Lego Case Study Answer

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Some of strategic actions taken during the “fix that wasn’t” (1999-2004):

Restructuring program was launched to cut costs by DKK1 billion and lay off up to 1000 employees. Of 100 top executives more than 60 were asked to leave Ploughman’s “Fitness Program”. This was implemented to streamline production, reduce organizational layers, and increase responsibility and customer focus to build a simpler, more responsive, global business system. Ploughman did not distinguish between operational efficiency and strategy as this program focuses on operational efficiency. Managers moved around rapidly in every 6-12 months and general leadership was valued more than direct experience with the LEGO toys. Constant change does not allow for the clear communication of strategy and reduces organizational motivation and focus. Design responsibilities shifted from small and rural Billund to global product development centers while difficult to automate manufacturing processes were transferred from main factory to new plant in Czech Republic. Focus on multiple product lines and an increasingly complex supply chain led to a decrease in coordination, created confusion and a reduction in motivation and focus. Product developers and management did not see the impact of increasing the distinct shapes on design, as marginal cost of an extra mold was so low. And management did not see the impact of this on manufacturing, servicing of retailers, forecasting & managing inventory. Employees did not worry that fill rates varied between 5-70% nor were that inventory costs, write-offs and obsolescence high. Salesperson incentives tied to whether actual sales exceeded forecasts. Introduction of in-licensed brands i.e. LEGO Star Wars. Products with movie tie-ins accounted for more than 50% of overall sales decrease during years without movie launches. Re-branding of LEGO DUPLO and Re-positioning away from core product create confusion to the customer. Thus it proved less successful.

3) As Jorgen Knudstorp, what would you do throughout the LEGO Group in order to turn the company around? Be specific.

Ans- Lego’s strategy should seek to define and deepen its position as well as tighten its fit. In trying to expand beyond its core product, Lego got away from its strategic position and did not build on its unique product – the brick. Lego needs to refocus on the brick, reduce the number of components and promote optimization of effort across all activities. The company leadership knew it had to address those problems, and that the supply chain posed the most immediate opportunity for improvement. The Lego Group’s supply chain was at least 10 years out of date. Poor customer service and spotty availability of products were eroding the company’s franchise in key markets. Speedy attention to the supply chain, the leaders reasoned, would not only buy them time to deal with the other challenges, but could help set in motion a virtuous circle of improvements that would support subsequent changes in the rest of the company. LEGO Group should have done to leverage partnerships in order to strengthen its value chain and capitalize on its respected brand. I would have been spending time by talking with people outside of LEGO Group; both to customers to understand what they want, and to people who don’t know the company’s products, in order to stimulate an invigorating flow of ideas.