Abstract
The report presents an analysis of a case involving Lenovo in its formative years. The goal of this case study is to evaluate the decision-making of the leadership of the Lenovo company, which grew into a successful large-scale corporation, through a review of the organization’s goals, point of view, actions, and alternatives. As a result of analysis using criteria or opportunity creation/loss and economic impact, it became evident that the decision was indeed safe and optimal; however, the alternative was also viable.
Introduction
The case of Lenovo, as Shu presents and analyzes it, is an evaluation because it essentially describes the company’s path including somewhat controversial decisions (630). The case presents the decision-making process of the owners and key executives of the Lenovo company, known as Legend in its formative years. Thus, the company is an excellent subject for analysis. The goal of this case study is to evaluate the decision-making of the Lenovo company, through a review of the organization’s goals, point of view, actions, and alternatives, which allowed it to grow into a successful large-scale corporation.
Outline of the Situation
At first, Legend (later Lenovo) was a small company with no strategic development plan, goals, funds, or knowledge of how to run a business. At that time, the company’s owners invested their efforts into surviving in an external environment that was hostile toward small companies. As the business climate in China changed, Legend partnered with suppliers from abroad. Consequently, the company matured, acquiring skills and practices for running a business from their associates, allowing the company to grow and develop further in China and abroad by making strategic investments and choosing its course of action.
Thus, by experimenting and adapting strategies where appropriate, Legend has become competitive with large corporations such as IBM and has built a network of partnerships with companies like Microsoft and Hewlett Packard.
Point of View
The point of view adopted for this case analysis is that of the top management of the company. This position offers several strengths: first, the ability to make strategic decisions for the development of a company, and second, the availability of information about the company. The responsibilities of the board are also significant, as a company’s poor performance will not be rewarded by owners and shareholders. Besides being answerable for the delivery of short-term results, top management is also accountable to achieve strategic objectives. A possible blind spot was the absence of knowledge about managing a business, resulting in missed opportunities in the beginning.
Question
The evaluated item is the decision of Lenovo in its formative years to opt for production as a focal point of its development. The main question for the evaluating the case study is whether Legend’s decision to emphasize production was flawless or if it presented certain drawbacks. The responsible party in this process is the upper management. The long-term wellbeing of a company is at stake. The source of the research question is the existence of a specific strategic point where the company decided to act in a particular way.
In the late 1980s, Legend decided to aim at a manufacturing orientation rather than basing the company’s efforts on developing technology, which is the ground for speculation (Shu 630). The criteria for analysis include opportunities created by the decision, opportunities missed because of it, and the economic impact. The most important of these involves the “opportunities created” as this criterion allows weighing the solution in terms of tangible benefit for the company. The economic impact criterion was partially discussed in the case.
Hypothesis
In this case study it will be hypothesized that while the decision was not without its drawbacks, it was the right option to pursue within that time frame and under the circumstances. The criteria identified above present value for assessment because they measure the feasibility of the decision and there is a clear evidence of the alternatives and circumstances. The greatest confidence will be placed in the opportunities created criterion as sufficient data exists to build an argument around it.
Opportunities created standing out as a prominent evaluation criterion as there is an acquisition of a major production company and privileges from the Chinese government, which will yield support in building the argument and proving the hypothesis. It is simultaneously the positive rating, because it boosted the company to occupy a large portion of the market. Because of the evidence provided in the case the evaluation should prove that the Lenovo’s decision was optimal.
Proof and Action
Opportunities Created
By opting for a manufacturing paradigm, Legend was able to make use of its acquisition of Quantum Design International. The strength of this opportunity was based on the fact that it allowed the company to begin producing an item that was in high demand in China. Given the environment of a planned economy and a ban on foreign PC components, this strategic management decision generated an opportunity to occupy a profitable niche in the domestic market. Arguably, the circumstances produced the opportunity and not Legend itself. However, corporate decision-making was essentially the catalyst for the company to continue evolving and taking advantage of the situation for its own benefit.
Another prominent option made available through selecting a focus on manufacturing was the development of a bond with Chinese government and the acquisition of privileges and financing. From the standpoint of market strength, the company exploited an excellent opportunity to become a key supplier of PC components for China; if, in contrast, the company had selected technology as its primary development path, the opportunity might not have been available. Manufacturing was Legend’s strongest and most reliable operation as well as the area where the firm had the most experience. Legend, having anticipated the trend for protectionism exercised by Chinese government, opted for manufacturing and created an opportunity to receive subsidies from the Communist Party.
