Cover Story
Reviving Lenovo
 With a new management team and revamped channel strategy, Amar Babu plans to revive Lenovo’s sagging fortunes
At a luxurious resort on the outskirts of Bengaluru, Amar Babu, the Managing Director of Lenovo India, is a bundle of energy as he drives home a point to a group of Lenovo sales people.
Just the previous day, at the same venue, he entertained about 50 of India’s smartest sub-distributors who have been roped in to play the role of regional distributors (RD) as the company sets out to implement a new India strategy.
Amar and his team are readying a new strategy that would revitalize the fortunes of Lenovo—not an easy job considering the plateful of woes the company has cooked for itself.
The Chinese PC maker has been battling rough weather for about five quarters now, globally as well as in India. Except in China, the company has been losing marketshare, globally. Rivals Dell and HP have taken a big lead, and Acer has leapfrogged past Lenovo.
“There have been challenges in the recent past, but we are clearing up and gearing up, and have started taking a series of small steps that could result in big changes for Lenovo,” asserts Babu.
Retail woes
The going has never been smooth for Lenovo since its entry into India in 2006 following its acquisition of IBM’s PC business. The biggest issue has been the instability at the top.
At the beginning of its India operation, Lenovo brought in the IBM’s PC team to run the business. However, most of the product and channel managers had no experience in the consumer space, considering that IBM didn’t have a presence in this segment. Almost all these managers found their way back to IBM once their contract period ended.
An outsourced channel engagement team at the grassroots level further complicated matters as there was lack of ownership and decision making. Also, the outsourced channel team suffered from high attrition rate which affected the company’s ability to build any strong channel relationships.
What further compounded Lenovo’s woes in the consumer market was the lack of an efficient backend rebate and claims mechanism. This resulted in disputed claims running into crores of rupees. One of the Lenovo’s leading sub-distributor in South confirms this: “We nearly ended our partnership with Lenovo because the management refused to honor several verbal commitments made by its own territory and account managers.”
Competitors allegedly conducted a low-profile smear campaign to malign Lenovo’s quality credentials stressing on its Chinese origin.
A consistent complaint of Lenovo retail partners has been the lack of profitability. Lenovo has around 150 Lenovo Exclusive Stores (LES), and also sells through about 250 multi-brand stores. While the vendor has invested considerably in its retail program, partners have found it difficult to be profitable, a fact that Lenovo is candid to admit.
Lenovo also lacked products at key price points, which proved a big negative at a time when competition was getting intense in the consumer PC market. While HP has continued its market leadership, Dell who entered the channel market only a year-and-half ago has already gone past Lenovo in market share. Acer who was struggling with single-digit market share at the time of Lenovo’s entry into India has also done well by unleashing an aggressive marketing campaign and positioning its products at very aggressive price points.
Challenges in Enterprise and SMB
Lenovo’s biggest strength in the enterprise and SMB segment has been the IBM legacy it inherited in form of the Think PC portfolio, large IBM customer accounts, and strong partner network.
Also initially the team it inherited from IBM had impeccable track record in the enterprise and mid-market space. But soon after this team left to join back IBM, the company’s relationship business (which handles the enterprise and commercial business) took a backseat.
This saw many IBM partners flirt with Dell and a few key ones moving over to HP. Also so far, Lenovo’s commercial PC business had been intrinsically linked with IBM’s solutions business. But with Lenovo’s top managers (erstwhile IBMers) joining back IBM, the bond between the two teams weakened which proved to be Lenovo’s loss more than IBM’s.
In the SMB space, beyond offering desktops, notebooks and workstations, Lenovo never really had a strategy for this fast-growing segment. Unlike an HP or Dell, the vendor had no comprehensive alliances or partnerships that could help it address key SMB verticals. While Lenovo introduced entry-level servers in late 2008 to boost its SMB connect, it is yet to take off.
All these factors resulted in loss of channel connect and confidence in both the retail and commercial segment. And not surprisingly, this has led to a decline in Lenovo’s market share in India, from the high of 8.4 percent in Q32007 to 5.2 percent in Q12009, as per Gartner research.
