In a global operating model, IT must deliver the efficiencies of standardisation but respect local business needs. Lenovo CIO Xiaoyan Wang describes her strategy.
Lenovo's 2005 acquisition of IBM's PC operation set up a far-reaching business challenge - how to create a new global operating model that would meet two critical goals. The first was effectively managing the company's business diversity: a range of customers in more than 160 countries, two distinct product brands, and multiple marketing models. The second was how to meet senior management's desire for greater standardisation and efficiency by consolidating supply chains and financial management and coordinating product sales more tightly.
For Lenovo's IT organisation, charting how to support the new operating model was daunting. Inherited legacy IT systems had to be replaced by an enterprise resource planning (ERP) system that could foster standardised processes yet remain flexible enough to handle important variations in local markets. Rolling out a global IT system is an enormous challenge that many CIOs have taken on but few have managed to pull off.
Xiaoyan Wang became Lenovo's CIO in 2009 to lead the company's global transformation. She understood that to introduce it on time and on budget, she would have to prioritise tasks and wouldn't be able to accommodate every business demand. Her slogans became "Schedule is king" and "100 percent IT solutions aren't possible".
McKinsey's Kevin Wei Wang, a principal in Shanghai, sat down with Xiaoyan Wang at Lenovo's headquarters in Beijing and discussed what it takes for a CIO to lead this type of transformation and Lenovo's progress to date.
McKinsey: What were Lenovo's strategic goals in launching this transformation?
Xiaoyan Wang: First of all, we needed to migrate from multiple sets of legacy IT systems onto one strategic platform using SAP. In the meantime, we wanted to provide the IT solutions to enable the company's global operating model, which offered new business capabilities, such as management of global accounts and electronic transactions with our channel partners.
McKinsey: What were the key challenges Lenovo faced during this ambitious transformation?
Xiaoyan Wang: It was challenging in a number of ways. The legacy IT systems we inherited had high maintenance costs and could no longer support new business capabilities after running for more than 20 years. So there was an urgency to migrate from them. At the same time, we had no system ready that could support the new operating model. Our SAP system in China was a good base, but it needed to be enhanced so it could support our diversified customer base and our global back-end operations. The PC market, of course, is very dynamic, with razor-thin profits. So we have to link our IT transformation road map closely with business priorities and adjust when necessary. Finally, our people were from different cultures and were just learning to work with each other, while most of us were new to a transformation on this global scale.
McKinsey: One of the big stumbling blocks to implementing ERP systems globally is that they are either too centralised, and thus diluted in terms of local impact, or too local, and thus very complex. How have you approached this problem?
Xiaoyan Wang: The key has been balancing the demands of operations such as finance and the supply chain that can be globally standardised with those of areas such as sales and marketing, which have specific local requirements. For example, the PC industry is global, with commoditisation of products and pressure on margins. So you need to leverage the global scale of manufacturing and supply chains. Similarly, sourcing components and manufacturing in Asia while delivering to customers in the US means centralising information systems to get accurate product cost and supply chain information when executing global order transactions.
At the same time, we need to acknowledge that there are still regional differences in our markets, involving requirements for customer interactions, go-to-market structures, and pricing practices. For instance, we have well-established business practices for working with channels in China, while in the US our business relies mainly on direct sales to business customers, which have very specific requirements on how they want to make PC purchases. So our IT systems need to have the flexibility to deal with local requirements, such as opportunity management and pricing approvals. To do this, we chose to deploy one instance of SAP to support the global operating model while allowing some justified differentiation that is needed to operate in different geographies.
McKinsey: How did the IT leadership decide on the road map and timetable?
Xiaoyan Wang: When we defined our road map, we found there really wasn't a highly relevant industry case for us to follow. We learned that it normally takes five to seven years to replace a global IT system of a similar scale, even without the complexity of post-merger business integration that we have faced. But we chose that time frame as a target.
The path we chose started with an upgrade of our China IT platform to make it a solid foundation to support the overall global operating model. We piloted the system template for factories with our Shanghai plant and used a pilot in Canada to create the templates for sales. Then we moved on to areas that required global standardised operations, such as the supply chain and finance, separating them from their legacy systems. For sales and marketing areas where local differentiation was important, we prioritised emerging-market countries, where requirements were lower and there was a business need to move urgently. Our next push will be in mature markets, where complexity is higher and there's a demand for IT capabilities that support more sophisticated types of sales interactions.
We agreed to do all of this within the boundaries of IT funding constraints, knowing we would have to deal with the tough cycles of the PC market. So we had to slow down for three quarters during the 2008-09 recession.
About the author
Kevin Wei Wang is a principal in McKinsey's Shanghai office
This article was originally published in The McKinsey Quarterly www.mckinseyquarterly.com Copyright © 2011 McKinsey & Company. All rights reserved. Reprinted by permission.
By Kevin Wei Wang © The McKinsey Quarterly, August 2011