Inside Lenovo’s Next Enormous Gambit

In his latest online column for Time magazine, Drucker Institute Executive Director Rick Wartzman writes about last week’s move by Lenovo to acquire IBM’s low-end server business for $2.3 billion.

“If there was a single piece of advice that Peter Drucker shared more often than any other with corporate executives,” Wartzman writes, “it was the need to ‘slough off yesterday’ in order to create tomorrow—which is exactly why he would find the Chinese computer company Lenovo Group so fascinating.”

Wartzman explains that many view the server market as being “on an inexorable downward slope,” in part because the acceleration of cloud computing has cut into server sales.

“This isn’t Lenovo’s first foray into a line of technology that has surely seen better days,” Wartzman adds, pointing out that the company purchased IBM’s personal-computer business for $1.75 billion in 2005—“a time when some forward-looking folks were starting to warn that new devices were poised to supplant the PC.”

So, Wartzman asks, “Why would Lenovo bet so big on things that appear, on their face, to be retrograde?”

By taking large market positions, Wartzman explains, Lenovo is confident that “it can find more and more efficiencies in development, manufacturing, marketing and distribution” and that there is still “plenty of money to be made” in both PCs and servers.

At the same time, Wartzman warns, “Lenovo will have to avoid the temptation of over-milking PCs and servers and, in turn, failing to invest sufficiently in tomorrow’s breadwinners—not just in terms of capital, but also focus, energy, talent and the fostering of a truly innovative culture.”

As Drucker declared: “The innovative company organizes itself to abandon the old, the obsolete, the no longer productive. It never says, ‘There will always be a market for a well-made buggy whip.’”