lenovo's development and sun tzu’s art of war

To order this case, please contact Centennial College, c/o Case Research Centre, Centennial College, Wah Lam Path, Pokfulam, Hong Kong; website: http://cases.centennialcollege.hku.hk. © 2017 by Centennial College, an Independent College Established by HKU. No part of this copyrighted publication may be reproduced or transmitted, in whole or part, in any form or by any means, whether electronic, mechanical, photocopying, recording, web-based or otherwise, without the prior permission of Centennial College. This case was prepared for class discussion purposes and is not intended to demonstrate how business decisions or other processes are to be handled. Ref. 17/003

LO W H AILIE K Y TANG CHAN WING WAH

LENOVO'S DEVELOPMENT AND SUN TZU’S ART OF WAR

“To succeed like Lenovo, companies must “love to battle, know how to battle, and conduct campaigns with order” ” Liu Chuanzhi (“Liu”), founder and Honorary Chairman of Lenovo Group Limited once said during a press interview.1 Not only did Liu’s choice of words reminded people of Sun Tzu’s Art of War—the highly regarded oriental book on military strategy written by the famous Chinese General Sun Tzu more than two thousand years ago,2 writers on Sun Tzu’s military treatise and commentators on the oriental markets and practices had compared Liu’s leadership style to those of Sun Tzu’s accomplished generals.3 Some considered the acquisition of IBM’s personal computer business, the stepping stone that allowed Lenovo to become an international brand and business, was consistent with a major principle on how to win battles and wars that was preached by Sun Tzu: “… to take intact a battalion, a company or a five-man squad is better than to destroy them”.4

To what extent had Sun Tzu’s Art of War helped to shape Lenovo’s past? As the world’s largest PC maker entered the smart Internet era (see section on this topic), it said in a statement at the beginning of 2017 that “Lenovo faced sizeable challenges in its three main lines of business, namely data centre, mobile devices, and PCs and smart devices”.5 Would this Chinese leading technology hardware company find its way to success through the strategic principles and tactics of Sun Tzu’s Art of War?

1 Fletcher, O. (14 September, 2009) “Lenovo Founder Shares Slogans, Tells Tales of 1980s China”, PC World, http://www.pcworld.com/article/171917/article.html (accessed 12 May 2017). 2 Sun Tzu (5th Century, B.C.) The Art of War (孫子, 孫子兵法). 3 McNeilly, M. R. (2012) Sun Tzu and the Art of Business, Oxford University Press: New York; Wang, J. (2008) Brand New China, Advertising, Media and Commercial Culture, Harvard University Press, Cambridge: Massachusetts. 4 Griffith, S. B. (2005) The Illustrated Art of War, Oxford University Press, Oxford. This quote is from Verse 20, Chapter 10. 5 Lenovo Newsroom (16 February 2017) “Lenovo’s Third Quarter FY 2016/17 Results Led by Growth in PC Business”, Lenovo, http://news.lenovo.com/news-releases/lenovos-third-quarter-fy-201617-results-led-by-growth-in-pc-business.htm (accessed 12 May 2017).

http://cases.centennialcollege.hku.hk/

LENOVO'S DEVELOPMENT AND SUN TZU'S ART OF WAR (Ref 17/003)

Sun Tzu's Art of War

Sun Tzu’s Art of War (孫子兵法) was written by a Chinese general called Sun Tzu (孫子) over 2,500 years ago at around the 6th Century BC. As the name suggested, the book offered advisements on military deployments. For centuries, the principles, strategies, and tactics preached by Sun Tzu were observed to be practiced not only by army generals and soldiers all over the world,6 but also by business executives and managers. The original Sun Tzu’s Art of War was written in Classical Chinese and had numerous translated versions in different languages such as, English, Japanese, German, French, and Russian.7 There were 13 chapters, each focused on a specific area as suggested by the chapter title:8 (1) Estimates (始計):9 explained there were five factors that influenced competitive situations, including mission, climate, ground, command, and methods. It explored how one should compare and contrast one’s strengths versus those of enemies; and it stressed the importance of information and the deployment of information for planning, which was the most vital fundamental for winning wars. The chapter further distinguished the difference between objective and subjective information. (2) Waging War (作戰): Sun Tzu’s preaching of “Winning without Conflict” was the key concept here — beating competitors by going to war was expensive and destructive. (3) Offensive Strategy (謀攻): Sun Tzu’s concept of “attack” did not necessarily meant conflicts or battles, the emphasis was on reducing destruction. The “aim must be to take All-under-Heaven intact.”10 (4) Dispositions (軍形): while it was important to strengthen oneself, opportunities for advancements arose when opponents became vulnerable, which was caused by shifts in the environment. It was therefore vital for one to learn to recognise these opportunities. (5) Energy (兵勢): Sun Tzu said “Apparent confusion is the result of good order; apparent cowardice, of courage; apparent weakness, of strength” (Chapter 5, Verse 18). There were no fixed rules and skilled commanders knew how to build up momentum to attack and recognized where and when attacks should be made according to circumstances. In other words, “a skilled commander seeks victory from the situation and does not demand it of his subordinates” (Chapter 5, Verse 21). (6) Weaknesses and Strengths (虛實 ): Sun Tzu said consuming enemies’ energy and resources gave advantages, so a skilled commander made enemies move and came to the battlefield, where his troops awaited. He shaped attacks and defence according to the opponent’s strengths and weaknesses. The chapter gave examples of how attacks and defence

6 Sun Tzu (Author) Sawyer, R. D. (Translator) (1994) The Art of War (History and Warfare), Oxford: Westview Press 7 West-meet-east.com (n.d.) “Education: Sun Tzu”, http://www.west-meet-east.com/edusuntsu.htm (accessed 16 July 2017). 8 Different versions of English translation of The Art of War translated the chapter titles differently. The list was according to Griffith, S. B. (1963) Sun Tzu The Art of War, Oxford: Oxford University Press, https://web.stanford.edu/class/polisci211z/1.1/Sun%20Tzu.pdf (accessed 16 July 2017). 9 It was worth noting that this chapter title had the most variations in English translation apart from “Estimates”, such as “Laying Plans” in Giles, L. (1910) “The Art of War by Sun Tzu, translated by Lionel Giles”, Puppet Press, http://www.puppetpress.com/classics/ArtofWarbySunTzu.pdf (accessed 16 July 2017), and “Initial Estimation” in Sawyer, R. D. (1993) The Seven Military Classics of Ancient China, New York: Basic Books, https://archive.org/stream/SevenMilitaryClassicsOfAncientChina2/Seven%20Military%20Classics%20of%20Ancient%20China%201#page/n79/mode/2up (accessed 16 July 2017). 10 Griffith, S. B. (1963) Sun Tzu The Art of War, Oxford: Oxford University Press, https://web.stanford.edu/class/polisci211z/1.1/Sun%20Tzu.pdf (accessed 16 July 2017). The quote was from chapter 3, verse 11. Unless otherwise stated, all quotes of Sun Tzu’s The Art of War in this case study was from this version.


should be made according to an opponent’s situations. And it was important to know his opponents plan while concealing his own. (7) Manoeuvre (軍爭): Here Sun Tzu discussed the difficulties, the importance, and the art of manoeuvring. He offered tactics of how to manoeuvre enemies and discussed the factors of the enemies that a skilled leader could consider manoeuvring, including the enemy’s morale, the mental state, the physical state and taking control of the changing circumstances. (8) The Nine Variables (九變): There were nine variables in war to observe and five character-traits of general that were dangerous. The nine variables were “You should not encamp in low-lying ground. In communicating ground, unite with your allies. You should not linger in desolate ground. In enclosed ground, resourcefulness is required. In death ground, fight. There are some roads not to follow; some troops not to strike; some cities not to assault; and some ground which should not be contested.” (Chapter 8, Verses 2-7) The five undesirable traits of generals were “reckless”, “cowardly”, “quick-tempered”, “too delicate a sense of honour”, and “a compassionate nature”. (9) Marches (行軍): The chapter gave an elaborate discussion on the numerous situations and rules that generals needed to beware of when their armies were on the march. For example,, “Fight downhill; do not ascend to attack” and “Cross salt marshes speedily.” (Chapter 9, Verses 2 & 8) Here, Sun Tzu emphasized two points, the importance of knowing the enemies’ situations and ensuring the obedience of one’s troops. (10) Terrain (地形): Six types of “grounds” — accessible, entrapping, indecisive, constricted, precipitous, and distant — and the principles, advantages, and disadvantages when fighting on each type of ground were discussed. (11) The Nine Varieties of Ground (九地): Sun Tzu discussed the nine situations when deploying troops in combat with enemies: dispersive, frontier, key, communicating, focal, serious, difficult, encircled, and death. For each situation, Sun Tzu emphasized that there was only one appropriate response. (12) Attack by Fire (火攻): The five methods and the appropriate actions and moves to deploy fire to defeat an enemy are discussed. Sun Tzu warned against the engagement of fire attacks under the influence of emotions: “A sovereign cannot raise an army because he is enraged, nor can a general fight because he is resentful… a state that has perished cannot be restored, nor can the dead be brought back to life” (Chapter 12, Verse 18). (13) Employment of Secret Agents (用間): this was a chapter on information gathering and its values and importance. Sun Tzu emphasized only foreknowledge could bring success. He pointed out that there were five types of secret agents, native, inside, double, expendable and living; and he discussed ways to manage each. By putting this topic as the last of the thirteen discussed, Sun Tzu made it clear that foreknowledge was essential and he was crystal clear about this point by stating that information was the key that “the army relies to make its every move” (Chapter 13, Verse 23).


