Lenovo's Plan: Divide and Conquer

And Lenovo executives and solution providers are betting this one-two punch will put a new channel-centric powerhouse on the global PC map long dominated by Dell and Hewlett-Packard. New Lenovo President and CEO Bill Amelio quickly laid to rest any doubt solution providers might have that he would create a direct model at Lenovo, la Dell.

“Partners were concerned at the beginning with my background,” he said in an interview with CRN. “But of course I had 18 years at IBM as well. So I’ve worked both ends of the street. The important thing is for us [Lenovo and its channel partners] to behave and operate as one company. If we can do that, we can take on the likes of any direct model.”

Lenovo Group Chairman Yang Yuanqing told PartnerWorld attendees in a keynote address that there is plenty of room for partners to play in the vendor’s evolving global strategy. “Outside of China, we are weak in SMB and we have no presence in consumer,” he said.

Lenovo’s aggressively priced 3000 product line of notebooks and desktops has convinced solution providers that the company is at last bringing its supply chain prowess and cost structure to bear on the market.

“HP is being heavily marketed by CDW and the mass merchandisers and it’s not competitive to sell,” said Bruce Geier, president and CEO of Technology Integration Group, a solution provider in San Diego with annual sales in excess of $200 million. “A lot of resellers are using Lenovo ThinkPads and desktops as a trade-off because they can’t make money on HP.”

The new strategy by Lenovo to classify ThinkPad laptops and ThinkCenter desktops as high-end systems targeted at larger accounts and the low-priced 3000 line at SMB customers is a sound one, Geier said.

“There is definitely a marketplace for the lower-priced systems, especially in competitive bid situations, because those are accounts you are losing to Dell and HP direct,” he said.

However, Geier made it clear that he plans to use the new Lenovo-branded products primarily in deals where price is critical and doesn’t intend to design them into customized solutions.

Bob Venero, CEO of Future Tech Enterprise, a solution provider in Holbrook, N.Y., agreed. “With the lower-priced models we now have a door-opener; this gives us an opportunity to play where we’ve never played before,” he said.

Solution providers, too, were encouraged that Lenovo hasn’t carved out artificial boundaries between direct and indirect by declaring a named direct account list in large accounts similar to the one at HP.

“It’s a simple thing,” said Amelio. “Whatever the customer wants, that’s what we will do. If the best value proposition is to go to that customer with a partner, that’s what we will do. We have not done a strategy of named accounts. There are certain customers that demand direct. I am not going to argue with the customer, otherwise nobody gets the business.”

Lenovo used the PartnerWorld forum to launch a new channel program as well. Key to the program is a two-tiered, two-segment strategy that executives say is much simpler than the program Lenovo inherited from the former IBM PC Co.

“We did it around customer segmentation, which is the cornerstone of the [Lenovo] business model,” said Mark Enzweiler, vice president for worldwide business partner sales at the Purchase, N.Y., company. “We think it is a very simplified approach.”

The Lenovo Partner Network will be broken into two tiers, a Business Partner level and a Premium level. According to Enzweiler, among the new “value incentives” Lenovo is putting into the program are:

• A Financing Advantage Program, aimed at providing one-hour response time on leases through solution providers to SMB customers.

• An enhanced portal for Business Partners to access Lenovo products and other information.

• Increased spending for co-marketing with solution providers, in addition to more discounts and demonstration products.

• The “first right of refusal” on service calls, as a method of providing incentives to solution providers that offer services beyond unit sales.

Lenovo’s channel strategy will track along with its overall plan to continue attacking the market in segments: a “transaction” segment, consisting of smaller customers, which will predominantly go through the channel; and a “relationship” segment, targeting larger enterprises for which Lenovo will use both channel and direct sales. Coupled with the new program is an aggressive VAR recruitment campaign that Enzweiler hopes will add up to 5,000 new VARs worldwide.

“I want 3,000 to 5,000 globally next year,” he said. “We’re going to go to our distributors and ask them to help us recruit. We’d like to recruit Acer resellers; we’d like to recruit Hewlett-Packard resellers. We want guys who are focused in the small-business space.”

Lenovo’s plan to recruit 5,000 VARs comes just days after IBM announced a similar plan to go after 5,000 new business partners of its own. In fact, one of the prime targets of IBM’s recruitment efforts will be Lenovo VARs that have lost contact with IBM. Geier, for example, said that prior to IBM selling its PC business to Lenovo, he used to see his IBM rep at his business several times each week. “Now I don’t even know who my IBM rep is,” he said.

Patrice Mitchell, IBM’s vice president of global distribution channels, said aggressively re-engaging Lenovo VARs is “ priority one.”

Missing from Lenovo’s recruitment efforts, however, will be a small-business server to complement its new 3000 line of notebooks and desktops. Amelio said Lenovo has no plans to introduce a server in the United States any time soon. “It’s not one of our priorities,” he said. “We have a server business that’s going well in China right now. We are also going to work arm in arm with IBM to make sure that when we do launch, it’s complementary with what we are doing with IBM.”

Some Lenovo VARs said the lack of a server product shouldn’t hurt Lenovo in the short term.

“IBM is trying to get real competitive with the Dell [server] boxes,” said Dave Lindsey, managing partner at Summit Business Associates, a Richmond, Va., solution provider and Lenovo partner. “If I were them [Lenovo], I’d hold off and see how that war turns out.”

Others believe that by staying out of the server space Lenovo will be able to spend its time on the cutthroat desktop and notebook space.

“Then they can focus on their core competency. IBM does the server side well,” said Denise Arboleda, vice president of CompuLink, New York.

Lindsey, like other solution providers, said Lenovo’s fate would largely rest on whether the vendor can make its own mark as it seeks to step out from behind IBM’s shadow.

“People around here say, ‘Lenovo? What’s that?’ ” Lindsey said. “They are going to need some more name recognition before they can take off.”

Arboleda said she has already seen benefits from Lenovo’s attempts to lose much of the IBM legacy bureaucracy, including the ability to act more nimbly in competitive engagements. “They have come down and they compete better with the Dell market,” Arboleda said. “We are able to win large contracts now where Dell would win them year after year after year.”

While generally supportive of Lenovo’s changes to its channel program, she said she would keep an eye on the company’s treatment of back-end rebates to resellers—which she is hoping are not diminished. “On Lenovo, we hardly mark up, not even half a point some times,” Arboleda said. “As long as rebates and programs are adequate to make it worthwhile, it will be fine.”

But the bottom line for solution providers is that Lenovo’s emergence as a global channel-centric PC vendor with products and prices that match or trump Dell and HP means that they can re-enter the PC business after being pushed out by direct vendors. “This allows us to take back our customers,” said Ted Rieple, vice president of strategy and business development at MCPc, a direct market reseller in Cleveland.

Against this backdrop, Lenovo last week said it will lay off 1,000 employees and move corporate operations to Raleigh, N.C. In addition, Lenovo will move its desktop operations to China and take a restructuring charge of $100 million. The company said in a statement that the moves to Raleigh and China are designed to make its global supply chain and operations more efficient.

“Lenovo has shown actions that it is committed to building its channel relations and its brand with its latest new partner program and brand campaigns,” said Nicole D’Onofrio, an analyst at Current Analysis. “Although Lenovo is working to cut costs, we will continue to see Lenovo allocate resources to building their brand and channel development. If Lenovo can successfully create efficiencies in their business, everyone—including the channel—will benefit.”