Slower growth causes Shih to restructure Acer's management

Faced with tepid sales growth for its brand-name PCs, Taiwan's Acer Group has quietly started once again to reshape itself in hopes of regaining its lost momentum and increasing awareness around the globe of the Acer name. Under the watchful eye of CEO Stan Shih, Acer is implementing a new management structure with four lines of businesses, or LOBs, designed to bring an end-to-end perspective to the company's broad array of undertakings.

Faced with tepid sales growth for its brand-name PCs, Taiwan's Acer Group has quietly started once again to reshape itself in hopes of regaining its lost momentum and increasing awareness around the globe of the Acer name.

Under the watchful eye of Chairman and CEO Stan Shih, Acer is currently implementing a new management structure with four lines of businesses, or LOBs, designed to bring an end-to-end perspective to the company's broad array of undertakings.

The LOB initiative is intended to augment the highly decentralized management structure of the Acer Group. Shih, one of Asia's most respected business leaders, on previous occasions has introduced and implemented new management concepts ranging from a "fast food" business model -- a build-to-order scheme that emphasizes local assembly points -- to the company's client/server organizational structure.

To be sure, everything is not well at the once high-flying PC maker. Acer's combined group revenues grew by a mere 7 percent last year to reach US$6.3 billion, up just slightly from an even more tepid 1 percent revenue growth in 1996. In the years just before that, Acer had been growing by more than 70 percent annually. [See "Acer's 1997 Sales Up 7 Percent, Profits Hit By DRAM Collapse," April 14. ]

Behind the numbers, however, lurk some even more worrisome facts.

First, there are the widely publicized losses incurred at the company's former dynamic RAM joint venture with Texas Instruments Inc. [See "UPDATE: TI Pulls Out of Taiwan DRAM Joint Venture with Acer," March 4. ] But perhaps the most serious problem is the trend in Acer's core PC business.

Acer bills itself as the world's third largest PC manufacturer, but the bulk of its sales growth in the mid-1990s originated in its substantial business of making products for others -- supplying PCs and related equipment to customers such as IBM Corp. -- while sales of Acer-branded PCs have failed to keep pace.

Shih admitted as much in an internal memo to the company's employees introducing the LOB concept. The growth in sales of Acer-branded PCs has fallen behind that of the company's key competitors, such as Compaq Computer Corp., Dell Computer Corp. and Hewlett-Packard Co., "and is even lower than industry average," noted Shih in the letter.

According to feedback from the company's employees, Shih added, the slowdown in sales growth has resulted from a series of problems, including long lead times for deliveries to customers, the high cost of inventory, a fragmented logistics system and lack of synergy within the Acer Group.

To counter the logistics bottlenecks, Acer will speed up its move to a build-to-configuration model, but it also needs to improve its own use of information technology right away, Shih said. "Acer, as one of the world's top 10 computer makers, is very much behind on using IT internally."

And to improve its after-sales relationship with users of Acer PCs -- which has been comparatively weak, Shih noted -- the company will establish 24-hour customer service and build a corporate culture that always puts the customer first.

Enter the four new lines of businesses. To combat the lack of synergy between various business units, which previously have had a high degree of autonomy, the new LOB management structure is designed to bring an end-to-end perspective to Acer's broad array of businesses.

With no external fanfare, Acer started to implement the concept in January, initially appointing new general managers to its first four LOBs, covering PCs, peripherals, consumer electronics and communications products, which now are headed by T.Y. Lay, Conway Lee, Rick Lei and Steven Cheng, respectively.

Acer's LOBs aim at "effectively integrating the management processes from R&D, manufacturing, logistics, marketing, sales and service, cutting across organizational boundaries to satisfy the market requirements," Shih said in the memo.

Following the same rationale, Acer also aims to establish "cross business units" with responsibilities for logistics, customer service, brand management and IT, led by people who are empowered to oversee, plan and integrate processes and action plans that impact many existing business units, Shih said.

"These positions are not overhead or bureaucracy," said Shih. Acer's leadership will manage the structure to ensure it will not slow down decision-making or jeopardize creativity, he added.

Outside observers, however, have expressed doubts about the wisdom of adding a new management level to the company's structure. One of Acer's key strengths has been the ability of individual business units to get things done quickly, without involving the top managers, said a senior executive at one of Acer's chip suppliers.

"The LOB concept sounds good, but it could very easily just add one more level of bureaucracy and slow things down," the executive said, after a one-hour briefing about the new initiative by Acer officials.

So far this year, Acer's sales growth rate seems to be picking up slightly. Unaudited group sales revenues reached $1.6 billion in the first quarter, ended March 31, an increase of nearly 11 percent compared to the same period a year earlier, a company spokeswoman said today.

It remains to be seen whether the LOB initiative succeeds in the long term in enabling Acer to regain its momentum, but already the concept has resulted in a new terminology among Acer employees. The general managers are known as LOB-heads, officials said, while the various product business managers within each line are affectionately known as LOB-sters.

Acer, based in Hsichih, is at +886-2-2696-1234 or on the World Wide Web at http://www.acer.com/.

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