LEARNING FROM PRACTICE
Strategic Action at Lenovo*
* This research was sponsored by a grant from the OxyChem Corporation made to the Management and Organizations Department, Cox School of Business, Southern Methodist University. Portions of this paper were discussed at the 21st Pan-Pacific Conference, Anchorage, Alaska, May, 2004. The authors would like to thank Anita Bhappu, Billie Boyd, Mel Fugate, Don Hellriegel, Peter Heslin, JoAnn Lan, and Ellen Jackofsky for their constructive comments on an early draft of this manuscript.
Please address all correspondence to:
Professor John Slocum
Cox School of Business
Southern Methodist University
Dallas, TX 75275-0333
Lenovo Group Limited is the largest information technology (IT) corporation in the People’s Republic of China (PRC). It has long dominated its home market in the manufacture of personal computers (PCs), and now harbors ambitions to enter other related electronics businesses on a global basis. Using the diamond business strategy model proposed by Hambrick and Fredrickson, we highlight how Lenovo crafted its business strategy to build and sustain its competitive advantage in PCs in Asia. Furthermore, we highlight some of the critical success factors that have enabled Lenovo to attain its competitive advantage over the past two decades in the Chinese market. In addition, we consider some actions that Lenovo may undertake in the next few years to build more enduring sources of competitive advantage as it strives to become a global powerhouse. The lessons that apply to Lenovo may also be instrumental to other Chinese companies seeking to design and produce name-branded products for the global marketplace.
Business strategies must be based on some source of competitive advantage to ensure the firm’s success. Distinction is a key driver of any organization’s effective strategy. A firm is only as profitable over the long term as it is distinctive. Recently, Hambrick and Fredrickson have provided us with an analytical model to examine the strategy of a firm. They propose that in order for a firm to have a viable business strategy, senior managers must be able address five key pillars of strategy by answering these questions: • Arenas: In what markets will the firm compete? which product categories? which geographical areas? which core technologies? • Vehicles: How will the firm get there? by internal development? joint ventures? acquisitions? licensing?
• Distinguishing features: How will the firm win in the marketplace? Is it through image? styling? customization? price? • Staging: What is the sequence and speed of moves? • Economic logic: How will the firm obtain its economic returns? Will these be achieved through lowest costs through scale advantages? premium prices due to service? premium
prices due to proprietary product features?
Hambrick and Fredrickson argue that a successful business strategy addresses all five questions. These questions must be addressed for the following reasons. First, senior managers need to make decisions. All five questions require investments that cannot be generated simultaneously. The focus is on using the firm’s core competencies in specific market segments. Second, the answers to all five questions must be aligned and coexist with each other. That is, there needs to be an internal consistency among the elements of a business strategy. Internal consistency provides coherence to an...