LENOVO — Winning Without Fighting

For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.

- Sun Tzu Art of War Chapter 3, Verse 3 Lenovo Group Limited (“Lenovo”) was a US$43 billion turnover company with 60,000 employees. It was headquartered in Hong Kong with operations in four geographical segments of China, Asia Pacific, Europe-Middle East-Africa, and the Americas.11 In 2017, it was ranked number 690 as the world’s largest public company,12 and listed on the Hong Kong Stock Exchange since 1994. It was the world’s number one personal computer supplier in 2016, holding this position since 2013. 13 It also developed, manufactured, and marketed technology products including smartphones and tablets, servers and data storage devices, and smart TVs. (See Exhibit 1 for the Financial Summary of Lenovo 2014-2017). Originally named Legend and “founded in a dusty, two-room Beijing guardhouse in 1984”,14 Lenovo had successfully transited to become a well-known international company. Legend started off as a sales and distribution representative for foreign PC brands in China. It’s first attack on the Chinese PC market was in 1996 when it dropped the price of its PC by 30% and at the same time introduced the first domestically manufactured WinTel-platinum-processor PC to the market. This attack was made based on the company’s assessment of the rising market potential in China as well as its knowledge of where to source locally produced standard PC component parts in China. The attack successful positioned the company as China’s top PC manufacturer.

Acquiring IBM's PC Business to Leap-frog To capture the enemy’s army is better than to destroy it; to take intact a battalion, a company or a five-man squad is better than to destroy them.

- Sun Tzu Art of War, Chapter 3, Verse 2 After solidifying its position in the domestic market, Lenovo started to target the overseas. In 2004, it renamed itself Lenovo.15 The same year, it acquired IBM’s US$200-million-deficit PC business with US$1.25 billion.16 This acquisition enabled Lenovo leap-frogged to become

11 Forbes (2017) “The World’s Biggest Public Companies”, The Forbes, https://www.forbes.com/companies/lenovo-group/ (accessed 16 July 2017). 12 Ibid. 13 Newsroom (11 January 2017) “Gartner Says 2016 Marked Fifth Consecutive Year of Worldwide PC Shipment Decline”, Gartner, https://www.gartner.com/newsroom/id/3568420 (accessed 16 July 2017); Newsroom (12 January 2016) “Gartner Says Worldwide PC Shipments Declined 8.3 Percent in Fourth Quarter of 2015”, Gartner, http://www.gartner.com/newsroom/id/3185224 (accessed 16 July 2017); Newsroom (12 January 2015) “Gartner Says Worldwide PC Shipments Grew 1 percent in Fourth Quarter of 2014”, Gartner, http://www.gartner.com/newsroom/id/2960125 (accessed 16 July 2017); Newsroom (9 January 2014) “Gartner Says Worldwide PC Shipments Declined 6.9 Percent in Fourth Quarter of 2013”, Gartner, http://www.gartner.com/newsroom/id/2647517 (accessed 16 July 2017). 14 Nylander, J. (20 March 2016) “How Lenovo Became the Largest PC Maker in The World”, Forbes, https://www.forbes.com/sites/jnylander/2016/03/20/how-lenovo-became-the-largest-pc-maker-in-the-world/#7b9e516e388b (accessed 16 July 2017). 15 Ying, F. (2006) “The Globalisation of Chinese Brands,” Market Intelligence & Planning, 24 (4), pp. 365-379. According to Lenovo’s website, the word “Lenovo” was formed by taking the “Le” from “Legend” and combining it with the Latin word “novo,” which meant “new.” Lenovo (2013) “Shares Information” http://www.lenovo.com/ww/lenovo/shares_info.html (accessed 16 July 2017). 16 Ying, F. (2006) “The Globalisation of Chinese Brands,” Market Intelligence & Planning, 24 (4), pp. 365-379. In a presentation made in 2007, Liu disclosed that the final price of the acquisition was only concluded after a year-long negotiation. The final arrangement introduced four new shareholders to Lenovo: IBM, holding 13.4% of the shares, and three private institutional investors, including Texas Pacific Group, General Atlantic LLC, and Newbridge Capital LLC. In return for a 10.2% stake in Lenovo, these institutional investors brought not only US$350 million in capital to Lenovo, but also crucial expertise and networks in M&A to the company’s board. Liu, C. Z. (2007) “Lenovo: An Example of Globalization of Chinese Enterprises,” Journal of International Business Studies, 38 (4), pp. 573-577.


an international PC manufacturer with twelve million units of annual PC outputs and a combined revenue of US$12 billion.17

One defends when his strength is inadequate; he attacks when it is abundant. - Sun Tzu Art of War, Chapter 4, Verse 6

One of the first few important steps taken by Lenovo’s leader after the acquisition was to make sense of the risks that had arisen after merging Lenovo with IBM’s PC business. The company spent a few years focusing on mitigating the risks identified: the loss of customers, the loss of IBM talents acquired, and the business and cultural risks in integrating the companies. 18 After successfully containing and resolving these risks, the company implemented a “protect and attack” strategy, which meant “reinforcing its business in established markets while going after potential new markets”.19 As a result, Lenovo enjoyed good solid growth: its turnover increased to around US$30 billion; most importantly, from a loss of -US$188 million in 2009, its profits grew to US$582 million in 2012.20 This enabled Lenovo to become the fastest growing company in the PC industry between 2009 and 2011.21

Joint Ventures and Other Acquisition to Become World's Number One When a state is enclosed by three other states its territory is focal. He who first gets control of it will gain the support of All-under Heaven. (The belligerent who holds this dominating position can constraints most of them to become his allies.) 22 In focal ground, I would strengthen my alliances.

- Sun Tzu Art of War Chapter 11, Verses 6 and 19 After establishing its leading position in the PC market, Lenovo made several moves in 2011 with a view to better penetrate mature markets and to strengthen its leading PC maker position: (1) It established a joint venture with NEC to create the largest PC company in the Japanese

market.23 (2) It formed another joint venture with Compal, a leading original design manufacturer of

PC in Taiwan, to set up a manufacturing facility in China.24 (3) It acquired Germany’s PC leader Medion, which saw Lenovo double its “market share to

more than 14 percent of the PC market in Germany… and … a share of about 7.5 percent in the western European PC market”.25

17 Zhang, H. (2012) “The Financial Globalization of Lenovo,” INSEAD, http://www.insead.edu/facultyresearch/faculty/documents/5867.pdf (accessed 16 July 2017). 18 Liu, C. Z. (2007) “Lenovo: An Example of Globalization of Chinese Enterprises,” Journal of International Business Studies, 38 (4), pp. 573-577; Zhou, S., Ren, B. and Li, S. (2010) “Lenovo,” in I. Alon and W. X. Zhang (eds.) A Guide to the Top 100 Companies in China, World Scientific Publishing: Hackensack, N.J. 19Lenovo (August 17, 2012) “Lenovo Reports First Quarter 2012/13 Results,” http://www.lenovo.com/ww/lenovo/pdf/Lenovo-press-release-Q1-Apr-Jun-2012-eng-final.pdf (accessed 16 July 2017). 20 Yang, Y. Q. (May 23, 2012) “2011-12 Annual Results Presentation,” Lenovo, http://www.lenovo.com/ww/lenovo/pdf/Lenovo_Q4_FY12_PPT_Eng_FINAL_v1_Combined.pdf (accessed 16 July 2017). 21 Salter, C. (22 November 2011) “Protect and Attack: Lenovo’s New Strategy”, Fast Company, https://www.fastcompany.com/1793529/protect-and-attack-lenovos-new-strategy (accessed 16 July 2017). 22 The notes of Lionel Giles who translated Sun Tzu’s The Art of War in 2010 offered this explanation. Giles, L. (1910) “The Art of War by Sun Tzu, translated by Lionel Giles”, Puppet Press, http://www.puppetpress.com/classics/ArtofWarbySunTzu.pdf (accessed 16 July 2017). 23 Newsroom (27 January 2011) “Lenovo and NEC form Joint Venture to Create Japan’s Largest PC Group”, Lenovo, http://news.lenovo.com/news-releases/lenovo-and-nec-form-joint-venture-to-create-japans-largest-pc-group-1.htm (accessed 16 July 2017). 24 Hille, K. and Kwong, R. (27 September 2011) “Lenovo in $300m Joint Venture in China”, Financial Times, https://www.ft.com/content/269aad14-e8f3-11e0-ac9c-00144feab49a?mhq5j=e3 (accessed 16 July 2017). 25 Lee, C.Y. and Soh, K. (1 Jun 2011) “Lenovo Buys German Computer Seller Medion for $900 million”, Reuters, http://www.reuters.com/article/us-lenovo-idUSTRE75010Y20110601 (accessed 16 July 2017).


