Vitamin Y: a new home for Lenovo Canada

Context: Lenovo cut the ribbon on new headquarters located in Markham, Ontario last week. Designed to house an expanding workforce in a collaborative work environment, the 37,000 square foot is contained on the building’s ground floor and features equal parts designated workstation and open concept, flexible use meeting space to support 200 workers. The office is equipped with a Microsoft Lync collaboration solution that delivers voice, video and conferencing capabilities, an Aruba Networks open wireless system and fibre-based connectivity. The new headquarters opened with a full lab onsite (rather than after thought) that can be used to replicate customer environments for testing and PoC of new technology solutions, a one megawatt server room and a meeting and showcase facility for Lenovo products. The company celebrated opening of its new home with continuation of its support for Habitat for Humanity – a $40,000 cheque for the organization that mobilizes volunteers and partners in the building of affordable housing to promote homeownership and break the cycle of poverty.

Three keYs:

Lenovo HQ interior
Lenovo Canada HQ interior

Location, location, location: the economies of agglomeration: In urban economics, the term ‘economies of agglomeration’ describes the benefits that a business may realize by locating near a like organization. So, for example, if a particular area of town becomes known for gardening retail, it makes sense for the next seed shop to set up digs in that locale as that where the customers will flock, where gardeners will look for work, etc. In the tech world, this phenomenon manifests in the technology park, and increasingly, in municipal development. Markham is a prime example of this type of specialization. Home to 773 tech firms and 114 life sciences companies, the city identifies as “Canada’s High-tech capital” and has made a concerted effort to attract businesses from these sectors as they provide opportunities for skilled employment: according to the city website, high tech and life sciences provide the majority of jobs in the municipality. So how do businesses benefit? Markham Mayor Frank Scarpitti, who attended the opening ceremony to help Colin McIsaac, managing director of Lenovo Canada, cut the ribbon on the new company headquarters, noted that since IBM Canada’s move to the region, city administrators and local industry associations have worked “to make sure that people recognize that Markham is a place where technology can thrive.” Specifically, Markham has the lowest industrial/commercial tax rate: “you pay less per square foot than our friends south of the border – approximately 40% less – and certainly we stand shoulder-to-shoulder with anyone across the GTA,” Scarpitti added. In his presentation, McIsaac asked “why Markham?” and answered with “its commitment to innovation” which drew associated companies such as IBM and Motorola Mobility to the area. Competitive real estate and power costs (relative to the Toronto downtown core), combined with access to a skilled labour pool that has congregated in the region are additional factors supporting the concentration of tech firms in Markham.

Supporting business momentum: Describing Lenovo origins back in 2005, McIsaac explained that the company did not initially have a clear vision of where exactly it wanted to go. Nevertheless, in a decade, Lenovo has become number one in PCs – “kind of old news now,” he added – number three in smartphones (after the acquisition of Motorola Mobility from Google), number three in “smart, connected devices, which is laptops, desktop and phone category,” and number three in servers with the addition of IBM’s System x server product portfolio to Lenovo’s existing ThinkServer business. According to McIsaac, the company is looking to transition from “our current position as a leading PC company to our desired goal, which is to be a leading technology company” through acquisitions, organic development, and growth strategies that demonstrate “bolder risk than was shown last January when we announced the intent to buy two businesses within 10 days [Motorola Mobility and IBM server line].” Expansion planning, particularly growth through acquisition, requires supporting investments in people and infrastructure. According to Stefan Bockhop, director of channel sales, Lenovo Canada, the team originally considered a 15,000 square foot space rear Warden and the 407 Highway as the location for its new Canadian headquarters, but was advised by the company’s US real estate resource that a larger space would be required due to acquisition of IBM’s System x business. But what is the best way to ensure that expanded growth potential translates to expanded revenue?

