McKinsey Quarterly AUGUST 2011

8/6/2019 McKinsey Quarterly AUGUST 2011

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Lenovos 20 05 acq uisit ion of IBMs PC oper ation

set up a far -reaching busin ess challengehow

to create a n ew global operating model that would

anaging the compan ys business d iversit y: a range

of customers in m ore tha n 160 countr ies, two

distinct product brands, and m ultiple marketingodels. The second was how to meet senior m an-

agements desire for greater sta nda rd ization and

financial management and coordinating product

sales mor e t ightly.

For Lenovos I T organization, char ting how to su p-

port the new operating model was daun ting.

Inh erited legacy IT systems ha d to be rep laced by

an enterprise-resource-planning (ERP) system

that could foster standar dized processes yet rem ain

local mar kets. Rolling out a global IT system is an

enorm ous challenge th at many CIOs have taken

on but few have ma naged to pu ll off. Xiaoyan Wang

becam e Lenovos CIO in 200 9 to lead t he com-panys global tr an sform ation. She under stood th at

to introduce it on time an d on budget, she would

ha ve to prioritize tasks and wouldnt be able to

accomm odate every business dem and. Her slogans

becam e Schedule is king and 100 percent

IT s olutions aren t possible.

McKinseys Kevin Wei Wang, a principal in Shan ghai,

sat down with Xiaoyan Wan g at Lenovos head -


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quar ters in Beijing and discussed what it takes

for a CIO to lead this type of tra nsformation an d

Lenovos progr ess to date.

What

w ere Lenovos strat egic goals in launching t his

transformation?

First of all, we needed to m igrate

from m ultiple sets of legacy IT systems onto one

strat egic platform u sing SAP. In th e mean time, we

wanted to pr ovide the IT solutions to enable th e

compa nys global operat ing mod el, which offered

new business capabilities, such as ma nagement

of global accounts and electron ic tran sactions with

our channel partners.

What

w ere the key challenges Lenovo faced during this

ambitious transformation?

It was challenging in a num ber of

ways. The legacy IT system s we inher ited had

high maintenan ce costs and could no longer suppor t

new business capabilities after ru nn ing for more

than 20 years. So there was an urgency to migrate

from t hem. At th e same tim e, we had no system

ready that could support t he new operating model.

Our SAP system in China was a good base, but

it needed to be enha nced so it could support our

end operat ions. The PC ma rket, of course, is very

link our IT tr ansform ation road m ap closely with

business pr iorities and a djust when necessar y.

Finally, our p eople were from d ifferent cu lture s

and were just lear ning to work with each oth er,

while most of us were new to a tran sformat ion on

this global scale.

One

of the big stum bling blocks to implement ing

ERP sys tem s globally is that they are either too

centra lized, and th us diluted in term s of local

imp act, ortoo local, and thus very complex. How

have y ou approached this problem?

The key has be en balancing

supply chain that can be globally standardized

with those of area s such as sales and m arketing,

which have specific local requir ement s. For

itization of products and pressure on margins.

So you need t o leverage th e global scale of man u-

factur ing and su pply chains . Similar ly, sourcing

components an d ma nufactur ing in Asia while deliv-

ering to customer s in the US mean s centra l-

izing inform ation s ystems to get accurate product

cuting global order tra nsactions.

At the same t ime, we need to acknowledge that there

ar e still regional differences in our m arket s,

involving requirement s for customer interact ions,

go-to-market structures, and pricing practices.

For insta nce, we have well-established busine ss

practices for working with cha nnels in China,

while in t he US our business r elies ma inly on direct

sales to business custom ers, which have very

PC purchases. So our IT systems need t o have

as opportunity management and pricing approvals.

To do th is, we chose t o deploy one insta nce of

SAP to sup port the global operating m odel while

needed to opera te in different geographies.


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How did the IT leader ship decide on the road

m ap and tim etable?

we found t here r eally wasnt a high ly relevant

indust r y case for us t o follow. We learned th at it

global IT system of a similar scale, even withou t

tion th at we have faced. But we chose that time

frame as a tar get.

The path we chose star ted with an u pgrade of our

China IT platform t o make it a solid found ation

to suppor t the overall global operat ing model. We

piloted t he system tem plate for factories with

our Shanghai plant and u sed a pilot in Canada to

create th e templates for sa les. Then we m oved

on to areas that r equired global standardized oper-

ations, such as the supply chain a nd finan ce,

separat ing them fr om their legacy systems. For

sales and ma rketing areas where local different ia-

tion was import ant, we prioritized emerging-

ma rket countr ies, where requirem ents were lower

and there was a business need to move urgently.

capabilities that suppor t more sophisticated types

of sales interactions.

