To diversify your business activities or not. It’s a tough decision. Carly Fiorina faced an uphill battle defending her controversial decision to acquire Compaq in 2002, after Hewlett-Packard announced an operating loss of $208 million for the third quarter, which mostly came from the troubled business server and storage unit.
Now the Chinese-based Lenovo — previously known as Legend — Asia’s largest computer maker, says it has decided to retreat from new areas and focus on its core PC business.
In an interview with Michael Useem for Knowledge@Wharton, Lenovo Chairman Liu Chuangzhi said the company’s decision three years ago to foray into IT services and the contract manufacturing of motherboards didn’t pay off. Lenovo only had revenues of $3.8 billion, half of its target. The soft tech market was harsher than expected, and foreign competition had cut into Lenovo’s market share in China, Liu said.
One argument for diversification is that gains from one area help to cushion against risks in another, while opponents claim that spreading across the board threatens to stretch resources thin. Do you think stories of HP and Lenovo offer any lessons? Have you ever had to make a decision to diversify your business activities? What did you do — and how did it work?FCS