Determining who should lead the newly merged company is a critical decision. Management and employee turnover is disruptive and adds stress to the organization as it integrates people and processes. The new Lenovo team recognized that leadership and the way they make decisions would mean the difference between success and failure.
Leadership Turnover. Lenovo split top management positions almost exactly in half between Lenovo leaders and former IBM leaders. As part of this change, IBM’s Steve Ward was assigned to be the integrated company’s new CEO while former CEO Yang Yuanqing stepped into the position of chairman. Most popular news sources evaluated this as a wise decision. One source stated that, “as they enter foreign markets, Chinese execs realize they lack essential skills. ‘China needs brand names, reach, logos, marketing, distribution — and the management that attends to all of those.’” In fact, a search for management talent may have in part motivated the acquisition as a whole. As CFO Mary Ma said, “We were simply finding a boss for ourselves.”
Lenovo has continued to choose leaders of various backgrounds and as of 2015, had seven nationalities represented on its top management board, an unusual accomplishment even among globalized companies. Upper management boasts upbringing and education from a variety of nations including France, Italy, U.K., Australia, and of course, the U.S. and China. Although study results are mixed with regards to the effectiveness of having diverse leadership, the findings of 53% higher ROE (Return on Equity) and 14% higher EBIT margins (Earnings Before Interest and Taxes) in the world’s most diverse companies as compared to the least diverse companies seems to support the idea that diversity can significantly add real financial value. Among other benefits, if nothing else, “employing nationals from the target countries may help forestall some of the ‘liabilities of foreignness.’”
In addition, Lenovo introduced a unique company-created position of “Chief Diversity Officer” in 2007 with the purpose “to ensure that Lenovo employs a broad array of talents around the world” as well to aide with cultural integration and awareness. Although at the time a Chief Diversity Officer wasn’t unheard of in other companies, Lenovo was the first Chinese company in any industry to staff this position. This allowed for clear upper management focus on cultural integration and signaled to both employees and the public that it was a top issue for Lenovo.
Employee Turnover. In the initial stages, Lenovo adopted a “parallel management” model for the acquisition, essentially treating the companies as two independently run branches. The only departments that were quickly integrated were those with functional purposes, such as HR and Finance. These efforts created a sense of security and continuity in the firm, which encouraged employee retention. One Lenovo employee stated, “We wanted them [employees from IBM] to realize our company was not a low budget traditional Chinese company… we kept the former welfare and salaries and didn’t cut off anything…” In fact, in the first year after the acquisition, the employee turnover was less than 2% allowing the company to retain intellectual talent. Eventually, with further integration in the Raleigh, North Carolina office in 2006, the company did have to execute some lay offs, which impacted 1,000 of the 21,400 employees at the time. These cuts were spread equally across all of the company’s geographical operating regions.
Large Power Distance vs. Small Power Distance. Chinese culture tends to prefer a “Large Power Distance” between high-level and low-level employees. This shows a strong preference for clear distinctions between classes or roles, and an expectation that higher management to be respected and knowledgeable. Confucian principles are in part responsible for this philosophy that is still in effect within the Chinese workplace:
“To this day, perhaps because of their Confucian heritage, East Asian societies, from China to South Korea to Japan, have a paternalistic view of leadership that is puzzling to Westerners. In this kind of “father knows best” society, the patriarch sitting at the top of the pyramid rarely has his views or ideas challenged. And though Asian countries have begun to move past these narrowly defined roles in politics, business, and daily life, due in part to the growing influence from the West, most Asians today are still used to thinking in terms of hierarchy. They tend to respect hierarchy and differences in status much more than Westerners.”
Although this mindset might be accepted in China, it is not a part of Western culture. The U.S. instead tends to be a low power-distance culture, preferring an “even playing field” between superiors and employees. Work is best completed and respect fostered if the boss is considered by the employees to be “one of us.”
Within Lenovo, “Western leaders talked more about the empowerment of the individual and tended to see traditional Eastern leadership as hierarchical and less flexible.” It appears that Yang Yanquing, who had originally set up the IBM acquisition deal and was re-established as CEO in 2009, recognized the existing power distances in the company and wanted to change them. He is “probably best known for his efforts to break down Lenovo’s hierarchies and empower employees at every level” even to the point where he divided his own $3 million bonus among lower-level employees. Additionally, “YY,” as he is called, made efforts to “Westernize” Lenovo as preparations were made for the IBM acquisition. Changes included dressing in a more Western style, receiving training on specific phone etiquette, and requiring employees to address leaders by their given name, rather than by formal title. Employees struggled to change their ingrained habits, but persistence prevailed. YY has been praised for these efforts to transform “the company’s culture from ‘wait and see what the emperor wants’ to a much more egalitarian, welcoming environment for colleagues from the West.”
Consensual vs. Top-down. The Chinese have a strong top-down decision-making preference. The U.S. tends to be mid-range on a world scale, which makes it seem consensual by comparison to the Chinese. Several U.S. Lenovo employees expressed frustration with the top-down directive approach of Chinese management. These employees described Lenovo as a “Chinese company fully directed by chinese execs [sic] that don’t understand the US or world market,” and stated, “It seems all the power has shifted back to Beijing”.
In contrast, it is obvious that the U.S. employees relied on a more consensual decision-making process. On Glassdoor.com, one employee located in North Carolina mentioned the following: “…lots of e-mails to process; lots of meetings to attend; decisions were made by group consensus.” Consensual decision-making was consistently employed at U.S. Lenovo locations. An employee said, “Sometimes its [sic] difficult to get decisions and directions approved because of the diversity of cultures.” Dealing with the contrasting approaches proved to be laborious.
Previous: M&A Synergies Framework—The Role of Behavior in the Lenovo-IBM Merger
Next: M&A Synergies Framework—The Role of Environment in the Lenovo-IBM Merger