These actions paved way for the company to become the world’s largest PC maker since 2013. (See Exhibit 2 for Worldwide PC Shipment 4Q16 Vs 4Q15.)

Protect and Attack into New Territories Attack is the secret of defense; defense is the planning of an attack.

- Chang Yu, ancient commentator on Sun Tzu’s Art of War26 The company deployed a “protect and attack” strategy in order to protect areas where it enjoyed good results, the Chinese market and the large enterprise business, and to attack markets with opportunities. After securing the PC leadership position, Lenovo started adding a new element, mobiles and smartphones, to the “attack” space. Its first smartphone was launched in 2010 and by 2012, Lenovo became China’s second smartphone brand in China after Samsung. After that, it focused its efforts in capturing emerging markets including “India, Indonesia, Russia, and across the Middle East”. 27 However, Lenovo’s smartphone sales trailed behind major smartphone brands in international markets, especially in the more well-structured mature markets of Europe, the United States, and Japan. As a major attempt to turnaround the situation, the company paid US$2.9 billion to acquire Motorola Mobility from Google in 2014.28

Difficult Ground When the army traverses … any place where the going is hard, it is in difficult ground. In difficult ground, I would press on over the roads.

- Sun Tzu Art of War Chapter 11, Verses 8 and 21 It was no doubt that the Lenovo’s smartphone business was traversing on the difficult ground of the global market. When the company acquired Motorola, it had stated clearly that it aspired to “building a strong number three and a credible challenger to the top two in smartphones”.29 The company was quick to realise it was an unrealistic objective. By May 2016, the company admitted that “Integration efforts did not meet expectations,” and the company ran into difficulties integrating Motorola with its Lenovo-branded portfolio. 30 Instead of making top three, in 2016 and in the first quarter of 2017, Lenovo’s smartphone business dropped out of the radar in the global smartphone market, not even making the top five.31 (See Exhibit 3 for Worldwide Smartphone Vendor Market Share 1Q 2016-1Q 2017.) To tried and turn things around, the company in 2016 implemented two different mobile strategies, one for the China market, and the other for the rest of the world. For the Chinese market, Lenovo focused on affordable product mix in order “to rebuild its end-to-end competitiveness”. For the rest of the world, the focus was on emerging markets, while attempting to “get the US business back on track with a competitive product portfolio”.32 26 Many sources misquoted this as being from Sun Tzu’s The Art of War, but in fact, it was Chang Yu who offered this as an elaboration on the ideas behind Verse 18 in Chapter 3 of the book. Giles, L. (1910) “The Art of War by Sun Tzu, translated by Lionel Giles”, Puppet Press, http://www.puppetpress.com/classics/ArtofWarbySunTzu.pdf (accessed 16 July 2017). 27 Lenovo (3 June 2016) “Annual Report 2015-16”, Lenovo Group Limited, http://static.lenovo.com/ww/lenovo/pdf/report/E_099220160603a.pdf (accessed 16 July 2017). The quote was from p.9. 28 Bloomberg News (5 February 2014) “Lenovo Punished by Downgrades over Motorola Mobility Acquisition Deal”, South China Morning Post, http://www.scmp.com/business/companies/article/1420964/lenovo-punished-downgrades-over-motorola-mobility-acquisition (accessed 16 July 2017). 29 Newsroom (30 October 2014) “Lenovo Completes Acquisition of Motorola Mobility from Google”, http://news.lenovo.com/news-releases/lenovo-completes-acquisition-motorola-mobility-from-google.htm (accessed 16 July 2017). 30 Savov, V. (26 May 2016) “Lenovo: Motorola Acquisition ‘Did Not Meet Expectations’”, The Verge, https://www.theverge.com/2016/5/26/11782808/lenovo-motorola-acquisition-did-not-meet-expectations (accessed 16 July 2017). 31 IDC (n.d.) “Smartphone Vendor Market Share 2017 Q1”, http://www.idc.com/promo/smartphone-market-share/vendor

(accessed 16 July 2017). 32 Savov, V. (26 May 2016) “Lenovo: Motorola Acquisition ‘Did Not Meet Expectations’”, The Verge, https://www.theverge.com/2016/5/26/11782808/lenovo-motorola-acquisition-did-not-meet-expectations (accessed 16 July 2017).


While the company was gaining traction in emerging markets as well as the more mature Western European market, its mobile sales in China was disappointing for the year 2016-17.33 The company’s market share in the global smartphone market shrunk to 3.5 percent with a decline of 22 percent year-on-year in terms of smartphone shipments worldwide.34

When … his (the general) instructions and guidance are not enlightened, when there are no consistent rules to guide the officers and men and when the formation are slovenly the army is in disorder.

- Sun Tzu Art of War Chapter 10, Verse 14

Looking ahead, there were worrying signs for the group’s mobile business. For example, incoherence were observed among the senior managers on the branding strategy. The group’s Chairman and CEO Yang Yuanqing (“Yang”) stated in his annual report statement published June 2017 that “In our Mobile Business Group, we have simplified our offering to a single, smarter global product portfolio that optimises costs and unifies the portfolio under one Moto brand”.35 Yet, in the same month and on a different occasion, the group’s Chief Marketing Officer said the “Lenovo Moto brand won’t be a major focus of Motorola Mobility going forward” and “We are all in and fully focused on – Motorola”.36

The Three Wave Strategy — Striving to Gain Ground in the Smart Internet Era

In the respect to the employment of troops, ground may be classified as dispersive, frontier, key, communicating, focal, serious, difficult, encircled, and death. The doctrine of war is to follow the enemy situation in order to decide on battle.

- Sun Tzu Art of War, Chapter 11, Verses 1 & 60

Smart Internet Era In a technology forum in Beijing March 2017, Yang defined the new ground on which Lenovo would wage wars and fight battles. He declared that “the future is a smart Internet era”, 37 which was made possible “with the development of the Internet of things, cloud computing, big data, and artificial intelligence”.38 He described in this smart Internet era, all things would be connected, information would be captured autonomously with sophisticated analysis performed and more accurate judgement made, thus enabling the provision of more extensive services. Devices connected through this smart Internet era would grow beyond PCs and extend beyond smartphones. Even cars and electronic appliances would become intelligent terminals with computing, data storage, and networking ability. Yang understood that Lenovo was widely regarded as a device company. Thus there was high risk for the company to be thwarted because “device(s) itself would no longer be enough in

33 Lenovo (5 June 2017) “Annual Report 2016-17”, Lenovo Group Limited, http://static.lenovo.com/ww/lenovo/pdf/report/E_099220170605a.pdf (accessed 16 July 2017). 34 Ibid. 35 Ibid. 36 Bosnjak, D. (4 June 2017) “The ‘Lenovo Moto’ Brand Is No More, Motorola CMO Suggests”, Android Headlines, https://www.androidheadlines.com/2017/06/the-lenovo-moto-brand-is-no-more-motorola-cmo-suggests.html (accessed 16 July 2017). 37 Digest China (20 March 2017) “Yang Yuanqing: the Future is A smart Internet Era Manufacturing Will Be Upgraded To”, http://www.digestchina.com/posts/Yang-Yuanqing-the-future-is-a-smart-Internet-era-manufacturing-will-be-upgraded-to-20170320-45775 (accessed 16 July 2017). 38 Best China News (18 March 2017) “Yang Yuanqing: We Are Entering the Era of Smart Internet”, http://www.bestchinanews.com/Science-Technology/8834.html (accessed 16 July 2017).


the smart internet era”.39 Lenovo would need to be capable of seamlessly connecting devices it developed to the cloud to provide the solutions to its customers anywhere anytime they desire. He therefore declared that “innovative devices + cloud connectivity … is where Lenovo will attack and grow… a … ‘Device + Cloud’ model … is where Lenovo will attack and grow. Devices will become entry points…”40

