Lenovo Group Limited - Organizational & Industry Analysis

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Financial Performance

Pricing

Since the capacity of IT companies has been exceeded seriously, which leads to expand market share and the price war has become more severe. Lenovo’s pricing strategy was rational and successful, for it has been vividly in this price war. Lenovo didn’t cut the price down but competed on quality and promotions. Thus, not only the corporate image was enhanced, but also its sales and market share grew and expanded.

However, maintaining the price doesn’t mean that Lenovo keep producing and selling the expensive, luxurious high-end products. Lenovo did develop and introduced low-end, basic function products (Y series & LePhone) to the market that meet low-end consumers’ basic needs and value perspectives on prices, which maximized customers’ satisfaction. Based on different levels of consumers, Lenovo developed different prices by creating differentiated products to meet different consumer groups. Lenovo now has 19 species, 200 various models of products; Lenovo's exports and diversified product enable it to avoid involvement in domestic plague of the price war impact of its competitors. Furthermore, Lenovo’s pricing also varies in different geographical markets. For instance, Lenovo’s pricing in India and Latin America are little lower than developed counties, or more promotion provided regards to same pricing products.

Cost Structure & Value Chain

Lenovo’s operation is financially in a good shape, for it generates net profits of $817,470k and maintains its free cash flows of more than $380,000k that guarantees its operation running safely. However, the cost structure of Lenovo is not as good as its financial statement shows. Because the margin for costs has reached 86.9%, but this phenomenon is not rare in IT industries nowadays since competitions are getting harder each day, and the investments in R&D are beyond imagination. Thus, market share are crucial and Lenovo did pretty good on that. (See Appendix 1.2)

As for value chain, Lenovo manufactures its own products as its main competitor Apple. Lenovo also has its own R&D department for product development, and Lenovo ships its products to computer provides, retailers, and mobile access provides for retail sales. But Lenovo doesn’t produce raw materials by itself like other competitors such as HP and Dell.

External Analysis

Industry & Environment

Driving Forces & Key Success Factors

Driving forces are forces outside the firm (industrial) that trigger the change of strategy in an organization. As for IT industry, the driving forces will be the Internet and new e-commerce opportunities and threats; the increasing globalization of the industry, rapid product innovation and upgrading (rapid technological change), new entry or exit of major firms (Motorola, Sony), regulatory influences and government policy changes (patents & piracies), etc.

The key success factors for IT industry are: integration, which means IT corporations should integrate with most existing storage and data management technologies; simplicity is another winning criteria, for the IT industry is already short-staffed and does not need a bigger management burden, especially since Legal end users may not be the most technical of staff (to say the least); cost-effectiveness and scalability also play important roles because the IT product nowadays should scale performance across users and servers; security is another key success factors, for it guarantees the right (copyright, patent, etc.) of both corporations and consumers. However, everything discussed above are determined by innovation. Because IT industry lives on its innovative, rapid-changing characteristics. Therefore, innovation, creativity, and cost-effectiveness seem to be the strongest key success factors in the industry.

Strategic Positioning of Competitors in The Industry

Dell’s strategic positioning used to be a premium computer company through an easy and convenient internet-based sales. Currently, Dell’s unique selling proposition has always been defined by its direct business model as an aggressive, value-oriented computer manufacturer. Thus, their product and price positioning have a great range from low-end, few hundreds of dollars product to extremely high-end, thousands of dollars product (Alienware Series). Dell also keeps itself simple by providing customers with built-to-order boxes that help with lower inventories, lower costs, and higher profit margins.

Apple focused on the Corporate marketplace more in recent years, by showing high regard for maintaining its brand values as it engages with corporations: it positions itself as facilitating the use of the individual's devices of choice (iPad & iPhone) in the corporate world so that businesses can innovate and develop new ways of doing business and improving the world around them.

HP's positioning is more technology-focused than its competitors, yet the company succeeds in delivering a consistent message across its business and consumer positioning as well as its corporate and services positioning.

Porter’s 5 Forces Analysis

- The barriers of entry

The entry barriers are the key factor for analyzing threats of new entries. The entry to IT industry has really high barriers. First of all, it requires high financial strength, due to the great costs on technology, R&D, advertisement and promotion. Furthermore, the regulations and patents, especially for new technologies, lift the barrier even higher to keep most of the potential entrants out. Also, economies and scale are apparent in the IT industry. It is because of great entry costs to spread over. Lastly, in the IT industry, most of the manufacturers have control over supply and distribution channels, which is a decisive competitive advantage against potential entrants. Thus, as a national high-tech enterprise, Lenovo gain strong support from the government’s financial policy and competition policy, which will reduce the threat of potential entrance to Lenovo.

- Buyer’s Bargaining Power

The buyers of IT products can be governments and organizations, distributors, and ultimate consumers (individuals). The ultimate consumers’ bargaining power is somewhat low because they are not capable of developing their own IT products by themselves. Besides, the less concentration