Lego - Rediscovered and Unchained - How Lego Solved a Strategic Marketing Problem

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Besides this, Inspiration is what Lego calls ‘Exploring’ and stands at the beginning of the development process. In order to Lego, it can be done in different ways, such like desk research, field research, interviews with consumers and with experts. But also by taking a look at competitors and their products (See also Exhibit – 2) (Crawford & Robertson, Innovation at the Lego Group (A), 2008).

- Divergence

Lego solved most of the strategic challenge by exploiting the variety of ideas and different backgrounds.

After he worked 3 years as director of strategic development at Lego, the 35-year old Jørgen Vig Knudstorp becomes CEO in 2004. Former CEO Kjeld Kristiansen was more or less forced to step back as CEO because of the almost bankruptcy in 2004. Although he had the courage to take a step back and assign, for the first time in the history of Lego, a CEO who was not a member of the founder family (Rivkin, Thomke, & Beyersdorfer, 2013). This can be seen as a form of divergence, because a non-family member will always bring a new perspective which possibly can cause discussion or move your business forward.

After he became in charge, Knudstorp started immediately working on a strategy plan for the company. Regarding an HBR case study of Jan W. Rivkin (2013) about Lego, Knudstorp’s

words about this phase were as follows:

Knudstorp – CEO ‘I had many discussions with people in and outside of the LEGO Group to understand our identity, our core business, our unique capabilities, and the value proposition for our customers and consumers’.

(Rivkin, Thomke, & Beyersdorfer, 2013)

Based on the discussion, vision and opinions of the different colleagues, Knudstorp decided to focus on the brand, the bricks, the unique system of play and the loyal consumer community. But not everyone agree with this direction. Some of the employees didn’t believed in the complexity of the bricks. In the HBR article Knudstorp is quoted and tells that he had to fire seven executives because they did not have the same view on what was needed to be successful again. Although he cried, he calls it ‘the right decision’.

- Convergence

Altogether, these core values became the foundation for the ‘Shared Vision’ plan of Knudstorp and his team. The ‘Shared Vision’ strategy was a six-seven-year agreement and contained three phases:

[pic 2]

2004-2005 Stabilize for Survival → reduce costs/debts and return profitability

2006-2007 Profit from the Core → revitalizing the core products, outsourcing

2008-2010 Achieving Vision → developing innovative play experiences

Source: (Crawford & Robertson, Innovation at the Lego Group (A), 2008)

By splitting the long-term plan into short-term operations with different approaches, Lego was able to rebuild their brand in a careful way. In the acute phase Lego started:

- Outsourcing their manufacturing activities to Eastern Europa and Mexico instead of Denmark and Switzerland to reduce costs (Crawford & Robertson, Innovation at the Lego Group (B), 2008).

- The company also sold their majority share of the four existing LEGOLAND parks for €375 million to another company, but kept a 22% share (Rivkin, Thomke, & Beyersdorfer, 2013). This in order to be able to pay their debts.

- Lego decreased their inventory and reduced 50% of their 12.500 components to solve their complexity problems. This all coming from the believe that most of the bricks were unprofitable and not being identified with Lego anymore (Crawford & Robertson, Innovation at the Lego Group (A), 2008).

- Furthermore, the original Duplo product line was introduced, replacing the repositioned one. (Crawford & Robertson, Innovation at the Lego Group (B), 2008). Besides reintroducing the original Duplo brand, it also closed the video games unit. Both decisions were taken to focus on the core products in the nearby future (Rivkin, Thomke, & Beyersdorfer, 2013).

In his book ‘How Winners Make Choices’, Stefan Stremersch states that organisations that truly want to win should certainly repeat the IDC model. But possibly with short intervals as a breather. That is exactly what CEO Knudstrop when the bleeding stopped. He started reinforcing the culture by bringing a psychoanalyst to the boardroom to train his team the difference between what is above and below the line. From that moment, meetings also started in a divergent way, with people telling about their feelings at that particular moment. In that way, the edge disappeared off discussions.

4. Outcomes

While the actions were taken a decade ago, the results of the strategy are known. Where in 2004 a loss of 251 million was made, Lego already benefitted from their strategy to gain cash in 2005 when the sales revenue increased and a net profit of almost 66 million was gained (see also Exhibit – 1). In order to this, Lego was able to solve their acute debt problem and came back on the good track. By the end of 2005 the company had no debts anymore and cutted their costs down to 35% (Rivkin, Thomke, & Beyersdorfer, 2013) (Crawford & Robertson, Innovation at the Lego Group (A), 2008).

The next two years, when the ‘Profit from the core’ strategy was managed, the company also booked some good results. In 2006 the company gained a net income which was over 168 million euros in that time, the company managed for growth and value. Therefore, it invested in customer connections, by organising activities for AFOLs (Adult Fans of Lego) and by starting to focus on the revitalization of the core products. (Rivkin, Thomke, & Beyersdorfer, 2013) (Crawford & Robertson, Innovation at the Lego Group (A), 2008).

The company revitalized different products. For example, Lego started with revitalizing the LEGO City line by deciding to design more realistic toys. Instead of making space stations the firm started to make fire engines again and thus reduced complexity (Crawford & Robertson, Innovation at the Lego Group (A), 2008).

Nowadays, the company is having 7000 bricks instead of 12.000 in 2004 (The Economist, 2014). Over 2015, the toy company booked a revenue of DKK 35.8 billion, converted into euros more than €4.8 billion (Lego, 2015). The Danish brand is targeting