A business is sound if it can pay its employees and running expenses with a little savings on the side, not trying to achieve increase multiplication factors in profit.
Even historically business have been motivated by profit and increasing said profit. This is nothing new and certainly has nothing to do with MBAs. No private (i.e. not state run) business has ANY obligation to employ more people than they need/want just for the sake of it.
If Lenovo is to grow out of this, it will have to do it with the manufacturing and design/IT departments. Yet a voice within me seems to be very certain that these departments are going to find themselves cut down far more than the sales and general management departments. At one company, when this happened, they actually increased sales commissions while cutting engineering jobs. At that point, you know it's time to get out. Out of the company's stock, primarily.
IBM is the prime example of this attitude.
And maybe, at the rate it's going, it won't be sound next quarter? Should it wait until the final hour, before it can't make payroll, then lock the doors and lay off the entire staff, like this genius plan?
Lenovo's market cap at the start of this year was $13bn. A $0.4bn profit is a 3% return on equity, in the middle of a strong global growth phase. Normal ROE in the tech sector is 7-10%, so unless they can double or triple this, investors are better of selling up and putting their money in a bond fund (or Lenovo's more profitable competitors).
If they have dead-weight departments it's best both for owners and the remaining employees to cut that off.
If it were a private company I'd agree to a certain extent, assuming that they could see an alternative way to stop this downward trend. However as a public company, constant growth is a must.
I don't think it's as clear cut as that.
Isn't blindly cutting costs just effectively destroying company infrastructure?
"However as a public company, constant growth is a must."
But just laying people off does not guarantee growth.
That said, I have no idea how the company is structured or operates. Sometimes laying people off is kinda necessary, i.e. a company with a factory that manufactures product X, suddenly there is no market for X , and the factory cannot be reconfigured to create profit - yeah, that's clear cut.
IMO, generic sweeping statements like "removing n percent of personnel is necessary to cut costs" is impossible to gauge in negative or positive light without detailed understanding of the business or it's operations.
Free markets are nice - but there is a historically proven need for government control (pollution and child labour, etc). This means not all things are business' own business.
All actions have an ethical dimension into them. Financials are a very good indicator of the long term business prospects of an enterprise but they are not the only thing that matters when evaluating their impact in the greater human context.
Each business has a varying group of stakeholders who are impacted by the decisions made by the business - employees and shareholders are the obvious subgroups. The community where the business operations are situated is often a secondary stakeholder as well.
As an example before environment protection acts came along, companies polluted carelessly, thus causing a massive negative externality which impacted the surrounding communities. Flaming river? Not so nice.
The environmental effects were considered to be such a high impact problem that the companies were forced to modify their operations to seize pollution. Creating this legislation most assuredly required negative judging of the operations of a large number of business.
Like I said - I have no idea of this Lenovo business - but claiming all external judgement of third parties null by a blanket statement is not necessarily the best way to look at things.