The current economic conditions will be forcing a lot of companies in all segments to rethink how they are doing things and address some painful realities that they may have been putting off. Lenovo is a case in point; it was struggling coming into the economic collapse and the extra pressure put it into the red last quarter, forcing a change in thinking.
This change resulted, at least initially (I expect we'll see more changes shortly), in the replacement of the U.S.-based ex-Dell CEO Bill Amelio with the Chairman Yang Yuanqing, and replacement of CMO Deepak Advani with ex-Microsoft Windows Marketing executive Mike Sievert. From the point of view of those buying ThinkPads, this should make the company stronger. But it will also result in more executive and staff changes, so relationships need to be affirmed to limit disruption.
The problem with Lenovo was that it felt like it was operating as two separate companies: a China-based entity that was largely consumer and having trouble getting product out of China, and a worldwide company that was mostly corporate and having trouble figuring out consumer. It had all the elements, the elements just didn't seem to be working together. This change fixed the lack of clear leadership.
Sony, which is in much deeper trouble, is a showcase for what happens when top leadership isn't clear. This leadership conflict appeared to contribute to a number of big missteps. Lenovo attempted to buy Packard Bell in Europe to gain a retail presence but Acer stole it by buying Gateway, which had preferred status when it came to purchasing Packard Bell. It actually was one of the few PC companies with a cell phone unit when Apple broke out the iPhone, but then it sold that, apparently moving away from this new and suddenly exciting market for PC companies. (Dell is rumored to be entering, HP is expanding its presence, Asus is expanding its presence, and Apple has been very successful.)
Mike Sievert, brought in as CMO, was head of Microsoft Windows Marketing and has deep ties to that company, suggesting there will be tight positioning between Lenovo and the Windows 7 launch. This could be incredibly beneficial for the company, given how well the Windows 7 beta has been received. Sievert's experience is wider, covering both consumer and corporate markets. He should be more capable of expanding Lenovo's consumer presence as a result. Acer and Asus, both of which have been growing at a relatively high rate, do so on consumer product strength alone. Lenovo's weakness here, despite a reasonably strong line of products, needed to be addressed at least partially by stronger marketing.
Economic conditions are going to result in organizational changes in virtually every vendor in the market over the next year. This change in Lenovo will likely trickle down into changes in sales, channel management, support, product management and operations. When changes like this occur, it is wise to reaffirm relationships to ensure the people whom you need to have support you are safe, or that their replacements are known and acceptable to you. Vendors are less likely to mess with things that they know are working, particularly if large customers state their preferences and needs up front.
If there was a time, with Lenovo or in general, to love the vendor reps that do good work for you, this would be it. I believe Lenovo will exit this process stronger but the new executive leadership will have a number of distractions initially. Making sure you are getting the attention you need, if you are a Lenovo customer, by touching the executive leadership of the firm would be timely.
Lenovo needs to address its channel problem. Despite some of the strongest lines the company has ever had, it is still channel bound, making it difficult for buyers to find the products in retail. While Acer, Asus, HP and Dell have broad netbook lines, which sold well in the fourth quarter, Lenovo lacks breadth here. It does have an opportunity to have one of the first enterprise-ready netbooks, but the time for that is running out. It needs to execute sharply if it wants this space. Exiting smartphones was untimely and may need to be revisited. If Dell does enter, this will leave Lenovo as one of the few PC companies without a smartphone strategy. If, as I expect, vendors continue to tie the phone to the PC (as Apple does with MobileMe and Microsoft is enabling with Live Mesh), it may find itself at an additional competitive disadvantage.
Wrapping up and the Path Ahead
Overall, the problem with Amelio's term was that he didn't really appear to be running all of the company any more than his predecessor was. That slowed execution and resulted in some counter-strategic decisions. Lenovo's losses are partially due to the economy, but Apple and HP did fine, which suggests that Lenovo could have done better. Clear leadership should at least fix the slow execution problems. The PC market remains ugly for the first half, and like most things, is very dependent on the world economy. However, Windows 7 and the aging installed base of Windows XP and older machines suggests there is a decent purchase wave that should start to hit around mid-year when this product is released. If Lenovo, which actually has a nice consumer line (it's just hard to find it in retail) can wrap around this Windows 7 launch, it could have a very nice second half, comparatively. But it will need to address its channel, netbook line, and smartphone competitive disadvantages if it truly wants to shine.