International Business Machine

By Fay Hansen

Jul. 12, 2005

Bill Matson, an American, is now senior vice president of human resources at Lenovo Group, one of China’s largest companies, but he works from an office in the United States. Matson reports directly to the CEO, who is not Chinese but is another American, Steve Ward.

    And Ward’s office is not in Beijing, but in suburban Purchase, New York, where a distinctly American glass-and-steel box houses Lenovo’s global headquarters. Ward’s chairman and CFO are Chinese nationals. His COO, controller and senior vice presidents for sales, marketing and product development are Americans.

    Lenovo created this unique amalgam when it bought IBM’s personal computing division in a $1.75 billion deal announced in December, making it the world’s third-largest seller of PCs.

    It immediately offered employment to the IBM executive team and all 10,000 employees. The transaction closed on May 1. No one was asked to relocate, and virtually all accepted Lenovo’s job offer.

    “The attrition rate that we’ve seen is at or below the levels we’ve historically seen at IBM on a business-as-usual basis,” Matson says.



*2004 total does not include Lenovo’s IBM acquisition
Source: China Ministry of Commerce

Overnight, Lenovo quadrupled its revenue, doubled the size of its workforce and adopted the new model for optimal workforce management: buying up top talent on a global scale. With the IBM acquisition, Lenovo gained not only a powerful brand name, but some of the most seasoned IT executives in America and a worldwide network of highly skilled computer sales and distribution employees who know tax laws and invoicing practices in 66 countries.

    The acquisition signaled that corporations from the developing nations are ready to troll the world for the biggest business opportunities and the best employees along with their advanced-nation counterparts. The top pools of talent for Lenovo’s purposes are in Raleigh, Beijing and a hundred points in between.

    And in the virtual world where top management and knowledge workers now operate, there’s no need for the talent to go to the company. The company will come to them.

    Lenovo’s transformation puts it squarely in the ranks of the global corporations that increasingly operate without borders. Globalization has long been the half-truth of companies from the developed nations investing in the developing countries. Now the flow is moving both ways.

    Powerful corporations are tapping talent wherever they can find it and building a truly integrated global workforce. And forget about culture clash. When billion-dollar investments and market share are at stake, business imperatives trump cultural differences.

    “Many companies operate abroad but are not truly global,” notes Robert Freedman, president and CEO of ORC Worldwide, an international compensation consulting firm in New York. “Global means that you source wherever is affordable, set up manufacturing in the best cost locations, sell in as many markets as possible, sign on talent wherever it is located and develop the top people regardless of where they are from.”

    U.S. media coverage largely missed the significance of the Lenovo-IBM deal. While it may be more titillating to talk about the potential for a culture clash when a Chinese company buys a U.S. firm, the dull truth is that successful global corporations look a lot alike and manage their employees in ways that have far more similarities than differences.

Globalization has long been the
half-truth of companies from the developed nations investing in the developing countries.
Now the flow is moving both ways.

Smooth transition
    With its IBM acquisition, Lenovo morphed into a powerful international player with worldwide markets, global HR objectives and employees selected to meet the specific needs of the organization at its precise stage of development.

    Lenovo’s board handed the company over to Ward because it knew that he had the right skills for establishing Lenovo as a global company and moving it into new markets. And despite the media’s tendency to linger over the image of American workers now on the payroll of a Chinese organization, IBM’s U.S.-based PC employees recognized the benefits of being part of a global labor market, and embraced the deal.

    At this point in the history of the two companies, they are more valuable to Lenovo than they were to IBM.

    “When the announcement was made to the Raleigh employees, the audience broke into spontaneous sustained applause,” Matson recalls. “These are employees who had worked for IBM for their entire careers, but they see Lenovo as a market leader in China that has grown dramatically over a relatively short history, and recognize that this company is making an enormous investment to create that growth on a global scale. They’ve watched the evolution of IBM’s business, and they know that PCs are no longer part of its core.”

