Lenovo CIO: why we've been moving to a services model

Lenovo is the biggest PC manufacturer in the world, but it also produces phones, servers and enterprise storage hardware. Services are the glue that hold it all together, says Art Hu

When most people think of Lenovo, a single product comes to mind: the ubiquitous ThinkPad laptop. One in every four notebooks in 2019 was made by Lenovo, according to some figures. For a few people, Motorola phones, the fruit of Lenovo's acquisition of Motorola a decade ago, might be top of mind; and Computing's readership will likely be aware of Lenovo's increasing presence in the data centre, first through its 2014 purchase of IBM's x86 server business and later through storage. Storage revenues grew an astonishing 345% year-on-year, according to Forbes, a figure surpassed only, albeit from a near standing start, by TruScale as-a-service at 600%.

"We've been really diversifying from a PC-only company into PCs and phones, edge and data centre," said Art Hu, Senior Vice President and CIO, Lenovo and Chief Technology and Delivery Officer Solutions and Services Group, Lenovo.

"It's very natural, because we are able to extend our hardware expertise and say it covers client side, it covers edge, it covers cloud, it covers the data centre."

The strategy has proved judicious, particularly given the slump in the PC market. Revenue from the non-PC businesses is now 40% of the $71 billion total, fuelled by Lenovo's Infrastructure and Solutions Group (ISG) and the Solutions and Services Group (SSG), of which Hu is Chief Technology and Delivery Officer (CDTO).

Services represent an increasingly important part of the business, according to Hu. Like the move into the data centre and phones, the journey from hardware to hardware-plus-services has been a natural progression, since businesses want joined up solutions rather than just tin: "Customers are really asking us to be there."

SSG, which already generates more than 10% of Lenovo's revenues, operates "like a big startup," Hu said. "We're a small fish in a very large pond. And because it's a fundamentally new business model we have tried to think like a startup, because we have to build new processes."

The journey to services, which Lenovo began four years ago, has required a significant cultural and organisational transformation. SSG acts "like the glue" to join together the company's hardware products, but you can't just copy-and-paste one business model onto another and expect it to work, he explained.

"Suddenly, it's OK, I want to sell some software, I want to sell some third-party solution or third-party hardware. Now, how do I price that? How do I get quotes? And how do I assemble that? So all that goes into the muscle building of a new business."

What customers want

The entire shift has been driven by changes in what customers want, said Hu.

"For example, our customers wanted us to support non-Lenovo devices. That was really hard for the company to work through. 'You mean, you're going to resell devices from another vendor?' That would be crazy, right? But it's only crazy if you think like a hardware company. If you think as a services-led company, it's the most natural thing in the world."

But that change is not something that just happens.

"It's definitely an area where Lenovo has had to do some learning and growing in our transformation journey from PC maker into a technology solutions provider."

Others have travelled a similar road, notably IBM, the acquisition of whose laptop businesses (Lenovo was previously an IBM OEM) marked the global expansion of the Lenovo brand. Does Lenovo keep an eye on their progress?

"Why wouldn't you learn from the people who've done it?" said Hu. "But you still need to be thoughtful in applying learnings to the context."

The context - ESG and AI

The context for the changes that Lenovo and other hardware vendors are undertaking contains many elements: the continuing move towards the as-a-service/Opex model in almost all areas of enterprise IT; hybrid cloud; increasing regulation around data sovereignty, privacy and security; and the need, underlined by the pandemic, for businesses of all types to be ready for the unexpected.

Hu mentioned two themes in particular that have risen in importance.

The first of these is ESG. Lenovo has been on a sustainability footing for a while, he said, but SSG brings those efforts together and provides economies of scale. Having one of the world's most extensive supply chains gives it the capacity to apply reverse logistics for asset recovery, recycling and recovery, as well as in calculating the carbon impact of its activities at various steps.

This informs changes in its activities from sustainable packaging to low temperature solder and recycling. The company publishes an annual sustainability report to track these efforts.

It is now offering these capabilities to customers, said Hu.

"What's new is that we're really offering a lifecycle for calculating how much carbon you can use and save, making sure you can reclaim the machines in an efficient way, and that you can get value from it afterwards. It's making that turnkey, so it just works. We've made it much more seamless for CIOs to meet their targets."

The second, of course, is automation. With the advent of ChatGPT et al. there has been a surge of investment in AI, but the underlying trend has existed for a lot longer, as CIOs seek ways of doing more with less.

AI means more compute, which is good for hardware vendors like Lenovo, but it's also starting to appear in all aspects of service delivery too.

"It's such an active space," said Hu. "The demand is there. Customers are saying 'all this stuff is happening, how do I sort through it all'? So we are bringing turnkey solutions that will work quickly for your vertical and your industry specific business case."

However, in view of the inevitable hype, businesses should not see AI as a cure-all, and CIOs should not automatically acquiesce to management demands to "get some generative AI."

"We have to keep it grounded and ask 'what can it do that I couldn't do before'," said Hu. "And you also need to understand what it doesn't do."

Generative AI can help improve the user experience and customer satisfaction, for example by translating instructions into a native language or otherwise smoothing the pathway to understanding or delivery. But it may not improve the quality of a service.

"The critical path to that probably lies elsewhere".

With those caveats, though, Hu sees AI as a huge and transformative part of the future and says it will find its way to everything: "We're still right at the start of the curve."

Lenovo has committed $100 million to investing in AI startups through its AI Innovators Programme and has integrated the technology in every part of its business.

US - China tensions

Lenovo is perhaps the most globally diversified of tech companies. Established in Beijing in the 1980s, it has dual headquarters in China and the US and operations and IP spread all over the world through acquisitions. This decentralised setup, plus its use of standardised technology, has helped it duck most of the brickbats in the ongoing political tensions between the US and China.

"We've got strong heritage from many elements, and we're proud of all of them," said Hu. "If you look at our executive committee, we have teams from China, from Europe, from the Americas, everywhere, so we really are global.

"Obviously, there's a lot of volatility, and for a variety of reasons. We are aware of that, and we recognise we operate in a global environment, which means we have to have robust capabilities to help support our customers, wherever they are. But I'm not a politician. We're business people, right? We're here to serve our customers, and to build their capabilities."