The Three Wave Strategy In mid-2017, Yang mapped out in the group’s annual report how Lenovo should attack and gain grounds in the smart Internet era. Yang called this grand plan the “three wave strategy”. The three waves were: 1. to maintain PC leadership and profitability, 2. build mobile business and data centre business into new growth and profit engines, and 3. invest in new devices and device + cloud service.41 In essence, Lenovo would take advantage of the strong cash cow of its PC business, which had achieved industry-leading profitability, to pursue growth and expansion in the mobile and data centre businesses. Success in so doing would mean Lenovo could occupy key grounds and in an advantageous position to roll out wave three. The robust cloud infrastructure and the smart devices so developed under wave two would enable Lenovo to develop and provide smart devices seamlessly embedded with applications and service, allowing the company to “make life easier and better, and work more productive and efficient” for its clients and customers.42

Data Centre Business As stated, Lenovo was striving to make traction in both the mobile and data centre businesses because these two industries were key grounds for its wave three. Unlike the mobile business which was difficult ground to traverse, Lenovo’s data centre business was facing a slightly better scenario. In 2014, Lenovo acquired another division of IBM — the x86 server division — with US$2.3 billion.43 With a long history of co-operating with IBM and the fact that it had loads of experience in developing, manufacturing, and marketing technology products to business customers, Lenovo had an easier time in integrating and restructuring the server business into the Lenovo portfolio. The companies’ well-established and strong channels in selling PCs in all major markets also allowed the company to organize its sales channels to sell its servers and data centre services. Having said that, Lenovo’s data centre business was still in the red. For the year 2016-17, the group recorded an operation loss of US$343 million, 44 albeit making top five of the global market share (see Exhibit 4 for top five vendors of server systems).45 However, the negative performance of the data centre business might be the result of an inherited problem as the acquired IBM server business was a deficit one.

39 Lenovo (3 June 2016) “Annual Report 2015-16”, Lenovo Group Limited, http://static.lenovo.com/ww/lenovo/pdf/report/E_099220160603a.pdf (accessed 16 July 2017). The quote was from p.11. 40 Ibid. 41 Lenovo (5 June 2017) “Annual Report 2016-17”, Lenovo Group Limited, http://static.lenovo.com/ww/lenovo/pdf/report/E_099220170605a.pdf (accessed 16 July 2017). 42 Ibid, the quote was from p. 11. 43 Chanthadavong, A. (29 September 2014) “Lenovo Finalises Acquisition of IBM's x86 Server Business”, ZDNet, http://www.zdnet.com/article/lenovo-finalises-acquisition-of-ibms-x86-server-business/ (accessed 16 July 2017). 44 Lenovo (5 June 2017) “Annual Report 2016-17”, Lenovo Group Limited, http://static.lenovo.com/ww/lenovo/pdf/report/E_099220170605a.pdf (accessed 16 July 2017). 45 IDC (6 June 2017) “Worldwide Server Market Revenue Declines 4.6% in the First Quarter as the Market Prepares for a Major Refresh, According to IDC” https://www.idc.com/getdoc.jsp?containerId=prUS42707717 (accessed 16 July 2017).


In focal ground, ally with neighbouring states - Sun Tzu Art of War Chapter 11, Verse 13

Lenovo was pursuing a partner-centric strategy for its data centre business. It had established partnership with industry leaders such as “SAP, Microsoft, Nutanix, Nexenta, Juniper, and others to create new solution stacks and to partner on go-to-market efforts”.46 This approach allowed Lenovo to focus its efforts on what it used to do well while riding on partners’ capabilities to target the five high growth market segments that the company had identified.47 Though it was still an early call to see if Lenovo was going to be successful in its data centre business, yet, there were positive signs that its new product line under the ThinkAgile brand,48 were having positive momentum in the market.

The Future — Leadership Instability Rumoured

Now the general is the protector of the state. If this protection is all-embracing, the state will surely be strong; if defective, the state will certainly be weak.

- Sun Tzu Art of War, Chapter 3, Verse 18 Lenovo’s legacy owed a lot to two people, its founder Liu and its current Chairman and CEO, Yang. It was under Liu’s shrewd leadership that had enabled Legend, the small private venture established in the 1980’s when China started to experiment with private ventures, to transform itself to become an international company. It was worth noting that Liu was well known not only for his shrewdness, but also for his care of his people. 49 His leadership was regarded as an illustrative example of the character-based leaders preached by Sun Tzu.50 Yang was the man behind the decade-long success of Lenovo. He was a well-respected business leader on the international business stage. His distinguished leadership of Lenovo had earned him numerous accolades including “Business Leader of the Year” by Fortune China (2007), “Businessman of the Year” by Forbes Asia (2008), “Best CEO in China” by Finance Asia (2011), CCTV “Annual Economic Figure” (2004 and 2012), one of the “World’s 30 best CEOs” by Barron’s magazine (2013) and Edison Achievement Award Honoree (2014).51 In 2017, Yang in his statement to shareholders and stakeholders said “We … recognize that we need to do things differently. The entire company has embraced and is aligned to a common idea that ‘Different is Better’.” It might be ironic for Yang to emphasize different was better. Rumour had it that Lenovo might be having a top job reshuffling due to the

46 Longaria, G. (12 January 2017) “Can Lenovo Gain More Traction In The Enterprise Datacenter?” Forbes, https://www.forbes.com/sites/moorinsights/2017/01/12/can-lenovo-gain-traction-in-the-enterprise-datacenter/#488c58b4ecd3 (accessed 16 July 2017). 47 In Lenovo’s annual report 2016-17, it wrote: “In our Data Center Business, we have restructured our business around five of the fastest growing market segments: Hyperscale Infrastructure; Software Defined Data Center; High Performance Computing and Artificial Intelligence; Solutions-based Data Center Infrastructure, and Services.” 48 Lenovo’s data centre and server businesses had two product umbrella brand: ThinkSystem and ThinkAgile. The former was an extension of the legacy Intel-based solutions inherited from the IBM x86 acquisition. The later was a newly developed converged system by partnering with Nimble Storage. 49 Mark R. McNeilly, an associate who had worked closely with Liu, wrote in his book: “Liu also took care of his people. At this time in China, as it was growing so fast, it was difficult for people to find apartments. This was especially hard for younger employees, who wanted not only to be on their own but also to marry and live together (young employees were sought after due to their drive and the fact that they had not worked or been trained in the old state economy). So Liu built apartments for them to live in. Meat was also scarce during this period, so Liu started a farm to raise pigs to feed employees. When his company started an office in Hong Kong and the people there found the clothes his employees wore old-fashioned, Liu gave them an extra allowance to buy clothes to fit in.” McNeilly, M. R. (2012) Sun Tzu and the Art of Business (Revised Edition), New York: Oxford University Press. This paragraph was extracted from p.166. 50 Ibid. 51 Edison Awards (n.d.) “2014 Edison Achievement Award Honoree”, http://www.edisonawards.com/achievementaward/eaa-yangyuanqing.php (accessed 16 July 2017).


unsettling fact that Yang had not been able to turnaround Lenovo’s sinking mobile business. The fluctuating profit-deficit performance in recent years also were fuelling the speculation.52 The pressure was on Yang and in order to avoid letting the rumours came true, it was of vital importance that Yang and his troops would be able to turnaround the mobile business and to fly the data centre business. What insights could Yang draw from Sun Tzu’s Art of War when Yang waged wars and led his troops into the different battlegrounds of the two industries?

52 Young, D. (6 June 2017) “Lenovo Eyeing CEO Change?” Seeking Alpha, https://seekingalpha.com/article/4079332-lenovo-eyeing-ceo-change (accessed 16 July 2017); Brown, M. (9 December 2015) “Lenovo Founder Losing Confidence in CEO Yang Yuanqing”, CRN, http://www.crn.com/news/data-center/300079086/lenovo-founder-losing-confidence-in-ceo-yang-yuanqing.htm?itc=refresh (accessed 16 July 2017).


Teaching Objectives

This business case is mainly written for postgraduate class discussion, especially for students with business and management experience. It provides a context for them to critically evaluate, consolidate, and extend the principles, rules, strategies and tactics discussed and illustrated in the highly regarded Sun Tzu’s Art of War. They are expected to extend their knowledge, experiences and thinking in applying this seminal military treatise to deal with the complex issues faced by Lenovo and its CEO. The core objectives of this case are: 1. To introduce Sun Tzu’s Art of War to postgraduate students, if they have not already

familiarized themselves with the masterpiece. 2. To enable postgraduates to internalize the principles and strategies preached in Sun

Tzu’s Art of War. For students with business and management experience, the case provides a context for them to conjoin their experience with the strategies and tactics. For students planning to join the “battlefield” after their graduation, they should synthesize learnt management theories with Sun Tzu’s teachings.

3. To critically evaluate, from a business perspective, how Sun Tzu’s Art of War can be applied to enable Lenovo to win battles in the marketplaces of the Internet era.

4. To apply Sun Tzu’s Art of War to help top executives in managing oneself so as to be able to consistently make better and winning decisions.

Suggested Questions

1. Critically evaluate any one chapter of Sun Tzu’s Art of War, and their implications to “strategic thinking in management”.

