BOOK EXTRACT

Innovation road map

Innovation doesnt necessarily mean radical changes, sometimes, a simple makeover of a successful line is enough, says a new book
EGO managers identified four categories of innovation that mattered, with three types of innovation in each. Product innovations were new toys and platforms. Four years earlier, with Bionicle's launch, the toy's development team had already innovated in both of those categories. It had invented an industry first, the buildable action figure. In creating subsequent generations of Bionicle characters, the team was adept at making modest but highly profitable improvements to the line. And with its balland-socket connector, Bionicle also represented a new building platform for LEGO. Communication innovations included novel ways of marketing and also connecting to customers. Greg Farshteys outreach to customers via Bionicle fan sites, which he and his colleagues used to improve Bionicle's story line, offered a proof-of-concept model for leveraging feedback from fans. (LEGO subsequently expanded on Farshtey's example and uses it extensively today.) Business innovations consisted of new business models (such as new pricing methods or subscription plans) and new channels to market. Since its debut in 2001, Bionicle had already delivered minor but noteworthy innovations in both areas. With launches in the off-peak months of January and August, and a price tag that required just a few weeks of a boy's allowance, Bionicle filled both a seasonal and a demographic gap in the LEGO brand's market. Although the attempt to sell the toy through vending machines never panned out, Bionicle freed marketers to seek out unconventional ways of pushing beyond such conventional intermediaries as Walmart and Toys "R" Us. Perhaps most significant, the range of licensed products that Bionicle Boys snapped up delivered a healthy stream of royalties back to Billund. As a result, other product teams emulated the Bionicle model of partnering around LEGO-developed properties to boost sales and profits. Process innovations were core processes (where money changes hands) or enabling processes (such as new-product development). Here again, Bionicle suggested new innovation pathways for LEGO. The Bionicle team's compressed development cycles and customer insight research became staples of the revamped LEGO Development Process. Bionicle proved it was indeed possible to cut development time in half, which resulted in substantial cost savings for LEGO. And it showed that customer research could improve the odds of delivering toys that kids fervently desired. That, of course, augmented the company's sales. Having defined the different areas of innovation that LEGO would pursue, the working group also recognized that "innovation" doesn't necessarily mean "radical"that, in fact, different opportunities require varying degrees of innovativeness. The new model spotlighted three different approaches to marshaling the kinds of change that would help LEGO advance its goals. The first, simplest type of innovation was to adjust existing toys that is, to freshen up an evergreen line so that it attracts news waves of kids without adding significantly more development and manufacturing costs. The next, more challenging innovation was

BRICK BY BRICK: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry AUTHOR: David C Robertson with Bill Breen PUBLISHER: Random House Price: ~599
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THE LEGO INNOVATION MATRIX

REDEFINE Never seen beforeoffering Slizer launch first buildable action figure Direct interaction with fans Ball and socket joint Licensing royalties Sell through non-traditional channels

RECONFIGURE Combine known parameters of category to create unique and better solutions

New team structure and process

First Bionicle launch (2001) New packaging platform

Viral marketing campaign

ADJUST Continually adjust parameters in known category to optimise existing solutions

Manufacture of new product elements

2002-2009 Bionicle launches

Core processes
Financial planning > Sales and operations planning > Performance management
>

Enabling processes
Marketing Forecasting > Customer business planning
> >

Product Offering
> >

Platform
>

Messaging
>

Products Packaging > Software > Instructions

Building systems > Toy technology > Digital platforms > Packaging platforms

Campaigns > Web sites > Point of sales displays > Catalogues

Customer interaction
Communities (online or not) > Events > Customer service
>

Sales channel
>

Retailers > Direct to consumer > Partners

Business model
>

Revenue model > Pricing model > Value chain structure

to reconfigure to change existing building systems or platforms to provide a new customer experience. LEGO had a blockbuster with its Star Wars toys and a minor but promising success with Slizer. Combining the two concepts to produce a set of buildable action figures with a rich, episodic story line meant that LEGO had to blaze a new path to profits, but it was starting from a familiar place. The result was a hit series of toys that gener-

ated significant sales for almost a decade. Reconfiguring innovations change the terms of competition in an existing market. The most difficult and unpredictable innovation is the kind that redefines a category. Case in point: the 1998 Mindstorms RCX kits, the company's first foray into robotics. (The second version of Mind-storms, released in 2006, was a reconfigure innovation for LEGO.) The LEGO Group's senior management put

all these definitions onto a single pagean innovation matrixthat it used to map the kinds of innovations it would pursue.
Reprinted by permission of the publisher. Excerpted from Brick by Brick by David Robertson with Bill Breen. Copyright Random House. All rights reserved. Related interview with David Robertson, co-author, Brick by Brick, on page 3