The Lego Group is a family owned company based in Billund, Denmark, and best known for the manufacture of Lego brand toys. The company was founded in 1932 by Ole Kirk Christiansen. The word Lego is derived from the Danish words "leg godt", meaning "play well." The word "lego" also means "I gather together" in Latin, and "I connect" or "I tie" in Italian.
In 2003, LEGO was according to the Knudstorp review on a burning platform, losing money with negative cash flow and a real risk of debt default which could lead to a break up of the company. The company had reported losses of $228 million on sales of just over $1 billion in 2003 and a loss of $207 million on sales of $1.1 billion in 2004. In 2013, the company achieved $4.5 billion of revenues and profits of $1.5 billion. LEGO had replaced Hasbro to become the largest toy company in the world second only toMattel. Return on sales had increased to 33% and sales per employee had doubled.
Introduced back to basics, focused on the Lego brick legacy. Focus on the brick and the system, developing core products for a clearly defined group of customers. Avoided the lure of too many adjacencies. Were the main strategies that the LEGO Group did to survive and regain the position in the global market.
Universidad Tecnolgica de El Salvador Ada Beatriz Hernndez Hernndez 1. Explain how the development of strategy at the LEGO Group reflect the key characteristics of strategic management outlined in section 1.2 and in the model in Figure 1.4
LEGO Group involved long-term direction decisions about what sort of company it should be, and created a clear vision for the future direction of the company would take plenty of time. In terms of the scope of the organizations activities, LEGO introduced back to basics, focusing on the Lego brick legacy. A focus on the brick and the system, developing core products for a clearly defined group of customers. Avoiding the lure of too many adjacencies. To created advantage over the competition LEGO restored competitive advantage by focusing on retail customers, in particular their profitability. Understanding the importance of STAMP the impact of Stock Turn and (Margin Performance), gross margins achieved in store. About organizations resources and competences LEGO reduced the level of risk by right sizing the activities, cost base and assets to a lower overhead base, reducing the breakeven level for a given level of turnover. LEGO addressed changes in the business environment when set a clear direction for LEGO and fundamentally changed the way the company did business with major retailers. The value and expectations of stakeholders was reflect in Defined gross and net margin targets defined as the major challenge within product development including a premium price strategy and a 13.5% return on sales target.
2. What features of the external environment have influenced strategy development at the LEGO Group?
Consumer and retailers: Management was out of touch with major customers. Stock Turn And Margin Performance within retail distribution had been of little focus to the product development teams. Retailers were overstocked with products which offered diminishing margins as clearance offers ensued. Focus on the end user had ignored the means of access and distribution.
Competitors: New players like Tyco Toys and Mega Bloks had developed new products. New products including software, games, PlayStation, Xbox and the like had convinced senior management the move would be digital. The LEGO brick was going to die!
Universidad Tecnolgica de El Salvador Ada Beatriz Hernndez Hernndez 3. What resources and competences of the LEGO Group have enabled them to regain their successful position in the global toy market?
The company loses the focus on key LEGO kit construction products. So, to regain their successful position in the global toy market they had to be a return to the LEGO brick. Back to the brick as a building system.
In competences, LEGO focus on core products and values. Clear leadership with a command structure focused on profitability. A premium pricing strategy and a high return on sales target. The LEGO legacy and a value for money proposition for end users and the retail customers. Close to the customer became a Knudstorp mantra. Using focus groups for kids and the adult fans of Lego in the process, new product ideas were tested during the product development process.
And in resources, LEGO delivered to stores the right kits in the right volumes at the right time, creating a balanced portfolio on the shelf.
4. What were the alternative strategies facing the LEGO Group in 2004? Why do you think the LEGO Group followed the course that they did?
i. Back to the simple thing, the LEGO brick. ii. Then would follow quality and develop operational expertise on a world scale. iii. Optimally producing. iv. Rationalise the product offer - cut 30% of the product offer. v. Attack the cost base vi. Slow the LEGO stores programme vii. Shed the theme parks viii. Jettison the computer sales business. ix. Relaunch DUPLO x. Introduce financial targets - Line profitability , Consumer Product Profitability 13.5%, the ROS benchmark. FMC - targets for full manufacturing cost. xi. Close to the customer - putting the retailers first xii. Understand the end user - focus groups, mind storming. xiii. Better segmentation, DUPLO, LEGO and FRIENDS for the young females.
LEGO group follow all of this steps in order to change the direction to cut costs, sell businesses, restore competitiveness, generate cash and ignore the dash for growth in the immediate future.
Universidad Tecnolgica de El Salvador Ada Beatriz Hernndez Hernndez 5. Looking at the LEGO Group today how would you approach strategy development to ensure a successful development of the company in the future?
Lego Group has rationalized and streamlined its product development, sourcing, manufacturing, and distribution, it can pour its resources into what it does best: making wonderful toys.
To ensure a successful development of the company in the future, the LEGO Group has to maintain a good position in the global market. Looking for low cost countries to the bricks manufacturing, making strategic alliances to different entertainment industry like Disney to have the licenses of new characters. The company never has to lose the core of the company and the passion.