    Less than 24 hours after the two companies announced the acquisition on December 8, the human resources department at IBM’s PC division released a 59-point question-and-answer memo to employees informing them that they would become employees of Lenovo, their compensation and benefits would remain identical or fully comparable to their IBM package, and they would not be asked to relocate.

    The memo covered everything from salaries and bonuses to tuition reimbursement and corporate charge cards, down to the last detail.

    The memo also made it clear that employees could accept employment with Lenovo or leave, with no separation pay. IBM would not consider them for a transfer within IBM or recruit or hire the new Lenovo employees for two years. As Lenovo opened a new door for them to join a high-growth company fully committed to personal computers, IBM–determined to complete its transition to business services–quickly closed it behind them.

    Although the acquisition involved two companies from radically different cultures and employees scattered across six continents, the workforce transition was a nonevent. Matson led the effort to hand all 10,000 IBM employees over to Lenovo and polished off the entire project in a matter of months.

    Of the 2,400 employees based in the U.S., 1,900 work in Raleigh’s research park, where 40 percent of all employees already work for foreign companies. Four thousand are based in China, were IBM has maintained large manufacturing, procurement and distribution facilities for many years, and the remaining 3,600 work in IBM sales and distribution centers around the world.

    Matson uses the same set of principles to guide workforce management in all locations. “It’s easy to overplay the idea that this is a Chinese company purchasing a U.S. company and the whole notion that China will run the world someday,” he notes. “But it’s important to recognize that Lenovo’s headquarters are in New York, and its management is as global as any organization in the world.”

“As an HR executive, you have to be good at unlocking the power of the talent within your global organization. You have to establish the broad principles of how you want to manage your business, but then you have to be very astute about how those principles are applied in each local market so that you remain responsive to the needs of people in different environments.”
–Bill Matson

    To smooth the transition, Matson launched an extensive communications program that included biweekly e-mail updates to every employee, a series of town hall meetings, seminars to help employees with financial planning as they moved into the new organization, more seminars on the benefits plans and an ongoing intranet.

    “We’ve delivered on the promise that there will be consistency,” Matson says. “But it’s the promise of additional growth that we’ve brought to them as a vision. Employees are excited because they can see the opportunities that come from growth and the potential in the organization and what that means to them.”

Global integration
    Lenovo left the IBM PC division’s human resources staff in place, with a substantial number of HR professionals in Raleigh, London and Sydney, Australia, as well as a small team in Purchase to focus on strategic issues. “We also have some very good HR people in China, so we are a truly global HR team, consistent with what we had under IBM and with the philosophy and approach used by IBM and by any number of multinational companies,” Matson says.

    “The fundamentals or principles of how we transitioned people to the new organization and the design and structure of our policies and practices were driven at a global level, but we have a strong team of people around the world–both former IBM HR managers and people from Lenovo–who executed the policies and ensured that the transition was properly managed in every country,” he says.

    “As an HR executive, you have to be good at unlocking the power of the talent within your global organization,” Matson adds. “You have to establish the broad principles of how you want to manage your business, but then you have to be very astute about how those principles are applied in each local market so that you remain responsive to the needs of people in different environments.”

    Lenovo and IBM designed their deal to advance the global interests of both companies in prime markets. Lenovo gained immediate access to the U.S.; IBM gained an 18.9 percent share in Lenovo, adding to its already huge holdings in China. The acquisition also designates IBM as the preferred services and customer-financing provider for Lenovo worldwide.

    With Lenovo now well-positioned to hold its spot as the dominant personal computer company in China, IBM will ride its coattails into a larger portion of the lucrative services business there.

    The Lenovo deal is part of IBM’s established pattern of building close ties to the host government and local companies as it expands into new markets. IBM is now Lenovo’s second-largest shareholder, behind the Chinese government, which owns 46 percent of the company.

    IBM has long been a truly global corporation, with clients in 174 countries and 60 percent of its 320,000 employees outside the U.S. Like many U.S.-based corporations, it has known for some time that the engines of growth lie beyond its home market. Last year, its revenue growth slumbered in the U.S. but topped 75 percent in Russia, 45 percent in India and 25 percent in China.

