLUSION..................................................................................................................................15
REFERENCES...................................................................................................................................16

ILLUSTRATION INDEX
Illustration 1: Supply chain..................................................................................................................4
Illustration 2: SPACE Matrix................................................................................................................6
Illustration 3: BCG Matrix.................................................................................................................10
Illustration 4: GE Matrix....................................................................................................................11

INTRODUCTION
Business strategy is a means to achieve desired objectives and goals of company. It is
considered as a long term planning tool for the firm. Lenovo is a leading PC, tablet and smartphone
manufacturing company. The organization is known to generate different business strategies to gain
market share in the international market. The report discusses about various strategies that are
developed by company over a period of time to achieve its goals and objectives. The research is
done based on the data available of the year 2014-2015 (Augier and Teece, 2009).
Supply chain of Lenovo is network of supply and demand which consists of a system of
people, information, activities and resources in moving a product from one place to another.
Company is known for the global outreach of its product. Lenovo supply chain consists of its
employees, raw material, manufacturing plant, retailer and consumers. Raw material used by the
firm is technology and computer hardware products like servers, peripherals, storage devices, etc.
These raw materials are collected and synchronized at a manufacturing plant. The manufacturing
plant of Lenovo is located in Beijing (China), Pondicherry (India), Greensboro (USA) and Shanghai
(China) (Montgomery, 2011). These finished products are then packed and sold through its selling
unit in Beijing, North Carolina and Paris. Walmart, Staples, Microsoft, Best Buy and Amazon are
the most popular retailers of company’s products.
Competition
Il
Illustration 1: Supply chain
(Source: Zack, 2009)

Lenovo's biggest competitors are Apple, HP and Dell. The computer hardware company has
strike down Apple in terms of sales. The competitors of company are known for their customer
loyalty and use of innovative technology. Competitor’s strategy is to maximize the market share by
providing differentiated products to customers. Companies like HP and Dell use heavy advertising
and promotion strategies to build their customer’s image whereas Apple has a huge market share
with great customer support (Loeppke and et.al., 2009). Lenovo's competitors are able to create low
cost resources to provide its customers with low priced products as compared to other companies.
They have potential to cope up with the cultural demand of different markets. Lenovo's competitors
have strength on the global market with innovative strategy of their wide range products.
Licensing
A license agreement is a contract between seller and buyer. In the contract, Lenovo grants
specific rights to produce or sell product or technology which is owned/copyright/trademark of
company itself. Company’s trademarks include its logo and design owned Lenovo. The firm has
limited use of its logo to stop other firms or person use its logo. Specific permission has to be taken
in order to use its logo and “Lenovo” text. The computer hardware company has allowed the use
and selling of its product by the third party (Lee, Lee and Wu, 2010). For the same, company has
created a licensing agreement. The agreement is applied to each Lenovo software product whether it
is pre-installed or its hardware product is included. The customer has to pay a license fee for the
product and must duly read the agreement before signing it (Lenovo License Agreement, 2013).

SPACE Matrix
SPACE matrix analyses four different strategies of quadrants of Aggressiveness,
Conservative, Defensive and Competitive.
Financial Stability-
Lenovo's revenue reached to USD 46,000 million (Lenovo Group Ltd, 2015). The working
capital of company was USD (1,734) million, the operating cash flow was USD 238 million and the
return on investment was 16%. As company’s capital position is detrimental, the company in terms
of financial stability is given a score of 3 (Holbeche, 2009).
Competitive advantage-
Growth of company in terms of revenue for the year 2015 is 19% and its net income is
2.34% which shows that it has high growth potential in the mobile hardware industry. As per the
advantage on competitors, the CA score is -2.
Industry Strength-
Lenovo has gained competitive advantage over its competitors with innovation and customer
support services. IS score of Lenovo is 2.
Environmental Stability-
The firm has brought differentiated technological changes in the products. The market in
which company operates is not stable due to fluctuations brought by government regulations and
competitors. The ES score of company is -2 (Verbeke, 2013).
As per the given statistics, the SPACE matrix is like -
For example, internal dimension i.e. FS + ES= 3 + (-2) = 1
For example, external dimension i.e. CA + IS= 3+ (-2) = 1
Illustration 2: SPACE Matrix
(Source: Bryson and Lombardi, 2009)

