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Lenovo has been buffeted by culture clashes at its highest levels, which have hampered efforts at correcting the firm's major deficiencies. The biggest was inherited with the IBM business. Big Blue was focused on big customers, since they were the source of big orders. It was a logical large-corporation alignment. But in continuing it, Lenovo was missing out on the faster-growing segments of the PC market small businesses and consumers.
After the deal, Lenovo set out to make the IBM business look more like the company's business inside China, where it competes in every market category with a wide product line. But that plan barely got off the ground. New consumer products were poorly conceived and never caught on. At the time of the IBM acquisition, Lenovo became the world's third largest PC maker, but it has since slipped to fourth place, with 8.8% of the global PC market, according to research firm IDC. "The top management understood [the problem], but we failed to take action," Liu says. "It was a question whether the management of Lenovo had the long-term perspective."
Liu started to get especially worried in late 2008, as the worst of the financial crisis bit into computer sales. Lenovo swung into the red, posting a $97 million loss for the quarter ending December 2008. He began seriously considering a return to management. "Lenovo was like somebody standing on the edge of a cliff," he says. "Lenovo is all of my life. When it looked like my life was threatened, I had to come out to defend it." The board approved his return, which was made official in February 2009. An old protégé, Yang Yuanqing, vacated the chairmanship for him and returned to the CEO post, which he had held before the IBM deal. Amelio, whose contract had ended, was out.
Fixing Lenovo, Liu determined, required fundamental reform. Factions had organized in the company's top echelons among the original Chinese managers, the IBM old guard and new executives imported by Amelio which loosened the team's cohesion. But Liu's biggest concern was that the rapid changes Lenovo had made in its culture after the IBM acquisition were undermining the effectiveness of its management. He believed Lenovo had to get back to its roots. Liu "was worried about losing that culture that had been such an important part of Lenovo's success," says James Coulter, one of the founders of private-equity giant TPG Capital and a Lenovo board member.
Liu calls that culture the "Lenovo way." At its heart, Liu's system is based on a collective decisionmaking process in which the CEO develops and implements strategy as part of tight-knit group of executives. Liu contrasts the Lenovo way with what he sees as the "classic MBA way," in which a dominant CEO makes decisions more independently and then works with the individual chiefs of the business units to execute them. Describing his system as homegrown, forged over his years by the trials of building Lenovo, Liu specifically refutes that it's culturally Chinese, although consensus-based management processes are common in many Asian firms. "We are not just following any menu," he says.
Liu won't go so far as to say the Lenovo way is superior to Western management practices, but he sees it as an alternative perhaps one better suited to certain cases, like Lenovo's, in which the management team is Sino-global. "The Lenovo way of decisionmaking is more prudent and more thorough," Liu says.
He faults former CEO Amelio for using the wrong, top-down management system. "Amelio's approach was the classic methodology in MBA textbooks," Liu says. "But Bill was facing a very complicated situation where there are different teams from different cultures and nations [in Lenovo's management]. Using the classic approach, it was very hard to really mobilize or motivate [these] teams to achieve goals." On his return, Liu narrowed the senior management team down to an eight-member executive committee that meets regularly to discuss strategy and carefully plan its execution.