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Lenovo Company’s Decision-Making Process Report

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Updated: Sep 7th, 2021

Introduction

Businesses often encounter issues that require changes in their strategic planning that would enhance daily operations. It is necessary to understand that these choices shape the company and its future by providing a vision of prospective tasks and mission for the direction of work. In the case of Lenovo, the company had to reshape its strategy that emerged as a consequence of being formed as an enterprise with limited resources provided by a non-profit institute. This paper aims to present a hypothetical case study of Lenovo that would illustrate the strategic decision-making process and evaluate possible options.

Situation

In this case, the company’s executives encounter difficulties when launching a new company to the market with a challenging external environment. In addition, the country in which the venture operates is a developing economy, which results in a lack of necessary resources. Shu states that firms with a cohesive strategy are usually more successful when compared to those that lack a clear vision (625). However, with new products or ventures and in the circumstances similar to the described it can be difficult to predict the outcomes such as the reaction of clients and demand in the market. Regardless, Lenovo had to reach operational start-up and ensure adequate revenue by creating a plan that would leverage its competitive advantage.

The product of the company is technical solutions that are now available for sale globally. Thus, this organisation had to create a strategy that would enable obtaining necessary financial resources and human capital. Additionally, this computer product should have a marketing and positioning approach as well as customer support and additional features. This strategy requires a well-planned approach to manufacturing and distributing products through adequate management of cash flow and other resources.

In addition to the problems mentioned above, it should be noted that the original company – Legend did not have a cohesive strategic vision. Upon establishment, the organisation operated without a monetary incentive because the primary investor was a nonprofit institute (Shu 630). Thus, it is evident that to achieve commercial success and obtain revenue Lenovo’s executives would have to review all the operations and create new processes. This objective had to be performed with limited financial resources, which restricted the options available to managers.

Additional issues included a lack of support from the government that the competitors were able to obtain. Thus, rival companies that operated in the same industry of computer technology had the opportunity to receive additional finances and control metrics such as margins better, while Lenovo was unable to do so. As becomes evident from the case described by Shu, governmental support has a crucial meaning in China (633).

The author argues that Great Wall, the primary competitor for Lenovo was able to receive resources, both financial and physical, such as manufacturing facilities as well as access to international corporations and their contracts by using connections of governmental officials. The meaning of political support remains to be a crucial component of operating a business in China even today. Hsu argues that contemporary organisations have to deal with this approach of the officials as well. Thus, this component had a critical impact on shaping Lenovo’s strategy for future development.

Questions

Case studies differ from offer types of learning material because they provide an extensive description of business operations and decision-making processes that occur in a particular company. Ellet argues that when examining a case study, such as the one by Shu, an individual should focus on thinking about the implications of the information (20). In addition, the author suggests having several questions prepared before reading the content, which will help locate necessary information.

With Lenovo, the primary issue is the strategic planning of the company. Thus, the questions that require answers are what affected the need to look for alternative decisions, which components of the company’s operational activity had to be subjected to the most significant changes and what were the options and rationale for each solution, which will be discussed in this paper.

Therefore, in the case of Lenovo, the primary issue is the strategic development of the company that would enable growth and financial success. The principal subjects of the problem are management and the economic and political environment of the country. It can be argued that despite the difficulties described above, the case study in question accounts for the success of Lenovo’s planning decisions. The problem described in this paper is significant because it traces the process of transformations that a company established in difficult external and internal circumstances went through to become a manufacturer known worldwide.

Hypothesis

The previous paragraphs focused on the particular elements that made Lenovo’s executives look for alternative plans for their business. According to Ellet, an essential component of a case study analysis is a hypothesis (27). Thus, this paragraph will discuss the changes in the internal structure of operations and its impact on the emerging strategy of Lenovo. Based on this information, a hypothesis regarding the company’s strategic vision can be made.

Firstly, as was previously mentioned, Shu describes Lenovo’s approach to business as chaotic due to lack of experience in the for-profit market and other constraints (628). However, although this component was considered as an issue at first, the approach of China’s government to businesses and foreign establishment affected Lenovo’s growth significantly. Shu states that throughout the 1980s until 1990s the governmental officials forbid foreign trending organisations from operating in their state (630).

