Where the action is

Chinese firm Lenovo announced themselves on the world stage two years ago with the acquisition of IBM’s PC divison. But the best is yet to come, insists CEO William Amelio

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By  Published  December 23, 2006

I’ve got a lot of energy, that’s for sure,” says William Amelio, a wolfish grin spreading across his face. Such understatement is uncharacteristic. The CEO of Chinese computer manufacturer Lenovo talks quickly, his machine-gun delivery, peppered with management buzzwords — ‘customer pain points’, ‘demand generation’, and the ubiquitous ‘skill sets’ — and his confidence is arresting. Amelio, who this month celebrates his first anniversary in the role, is clearly a man confident in his own abilities. Previously relatively unknown outside China, Lenovo stunned the IT world two years ago when it announced plans to acquire the PC division of US giant IBM. Lenovo paid US$1.25billion to IBM, splitting the payout into US$650million straight cash and US$600million of Lenovo stock. Prior to the acquisition, Lenovo already controlled 25% of the Asian market, largely due to its ability to sell computers at value prices and China’s high tariffs on imports. The deal, completed in May last year, installed Lenovo as the third-largest PC manufacturer worldwide. Amelio insists that the acquisition should be assessed on two fronts: “You ask how the company that did the acquiring did afterwards — did they lose focus, did they lose their way, or are they still on track? Then you ask how the company that they purchased is doing — did things get better, are things going in the right direction, what’s happening?” The acquisition, Amelio maintains, has proved a resounding success so far. “In China — our core business — we have become more efficient and more profitable,” he says. “That engine is running extremely well and we didn’t lose any focus whatsoever with regards to the China business. “Outside of China in the first year since the acquisition we actually stabilised revenues and got profitable for the first time after restructuring,” he contends. “Some analysts were projecting that our revenues would drop 20%, that we would have lost lots of customers. Essentially we’ve had 95% customer retention rates, and our revenues dropped just 7%, so we did lose a little bit of share, but we’re starting to see this rebound.” Amelio admits that the complicated nature of Lenovo’s acquisition of IBM was one of the attractions to the role. It is a challenge he has embraced wholeheartedly. “The company has essentially kept all the IBM PC management team in place,” he insists. “We’ve made some adjustments and, obviously, new people have come in, but essentially the structure’s the same.” Yet while this may be the case, the acquisition also necessitated a careful synthesis of two vitally varying business strategies. “The IBM business was a relationship business, on primarily large accounts — with governments, for example — and they were great at that. “However, that’s 40% of the market, and not the highest growth part of the market,” he explains. “The highest growth part of the market is medium business, small business, very small business and consumers.” “To meet this market, one of the best practices we took from the China business was something called the transaction model,” he continues. “That is a way and a method to go to market for small and very small customers that’s really efficient, really effective, meets their needs and wants, and hits the exact demands that they’re looking for at the right time.” Amelio says this is “working dramatically well” in China. “We’ve taken it and made it work in India, and now we’ve taken it and made it work in Hong Kong where we’re growing at 15% and are highly profitable in that market since we rolled out the transaction model. “We took it to Germany, these past two quarters, and Germany has literally seen a 40% growth rate in units and revenues, and what was a lagging market for us and not profitable, is now both profitable and growing,” he adds. “We’re in the process of rolling out across Europe, the Middle East and Africa, as well as the United States and Canada. We’ll eventually cover the whole world, but right now we’re putting a SWAT-team focus on different areas, to put the right tenets of the model into place so that we can get it right.” Amelio’s ambition is striking, and underscored by a tangible self-confidence in his own strategic planning. “Essentially we believe that we can have a hybrid dual model — meaning this relationship/transaction model — so that if customers want to go direct, they can go to a website and buy direct,” he insists. “If they want to go to tier-two partners, they can go to tier-two partners. If they want to go to a distributor, they can go to a distributor. Any way you want to do business with us, we’ll be available to do that.” But is Amelio not concerned that the Hong Kong-listed firm might be moving too far afield, too fast? Far from it. Lenovo’s management, he insists, has always strategised as a global, as opposed to a country company. “There is always resistance in any organisation for any change and anything new, and you have to contend with that,” he shrugs. “However, we’ve got a way of managing it so there’s not a conflict between all the different global marketing strategies.” Amelio himself is no stranger to change. Formerly senior vice president of Dell and president, Asia-Pacific and Japan, Amelio served in senior executive and operating