Opportunities Missed
On the other hand, by opting for manufacturing, Legend missed several potentially profitable opportunities, including the pursuit of technological advancements. As Ni Guangnan suggested, the company might have formed a link with major universities and developed “Chinese integrated circuit chips” that could have attracted wealthy investors (Shu 630). In itself, a partnership with progressive educational institutions might have meant many grants as well because the PC industry was developing rapidly at that time. Such a partnership might have built a strategic advantage in terms of research and development and allowed Legend to compete successfully with IBM and HP.
However, such a scenario, as noted by Liu, the founder, was too risky. For a young company to compete against a technological giant such as IBM, even with collaborative relationships and grants from universities and government, might have led to failure. In addition, the company’s lack of knowledge of business organization also had the potential to undermine Legend’s position in the R&D race.
Another missed opportunity was the export of technology to other countries. Given the existing facilities for the production of motherboards, the company might have sought investments from the state and itself become a technological giant. The risky nature of this endeavor persisted because of a lack of managerial capacity to properly organize R&D. Therefore, missed opportunities had little influence, and their success did not seem to be guaranteed.
Economic Impact
The positive impact of the decision was that the company was able to occupy a sizable niche in the domestic market due to a chain of strategic partnerships and acquisitions. The choice to build strength around manufacturing led to an agreement with Taiwanese manufacturers and eventually allowed the company to optimize its prices and capture a portion of the Chinese and global electronics markets (Shu 631). Arguably, the creation of large volumes of cheap electronics afforded the company the necessary momentum to emerge as a world leader in manufacturing electronic components.
Decision
Due to the rightfully chosen accent on manufacturing that is supported by the fact of the emerging trend for modularity in the PC market, as well as strategic acquisition of the component-making firm which allowed the company to become the top manufacturer in China, the company may adopt the following action plan:
- Automate production facilities to improve quality and quantity of produce;
- Explore and research possible foreign markets for selling computers and components;
- Develop an expansion strategy and establish regional partnership;
- Expand the range of produced goods to satisfy diverse needs of local consumers.
Alternatives
The hypothesis has one weakness: the promising nature of the rejected option. As mentioned, the key alternative to the decision to become a manufacturing company was a focus on technology and research. A sufficient basis existed for the latter choice in the form of the availability of support from the government and research institutes (Shu 630). The key arguments that the company ownership formulated against this choice essentially revolved around resources and “brain power.”
The first objection could be resolved through seeking state funds, which, given the absence of an influx of new technology developed abroad, had every chance of being sponsored by the Chinese Communist Party. The practice of generous grants being given to state-owned companies and the presence of connections with the government among the Legend executives are evidence of the solid logic behind this claim (Shu 629).
The lack of brain power is also a questionable premise. Legend had an ambitious team of computer scientists that had formed the company, along with Ni Guangnan, who had the knowledge to forge the success of the proposed technology. Thus, the risk of failure to create value in this regard was minimal. Thus, it is possible to assume that the safer alternative that Legend ultimately chose was more optimal in the given external and internal environment. Objectivity in assessment was addressed by using factual information from the case. Evaluation might be supported by the fact that the company continues to occupy the largest portion of the global PC market with 22.4% share (Stamford).
Conclusion
Lenovo (or Legend, as it was called in its formative years) presents a fascinating case for an evaluation of managerial decision-making. The goal of the present case study was to assess the decision that formed the foundation for the success of the company. As a result of analysis using criteria or opportunity creation/loss and economic impact, it became evident that while the company’s decision was indeed safe and optimal, the alternative was also viable. Thus, the formulated hypothesis discusses the rightness of the selected option with certain drawbacks in the face of not pursuing the technological option.
Work Cited
Shu, Ei. “Emergent Strategy in an Entrepreneurial Firm: The Case of Lenovo in Its Formative Years.” International Journal of Emerging Markets, vol. 12, no. 3, 2017, pp. 625-36.
Stamford, Conn. “Gartner Says Worldwide PC Shipments Declined 4.3 Percent in 4Q18 and 1.3 Percent for the Year.” Gartner, 2019. Web.