Thus, Lenovo lies in (1, 1) quadrant i.e. Lenovo lies in Aggressive quadrant.
Comparison of KPIs
Lenovo HP Dell
TOWS Analysis
TOWS Strength
 Strong brand image in
market.
 Quality products.
Weakness
 Raising strengths of
competitors.
 Innovation in products.
Opportunities
 Environmental savy
products
 Market Growth
 Software development
(Reinhardt and Stavins,
2010)
SO strategy
 Focus on new market.
 Increased scope of
marketing.
 To create new
technological
advancements.
WO strategy
 Cut down cost which
may arise due to
environmental savy
products.
 New and differentiated
product innovation.
Threats
 New low cost model of
competitors
 Exclusive technology of
competitors
ST strategy
 Create new software
services with the
support of IBM
Increased use of
marketing to increase
global reach of the
product.
 Invest more on research
and development of
products.
WT strategy
 Find new facility to shift
manufacturing plant that
has low labour cost (Liu
and Buck, 2009).
 Generate technological
advancements with the
help of IBM.

Material type used- Company’s
main performance indicator is
its ability to use sustainable
products and renewable source
of energy (Campbell, Edgar and
Stonehouse, 2011).
Benchmark Data- HP believes
in benchmarking data collected
from industry sources to
identify competitor’s capability.
Velocity- The firm uses
turnaround time to identify the
amount of time the products
take from manufacturing unit to
reach to its respective
customers.
Innovation- The firm has
formulated strategies to out
strikes its competitors by
creating innovative
advancements in its products
through constant innovation.
Identify Trends- To identify the
trend based on customers’
preference, choice and taste.
Financial advantage- Dell
believes in generating
innovation in selling products
to generate financial stability
for the firm (Cinquini and
Tenucci, 2010).
Diversity Commitment-
Company has created
differentiated products to fulfil
diverse demands of global
customers all around the world.
Respond faster to business
needs- To respond as fast as the
company can to fulfil the needs
and requirement of business
clients and customers (Lee, Lee
and Wu, 2010).
Customer- Loyalty of Dell's
customer is important as the
company generates various
schemes for customer retention.

Ansoff Matrix
Ansoff matrix developed by Igor Ansoff helps company to identify the area which has risk
in terms of growth. By considering market trends from existing to new products and from existing
to new markets, there are four combinations in the matrix i.e. market development, diversification,
market penetration and product development (Peng and Khoury, 2009). (Insert caption)
Lenovo will have to target
new market by segmenting new
geographical territories from
the old markets.
For sale in new targeted
market new product line
can be developed based on
the logistics of the market
To get a greater share in the
global market the company
will have to innovate its
strategies on the
existing products.
With the help of
technological advancements
in software will develop
the existing products.
Market development Diversification
Market Penetration Product Development
N
E
W
E
X
I
S
T
I
N
G
EXISTING NEW
M
A
R
K
E
T
Product and
Services
Illustration 3: Ansoff Matrix

BCG Matrix
BCG matrix is a planning model which is classified in four categories i.e. star, question
mark, dogs and cash cow. Determinants of industry attractiveness and market share help to evaluate
the categories in which company fits the best. The matrix assumes that increase in market share will
generate more cash and growth in market share will lead to consumption of cash. As per the
scenario, Lenovo lies in Star category. Company is generating large amount of cash leading to
increase in market share (Burlton, 2010). As the market share of firm is growing at a fast pace,
company is also consuming large amount of cash to facilitate the growth rate. Lenovo has to
constantly invest in the business units to facilitate constant development and sales which also in
return develop cost advantage over the market.
Illustration 4: BCG Matrix
(Source: Liu and Buck, 2009)