Cleaning the slate
But like a brave Chinese warrior, Lenovo is not giving up. Under the leadership of a channel veteran Amar Babu the company has embarked on a restructuring exercise, of course in keeping with the changes the company has initiated globally to improve its sagging fortunes.
The company has clearly identified consumer and SMB segments as its key focus and has brought in Alex Li, who was earlier Director, Consumer Desktop Worldwide, to restructure the transaction business of Lenovo India.
One of the mandates of the new team leader is to clean the slate and start afresh. “One of the biggest issues we’ve faced in the recent past was that involving disputed claims, but today we can confidently say that all past claims have been cleaned up, and there is probably no pending claim,” says Amar Babu. “Regaining the channel partner’s confidence is the most important item on our agenda.”
Lenovo is also trying to become a leaner machine. The outsourced channel sales team has been mostly disbanded, and there’s an attempt to cut down operation costs. The vendor has also relocated to smaller offices in some cities.
In addition, the company has dropped its celebrity brand ambassadors, Saif and Soha Ali Khan. “Our brand ambassadors did help us gain mindshare because Lenovo was an unknown entity for consumers in 2006. If our marketing team feels the need for celebrities to promote our portfolio tomorrow, we’ll re-look at the strategy,” says Babu.
Source of inspiration
Inspiration for the revamp is clearly coming from China. Apart from Li, two more executives from China have moved to India to help Amar Babu and his team. “India was always aligned to Lenovo’s international business processes and practices. However, we’ll now adapt to the various strategies and processes followed by the team in China,” explains Babu.
A major factor behind the decision is the market similarities between China and India. “India is where China was five years back in market size. The buying patterns here are more similar to China than Europe or America,” says Liu Xiaolin, VP, Transactional Model, Emerging Markets, Lenovo. “We want to implement in India some of the systems, practices and strategies that made us so successful in China.”
As a first step, Lenovo is planning to introduce products which have met with success in China and some other emerging market geographies. “We have not had an ideal product mix at all price brackets, and this has possibly hurt us,” admits Babu. “We will plug the gap with the right product range.” Another step being taken is to introduce aggressively priced ThinkCenters and ThinkPads in the commercial desktop and notebook segment. Besides, Lenovo has recently launched some peripherals (such as Air mouse and digital photo frames) specifically targeted at consumers.
In June Lenovo launched around nine consumer desktop, notebook and netbook models, and the plan is to launch around 50 consumer PC models during 2009. “Mind you, these 50 new products will not mean merely releasing existing products with a little tweaking of processor clock speeds or altering the configuration. Rather, you’ll see 50 PC products which are specifically designed for definite customer needs,” Babu declares.
Product innovation has been a key differentiator for Lenovo in the past. This was reflected in the newly launched A600, a frameless 21.5” all-in-one desktop that has an integrated Wii gaming system—a first among leading PC brands.
“We believe that we need to have more options for every price bracket, but especially at the entry level,” says Li. So while the pricing of its products is likely to become more aggressive, Amar Babu clarified that Lenovo will not attempt to gain marketshare by dropping prices. “In China we are the market leaders, but are premium priced over the competition. What we can promise is that we’ll offer the best value for money if you compare features, looks, service, support, manageability and other parameters vis-à-vis the competition.”
Even the services business is drawing inspiration from China. “Leveraging best practices from Lenovo China will be a key element in our strategy this year,” says Sudhir Puthran, Director, Service & Support, Lenovo India. “For starters, we will get access to a historic knowledge base of over 10,000 records of customer enquiries and troubleshooting in China.”
Transaction business
The biggest change that Lenovo is making is in its transaction business model. A new regional distribution strategy has been unveiled wherein the vendor has roped in around 50 sub-distributors who will carry the tag of Lenovo Regional Distributor. While the four national distributors (Ingram Micro, Redington, Neoteric and Iris Computers) will sell directly to the LES, the rest of the market will be catered to by the RDs. Many of the RDs are loyal Lenovo partners, but the vendor has also managed to entice some strong HP partners.