2. Pick an area (such as an operation, a function, or market of Lenovo), discuss how insights gained through Sun Tzu’s Art of War may be used to formulate recommendations for Lenovo to develop competitive advantage in the long-run.

3. “Sun Tzu’s Art of War is about managing oneself in order to secure victories”.53 Critically discuss how relevant this statement is to senior executives, and with special reference to Lenovo’s CEO.

4. Assume the role of one of the following of the PC, Mobile or the Data Centre Business:

a) The Sales Director b) The Marketing Director c) The Product Development Director d) The Finance Director who looks after the funding needs and reporting needs of

either business e) The Human Resources Director Write a pitch to the CEO of Lenovo on the next twelve months’ priority areas under your functional directive. Formulate such in accordance to the teachings of Sun Tzu, and state why.

53 Khoo, K. H. (1997) Sun Tzu: The Keeper of CEO’s Conscience, Selangor Darul Ehsan: Pelanduk Pubications.


EXHIBIT 1: FINANCIAL SUMMARY OF LENOVO GROUP LIMITED 2014-2017

Sources: Investors Relations (n.d.) “Financial Information — Financial Metrics” http://static.lenovo.com/ww/lenovo/financial_information.html (15 August 2017).

http://static.lenovo.com/ww/lenovo/financial_information.html


EXHIBIT 2: WORLDWIDE PC VENDOR UNIT SHIPMENT ESTIMATES FOR 4Q16 (THOUSANDS OF UNITS)

Sources: Newsroom (11 January 2017) “Gartner Says 2016 Marked Fifth Consecutive Year of Worldwide PC Shipment Decline”, Gartner, https://www.gartner.com/newsroom/id/3568420 (accessed 16 July 2017).

https://www.gartner.com/newsroom/id/3568420


EXHIBIT 3: WORLDWIDE SMARTPHONE VENDOR MARKET SHARE 1Q 2016 - 1Q 2017

Sources: IDC (n.d.) “Smartphone Vendor Market Share 2017 Q1” http://www.idc.com/promo/smartphone-market-share/vendor (accessed 16 July 2017).

http://www.idc.com/promo/smartphone-market-share/vendor


EXHIBIT 4: TOP FIVE COMPANIES, WORLDWIDE SERVER SYSTEMS VENDOR 1Q2017

Sources: IDC (6 June 2017) “Worldwide Server Market Revenue Declines 4.6% in the First Quarter as the Market Prepares for a Major Refresh, According to IDC” https://www.idc.com/getdoc.jsp?containerId=prUS42707717 (accessed 16 July 2017).

https://www.idc.com/getdoc.jsp?containerId=prUS42707717%20

To order this case, please contact Centennial College, c/o Case Research Centre, Centennial College, Wah Lam Path, Pokfulam, Hong Kong; website: http://cases.centennialcollege.hku.hk. © 2017 by Centennial College, an Independent College Established by HKU. No part of this copyrighted publication may be reproduced or transmitted, in whole or part, in any form or by any means, whether electronic, mechanical, photocopying, recording, web-based or otherwise, without the prior permission of Centennial College. This teaching note was prepared for class discussion purposes and is not intended to demonstrate how business decisions or other processes are to be handled. Ref. 17/003T

Page 1

LO W H AILIE K Y TANG CHAN WING WAH

LENOVO'S DEVELOPMENT AND SUN TZU’S ART OF WAR Teaching Note

Synopsis

“To succeed like Lenovo, companies must “love to battle, know how to battle, and conduct campaigns with order” ” Liu Chuanzhi (“Liu”), founder and Honorary Chairman of Lenovo Group Limited once said during a press interview.1 Not only does Liu’s choice of words reminds people of Sun Tzu’s Art of War—the highly regarded oriental book on military strategy written by the famous Chinese General Sun Tzu more than two thousand years ago,2 writers on Sun Tzu’s military treatise and commentators on the oriental markets and practices have compared Liu’s leadership style to those of Sun Tzu’s accomplished generals.3 Some consider the acquisition of IBM’s personal computer business, the stepping stone that allowed Lenovo to become an international brand and business, is consistent with a major principle on how to win battles and wars that is preached by Sun Tzu: “… to take intact a battalion, a company or a five-man squad is better than to destroy them”.4

To what extent has Sun Tzu’s Art of War helped to shape Lenovo’s past? As the world’s largest PC maker enters the smart Internet era (see section on this topic), it said in a statement at the beginning of 2017 that “Lenovo faced sizeable challenges in its three main lines of business, namely data centre, mobile devices, and PCs, and smart devices”.5 Will this Chinese

1 Fletcher, O. (14 September, 2009) “Lenovo Founder Shares Slogans, Tells Tales of 1980s China”, PC World, http://www.pcworld.com/article/171917/article.html (accessed 12 May 2017). 2 Sun Tzu (5th Century, B.C.) Art of War (孫子, 孫子兵法). 3 McNeilly, M. R. (2012) Sun Tzu and The Art of Business, Oxford University Press: New York; Wang, J. (2008) Brand New China, Advertising, Media and Commercial Culture, Harvard University Press, Cambridge: Massachusetts. 4 Griffith, S. B. (2005) The Illustrated Art of War, Oxford University Press, Oxford. This quote is from Verse 20, Chapter 10 of the book. 5 Lenovo Newsroom (16 February 2017) “Lenovo’s Third Quarter FY 2016/17 Results Led by Growth in PC Business”, Lenovo, http://news.lenovo.com/news-releases/lenovos-third-quarter-fy-201617-results-led-by-growth-in-pc-business.htm (accessed 15 August 2017).

http://cases.centennialcollege.hku.hk/

LENOVO'S DEVELOPMENT AND SUN TZU'S ART OF WAR (Ref. 17/003T)

Page 2

leading technology hardware company find its way to success through the strategic principles and tactics of Sun Tzu’s Art of War?

Teaching Objectives

Sun Tzu’s Art of War states the principles, rules, strategies, and tactics that can bring victories to those generals who follow and practice them. It is widely acknowledged that these principles are equally applicable to the business world, covering wide array of management disciplines such as strategy formulations, effective leaders and leadership, sales and marketing management, and human resources management. This case explores how the principles and strategies of Sun Tzu’s Art of War has helped Lenovo to grow from a seed funding of around US$30,000 from the Chinese Academy of Sciences to its current size of annual revenue US$43 billion (according to its latest annual report 2016/17).6 The case also illustrates the new challenges faced by Lenovo as demands for PC decreases in the Internet era. As the company struggles to maintain its relevance in the smartphone market, there are troubling signs that the CEO’s directives may be losing steam amongst his senior associates as well as the board. This business case is mainly written for postgraduate class discussion, especially for students with business and management experience. It provides a context for them to critically evaluate, consolidate, and extend the principles, rules, strategies, and tactics discussed and illustrated in the highly regarded Sun Tzu’s Art of War. They are expected to extend their knowledge, experiences, and thinking in applying this seminal military treatise to deal with the complex issues faced by Lenovo and its CEO. The core objectives of this case are: 1. To introduce Sun Tzu’s Art of War to postgraduate students, if they have not already

familiarized themselves with the masterpiece. 2. To enable postgraduates to internalize the principles and strategies preached in Sun

Tzu’s Art of War. For students with business and management experience, the case provides a context for them to conjoin their experience with the strategies and tactics. For students planning to join the “battlefield” after their graduation, they should synthesize learnt management theories with Sun Tzu’s teachings.

3. To critically evaluate, from a business perspective, how Sun Tzu’s Art of War can be applied to enable Lenovo to win battles in the marketplaces of the Internet era.

4. To apply Sun Tzu’s Art of War to help top executives in managing themselves so as to be able to consistently make better and winning decisions.

How to Use the Case

Students are expected to have studied and be capable of getting management insights from Sun Tzu’s Art of War. The first question is designed as a way to help tutors and lecturers to ascertain this. Depending on the size of the class, and the preference of tutors and lecturers, it can be used for individual work or group work. In the latter instance, instead of writing a commentary on one chosen chapter, each group may be assigned a number of chapters to write on. In the section where there is an analysis of how the question may be answered, there is a discussion on how tutors and lecturers may give directives to encourage multi-facet applications of Sun Tzu’s teachings.

6 Investor Relations (n.d.) Financial Information - Financial Metrics, Lenovo Group Limited, http://static.lenovo.com/ww/lenovo/financial_information.html (accessed 15 August 2017).


