Lenovo Group Thinks Big

In surprise move, hires Dell supply chain expert as new CEO.

Lenovo Group Ltd. is moving forward with a new chief executive—tapping a former executive from a major competitor.

The Purchase, N.Y., PC maker—which acquired IBMs PC arm in May 2005 and is remaking itself into what it calls "the New Lenovo"—announced late last month that it will replace CEO Steve Ward with William Amelio, the former head of Dell Inc.s Asian business operation.

Although the companys seemingly abrupt move surprised many, Ward said Lenovo had planned to tap a different type of chief executive—an operations manager—following the initial phases of integrating IBMs PC business. The company, which is third behind No. 1 Dell and No. 2 Hewlett-Packard Co. in worldwide PC market share, aims to combine its Think brand, inherited from IBM, with operational efficiencies to move up in the rankings.

Known as a supply chain expert, Amelio is the right person for that job, said Ward.

"We stepped back and said were not building this company anymore in the sense of constructing a company that really had no corporate governance, really had nothing in place on an international scale," Ward said in an interview with eWEEK. "Its built. Weve got to turn this into a regular operation."

Doing so will involve continuing to streamline Lenovos supply chain, which involves everything from acquiring parts and assembling computers to shipping them to customers.

"An area we really need to drive is our supply chain," Ward said. "That wasnt as strong as it could have been with the initial part of our combined business."

Maximizing efficiency has become a do-or-die proposition for PC makers in the worldwide PC market, where price competition has held down revenue gains despite double-digit increases in shipments, analysts say. "The PC industry has become very, very cutthroat, and Lenovo recognizes that in order to succeed its got to be operationally excellent and pennies are going to count," said Leslie Fiering, an analyst with Gartner Inc., in Stamford, Conn. "Gartner has been saying for some time that theres going to be continued [PC market] consolidation and the survivors are going to be the ones that have control of their costs, their logistics, their supply chain and their manufacturing."

But Amelio will still have his work cut out for him as Lenovos CEO. He will have to continue the companys existing supply chain work—Lenovo expects the IBM buy to reduce those costs by $200 million annually—while also cutting across cultural lines, according to Roger Kay, president of Endpoint Technologies Associates Inc., in Wayland, Mass.

"The concern Im hearing from some people—these are people who buy ThinkPads—is they dont know what this bodes. Is this a precursor to a change in the quality of the ThinkPads?" said Robert Rosen, president of SHARE, a Chicago-based IBM user group. "People just dont know what is going to happen. Thats their main concern."

Ward, who ran IBMs PC business prior to its sale to Lenovo, is credited with a lot of heavy lifting. He helped push the merger through approval by the U.S. Treasury Committee on Foreign Investment and did the work of the New Lenovos initial integration. Ward also helped keep Lenovos largest customers, including U.S. government agencies, on board and guarded its market share, said Kay. But "theres a piece of reality here," he said. Ward "did a good job," said Kay. "But if you look at what wasnt happening ... theyve done a lot of [work] operationally, but they havent blended the companies."

Lenovos next steps will include continuing to promote its Think brands in a broad marketing campaign tied to its sponsorship of the Winter Olympics in Torino, Italy.

The company also will continue its foray into the SMB (small and midsize business) arena and the so-called pro-sumer market for consumers who seek professional-level equipment, Ward said. Indeed, Lenovo will target the SMB and pro-sumer markets with its first Lenovo-brand computers sold outside of China. It will offer the machines via the reseller channel, Ward said.