To give more space to the national distributors (NDs), only three NDs are assigned for every state. While on paper RDs are free to buy from any of the NDs, the vendor is known to be considering a model wherein an RD will align with just one or two NDs.
To ensure that there is parity, Lenovo will not support stores that sell to resellers. It will also follow a combination of a sell-in and sell-out model to pass on the rebates.
“We need to stress that we have cleaned up the slate on past claims. We request our partners to [henceforth] consider only those claims that are authorized by the finance team. No verbal commitments from anyone in the Lenovo team, even our MD, is valid for any claims,” says Li, adding, “We’ll opt for business process re-engineering to automate claims in future, and we aim to be the most transparent vendor in claims and rebates handling.”
While the RDs are to be given quarterly targets, the billing will happen on a weekly basis, and Lenovo will collect reports on stock positions on a daily basis. “Predictability is of paramount importance, and knowing the exact stock position at RDs will help us to plan better. This model will ensure that the RD can rotate inventory faster,” explains Li. After activating the RD strategy with a conference at Bengaluru, the vendor is planning around 500 road-shows for RDs within the year.
Reigniting retail
In China Lenovo has nearly 3,000 LES, so the new retail plans for India will also be influenced by the China experience. The first step is to ensure that the LES and multi-brand stores in India are profitable and stable. “We will leave no stone unturned to ensure that our retail stores are profitable,” asserts Li. “We will allow them to sell pretty much everything from the Think range to service packs, and will be spending judiciously to ensure that predictable footfalls happen.”
A revamp of its stores is on the cards. “We’ll also try to differentiate between the product line carried by the large format retailers and the specialty stores to ensure that competition between them is less,” adds Li.
SMB and enterprise market
Lenovo has revamped the distribution structure of its SMB product line and has opted for a regional distribution strategy. The vendor has signed Global Infotech for the south, Neoteric for the west, Elcom for the north, IDM for upcountry markets in North India, and Computek for the East. Between these five, the vendor will address 1,200 resellers.
“We are moving from a push strategy to a pull strategy. We are going to introduce a much wider portfolio of products for the SMB customer,” says L Ramprasad, VP, SMB Business, Lenovo.
The present focus is to push desktops, notebooks and workstations. In association with Intel and Microsoft, Lenovo conducted a sales training program called iLAMP (Intel, Lenovo & Microsoft Program) across six cities for about 600 partners.
Understandably, Lenovo does not have any specific ISV alliance program or vertical strategy in place. “We have started working with some key software partners such as Microsoft, PTC and Autodesk. Give us some time and we’ll create relationships that’ll help partners address SMB customers better,” Ramprasad adds.
According to Amar Babu, Lenovo had corrected most of its shortcomings in the relationship business two quarters back—and the results are showing. IBM’s partnership is still said to be the reason for the success.
It’s estimated that the relationship business accounts for nearly 60 percent of Lenovo’s India business. “More IT departments and small businesses are realizing that the annualized cost of a PC is far less in comparison with the annual total cost of ownership. ThinkVantage Technologies, our family of hardware-software solutions, addresses the latter, while ThinkPad and ThinkCenter products continue to gain momentum,” says Jaivinder Singh Gill, Executive Director, Commercial Business, Lenovo India. “Our ThinkStation (workstation) business has been growing, and we have had several wins. We are trying to add more partners to handle the relationship business.”
On the services front there are plans to increase the number of warehouses to ensure that spares reach service partners within a single business day. Adding new service locations in C- and D-class cities is also on the anvil.
While an RD says that the plan is to aim for 20 percent growth quarter on quarter, Lenovo officials refused to comment on this. Amar Babu believes that if strategies and efforts are in the right direction, the numbers will happen.
It is estimated that Lenovo used to engage with around 1,800 channel partners in the previous business model. That figure could climb substantially as the company continues the process of reinventing itself. |