Lenovo evolves to captilise on data center market disruption

Demand for improved IT productivity and the subsequent 'major evlutions' of business models from companies such as DELL EMC and HPE has cteated an opportunity for Lenovo to expands it share of wallet and attract new customers.

That's according to Krista Macomber, senior analyst at Technology Business Research, who says as customers investigate alternate infrastructure with which to update their data centers, and as Dell EMC and HPE remain in the process of revamping their business models, Lenovo has opportunity to grow its data center hardware installed base.

"Lenovo has alliances and supply chain processes in place as well as a technology vision that will help it capitalise on this opportunity," Macomber explains.

"However, the rapid pace at which the industry is transforming adds urgency for the vendor to preserve its standing as one of the world's largest data center infrastructure providers by bolstering its portfolio of next-generation IT solutions and overcoming go-to-market challenges.

As outlined by Lenovo executives during the company's annual Data Center Group (DCG) Industry Analyst Council (IAC) summit in September 2016, Lenovo's go-forward data center strategy centers on supporting customers during their digital transformations as a trusted partner, Macomber says.

The company's DCG aligns around five key pillars to achieve this objective:

· Cultivate a complete data center portfolio from an infrastructure perspective;

· Build out capabilities in next-generation IT areas such as converged infrastructure and hyperscale servers;

· Invest in purpose-driven innovation, rather than innovation for innovation's sake;

· Provide solutions, as opposed to point products, that are customer-centric;

· Maintain a broad and open ecosystem of partnerships.

"TBR believes the Lenovo DCG core strategies are sound and reflect an understanding of the scalable, softwaredefined and service-oriented IT environments, as well as the longer-term, relationship-based and workload-focused selling models data center customers are migrating to," she explains.

"During Lenovo's DCG IAC summit, company executives outlined partner-supported technology development and go-to-market road maps TBR believes will enable the company to improve its execution on these strategies.

However, Macomber says competition will remain strong and Lenovo risks being seen as a fast follower; for example, Dell EMC and HPE have a head start over Lenovo in aligning their data center value propositions around being both a provider of and an adviser on infrastructure modernisation.

"As a result, we note further opportunity for Lenovo to increase the clarity and improve the cohesiveness of its value proposition to maximise its revenue and customer loyalty," Macomber says.

"In part, this will require the company to carefully but also quickly navigate its evolution from a partner-led software strategy to a hybrid base of third-party and, from an infrastructure software standpoint, Lenovo-owned infrastructure software capabilities," she explains.

Impact and opportunities Lenovo builds from server-centric roots to address next-generation converged, hyperscale and software-defined data center requirements

Macomber says Lenovo continues to embrace the ongoing industry shift to commodity data center hardware.

"In the two years since its acquisition of IBM's former x86 server business, Lenovo has demonstrated fast portfolio integration and consistent execution on research and development initiatives that improved System x financial performance on average," she expains.

As a result, Macomber says Lenovo is armed with a broad server portfolio spanning high-density, blade, rack and tower form factors that can effectively address the evolving compute requirements of SMB through large enterprise and hyperscale customers with strong performance and reliability.

"While Lenovo's engagements with data center customers remain primarily centered on the company's breadth of server offerings, the vendor is investing in adjacent storage and networking areas to maximise share of wallet from customers and more effectively address customers' shift from deployments of siloed, legacy infrastructure," explains Macomber.

"During this process, Lenovo is investing in facilities such as its System Technology Innovation and Executive Briefing and Innovation centers that will help to build Lenovo's brand as a provider of end-to-end, forward-looking hardware capabilities, and enable the vendor to fine-tune portfolio developments as next-generation workload requirements evolve quickly.

Macomber says consulting and planning touchpoints are critical for Lenovo.

"The vendor is late in providing more holistic infrastructure solutions compared to several competitors, such as Dell EMC, HPE and Huawei, and is playing catch-up to these vendors and others in some key technology areas such as OpenStack and flash storage," she says.

According to Macomber, Lenovo's supply chain prowess sets the stage for the company to quickly and cost-effectively deliver systems optimised for next-generation data center implementations.

"As articulated by Tim Carroll, vice president of Lenovo's DCG global supply chain, whereas it took Lenovo eight years following the acquisition of IBM's former PC business to integrate PC supply chains, the company has applied lessons learned to vastly shorten this process from a server perspective to two years.

"With that process complete, Lenovo proceeds with a DCG supply chain that enables the company to speed time to market and place pricing pressure on competitors as analytics, cloud hosting and other next-generation use cases require more tailored but lower-margin hardware deployments," Macomber says.

"In addition to helping Lenovo control costs in the face of its steepening DCG operating losses, this strategy opens new revenue opportunities for Lenovo — such as enhancing its ability to compete against original design manufacturers (ODMs) for large-volume hyperscale server deals from large cloud service providers.

As Lenovo amplifies its initiatives around software-centric next-generation IT architectures, such as hyperconverged platforms, Macomber says it has built a vibrant ecosystem of strategic independent software vendor (ISV) partners, including Nutanix and Red Hat, to more holistically address evolving workload requirements.

However, Lenovo executives noted this partner-centric software strategy will increasingly be complemented by Lenovo-owned intellectual property (IP) moving forward.

"Selectively increasing investment in close-to-the-box infrastructure software capabilities creates the opportunity to enhance Lenovo's visibility and stickiness with customers, provided Lenovo goes to market with clear delineations around the value that it and its partners individually provide," Macomber explains.

"TBR believes Lenovo's focus on driving sales of life cycle services, spanning technical design through support and maintenance, for its infrastructure will support this by facilitating earlier and more frequent and collaborative engagements with customers.

Lenovo adjusts its go-to-market approach to address solutions-oriented buying criteria

According to Macomber, greater collaboration during strategic planning processes to provide customers the support required during complex IT modernisation processes is a key tenet of Lenovo's go-forward data center strategy.

"Lenovo has succeeded in providing forward-looking infrastructure, including applying dedicated go-to-market resources to capture growing demand for high-performance computing (HPC) implementations and to expand its footprint as its top 500 customers, whom it calls 'Global Accounts', refresh their infrastructure," she says.

However, Macomber says the company's sales execution in other areas, most notably in mature markets in the Americas and EMEA, has struggled in recent quarters.

As a result, Lenovo is applying best practices learned through its Global Accounts and HPC engagements to optimise its broader direct and indirect selling strategies.

"For example, it is shifting from generalist sales representatives to subject matter experts in data center infrastructure, and specialising its organisational sales structure by geography.

"From a channel perspective, it is investing in initiatives such as launching more formal certifications, including through the Lenovo Data Center Sales Professional and Lenovo Data Center Technical Sales Professional programs," says macomber.

"It is also facilitating more consultative engagements with customers by offering partners deeper training around industry-specific IT trends and customer requirements.

Enhancing and restructuring its go-to-market initiatives more closely align Lenovo's selling model with customer demand for longer-term, transformation-centric and project-based relationships with their data center infrastructure providers. According to Macomber.

"However, there is opportunity for greater synergy in Lenovo's value proposition across various markets, such as HPC, hyperscale servers and cloud infrastructure, to support a clearer picture of how the company differentiates as a partner facilitating IT and business modernisation for its customers," she says.

"Lenovo recognises that it needs to have a strong services play with its hardware, and resulting investments it is making in areas such as infrastructure advisory create the opportunity to better flesh out its differentiation with customers," adds Macomber.

"Lenovo recognises many customers remain unaware of the breadth of its data center competencies, and TBR expects the vendor's heightened investment in services will help to increase customer awareness of Lenovo's ability to comprehensively provide forward-looking infrastructure capabilities.