We agreed to do all of this within the boun dar ies

of IT funding const rain ts, knowing we would have

to deal with th e tough cycles of the P C market.

So we had to slow down for th ree quar ters dur ing

the 2008 09 recession.

Was there pushback from bus inesses as you

rolled out the program? How did y ou ma nage to

control the s cope?


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Its tr ue th at scope control is

essential. As a result, I have established some key

principles for achieving businessI T alignm ent.

solutionwe only tar get delivery of the critical

capabilities for run ning the bu siness. Enhance-

ment s can be done later.

Schedu le is king is another p r inciple. We have

to do whatever we can t o keep our schedule commit-

ment s. Everyone in the business ha s built their

plans ar ound our r elease dates for the new IT sys-

tems. If we change schedule comm itments for

one business, that will cause disrup tions with

tra nsformations of this scale. So you need to

have a top-down view of how the business actually

and to m ake fact-based decisions on trade- offsaffecting businesses an d IT implementation.

CIOs need to have a clear under stan ding of the

business model, as well as a deep underst anding

of the legacy systems t hey are phasing out and

the m ultitude of IT cost drivers that come into

play. And of course, on top of this, you have to

earn th e trust of business

tran sformation forward.

Tell

change am ong Lenov os business leaders.

You need to create a top-down

alignmen t on the necess ity of the chan ges. Senior

of the changes and act as t he sponsors to dr ive

our tr ansformation journey, our finance CFO

funct ion was a strong spons or of consolidation of

IT on two rounds of dry ru ns when we changed our

ledger s ystems.

You also need to plan a nd dr ive the business chan ge-

man agement effort well before you star t imple-

mentin g any new IT. Customer m igration a nd user

behavior chan gesthin gs like placing an order

on our new online e-com merce toolrequ ire a long

lead time. So IT needs to ar ticulate, in advance,the m ajor things th at will change an d to plan back-

change-ma nagement activities and stay on the

agreed-to path.

How

m uch of the culture did you n eed to change

to accomp lish all of this?

CIOs need to have a clear understanding of the

business model, as well as a deep understanding

of the legacy systems they are phasing out and

the multitude of IT cost drivers that come into play.


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Before t he acquisition, our

leadership and m anagement teams were pr edomi-

nant ly Chinese. We had an almost m ilitar y-style,

would not work after globalizing. In r unn ing a

global busines s, we needed to build a leadersh ip

team with various cultur al backgrounds and dif-

learned t o be more pat ient in order to build buy-

in for decisions and to be more open-m inded in

adopting a different leadership and comm uni-

cation style.

Since

your base was legacy system s, did you have

the right people with the right skill levels for the

new environment?

As far as capability building goes,

we clearly have the advantage of being based in

China, where we have a good-quality and great sup -

ply of IT ta lent. However, our local team lacked

mat ion program a nd of support ing IT systems

for a global base of users.

So our people strategy has been to gradually build

the intern al IT team . At the beginn ing, we needed

in ar eas like architecture, design, an d testing. In the

meantime, our internal teams got on-the-job

tra ining dur ing the projects. As we have moved into

the later stages, our interna l team scaled up to

take mor e ownership in t he projects and becam e

skilled in ma naging program s on a global scale.

Our development costs went down accordingly.

Have

Since 200 9, we have had t hree

major releases of the new system, and t hey have

been on sched ule and on budget. We have launched

the supply chain a nd successfully m igrated all

emerging mar kets onto the strategic platforms,

leaving the US and Western Eur ope as the last t wo

Despite the ongoing transformation programs and

the spend ing they require, overall IT spendin g at


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to have an un derstan ding of the capabilities

and constra ints of the legacy systems you current ly

have and th e new systems you ar e tar geting.

Finally, you need to be decisive. As CIO, you ar e th e

But remember that youll need a lot of support from

the compan y as a percentage of revenue has

droppe d from 2.8 per cent in 200 8 to 1.3 to

1.4 percent in 20 10, lower tha n th e PC indust ry

average of 1.5 to 2 percent.

Can

every CIO do this? W hat are som e lessons fr om

your playbook?

To do a major tran sform ation,

you need a d eep understan ding of your industr y

character istics, your com panys str ategic priorities,

and t he business operati ng model. You also need

Documents

McKinsey Quarterly AUGUST 2011