How Lenovo is making the transition into services

Major enterprise IT suppliers have been doubling down on services, making their offerings available on a subscription-based, pay-per-use basis and positioning themselves as one-stop shops that offer a suite of hardware, software and applications managed on behalf of their customers.

The shift toward services is being driven by more enterprises that are looking for outcome-based IT services that offer the flexibility and agility of public cloud services where users pay only for the IT resources they use.

While Hewlett Packard Enterprise (HPE) and Dell Technologies have been staking their claim in the “as-a-service” space since early on, Lenovo only started to make a deeper push into services through its TruScale offering in 2019.

On a recent trip to Asia, Wilfredo Sotolongo, chief customer officer of Lenovo’s infrastructure solutions group, spoke to Computer Weekly about the company’s growth strategy, its service-led transformation and the impact of the pandemic on its business. Here are his answers to our questions.

What is on your mind right now as you are travelling across the region?

Sotolongo: During this trip, I’m watching what progress we have made in our customer intimacy and customer relationships over the last three years. My observation is that while the pandemic has kept us apart, forcing us to interact virtually, in some places, we’ve tightened those relationships and created more intimacy with our customers. Lenovo customer-facing teams are now better than they were three years ago, listening carefully to customer pain points and needs, and then designing solutions for them.

I am also looking for evidence of where this market is going. The market has been booming over the last year, and at some point it will stop booming because every market goes through cycles. So, I’m looking for evidence of what would be the trigger for that. We are in an upcycle now, especially in Asia-Pacific, and so far I don’t see evidence of a slowdown, but I’m looking for that.

While you’re looking for answers to that, what is your go-to-market strategy for the Asia-Pacific region?

Sotolongo: We’ve got three primary strategies – one has been going on for a long time and two are relatively new. The first is what I talked about, which is the ability of our datacentre teams to develop greater intimacy and provide more solutions to clients. We also launched two new initiatives in the last 12 months – One Lenovo and service-led transformation.

Today, we have a datacentre division, a PC division and a phone division, with an overlay services group. And we execute in front of our customers, independent of each other. The great advantage of that is you have focus and disciplined execution. The disadvantage is you cannot aggregate different components of your portfolio to create solutions.

One Lenovo flips the model on its side and enables us to create complete solutions spanning the phone to the datacentre. We began the journey over a year ago and we already took a definitive position and transformed the channel. So today, we have a single channel per market team. We face distributors and resellers as one organisation. We are now running a pilot in India for One Lenovo. If that goes well, we will flip the operating model in other markets some time next year.

We’ve had so many restrictions on supply coming from so many different places that it’s a nightmare in terms of supply planning. I think we did better than our competitors, especially in the first three quarters. We did not do that well in last quarter because of the China lockdowns and we have a dependency on China that hurt us

Traditionally, Lenovo has been a hardware solutions provider with little services, software and solutions content. So our service-led transformation is about having capabilities within Lenovo to deliver services built on assets we already have. We’ve created a new services and solutions group which has a mandate to grow at twice the rate of growth of the company through as-a-service offerings like TruScale and industry offerings for industries like retail and manufacturing.

Are you doing anything differently in this region?

Sotolongo: Besides the One Lenovo pilot in India, we’ve also had success with high-performance computing (HPC) in Asia-Pacific. With focus, we’ve finally cracked the code in HPC, winning customers such as the Korea Meteorological Administration and Australia’s National Computational Infrastructure. The other one is TruScale, which started as a datacentre offering but now includes PCs. We haven’t really led into the market with our services offerings until last year or so, but we’re beginning to see traction since we started to put priority on it.

Your competitors, such as Dell and HPE, are also doubling down on as-a-service offerings. How are you convincing someone to go with Lenovo versus other offerings in the market?

Sotolongo: I think the reality is, I don’t need to convince them. Customers made the bet on a new model of technology consumption years ago, starting with the cloud and all the variations, whether it’s multicloud or hybrid cloud. So, they’re on their way and we just had to show up. Right now, I would say at least half of my customer conversations include some kind of as-a-service question. It’s not because I have the offering; it’s because they’re looking to acquire and consume technology this way.

