Liu Chuanzhi, founder of the world's second largest PC maker Lenovo, said on Friday that the company's huge losses in the 2008 was fundamentally due to problems in its corporate management structure and cultural collision after the buyout of IBM's PC operations.

He cited the lack of incentives for the professional managers to make the necessary strategic investments that were aimed at future growths but were likely to affect the balance sheet in the short term.

Lenovo bought IBM's Thinkpad operations for 1.25 billion U.S. dollars in late 2004. Liu, who founded Lenovo in 1984 from scratch, stepped down as chairman of the board, and professional managers were hired to work as chief executive officers.

However, the company reported losses of 226 million U.S. dollars for the financial year 2008 ended March 31, 2009.

"The huge losses was actually inevitable and the financial crisis was only a trigger to the explosives. The explosives actually involved management issues and cultural collision," he told the World Entrepreneurship Forum in Singapore on Friday.

Liu said one of the many problems exposed was that senior managers including the chief executive officer tend to take their work as a job that would bring them to higher career development stages after several years of good results at the company. They tend to lack the incentives to make the strategic investments that were needed for the company to make turns, given that such investments tend to affect the balance sheets.

Adding to the lack of incentives was the arrangement for them to have options as a significant part of their remuneration packages. For the options to be more valuable, they tend to push the stock prices up, Liu said.

Liu said it was obvious that Lenovo at that time needed to adjust its strategy to explore the consumer market. The strength of IBM Thinkpad, however, was in the high-end business market, which was growing very slowly compared with the consumer markets.

But it required a lot of investments -- somewhere around 1 billion U.S. dollars in the first three years -- for Lenovo to make the adjustments in terms of its product design, branding and the IT system, he said.

Liu returned to take over as chairman of the board in Feburary 2009 and then chairman Yang Yuanqing took over as CEO. They make a turnaround for Lenovo away from losses in six months time.

The company reported sales growth for eight consecutive months by the third quarter of 2011 and became the world's second largest PC maker.

"It is important for the firm that the senior management should see themselves as owners of the company as well," he said.

Liu also commented on the decision of the world's largest PC maker HP to sell its PC operations and then the withdrawal of that decision, saying that he personally admired the PC giant.

"Such announcements would hurt the company and the morale very much when you are not sure you can get a buyer yet," he said.

"The shares of HP were widely distributed among many shareholders, and most of the directors in the board were professional managers (in the sense that they were not owners of the company)," he added.

Lenovo established the executive committee in 2009 as the top executive body for the company.

The quarterly sales of Lenovo grew to 7.8 billion dollars in the third quarter of this year.

Liu, 67, has said that he would concentrate on leading Lenovo's parent company Legend Holdings from now on to make it one of the top holding firms in China.

Lenovo contributed about 30 percent of the profit of Legend Holdings, which has operations in venture capital, equity investments as well as real estate.

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