Stefan Bockhop, director of channel sales, Lenovo Canada
Stefan Bockhop, director of channel sales, Lenovo Canada

To do or not to do: balancing the need for channel renovation: Bockhop views recent acquisitions in terms of opportunity for Lenovo and for its channel network, the primary go-to-market approach for the company, which now consists of approximately 4,000 partners, ranging from national VARs and ISVs to local shops with the only IT resource in smaller towns. Noting that Lenovo was “already in the server business with towers and racks in the ThinkServer line, he explained that addition of the IBM System x products offers “diversification of product,” as well as opportunity “up the stack, higher into the data centre space.” This has been solidified through the establishment of relationships with VARs that had sold the System x line – Bockhop explained that these have all come over to Lenovo – who are not only trained and capable of presales in integration support for more sophisticated server products, but who also provide entre into enterprise accounts for other Lenovo products, such as end user infrastructure or the ThinkServer line.

For existing Lenovo channel partners, the company is removing former barriers to sale of the System x line, in order to support varied customer needs – for a tower device in the branch office, Bockhop explained, and a System x device in the data centre. To help these partners, who were likely more focused on the SMB space, develop the capabilities needed to sell more sophisticated server solutions, Lenovo has mounted a series of technology roadshows, webinars and online training sessions for partners (including certifications where it makes sense), in addition to cross training its own sales team. “Many of these partners know exactly what they need to succeed in a business discussion with customers, they know the technology…. what we’re doing is making sure that they have access to the information and tools [in a manner that] is as easy and free flowing as it can be.” To support more diversified sales on the part of all partners, and to encourage the channel to invest in learning about Lenovo, beyond expanded technology capability, the company is now focused on “offering that one channel experience”: the goal (by April 1st) is a single relationship, and a predictable, consistent process for engagement in sales motion, pricing, etc., regardless of the buyer’s technology solution. Aimed at simplification of the channel relationship, this tactic is also born of insight into partner businesses: “VARs can’t close their P&L if they don’t have a robust program stack – it’s not a business they can run profitably. So we can’t be yinging and yanging on the program stack because that can have an adverse effect on their financials. I don’t ever want someone to miss their payroll because my program changed. And we try to be fast – at the speed of an SMB customer, who may need to do things quickly.”

Distributor relationships have also been updated – Synnex is now able to sell the System x product line and Avnet and Arrow are now able to also sell the ThinkServer line.

The bottom line:

The opening of a new and expanded facility provides a good metaphor for Lenovo’s IT market position: with the System x business acquisition, the company is clearly poised for substantial growth beyond its presence in client devices and into the data center market that has traditionally viewed IBM as a major supplier. To extend this metaphor, in the same way that expanded premises prompt an enterprise to innovate and grow to fill an expanded footprint, Lenovo needs to deliver the programs and strategies necessary to translate the opportunities resulting from its acquisitions into increased account penetration. If the purchase of new products and services offers a quick ramp to company growth, it also challenges the acquiring organization to rationalize or build supporting infrastructure. Integration,  from both organizational and marketing perspectives, is critical to the success of the venture, especially when the new product that is obtained has synergies with the existing portfolio, as in the case of Lenovo’s acquisition of IBM’s System x business. As Bockhop described it, this process appears to be well in hand within Lenovo’s channel organization, and in Canada, appropriate investment has been demonstrated in the new commitment to growth that the Markham headquarters represents.

Lenovo Canada intends to continue its current course – the company’s client business is roughly four times the server revenue, Bockhop noted – however, to support growth is also looking to build its solutions capability. “If a partner wants to focus on client [devices], that’s great. But everywhere there is an opportunity to do an infrastructure solutions for the customer and something that has a Lenovo badge on it could help solve the issue, we want to make it as easy as possible for the partner, whether it’s in the data centre behind glass or whether it’s sitting on the CEO’s desk,” he added. In other words, rather than organically build an end-to-end solution, which would involve considerable, long-term investment to fill networking, management and storage gaps, Lenovo has adopted a more opportunistic approach that may be more appropriate at a time when many other technology companies are focusing, retrenching, dividing and divesting, while taking advantage of growth potential in selected areas. Did anyone mention servers?

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