At the end of 2004, the business world was shocked to hear that IBM sold its personal computer division to a Chinese computer manufacturer called Lenovo. While Lenovo was then the biggest manufacturer in the Chinese market, it didn’t have much of a foothold in North America. Acquiring IBM’s PC line would change everything. Today, the Lenovo ThinkPad is an enormously popular personal laptop, but what’s the story behind this company giving Apple a run for its money?
About Lenovo: Company Lowdown
Lenovo’s customers are in 180 markets around the world, which are serviced by their 57,000 employees. It’s a Fortune Global 500 company that did over $50 billion in revenue in 2019. One out of every four personal computers sold globally is now a Lenovo product and is manufactured in multiple locations in China as well as Japan, the United States, Mexico, Brazil, India, Germany, Hungary and Indonesia.
The company has been listed on the Hong Kong Stock Exchange (stock code 992) since 1994. In February 2020, the company reported record pretax income with its quarter up 11 percent year on year, representing its 10th-consecutive year-on-year quarter of growth. The company is also growing its personal devices category as well as its data center services, among other products.
Comparing 2004 and Now
For a time, desktop computers began to be shunned. Laptops were all the rage – you could use them in bed! Desktops were clunky, loud and slow, and the market had begun to dwindle as consumers began splurging on the portability and convenience of laptops. In Beijing, the team at Lenovo saw dwindling desktop sales as an opportunity to capitalize and take over part of a computer powerhouse, IBM.
But as storied as IBM’s computing reign had been, the company was outshone by Dell by the time that day rolled around in late 2004. The next year, after Lenovo took over IBM’s personal computing line, Dell was the world’s top home computing line with 17 percent of sales. That year, Lenovo had just 6 percent of the world market.
Today, Lenovo is the world’s top maker of personal computers with over 24 percent of global sales in 2019.
Lenovo’s Origin Story
Lenovo wasn’t “Lenovo” until 2003 – it began life as “New Technology Developer, Inc.” in 1984, back when a bunch of engineers might have been excellent at developing technology but were lousy at branding. It was a team of 10 engineers led by Liu Chuanzhi and his deep pockets with about $30,000 that spurred the birth of NTD in a couple of Beijing back rooms on November 1, 1984.
Within a couple of years, they got branding savvy and changed the company name to Legend. First, they worked only on business technology, but it was Legend’s 1990 launch of its first personal computer, the Legend PC, that would bring it big success. But founder Chuanzhi speaks of the early 2000s as a time when Lenovo realized that diversifying its product base in China wasn’t working for them. They concluded they’d need to expand internationally to grow their brand.
When Lenovo forked out $1.25 billion to buy IBM’s PC line in 2004, industry watchers snickered and assumed the company had taken a giant misstep by investing in the technology of yesteryear. For IBM, it was a smart move as they hoped they’d expand their service offerings in the growing Chinese market. That spectator perspective would evolve eventually to see the Lenovo acquisition as being a major success. And while desktops may never be a growth driver in technology again, they’ve proven to be the credible base upon which Lenovo has built its brand.
Growing Pains: After Acquisition
As the ninth-largest computer company in the world in 2005, Lenovo’s ambitions meant it saw the big picture as the company merged its new IBM PCD operations with its Mainland Chinese division. At the time, language was an issue, with the American IBM executives speaking English and some of the Lenovo Chinese board not being fluent. The company went from seven Chinese board members to bringing on five English-speaking U.S. directors. The workforce itself doubled, too, as the company became a multinational.
It was decided that English would be the primary language for doing business within Lenovo because they wanted to become global players. They believed that conducting business in English would attract more international, high-caliber talent to their board and executive ranks.
In fact, back in the early days after the IBM acquisition, Yang Yuanqing, then chairman of the board, chose to move his family to the company’s American headquarters in Morrisville, North Carolina, strictly so he could improve his English skills and better understand American culture. It’s the kind of leadership that made the board ask Yuanqing to return to being CEO when the company faltered during the 2009 recession. He’s been CEO since.
Introducing Lenovo CEO Yang Yuanqing
Born in 1964, Yuanqing has been with Lenovo since 1989, back in its fledgling days as Legend. At just 25, he already earned a master’s degree in computer science and had been planning to become a professor of computer sciences when he spotted a Lenovo ad and decided to give sales a try. His salary was the equivalent of $30 monthly. A natural at sales, Yuanqing was also known for being quiet and contemplative – attributes that appealed to Lenovo founder Chuanzhi, who promoted Yuanqing to head their personal computer division at the age of 29.