    IBM’s China operations include fully owned subsidiaries, joint ventures and partnerships with hundreds of Chinese vendors. With China’s IT market expected to double from $24 billion in 2004 to $48 billion in 2008 and eventually displace Europe as the second-largest in the world, the Lenovo deal provides IBM with a tighter grip on a rapidly expanding market.

    IBM uses its innovative “on demand” workplace to facilitate global collaboration among its employees through an intranet that carries 3 million instant messages and 1,400 e-meetings every day. The company’s research workers are spread across labs in the U.S., India, Japan, Israel and Beijing, all collaborating through the seamless system that it provides for its talent around the world.

Overseas leadership
    As Lenovo demonstrated when it filled its executive suite with Americans, corporations are increasingly looking abroad to staff the top tiers of their organizations. India’s Tata Group, now a $14 billion global conglomerate, runs four of its companies with U.S. and U.K. executives. Japan’s Sony Corp. broke 60 years of tradition on June 22 when it installed its first non-Japanese chairman and CEO, Howard Stringer, a former CBS president and U.S. citizen born in Wales and educated at Oxford.

    U.S.-based global companies also increasingly draw executive and managerial talent from overseas. A new study of the largest U.S. companies by ORC Worldwide found that on average, 24 percent of the top managers–the highest 100 to 250 people in the company–are from outside the U.S. For European corporations, the average is 40 percent.

    Expatriate managers also have a different look. Companies are using more expatriates, but they are drawing them from all of their locations, not just the home country. Over the past seven years, the average number of employees of all nationalities working abroad for North American companies has risen by 55 percent, according to ORC. At the same time, the portion of these expatriates who are from North America has declined from almost three-quarters to just over half.

    “Ten years ago, American companies sent Americans abroad,” Freedman says. “Now a more global mind-set is in place. U.S. and European companies are more inclined to send their Asian third-country nationals to China. And companies everywhere are more inclined to use Europeans than Americans.”

    This more global approach to recruiting managerial talent and deploying expatriates is still limited, however, by the tangled web of national laws and regulations that inhibit full mobility. “When the laws become more borderless, the corporations will become more borderless,” he says.

    As more companies from the developing nations invest abroad, the mix of talent at the top will become more international. Only a decade ago, foreign direct investment flowing out from the developing countries was negligible. Last year, it reached $40 billion, according to the World Bank.

    Matson notes that the days when companies could focus on a single market are over. “Within the human resources profession, this means that we’ll see a continued focus on people who can operate effectively on a global scale,” he says. “Many organizations have been ‘global’ for many years, but if you look closely, you’ll see that they really operated in many different countries as almost separate franchises, loosely confederated. The future will require a much closer interlock.”

    Lenovo’s IBM acquisition marks the new reality that corporations from both the developed and the developing worlds invest on a global basis, keep costs low by using low-wage labor in the emerging nations, and increasingly recruit managerial talent and knowledge workers on an international scale.

    Managing a workforce that supports global innovation, market share and profitability now fills Matson’s days at Lenovo, just as it did at IBM. Technically, he is a foreign national working for a Chinese company, but he looks much more like a global executive at a new worldwide industry leader.

Year Total Employed in U.S. Employed in foreign affiliates
1995 24.5 million 18.6 million 5.9 million
1996 24.9 million 18.8 million 6.1 million
1997 26.4 million 19.9 million 6.5 million
1998 26.6 million 19.8 million 6.8 million
1999 30.8 million 23 million 7.8 million
2000 32.1 million 23.9 million 8.2 million
2001 31.1 million 22.9 million 8.2 million
2002 30.5 million 22.2 million 8.3 million
2003 30.1 million 21.8 million 8.4 million
Source: U.S. Bureau of Economic Analysis

Workforce Management, July 2005, pp. 36-46Subscribe Now!

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