Page 3

The next three questions are on applications, that is, adopting a business perspective to Sun Tzu’s teachings. There are numerous, almost uncounted, number of ways of how this can be done. For instance, the five fundamental factors (mission, climate, ground, command, and methods) that Sun Tzu strongly advises generals to study carefully before waging war can be translated into five business factors “spirit of mission”, “external forces”, “marketplace”, “leadership”, and “guiding principles”.7 In fact, there are numerous books published that deal with the subject matter. This teaching note has provided in the reference section a list of some of these publications for the reference of tutors and lecturers, as well as some extracts in the analysis of how to approach each question. However, in using the case and the questions, what is important is for students to demonstrate their original understanding on how Sun Tzu’s Art of War can provide rich guidance, principles, rules, strategies, tactics, ideas, and approaches can be applied in a business context. For students to be able to constructively exchange their insights, it is strongly suggested that the questions are better used for class discussions and presentations than for take home assignments. Tutors and lecturers must stress to students that it is mandatory that they come prepared for class discussions. They must spend time both for refreshing their understanding of Sun Tzu’s book, if they have not already familiar with it, and for thinking it through in forming their views on how the book’s essence should be applied in the context of Lenovo. There are no right or wrong answers, depth and quality should precede quantity. If tutors and lecturers have three hours, it is suggested the time be divided into the following tasks (duration of each task to be adjusted if there are more or lesser time; if time is really tight, tutors and lecturers may consider skipping right to presentations/discussions on questions two to four): 15 min Alignment on key facts of case: tutors and lecturers may pre-assign a group

of students to present the key facts 40 min Question one discussion, that is, each student or group be given around three

minutes to highlight each given chapter’s implications to business management and to explain why he/she/they think(s) so

45 min Question two discussion on how to improve Lenovo’s position a chosen area by applying Sun Tzu’s Art of War: Individual or group presentation should be followed by questions and answers sessions from the floor. Depending on the size of class, tutors and lecturers should assign a time for each presentation and Q&A session.

40 min Question three presentation / discussion 40 min Question four presentation / discussion It is preferred that students to work on questions two to four because each deals with a separate aspects of how Sun Tzu’s Art of War can be applied in a business context. However, when there is a need to adjust the workload of students, tutors and lecturers may consider having separate groups or different students responsible for each assignment, instead of requiring each group to work on all assignments.

Suggested Questions

1. Critically evaluate any one chapter of Sun Tzu’s Art of War, and their implications to “strategic thinking in management”.

2. Pick an area (such as an operation, a function, or market of Lenovo), discuss how insights gained through Sun Tzu’s Art of War may be used to formulate recommendations for Lenovo to develop competitive advantage in the long-run.

7 Michaelson, G. A. and Michaelson, S. (2010) Sun Tzu: The Art of War For Managers, Avon, Massachusetts: Adams Media.


Page 4

3. “Sun Tzu’s Art of War is about managing oneself in order to secure victories”.8 Critically discuss how relevant this statement is to senior executives, and with special reference to Lenovo’s CEO.

4. Assume the role of one of the following of the PC, the Mobile, or the Data Centre Business

a) The Sales Director b) The Marketing Director c) The Product Development Director d) The Finance Director who looks after the funding needs and reporting needs of

either business e) The Human Resources Director

Write a pitch to the CEO of Lenovo on the next twelve months’ priority areas under your functional directive. Formulate such in accordance to the teachings of Sun Tzu, and state why.

Analysis

1. Critically evaluate any one chapter of Sun Tzu’s Art of War, and their implications to business management.

There is no black-and-white answer to this assignment. The following are some suggestions. For instance, students may go through the chosen chapter by discussing their views of how each verse has implications for management. Students could also write commentaries on how the rules and tactics advocated by Sun Tzu in the chosen chapter bear relevance to a chosen function, such as sales, marketing, human resources management, etc., within a business. Another method is for students to draw comparison of the teachings of Sun Tzu with management theories. There are numerous other ways for students to carry out their own analysis and to draw their own inferences. Should tutors and lecturers want to adopt some structure for students to follow, they may consider requesting each group to take a different perspective to discuss how Sun Tzu’s teachings in chosen sets of chapters may apply to business contexts. Examples of perspectives are: a) From a top management perspective b) From a business process perspective, or c) From a line function perspective. The following are extracts of three different references, each adopting one of these three perspectives, of how the fundamental factors listed by Sun Tzu in the third verse of chapter 1 bear implications for business management:

“The first of these factors is moral influence, the second, weather, the third, terrain, the fourth, command, and the fifth, doctrine.”9

The Top Management Perspective In the second edition of Sun Tzu: The Art of War For Managers, Michaelson and Michaelson wrote:10 8 Khoo, K. H. (1997) Sun Tzu: The Keeper of CEO’s Conscience, Selangor Darul Ehsan: Pelanduk Publications. 9 The translation version used is Griffith, S. B. (1963) Sun Tzu The Art of War, Oxford: Oxford University Press, https://web.stanford.edu/class/polisci211z/1.1/Sun%20Tzu.pdf (accessed 15 August 2017). Noted the terminologies given to the five factors vary in the different publications that discuss the business implications of Sun Tzu’s Art of War. 10 Michaelson, G. A. and Michaelson, S. (2010) Sun Tzu: The Art of War For Managers, Avon, Massachusetts: Adams Media. Michaelson and Michaelson’s translation of the five factors are different from


Page 5

“Business Parallels to Five Constant Factors 1. Moral influence means a “spirit of mission.” The strength of belief that the

purpose is morally sound rallies a fighting spirit and generates a firestorm of commitment.

2. Weather equates to “outside forces.” The surge of consolidation that is sweeping through every industry is an outside force, as is the emergence of world competition and the influence of environmentalism.

3. Terrain is the “marketplace.” As the general must know the terrain, so the strategist must consider the scene of action — people, place, product, promotion, price, etc.

4. Commander has an equivalent in “leadership.” The names keep changing, but the principles of leadership remain the same.

5. Doctrine is comparable to “guiding principles.” Understand and apply the fundamental principles that determine success.”11

The authors then continue with a commentary on the importance of “thoroughly assess conditions”:

“… Every assessment must include a thorough analysis of how to increase business with existing customers… In today’s business world, the assessment before the plan is often ignored in the rush to action. When action is taken without a thorough assessment of the situation, too often people begin working on the wrong things… Assessments are simply methodologies for gathering data in a structured process designed to elicit facts or perceptions. Assessments can be internal or external… Good assessments go beyond the current situation. They dig into underlying causes and search for new and better ways to achieve success…”12

The Planning Process Perspective In Sun Tzu & Management, the five fundamental factors are discussed by Khoo K. H. with reference to the importance of planning and its process in a company: “The Moral Law

By moral law, I mean that which causes the people to be in total accord with their ruler, so that they will follow him in life and unto death without fear for their lives and undaunted by any peril.

Generally, I see this as the philosophy and subsequent behaviour of the leader. Douglas McGregor’s Theory X and Theory Y are good examples. If we adopt the Theory X view of human nature, i.e. the average person dislikes work and will avoid it whenever possible, then our action is likely to take the form of coercion, control, direction and threats of punishment in getting our subordinates to work. McGregor has however suggested that Theory Y – the average person not only does not dislike work but can exercise self-direction and self-control at work – is more appropriate to the pursuit of organization effectiveness. Therefore I take the moral law to reflect the role of managers in managing their staff well so as to motivate them to excel in their commitment and productivity by first treating them with respect and fairness in order that they will reciprocate in turn…. Moral law can best be reflected in the organization’s mission, i.e. the organization’s continuing purpose with regard to… customers, employees, shareholders, suppliers, etc. Are we seen to be fair and objective in our dealings with these parties? … Likewise, I believe the moral law also demands that we start out on any enterprise or project with the best … commit early on to quality. This will reflect well on our mission to customers – only through giving customers quality products and services that we exist and prosper in the long run…”13

11 Ibid, the quote is from p.5. 12 Ibid, the quote is from p.6. 13 Khoo, K. H. (1998) Sun Tzu & Management, Selangor Darul Ehsan: Pelanduk Publications. The quote is from p.13-14.


Page 6

The writer relates the second factor “Heaven” to “business climate” and “economic climate”, and he elaborates the factors relevance to planning with:

“… no realistic plan can ever be made without taking into account business cycles (e.g. growth, inflation, recession, or stagnation), investment trends which may be favourable or unfavourable, etc… And … the all too important human factor which is critical for the smooth implementation of any plan, demands that we work towards improving the climate in our organization so that our employees work in a warm, cohesive, and happy environment.”

The Sales Function Perspective In Sun Tzu’s The Art of War Plus Strategy for Sales Managers, Gagliardi addresses the function of sales management by following closely the rules set out by Sun Tzu. He sees sales managers as “warriors … (with) a pivotal role in your organization.” He lists out the specific implications of the five fundamental factors on the sales function: “Five key elements define your sales position. Consider these factors when you plan to advance your position. To know your company’s strategic situation, you must ask:

1. What is your company’s mission? 2. What is changing in the business climate? 3. Where is your best possible market? 4. What is your role as a sales manager? 5. How clearly have you defined the sales process?”14

2. Pick an area (such as an operation, a function or market of Lenovo), discuss how

insights gained through Sun Tzu’s Art of War may be used to formulate recommendations for Lenovo to develop competitive advantage in the long-run.