This gave Lenovo an opportunity to fill out the gaps in its financials and experience-related fields. According to Shu Lenovo offered “consulting, business integration and support services” to out of state ventures (630). Next, Lenovo developed several other products that helped them obtain 50% of the domestic market.

These opportunities allowed Lenovo to have resources for investing in other products and developing as a company by manufacturing motherboards. The success of manufacturing in the domestic market was crucial for the company because it provided resources for future growth. Due to these significant changes in operations and scope of activities, Lenovo had to reposition itself as a market-oriented enterprise (Shu 630). Thus, it can be concluded that the hypothesis that guided its executives was that market demands require manufacturers to develop low-cost personal computers.

Proof and Action

The company focused its production on developing simple hardware and software solutions for consumers. The decision that Lenovo’s executives were to focus on manufacturing a “bundled transportable computer” (Shu 631). In addition, Lenovo partnered with Taiwanese companies as part of its strategy to lower the costs of supplies. This rationale for these choices was guided by an understanding of components that are required to ensure a product’s success in a market.

For instance, Shu states that the chief executive officer of Lenovo understood that having a high-quality product is not the only component that enables its success (629). Additionally, they would have to invest in marketing and other operational activities. Instead, the chosen course of action focused on leveraging the domestic market’s opportunities, experience and partnerships that allowed reducing costs of production significantly. Thus, Lenovo decided to manufacture personal computers that would suit the needs of the mass market due to their low price.

This case involves several options that relate to Lenovo’s strategic direction. Ellet argues that decision-type cases focus on specific issues and possible solutions that affect a company’s future (20). In such instances, it is necessary to identify the scope, available information and consequences of actions. The range of the decision-making process for Lenovo is the transformation of the entire business model towards one that would be profitable.

The information the company had at that time is their knowledge of the domestic market and their technological developments (Shu 626). The consequence, in this case, is a model that enables Lenovo to obtain revenue and have a fully functioning manufacturing.

It is evident that each decision of an executive should be based on factual information and all option should be weighted considering the outcomes and possible downsides. For instance, Laczkowski et al. state that the following elements should be examined before making a decision – “financial performance, markets, competitive advantage, and operating model” (par. 1). The authors argue that some establishments can prioritise growth in their core segment without adequate evaluation, which leads to failure. In addition, Shu explains that strategy formulation should be regarded as a learning process with continuous input from stakeholders (626). Using the previous experience and evaluation of the components described above, Lenovo was able to achieve success in its strategic planning.

Alternatives

Alternatives in this strategic planning of Lenovo included the suggestion of their chief engineer to manufacture high-quality PC boards. Innovation is crucial for this alternative because this market segment required new solutions. Although research and development suggested that new products may be revolutionary for the market, Lenovo chose a different approach (Shu 630). Arguably, the deciding was guided by the high risk connected to innovation and an understanding of the manufacturing and distribution approaches in both the domestic and foreign market. The alternative’s rationale included an assumption that a high-quality product that offers a novel solution to consumers would allow Lenovo to have a competitive advantage over its rivals.

Unarguably, in this scenario, the alternatives to the strategic decision of Lenovo were limited. The company had experience in manufacturing circuit boards and other components, as well as in trading and distribution. This allowed it to focus on developing products under its brand and selling them using previous knowledge. Thus, the primary question was what product should Lenovo focus on in its strategic planning. The choice to avoid the high-risk alternative described in this paragraph proves to be successful over the years.

Conclusion

Overall, the described case depicts Lenovo and the strategic challenges that the organisation faced upon its establishment and development. The issues that Lenovo encountered during its strategy formation are operations in the emerging economy, lack of experience in the for-profit market and the importance of governmental support in China. The company could either choose to develop high-end computer products or focus on market-oriented solutions by reducing costs. The strategic decision to select the second option helped Lenovo gain commercial success worldwide.

Works Cited

Ellet, William. The Case Study Handbook: How to Read, Discuss, and Write Persuasively about Cases. Harvard Business School Press, 2007.

Hsu, Sarah. “.” Forbes. 2018. Web.

Laczkowski, Kevin, et al. “.” McKinsey. Web.

Shu, Ei. “Emergent Strategy in an Entrepreneurial Firm: The Case of Lenovo in Its Formative Years.” International Journal of Emerging Markets, vol. 12, no. 5, pp. 625-636.

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