Yuanqing would be CEO by 37 when Chuanzhi retired. But Chuanzhi didn’t disappear – he stuck around on the Lenovo board, and when the masterstroke was made to buy IBM PCD, it was Yuanqing and Chuanzhi who made it happen. By that time, Yuanqing had stepped down as CEO to be the chairman of Lenovo’s board of directors from 2004 to 2008. Enter the recession and the board's plea for Yuanqing to return as CEO, and Yuanqing acquiesced because, “The company needed me.”
Yuanqing makes headlines around the world based on his business smarts alone, but his leadership goes well beyond the trading bell and sales desk. When he received a $3 million bonus for record growth in 2012, he distributed his bonus to over 10,000 employees. He wasn’t content to do it just once, either, again redistributing a $3.25 million bonus in 2013 to over 10,000 employees working in 20 countries. Those working in reception and production received up to $314 each, about a month’s pay in parts of China, which is where 85 percent of the recipients lived.
Windows + Lenovo = Winning
Yuanqing was just 41 and serving as chairman of the board when he negotiated a deal with Bill Gates and Windows: They'd preinstall the Windows operating system on all Lenovo computers in China and Microsoft would provide marketing assistance and a rebate on Windows sales. This impacted computer sales worldwide as other manufacturers decided they needed to have a preinstalled OS too. Steve Ballmer and Bill Gates credited Yuanqing as making a huge difference in how much piracy Windows suffered.
Within a year, Windows had tripled its sales of preloaded software. The relationship between Lenovo and Windows continues, with the operating system still being installed on Lenovo's computer products and now on all its smartphone and tablet products.
Motorola: Lenovo Protects and Attacks
The company’s business philosophy of recent years has been described as “protect and attack.” That is, they protect the division that made them – the personal computer division – while going on the attack with other technologies like smartphones, tablets and even server hardware and other solutions.
When Lenovo paid $2.91 billion to buy Motorola from Google in 2014, it did so as part of that “protect and attack” strategy. The thinking was that the company would buy an established but struggling brand that had relationships in place already with carriers and distributors, which would allow them to innovate a new way forward with the personal device market while growing Lenovo’s product range. But Google was off-loading what it thought was a dead brand because it had bought Motorola just two years prior to selling – for $12.5 billion.
By 2016, Lenovo was racking up losses from Motorola; so much so that, a year later, the Wall Street Journal spanked Lenovo with the headline “Lenovo Thought It Knew How to Fix Tarnished Brands—Then It Bought Motorola.” But the company stuck to its guns and made smart plays to push Motorola in emerging markets while innovating its “Moto” line of phones in America. By mid-2019, Lenovo announced that Motorola was now profitable.
Lenovo’s “Triangle Process”
When looking at an acquisition, Yuanqing and Lenovo use a process they call the Triangle Process. If deciding on whether a business is worth acquiring and developing, they consider three factors:
- Is the market big enough? It doesn’t matter if the target doesn’t have a lion’s share of that market – there just needs to be enough potential that it’s promising.
- Does it fit with Lenovo’s core? At its heart, Lenovo is driven by computation and technology, and that’s where their products must live.
- Can resources compensate for shortcomings? Lenovo understands that there may be a learning curve in acquiring a company and entering a new market; they’re not averse to that, provided they have the operational ability to carry the product through those times like with Motorola.
Doubling Down on Diversity
With Lenovo’s head offices in Hong Kong and Beijing, it’s understandable that people call them a “Chinese company,” but they're really global. Many believe that part of Lenovo’s constant push toward dominance is fueled by its diverse workforce. The world’s largest computer manufacturer has offices worldwide, and instead of filling them with people from the head office and local support teams, those satellite offices are 97 percent filled by people native to the nation they’re located in.
The company has 66 unique nationalities comprising its workforce in 61 markets. Lenovo isn't being complacent, either, as the company aspires to continue diversifying its team. Women make up 36 percent of Lenovo's worldwide personnel and the company is zeroing in on having women make up 20 percent of its global leadership.
In the United States, the company is aiming at trying to fill 30 percent of its leadership roles with underrepresented groups. A program called “Lenovo Listens” is all about taking the corporate pulse annually so they can set new goals and continue their quest toward greater diversity and inclusion.
Corporate Culture: The Three Pillars
The company believes that a healthy corporate culture is key to having a healthy bottom line. To that end, Lenovo has created what it calls an “ownership culture” based on three tenets:
- “Everyone is an engine,” as Yuanqing says. That is, they’re empowered to drive decisions. Employees are encouraged to think for themselves and act accordingly.
- Lenovo has fostered a commitment culture. Whether you’re management or the low one on the totem pole, making a commitment means delivering that commitment. Period.
- Pioneering is key. Lenovo may believe in buying existing intellectual properties, but its power comes from pushing to innovate and always seeking to be better.