In approaching the assignment, it should be noted that the case is not about any one particular industry but rather about how a company may benefit by doing things the Sun Tzu way in terms of the thinking, planning, and preparation process. There is no one formula of how this assignment should be answered. If tutors and lecturers would like to provide more structure in approaching the assignment, they may consider assigning suggested areas for individual students or groups to work on. Some possible areas for considerations are: (a) Branding decision-making and effective internal communication (b) Integration of acquired businesses (c) Identifying a feature function of a smartphone to invest research and development

resources (d) Winning more server business without waging war with competitors The following is an example of how the conflicting views on branding Lenovo’s smartphones depicted in the case may be approached considering Sun Tzu’s advice.

“If … words of command are not clear and distinct, if orders are not thoroughly understood, the general is to blame. … But if his orders are clear, and the soldiers nevertheless disobey, then it is the fault of their officers.”15

The first thing to ascertain is therefore whether Yang’s directive of using the Moto brand to replace Motorola has been well communicated and aligned with the Chief Marketing Officer

14 Gagliardi, G. (2005) Sun Tzu’s The Art of War Plus Strategy for Sales Managers Seattle: Clearbridge Publishing. 15 The quote is from the well-known story of how Sun Tzu demonstrates the skills in drilling troops by disciplining the concubines of the King of Wu. Michaelson, G. A. and Michaelson, S. (2010) Sun Tzu: The Art of War For Managers, Avon, Massachusetts: Adams Media. The quote is from p. xii-xiii.


Page 7

(the “CMO”) of Lenovo. It is important for students to recognize the likely process of how the CEO comes up with statements in annual reports. Though the CEO would ensure every key message in the report’s CEO statement is consistent with his directives, he seldom writes the statement himself. In fact, the statement is just a reflection of some of the high level directives that are well thought through by the senior executive teams under the leadership of the CEO. When compiling the annual report, it is customary for the senior line and corporate executives, who are experts in their own functions or areas, to provide the company secretariats (or whichever function tasked with annual report production) with the key messages in their respective functions/areas. When the statement is compiled, the CEO would proofread the statement to ensure all key messages are consistent with his views and directives before signing the statement off. It is therefore an unlikely scenario that the CMO is unaware of the CEO’s directives. Likewise, had the CMO felt very strongly that Lenovo’s mobile branding should adopt the acquired Motorola brand, it should have already been brought to the attention of Yang. Branding is a key strategic decision that any multinational company will take time and resources to deliberate before reaching a decision. The 180° difference between the two branding statements of Lenovo’s mobile that were made in the same month by two senior officials, with one having top responsibilities of branding and the other top responsibilities of the company, is in fact quite a rare occurrence. Before determining if the two conflicting statements reflect a situation that should require attention, it is useful to give it the benefit of doubt. Using Sun Tzu’s teaching that all warfare is based upon deception, consideration must therefore be given to whether the conflicting statements are deliberately made to confuse competitors on the strategy that Lenovo will adopt related to its smartphone branding. However, given consistency and clarity of identity among customers are the hygiene factors behind any global branding, it is obvious that the downside of confusing competitors on branding matter outweighs that of the upside. Thus, the “deception” angle may not applied in reconciling the conflicting statements. However, there is a scenario in which the two statements can be reconciled. As stated in the case, Lenovo “implemented two different mobile strategies, one for the China market, and the other for the rest of the world”. If the company has made a conscious decision to implement a two-prong branding strategy, Moto for the China market, and Motorola for the rest of the world, the CMO may be addressing an occasion that relates to the rest of the world market for Motorola. The key here is whether the two prong-strategy is one that is agreed upon among the top officials that should work best for its mobile business. In the case when there is no aligned view to keep two different branding strategies for Lenovo’s smartphone business, and that Yang prefers the adoption of a single global identity and that the CMO sees much value in the legacy Motorola brand, then Sun Tzu’s “foreknowledge” advice should take precedent over any decision. That is, the two different views should be each given due consideration in a process that allows clear and transparent communications between the CEO and CMO. Noted that this is the situation where Sun Tzu’s advice — deceive even subordinates so that all preparation of deceiving competitors would stay intact with no risk of information leakage prematurely — does not hold. Of course, the execution of branding communication may take a secretive approach so as to build up customers’ anticipation (this is an approach that Apple has consistently used in its new product launches), the branding decision need not be the case. In fact, it is important that the two top officials with legitimate responsibilities to branding must fully buy-in to the decision and that they agree whole-heartedly that the identities behind the chosen brand(s) are best in communicating the values of Lenovo’s smartphone to customers in the long-run. Once the CEO has ensured that both clear and transparent communication with the CMO to reach a branding decision and that the process of reviewing which brand(s) is/are the best, both senior executives should move on. Sun Tzu offers meticulous advice on how communication and foreknowledge of markets and competitors should be done. On the


Page 8

former, “In night battles use torches and drums; in day battles use flags and pennants. Drums, gongs, flags, and pennants are used to unite men's eyes and ears.” The essence is that Sun Tzu advocates the use of different tools under different circumstances and for different types of people to ensure the message to communicate can get through. It is the responsibilities of the general to make sure his subordinates get the message. On the latter, the theme is repeatedly brought up and discussed by Sun Tzu: “If you know your enemies and know yourself, you will not be imperilled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperilled in every single battle.” And he has repeatedly advised on how information gathering and analysis must be done, with a whole chapter written on the use of people and the intelligence process. However, when all that is needed to be done are done and there is no miscommunication between the CEO and CMO on the subject matter of branding, and yet, huge disparity as depicted in the two contrasting statements still remains, perhaps it is time for the CEO to consider the latter half of Sun Tzu’s advisement on communication: “if his orders are clear, and the soldiers nevertheless disobey, then it is the fault of their officers.” A general should not punish a soldier if the fault lies in himself, but if he has played his part and the fault does not lie with him, it may be time for the CEO to consider cutting losses and to recruit new staff. 3. “Sun Tzu’s Art of War is about managing oneself in order to secure victories”.

Critically discuss how relevant this statement is to senior executives, and with special reference to Lenovo’s CEO.

A basic approach to this assignment should do two things: 1. Appraise the relevance of Sun Tzu’s teaching for senior executives to better

managing oneself 2. Critically assess Yang’s situation within Lenovo and discuss how he may improve

position by practising Sun Tzu’s advisements on managing oneself. Sun Tzu’s Teaching on Managing Oneself for Senior Executives The topic is one of many applications of Sun Tzu’s teaching. This is the natural result of the fact that managing oneself is a recurring and major theme in his book. After all, the quality of the general and commander always makes or breaks when it comes to battles and wars. Likewise, the quality of senior executives is the de facto prerequisite behind the quality establishment of a company’s long-term vision and mission, the formulation of successful strategies and the meticulous execution of all tactical plans. Throughout Sun Tzu’s Art of War, there are many verses where he writes to warn generals against developing undesirable traits. He elaborates on the five dangerous characters that commanders of troops should avoid developing or should strive to rid himself of: “There are five qualities which are dangerous in the character of a general. If reckless, he can be killed; If cowardly, captured; If quick-tempered you can make a fool of him; If he has too delicate a sense of honour you can calumniate him; If he is of a compassionate nature you can harass him.” He advocates the need for commander to develop desirable qualities:

“By command I mean the general’s qualities of wisdom, sincerity, humanity, courage, and strictness.”

Students, in analysing this assignment, must show they have gained insights from Sun Tzu’s advice on the topic of managing oneself from the perspective of senior corporate executives. Take the five qualities of the above quote as an example:


Page 9

• Wisdom. Senior executives with wisdom should be open minded and be willing to listen to new ideas, irrespective of where the ideas come from. Wise executives will not be arrogant, they are always willing to learn from others. They will not be complacent, thus are always guarding against threats and looking for opportunities to bring the already successful company to the next level.

• Sincerity. Sincere leaders always walk their talks, therefore senior executives will not come up with mission statements that are beyond reach. Responsible senior officials do not forget their quality pledges but work hard to deliver promises made.

• Humanity. Leaders who value people and treasure talents “treats them as his own beloved sons and they will die with him”. Such leaders always lead by example, and “regards his men as infants they will march with him into the deepest valleys.”

• Courage. Leaders of courage are not “yes men” nor would they build such culture in their company. They dare to stand up to their views and beliefs: “If the situation is one of victory but the sovereign has issued orders not to engage, the general may decide to fight. If the situation is such that he cannot win, but the sovereign has issued orders to engage, he need not do so.” But more importantly, leaders of courage will encourage subordinates to speak up and will not punish them by passing them over in favour of more obedient subordinates when there are advancement opportunities.