HPE started way before we did, but we’re catching up very quickly. We are definitely the underdog here. Many times, we were surprised by doing better than most people expect. We have a very simple offering. The current one is based on power consumption, but we will also have other metering measurements. We are differentiating by showing up a year ago, when we were not even showing up.

Look, the base hardware is from Intel or AMD, and while their designs are slightly different, they don’t make a big difference. The difference is: who’s across the table, listening carefully and trying to build a solution for your needs? And then, who are the individuals and what is the technology stack you’ve built to deliver on that service? Because in as-a-service, you’re no longer selling a piece of hardware. You’re selling an SLA [service-level agreement] and you’re more embedded in the relationship. If a virtual machine goes down, you’ve got to figure out why and fix it, because there are penalties.

For some years now, Lenovo has been positioning itself as more than just a supplier that ships boxes. Have you overcome that perception of Lenovo as a hardware company?

Sotolongo: We’ve made significant progress, but it’s not enough. I’m not satisfied, and I want to do more. And by the way, it’s not just my problem, it’s also a problem for the other guys. Back to your question on what’s on my mind, I’m thinking about whether we are deepening relationships, building intimacy, and you don’t build any of that by having a box conversation.

How would you know you’ve got there in terms of convincing customers that Lenovo doesn’t just ship boxes?

Sotolongo: For sure, it will be through our financial results, market share gains and margin expansion. We’ve been gaining share now for almost three years, and we’ve had margin expansion for the last three years. Still, I’m not happy.

The other indicators would be things like the nature of the business we get called to talk about. Are we getting called to talk about supplying a server configured in a certain way at the best price? Or is it about how to deploy a remote office, branch office or an edge solution?

I had lunch with a customer here in Singapore where we first talked about the hardware, but they later opened up and told us they were going to deploy more advanced AR [augmented reality] and VR [virtual reality] technologies, endpoint devices, and device management software. That’s a different conversation. That’s a way to measure. So, on the one hand, I was delighted that I visited our customer; I was even more delighted when they opened up for new use cases that we don’t normally see in the datacentre space.

How have supply chain disruptions and chip shortages amid the pandemic affected your business and relationships with customers?

Sotolongo: At least three different ways. First, customers are consuming more technology than we ever predicted. The demand last year was stronger than predicted. And so far, this year is stronger than predicted. I’m sure you agree with what I just said, because all of my competitors are saying it.

But at the onset of the pandemic, everybody was nervous of the opposite effect, where economies were going to go into recession and customers were going to stop spending and the world economy would collapse. That was a concern back then. In fact, it did collapse for a couple of months. And now, here we are two and a half years later, we just experienced the most powerful demand in years. That’s the first change.

The second change is the supply chain, which is related to demand, but the difference is, we’ve never experienced a supply chain disruption at the chip level. All the supply chain disruptions in the past were at the subsystem level, like hard drives where a flood somewhere took out some factories, but not resistors or power control chips.

We’ve had so many restrictions on supply coming from so many different places that it’s a nightmare in terms of supply planning. I think we did better than our competitors, especially in the first three quarters. We didn’t do that well in last quarter because of the China lockdowns and we have a dependency on China that hurt us.

The last is, frankly, we have proven that, as a society and as a company, we are very resilient. We figured a way to do virtually so many different things that we never thought we could do. We conducted 100% of our business virtually in the past two years. The desire was to operate in a whole new way. We’ve started to see customers face to face in the last six months. We’ve sold more than we have ever sold. We’ve supported more than we’ve ever supported. To me, it’s a very inspiring story about society and people.

The pandemic has worsened talent shortages and many companies are finding it harder to find the talent they need. What are your thoughts on the situation? How is Lenovo overcoming talent shortages?

Sotolongo: We all face talent shortages in this industry because it’s a fast-growing industry. But generally speaking, it’s not been too bad in terms of our ability to find people. There are certain areas where it’s much harder than others. For example, in the area of hyperscale sales, where we need people who interact with hyperscale customers, there are very few qualified people.

We also face challenges in customer-facing roles, but it’s no more different than it was four years ago. That said, different markets have different characteristics and I think we do better in hiring people in Singapore, Malaysia and Thailand than we do in Taiwan and Japan. But that has to do more with how a typical Japanese or Taiwanese views Lenovo, so there’s a geopolitical aspect to it.