positions at NCR, Honeywell International, AlliedSignal and IBM, including general manager of worldwide operations for IBM’s personal computing division. “I’ve had the opportunity to have 18 years at IBM, so I’ve got a great sense of the way that company worked,” he says with a smile. “My roots run deep there, so many of the people that were in the North Carolina facility, and some of our facilities around the globe, I’ve known, which has helped because you get an instant credibility with people that have worked with you before.” Amelio’s career path has taken him through a number of sectors, and he believes that each experience has developed and honed his own skill set. “I had the chance to get out of the industry for a while, at AlliedSignal and Honeywell,” he continues. “That’s a totally different industry, and I learned some of the key fundamentals of running in a different culture, running a totally different business, and yet still being able to use some of the same skill sets. It was an interesting set of businesses, worth about US$2.5billion.” After a year at NCR, “running three-quarters of the company”, Amelio made the move to Dell, where he took responsibility for strategy and operations across the Europe, Middle East and Africa (EMEA) region. During his tenure, sales more than doubled in the region, and service levels improved significantly, as measured by third-party customer satisfaction metrics. “I learned essentially the nuances of the supply chain, high efficiency models, and different strategies on how to go to market from a sales point of view. All that experience over the years bodes extremely well for Lenovo,” he adds, self-assuredly. “There’s things you can learn, and best practices you can take, from all these various backgrounds, and help get them all into a true perspective,” he continues. This experience, he contends, has given him a key insight into the way in which companies may best tackle the obstacles to pan-regional, and worldwide, expansion. “Working successfully as a company means taking best practices, wherever they are in the company, and rolling them out rapidly,” he explains. “If you have a model where everybody runs their own thing, then it’s very difficult to get best practices out very quickly. One of the key core values of the company is to say, ‘look, if somebody’s got a great idea, then implement it as fast as you possibly can’. “The simple fact of the matter is that you try to copy exactly whatever the idea is, and get it installed as fast as possible,” he continues. “We reward results, not necessarily who’s got the best ideas. Ideas are great, but we need to get them into practice in order for us to be successful.” Such success, he says, will be measured by Lenovo’s performance outside China over the next few years. Amelio insists that emerging markets, such as the Middle East, will play a key role in the company’s development. Indeed, in the EMEA region, consolidated revenue totalled US$751million in the second quarter, or 20% of Lenovo’s total revenue. “I’m a firm believer that the action’s happening in the emerging and maturing markets, such as the Middle East. “If you don’t have a strong foothold in those markets, you’ll fail, and likewise if you don’t deliver world-class products.” Yet Amelio admits that he did not always consider it a priority to deliver first-class products to less-than-first-class markets. “There was a view, and I had the view 15 years ago, that you’ve got to make sure that your fully-mature markets have all the latest technology, then the second generation stuff, the used stuff, you put in the emerging markets. That was the view of the world, but it’s the wrong view,” he insists. “The right view is to get the best technology in everybody’s hands, in order to be able to wire people, because it’s amazing how you can then take advantage of different skill sets from all over the world. “I’ve seen the stunning growth in China and India, and that’s happening because they’re wired, they’ve got great infrastructures, and they’ve got great education systems so the scientists and engineers that are coming out of the schools are amazing and would rival any other country,” he continues. “If you don’t tap into whatever your skill set is, you’re missing something. The number of graduates that are coming out of schools in India and China is immense, and from what I’ve seen, you’ve got some great schools here in the Middle East,” he adds. “The calibre of people that we’re recruiting from this region is fantastic.” Amelio insists that another development that will help companies such as Lenovo is the liberalisation of IT markets in regions such as the Middle East. “One of the things that will benefit Lenovo’s business hugely is the liberalisation of telecoms,” he says. “That’s growing penetration, that’s growing markets, and that’s growing the amount of bandwidth available to people.” “We’re also offering the opportunity for users to move seamlessly from hotspot to hotspot, between Wi-Fi or WAN [wide area network],” he continues. “Coverage is pretty good in the region, so that gives the opportunity for anyone to be connected anywhere.” And on that word, the connection is broken. We are out of time. Amelio takes a breath, and then that wolfish grin is back. “Don’t worry,” he smiles. “You’re going to be hearing a lot more from us.” “One of the key core values of the company is to say, ‘look, if somebody’s got a great idea, then implement it as fast as you possibly can’.”

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