SGI: A Lesson for Lenovo

Fourth Ring Road, Northbound
Beijing
1100 hrs.

Will sent me an interesting article from eWeek talking about SGI, basically saying that SGI was a leader at one point, but got whomped when it failed to catch key trends.

The article points out that there are lessons here for many companies. I would say Lenovo ranks high among them. Lenovo is missing some key trends in what it is doing:

• ThinkPads are back, but they are every bit as ugly as they were 10 years ago. The real contenders in this business recognize that people are no longer satisfied with the utility of their laptops – they want them to look good as well. I hear in my ear the voice of Henry Ford telling people they could have any color car they wanted, as long as the color was black. Al Sloan down the road at GM started offering pastels and other choices, and Henry Ford permanently lost the lead in the very industry it created.

• Computer sales and internet registrations in China are starting to plateau. This does not bode well for growth in China, which has been Lenovo’s traditional engine of growth.

• Lenovo’s traditional strength is in homes, IBM’s (in China, at least) is in large enterprises. but the real locus of growth for computers is small- and medium-sized business, a sweet spot that falls into the gap between the competencies of both organizations.

• The channels that account for a growing percentage of business – computer mall-based shops on the consumer side, small system-integrators for business – also have closer relationships to rivals. IBM has sold through higher-end shops and system integrators, and Lenovo’s focus has always been retail-based direct. Fundamentally, a channel organization is critical.

• There is no brand loyalty in China, so abandoning the IBM brand won’t cost Lenovo much here. But in the places where brand means a hell of a lot – especially if you want to be a little something more than a commodity, the decision to abandon the IBM brand is going to hurt Lenovo.

• Lenovo appears to have no strategy for building a customer base in the gigantic low-income market in Asia. China, for example, only has something around 20 million home computers and 108 million Internet users. That means 350 million homes without computers and 1.3 billion without Internet access in China alone – the issue is no less serious in India, Indonesia, the Philippines and elsewhere. And this is a market Lenovo is ignoring.

There has been a great deal of buzz in the business media lately about how vision has been overrated and execution overlooked. In the wake of the dotcom bust, there was plenty of evidence of that, and the discussion fell on receptive ears.

But overlooking vision completely on behalf of execution means that the ship is running smoothly, but you have no idea what the weather is and where you’re going. SGI gives proof to how dangerous that can be.

Lenovo is among the best-run companies in China, and with the expertise of IBM, has the opportunity to become the most operationally excellent company in the computer business. The only problem is, that’s not going to be enough to keep it out of SGI’s shoes.