Lenovo and IBM Partnership: History & Advantages

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Last week I had a chance to chat with Adalio Sanchez, who runs what was the IBM X86 server group and is moving with that group to Lenovo as a result of Lenovo acquiring IBM’s X86 server group.  I’ve always enjoyed chatting with Sanchez. He is a no-BS kind of guy, which I find incredibly refreshing.

Sanchez and I go back over a decade, to when he ran the IBM PC Company and I was selected for the advisory council. I’m ex-IBM myself and I’ve remained fascinated with IBM for most of my life. We chatted at length about the Lenovo opportunity. This move changed Lenovo from a client-only company to a viable server provider.  It is interesting that the acquisition of the X86 server group by Lenovo brings a lot of folks who used to work together back together.

Let’s explore this partnership a bit more this week.

Lenovo + IBM

Lenovo and IBM’s unique partnership showcases strategies that have proven uniquely successful to both firms. IBM, on entering a regional market, tends to approach that market as a native company would rather than an outsider. As a result, it has enjoyed global success over its century of existence globally, which remains unmatched. Lenovo learned to buy into a market, picking capabilities in the areas it wanted to penetrate and, as a result, also successfully moved from a firm contained in China to one that executes globally today.  Both firms nicely dovetail as partners with little in the way overlap in products, services or software. As a result, IBM will resell many of Lenovo’s products in large enterprise accounts, and Lenovo will resell many of IBM’s in the mid-market, where each company is more ideally matched.

At the core of both relationships is Intel, which wants to preserve the products using Intel processors and technologies that were sold by IBM and will now be sold through both companies as partners.

Natural Affinity

Part of what will make this partnership work is a natural affinity between the two companies, largely due to the acquisition of IBM’s PC Company last decade. This created a massive influx of IBM employees into Lenovo at all levels and effectively drove a culture change not unlike that which might have happened had Lenovo been acquired by IBM. However, Lenovo is a much leaner company. Instead of the IBM culture taking over and driving Lenovo, Lenovo’s culture combined with IBM’s to create a leaner and more agile version of IBM’s model. Lenovo became more of a cross-breed; no longer as they were but not IBM either. It created a new balance, which was what was needed to turn the IBM PC effort around and make is successful again.

This created a bridge between IBM and Lenovo. IBM benefited as well because there was executive and employee movement between the two firms. A lot of the people who had been at the IBM PC Company ended up with the X86 server group and, as you know, while jobs change, friendships don’t. The folks stayed in touch because the firms, for the most part, didn’t compete with each other. While Lenovo was the primary beneficiary, IBM also learned what made Lenovo different. The firms eventually drew closer to each other, resulting in IBM selling Lenovo its X86 server business.

IBM had learned enough that it recognized that Lenovo’s hybrid organizational model fit the Lenovo management model far better than it did IBM’s and a deal was done.

However, much of the software effort that defined these servers came out of IBM’s software resources and some of the key benefits for the platform resulted from integration back with IBM’s larger systems. So unlike the PC Company, which was a straight sale, the server business came with IBM as a solutions partner because the two firms realized they needed each other to more effectively compete in this segment.

Wrapping Up: Stronger Together

Whether we are talking geographic coverage or company size coverage, IBM and Lenovo are both stronger together. This is largely because IBM will always be best at systems with massive scale, like cloud services, where it is rapidly building out its capability, and Lenovo will be best with smaller, more focused efforts, particularly where margins are tight. For instance, in IBM the x86 business was a low-margin business and had relatively little clout, while at Lenovo it is a high-margin business and more of a heavyweight. This means it can more easily get resources and more effectively respond to competitive threats than it could within IBM. That has been the story of these two firms. When IBM couldn’t make PCs work, Lenovo did. Now IBM needs to shift focus from hardware to cloud services and Lenovo should again be able to showcase its unique advantages by helping with that transition.