• Strictness. There is no point disciplining others if one does not have self-discipline. The higher an official’s rank in a corporation, the more important that he leads by example and be a role model for his team or his company.

The above is an illustration of how students should discuss quotes of Sun Tzu’s teaching and apply them on managing oneself for senior executives. It is important to once again stress that the quality of discussion by students should be paramount rather than the amount of discussion. Yang’s Position in Lenovo It is without doubt that the once well praised CEO of Lenovo is facing many difficulties. Having successfully integrated the company with the acquired PC business of IBM, he had led Lenovo to attain the world’s number one position in the domain of PCs and notebooks. Yet in the smart Internet era, Yang has failed to create a star business that Lenovo may count on to deliver continuous growth and to generate sustainable profits. When Lenovo acquired Motorola and the server business of IBM, Yang faced not one, but two herculean tasks of integrating two distinctly different businesses into Lenovo. It is important to remember that when it acquired IBM’s PC business, Lenovo was a China-based PC manufacturer with a comparatively simple organizational structure. Today, it boosts 60,000 employees geographically well dispersed in Asia Pacific, Europe, Middle-East, Africa, and the Americas. It is therefore an understatement to describe the integration task as a herculean one. Each of the three parties — Lenovo, Motorola, and the acquired IBM server business — each has well-established business operations and with a distinctly different corporate culture. If Yang and Lenovo took a decade to integrate the IBM acquisition and make a success out of it, it is hard to envisage the three-party integration could take any time less than its precedent. Yang’s current integration efforts must be having a bumpy ride. This is indicated by the tip of the iceberg — the inconsistent positions regarding mobile branding:


Page 10

The group’s Chairman and CEO Yang Yuanqing (“Yang”) stated in his annual report statement published June 2017 that “In our Mobile Business Group, we have simplified our offering to a single, smarter global product portfolio that optimises costs and unifies the portfolio under one Moto brand”.16 Yet, in the same month and in a different occasion, the group’s Chief Marketing Officer said the “Lenovo Moto brand won’t be a major focus of Motorola Mobility going forward” and “We are all in and fully focused on – Motorola”.17

It is also important to remember that as Lenovo expanded and grew, its boardroom structure and functioning has become a lot more complex than in those days when Lenovo acquired IBM’s PC. Institutional investors naturally press for a balance of short-term and long-term results. This means mounting pressure on Yang from the boardroom as he may not have as much time as he used to have to integrate the acquired business to form a solid foundation for growth. Thus there must be truth behind the rumours that Yang’s CEO position may not be as secure as it once was. Sun Tzu’s Managing Oneself Advisements for Yang The teachings from Sun Tzu’s Art of War is so wide and deep that an exhaustive listing of the advice contained in it that can benefit a CEO and help Yang to improve his position within Lenovo will probably be rich enough to publish a book.18 What tutors and lecturers should be looking for is how students synthesize Sun Tzu’s teachings to help guide Yang through the difficult situations as depicted in the case. The following is an example of how Yang would find Sun Tzu’s teaching on managing oneself relevant when managing the distracting office politics that is unavoidably a part of life in handling the herculean tasks of post-acquisition integrations. Politics is a part of life in any organization. The bigger it is, the more complex its corporate politics become. The worse a company performs, the more vibrant is its political arena. A natural result is senior executives of integrity within politically charged organizations always find themselves fighting the temptation of expending more and more energy on the political arena, which prevents them focusing on performing their duties and responsibilities.

“If the situation is one of victory but the sovereign has issued orders not to engage, the general may decide to fight. If the situation is such that he cannot win, but the sovereign has issued orders to engage, he need not do so.”

Looking at this advice from another angle, generals should only fight battles that they can win. Fighting political battles often means wasting time and they definitely cannot help build a better organization. Sitting at the very top of Lenovo, Yang should be able to decide whether to consume energy on political battles. What’s more, he has a choice to prevent the company to become a heavily politically charged organization. Corporate integration processes often create uncomfortable situations of having redundant talents for line and corporate functions. Things could get out of hand and even turn ugly amongst the functional heads or the line managers of similar capacity. For instance, there would be marketing heads, brand managers, finance experts, or sales directors from Motorola, IBM, and Lenovo. Each senior executive would have a natural propensity to protect their own turf and secure their jobs within the newly created organization, the result being the creation of a politically charged arena making internal interest a priority over making external customers happy. Yang should lead and play an exemplary role to be:

16 Lenovo (5 June 2017) “Annual Report 2016-17”, Lenovo Group Limited, http://static.lenovo.com/ww/lenovo/pdf/report/E_099220170605a.pdf (accessed 15 August 2017). 17 Bosnjak, D. (4 June 2017) “The ‘Lenovo Moto’ Brand Is No More, Motorola CMO Suggests”, Android Headlines, https://www.androidheadlines.com/2017/06/the-lenovo-moto-brand-is-no-more-motorola-cmo-suggests.html (accessed 15 August 2017). 18 This is in fact the case, a book has been written and published on the subject: Khoo, K. H. (1997) Sun Tzu: The Keeper of CEO’s Conscience Selangor Darul Ehsan: Pelanduk Publications.


Page 11

“the general who in advancing does not seek personal fame, and in withdrawing is not concerned with avoiding punishment, but whose only purpose is to protect the people and promote the best interests of his sovereign, is the precious jewel of the state.”

As said, there are numerous number of examples of how Yang could benefit from Sun Tzu’s teaching on managing oneself. During class discussions, tutors, and lecturers have a choice of: 1. using the conventional approach of presentations followed by Q&A sessions, or 2. inviting a free flow of ideas from the class, with each student bringing up a point of

how he/she sees Sun Tzu’s teaching on the subject matter of senior manager’s self-management, and how the same point may apply to Yang in the context of the Lenovo situation that he is facing.

4. Assume the role of one of the following of the PC, the Mobile, or the Data Centre

Business a) The Sales Director b) The Marketing Director c) The Product Development Director d) The Finance Director who looks after the funding needs and reporting needs of

either business e) The Human Resources Director

Write a pitch to the CEO of Lenovo on the next twelve months’ priority areas under your functional directive. Formulate such in accordance to the teachings of Sun Tzu, and state why.

Depending on the background and training of the postgraduate students, they will have preferences of the functional area they choose to work on. By now, it should be obvious to everyone in class that there is no model answer. So long as the students are able to present their cited priority areas and support such decisions with quality discussions using Sun Tzu’s teaching, the analysis should be a good answer.

Synthesis

The case depicts the growth path of Lenovo from a small local Chinese company to a multinational corporations. It observes that the company’s important and successful moves throughout its expansion years correlates with major teachings of Sun Tzu’s Art of War. As the company enters the smart Internet era, its further growth runs into stumbling blocks. The case presents an opportunity for postgraduate students to deploy teachings of the seminal oriental military treatise to try resolving the complications and removing the hurdles to enable Lenovo to propel a growth trajectory in the smart Internet era.


Page 12

References

Bosnjak, D. (4 June 2017) “The ‘Lenovo Moto’ Brand Is No More, Motorola CMO Suggests”, Android Headlines, https://www.androidheadlines.com/2017/06/the-lenovo-moto-brand-is-no-more-motorola-cmo-suggests.html (accessed 15 August 2017). Fletcher, O. (14 September, 2009) “Lenovo Founder Shares Slogans, Tells Tales of 1980s China”, PC World, http://www.pcworld.com/article/171917/article.html (accessed 12 May 2017). Gagliardi, G. (2005) Sun Tzu’s The Art of War plus Strategy for Sales Managers, Seattle: Clearbridge Publishing. Griffith, S. B. (1963) Sun Tzu The Art of War, Oxford: Oxford University Press, https://web.stanford.edu/class/polisci211z/1.1/Sun%20Tzu.pdf (accessed 15 August 2017). Griffith, S. B. (2005) The Illustrated Art of War, Oxford University Press, Oxford. Khoo, K. H. (1997) Sun Tzu: The Keeper of CEO’s Conscience Selangor Darul Ehsan: Pelanduk Publications. Khoo, K. H. (1998) Sun Tzu & Management, Selangor Darul Ehsan: Pelanduk Publications. Lenovo (5 June 2017) “Annual Report 2016-17”, Lenovo Group Limited, http://static.lenovo.com/ww/lenovo/pdf/report/E_099220170605a.pdf (accessed 15 August 2017). McNeilly, M. R. (2012) Sun Tzu and The Art of Business, Oxford University Press: New Michaelson, G. A. and Michaelson, S. (2010) Sun Tzu: The Art of War For Managers, Avon, Massachusetts: Adams Media. Sun Tzu (5th Century, B.C.) Art of War (孫子, 孫子兵法). York; Wang, J. (2008) Brand New China, Advertising, Media and Commercial Culture, Harvard University Press, Cambridge: Massachusetts.

lenovo's development and sun tzu’s art of war

Documents