Generic Strategies Matrix
Lenovo's relative position can be determined by the profitability and industry norms. GE
matrix has three generic strategies of cost leadership, differentiation and focus. Michael porter
states that a firm’s strength can be analysed by its product cost strategy and differentiation of
products. As per the scenario, it is understood that Lenovo believes in Cost leadership strategy i.e.
company has a low cost product advantage in the market. The firm sells its product at a lower cost
than its competitors like Apple, HP, Dell, etc. Thus, Lenovo is able to generate more profitability
and revenue, comparative to its competitors (Campbell, Edgar and Stonehouse, 2011). As Lenovo is
serving a global market, it has generated a low cost price policy to attract large market share and to
gain competitive advantage of high sale in case of price war in the industry.
Evaluation of the current position
Lenovo has strikeout Apple and has achieved top position in terms of market share.
Company is ranked as the number one PC maker in the world. The firm has gained a competitive
advantage by eliminating top contenders with respect to sales and innovation. Organization has
gained a market share with the help of low cost price policy. Company’s after sale services have
helped in generating customer loyalty. Lenovo has brought new product developments in respect to
its global customers (Zack, 2009). This strategy helped the firm to attract new customers in different
markets as well. Thus, it can be said company has great potentials in terms of market share as it has
gained good market position in the global market. These potentials are evident for the firm as the
organization has to still focus on strategies for the management of other business units like
Smartphone and tablet unit. Though company is doing evidently well in the global market, there is
high scope for it in terms of market entry to new target market of new economies.
Illustration 5: GE Matrix
(Source: Dong-Hun, 2010)

IBM ACQUISITIONS BY LENOVO GROUP LTD
On January 23rd 2014, Lenovo intended to acquire IBM x86 server business. Lenovo had a
successful history with mergers and acquisitions with various brands. Almost 10 years ago, i.e. in
2005, Lenovo bought IBM PC business to integrate itself with constant innovation and to market as
a competitive company against big brands. As per the reports, Lenovo did not have the global
outreach and experience to serve on a global level, thus, it decided to acquire IBM and instead
outsource its capability. This is considered to be the major answer of the reason because of which
Lenovo acquired IBM back in 2005 (Loeppke and et.al., 2009). In 2015, IBM managed to lose
billion dollars with its PC business going in vain. IBM wasn't able to turn around things in its
favour by the mid of 2014.
On the other hand, spokesperson of Lenovo said that Lenovo wanted to commit itself to
create hardware based products thus, it lead to acquiring IBM servers. Lenovo is already working to
have excellence through its innovative software and acquiring IBM lead to create a balance between
its software and hardware creation. Lenovo has two main motives in mind while acquiring IBM i.e.
to grow its existing customer business and to generate confidence in the business prospects of
company. Management at Lenovo will in return generate sustainable growth which will be crucial
for the development of company for the next 10 years (Peng and Khoury, 2009). Although, Lenovo
bought x86 server business, it decided to commit to follow the original roadmap of IBM for the
server line. Company has decided to improve the product line by sticking to its old basics of IBM.
For Lenovo, the acquisition proved to be both beneficial and a problem. Company achieved
brand recognition in the market with its correspondence to a multi-national brand i.e. IBM. This
goodwill was important to build customer loyalty towards the brand. As already Lenovo was facing
backlash being a Chinese company, Chinese products do not have a respectable word of mouth in
the market. Improved brand reputation lead to generation of sales and increased revenue margins of
company (Montgomery, 2011). With this, being the biggest advantage, company lost its financial
stability by investing in acquisitions. Firm is on a verge of financial breakdown as its profit hits
high during process. Lenovo paid US$ 2.1 billion for acquiring stakes in IBM which led to shortfall
of profit for a short period of time. Company is said to strike back in the market very soon with
financial stability.
With the acquisition of IBM x86 server business, Lenovo is said to create a world class
business scope which will let the firm to extend its present capabilities of creating software services.
The acquisition created a stronger position in the global market for Lenovo. With a strong history of
collaboration of Think Pad PC line back in 2005, this present acquisitions is said to bring
sustainable growth for Lenovo (Astrachan, 2010). Company is deemed to become as a reliable
source of technology provider in the international market.