Why did this transaction make so much sense?

As an ex-HP manager, I was struck by the contrasting strategic intents behind HP’s acquisition of Compaq and Lenovo’s acquisition of IBM’s PC unit. HP mostly justified its Compaq acquisition on cost savings. Lenovo bought IBM’s division because it saw a tremendous growth potential by extending its already strong Asian presence with a world-class PC brand. Lenovo focused on growth. HP focused on avoiding being killed by Dell.

Secondly, IBM didn’t just sell off the division and wash its hands of the PC business. They pumped in some of their finest talent and put the IBM logo behind the new business venture for five years because they knew that if Lenovo succeeds it will result in greater upsell opportunities for IBM’s enterprise services and software products. Which approach wins remains to be seen. Of course, we’re five years into the HP/Compaq merger and Carly Fiorina (ex CEO) is being vindicated judging from the latest stock prices. And Lenovo is only a little over a year into the acquisition. Yet something tells me that Lenovo is going to hit this one of the park.

Why is the integration going well?

One of the reasons there was such vitriol in the HP/Compaq merger was that key stakeholders, virtually all the employees and even key board members like Walter Hewlett, felt that the two companies had very very different cultures and values. HP was highly de-centralized and valued engineering excellence, consensus, and teamwork. Compaq was more command and control oriented, and valued sales, marketing, and aggressiveness. The IBM/Lenovo deal was built on many common core values: trust, respect, innovation, compromise, and relationship. Integration is far more effective when the cultures blend harmoniously.

What do you do when the sub-brand (ThinkPad) is more powerful than the master brand (Lenovo)?

Advani said their brand strategy had to deal head-on with some perception challenges. Right or wrong, China ownership, Advani learned quickly from his customers, implied human rights issues, cheap prices, and low quality. So his brand strategy had the following phases:

1. The ThinkPad you love will continue.
2. Lenovo will only make the ThinkPad better through innovation.
3. Lenovo is about building the “best engineered products”

Advani said “brand essence is uncovered not created”. By that he meant that they looked deep inside to see what they valued the most, what they treasured, what they believed, and what they would fiercely defend. And that investigation revealed their love for the best engineered products.

Lenovo’s brand building campaigns have already started and will initially focus on the small, medium sized businesses rather than consumers. Their advertising execution is edgy and innovative. Checkout this tape which Lenovo launched as viral marketing and it's hot on YouTube. Advani also examined every customer touch point to ensure that the customer experience matches the brand promise, or as Advani says, “that the product delivers the goods.”

What lessons can we learn from all of this?

• Not a new lesson but one we seem doomed to have to learn again and again: cultural alignment is absolutely essential to realizing the full potential of a merger/acquisition.


• Brand building depends on a deep understanding of the company’s core values, beliefs, sense of self, attitudes, and aspirations. Don’t outsource and abdicate this process but rather engage a firm that will help you discover and articulate your identity.


• Marketing must own aligning the customer’s experience with the brand promise at every customer touch point – advertising, website, sales, support, training, financing, repeat purchase, etc.

Hi Sridhar:

I've just read your review of the CMO summit you were at. Your description of Lenovo's messaging activities put me in mind of a set of ads I saw from Intel recently. Specifically I was reminded of the difficulty in understanding what you're trying to say to customers, and putting out a tight message around it.

Check out

http://www.intel.com/vpro/pebkac.htm?iid=vpro_home+spotlight_pebkac

Check Pebkac #7, #9 and #13. It would be nice if more tech firms put out messages this succinct. These short videos capture the essence of every network admins headaches.

Steve

Posted by: Stephen Seal | October 10, 2006 8:18 AM

Sridhar --

It was great to meet you at the summit. I agree that this year's summit was less interesting than last year's, especially since it was so focused on consumer marketing and brand building.

I've listed my own summary and highlights from the conference at:
http://modernb2bmarketing.blogspot.com/2006/10/highlights-from-2006-cmo-council-summit.html

Posted by: Jon Miller | October 11, 2006 9:55 AM