Lenovo Harnesses HR Intangibles

Lenovo Harnesses HR Intangibles
May 20, 2009 By Paul Bacon , eChinacities.com

Special Topic: Finding and Keeping Jobs in China

Last week, I discussed the impact of intangible factors in HR performance across China. I examined the ways in which this can impact employee morale and, ultimately, organizational performance. As a benchmark, I used the Hewitt 2009 China Best Employer survey, which pointed to such names as McDonalds, Johnson & Johnson and SAS as examples of companies who value intangibles and, as a consequence, enjoy high employee morale and performance. Two key factors here were (i) a clear and positive direction, and (ii) a strong corporate culture. This set me thinking. I pondered, “If a clear direction and a strong corporate culture can have such a positive effect, then surely a lack of direction and a weak corporate culture would do the opposite.” So, I decided to see if I could find a few examples to help highlight the worse case scenario.

It didn’t take too much research to point me in the direction of Chinese computer giant Lenovo. As most of us here in China are aware, back in 2005 Lenovo acquired IBM’s PC division in one of the most famous deals Chinese business history. However, since those heady days, Lenovo has begun to struggle, and has faired particularly badly in the face of the financial crisis. It was lacking both a clear direction and a strong corporate culture. This was having a massive impact on organizational performance - on February 5th Lenovo announced a loss of $96.7million for quarter 4 of 2008. However, the events that followed this clearly showed that intangible factors can play a major role in producing tangible results.

Lenovo china laptop
Photo: nDevilTV

At the turn of the year, as sales slumped, Lenovo seemed rudderless and bereft of morale. The initial success it enjoyed in the Chinese market around a decade ago began to look a distant memory as it lost it much of its Chinese identity and the strong corporate culture it had developed as it grew. Many believed that moving the company’s headquarters from Beijing to the United States combined with the fractious relationship between CEO William Armelio and some of the company’s homegrown executives knocked the company off course when it encountered the stormy waters of the financial crisis. And, when 2,500 jobs around the world were shed, morale began to fall dramatically.

With such a worrying situation, Lenovo’s board knew they needed to act. On February 5 of this year, the company’s founder Liu Chuanzhi announced some radical plans. Armelio’s contract, which was due to expire, would not be renewed. Replacing him as CEO would be Yang Yuangqing, who oversaw the company’s early boom years from 1999 to 2005. Liu himself would be returning to a far more hands-on role as Chairman. And, the man at the top clearly had a firm understanding of what it would take to turn things around, “This is the most critical and difficult time in the company's history. There is something wrong with our corporate culture and our staff morale is at a low point. It's time to rekindle our staff's passion.”

Liu wasn’t finished there. In the same statement, he announced some radical changes in strategy, the boldest of which was decision to move away from the international PC market and to focus on the domestic market. He explained the move to China Daily, “Lenovo has grown successfully on the international stage, but at this important time, we want to pay particular attention to our China business as it represents the foundation of our global business and growth strategy.” He also announced that they would be focusing more on the consumer rather than corporate markets in China.

lenovo IBM laptop diagram
Photo: nDevilTV

So, were the changes successful? Could Liu steady the ship and steer Lenovo back on course? Right now, no-one can answer these questions as it will take time for the strategic impact of the changes to take effect. However, the intangible aspects of the restructuring actually made an instant impact. By offering clear direction and addressing the need to work on the company’s corporate culture Lenovo has already made headway in improving employee morale – and consequently performance. A report in China Daily outlined the impact his appointment had on morale, “The news was so inspiring that many Lenovo staffers said in private that 'Liu brings hope to Lenovo.”

One final very tangible result from the move has been the dramatic improvement in the company’s stock price. Languishing below 1.4HKD at the start of February, it has since rebounded and risen to an impressive 2.6HKD. The example set by Lenovo is certainly one that other organizations should be looking at if they want to ride out the crisis.

Special Topic: Finding and Keeping Jobs in China

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