Huynh 1

1. Lego Groups key strengths include: their strong brand image, their extensive LEGO
product line, their diversified business areas, and their lucrative partnerships. LEGOs
strong brand image positions the company for success. In 2010, LEGO had grown to
become the fourth-largest toy manufacturer in the world. As a household name and icon
in the toy industry, LEGO had received the distinction of being named Toy of the
Century by the British Association for Toy Retailers, which is a winning marketing
strategy. Moreover, LEGO utilized its strong brand image by opening LEGO stores to
exclusively sell LEGO products and merchandise.
LEGO has an extensive product line that incorporate many different themes loved by
kids, teenagers, and adults. LEGO bricks have numerous themes. Some themes LEGO
brick offers are: LEGO Western, LEGO Adventurers, LEGO Aquazone, LEGO Iceplanet,
LEGO Time Cruisers, LEGO Space Insectoids, LEGO Knights Kingdom, and LEGO
Bionicle. Furthermore, to capture the adult market, LEGO also created advanced LEGO
builders and collectors, featuring such famous structures as the Statue of Liberty, Taj
Mahal, Eiffel Towel, and the Star Wars Death Star.
Not only does LEGO have an extensive product line in LEGO bricks, but the company is
also diversified in many business areas. The company created a LEGO brick vacuum
device to clean up the bricks after play. Additionally, LEGO partnered with video game
design companies to develop video games for both computers and video game consoles,
which resulted in over 30 video game releases between 1997 and 2009. LEGO continued
to expand beyond traditional video games to develop a virtual online LEGO universe in
2010.
Lastly, LEGO owes their huge success to their strategic move of partnerships and
acquiring licensed rights to famous movies and children themes, which lead to the launch
of themes such as LEGO Star Wars and DUPLO Winnie the Pooh product lines.
Following the huge success of Lego Star Wars, other popular licensed rights were
obtained for new product lines like Harry Potter, Spiderman, Batman, Indiana Jones, and
SpongeBob SquarePants. However, the license agreements did not stop there as LEGO
viewed professional sports as new opportunities, which lead to the launch of LEGO
NBA, NHL, and Soccer.
Lego Groups key weaknesses include: a lack of innovative new products, little
differentiation among their other competitors, and too much reliance on licensed
agreement for product expansion from other companies. Lego Group has been riding on
the success of their single productLEGO brick, which was originally launched back in
January 1958. Its highly risky for the continued growth of a company to depend solely
on a single product. If there ever were a social or economic trend that stopped the
demand for LEGO bricks, the Lego Group would be in a financial crisis. For example,
Coca-Cola doesnt depend on their single product of Coke. In contrast, they have an
assorted reliance on other products like tea, water, sports drink, and non-carbonated soda.

Huynh 2
Not only does LEGO have a scarcity of innovative new products, the company also has
little differentiation between brick-type toys from their competitors. LEGOs main
competition among the plastic toy brick industry are: Fisher Price, KNEX, TYCO,
Hasbro, and Mega Brands. Each of these companies introduced products based on their
own unique design, but had a fairly similar constructive and imaginative process. With so
many similar products on market, LEGO needs something to differentiate themselves
from their competitors.
Lastly, it is highly risky that LEGO has such a massive reliance on licensed agreement for
product expansion from other companies like Walt Disney and Marvel entertainment. For
instance, LEGOs number one best selling Lego brick theme is the Star Wars line. Walt
Disney now owns all the rights to the Star Wars franchise. If Walt Disney ever decided to
end licenses agreement with Lego Group, that would cause a devastating impact on their
sales.
2.
Income
Statement:
Revenue
Expenses
Operating profit
b/4 special items
Special items
income & exp
Profit b/4 tax
Net profit
Profit Margin

2010

2009

2008

2007

16,104
(10,899)
5,115

11,661
(8,659)
3,002

9,526
(7,522)
2,004

8,027
(6,556)
1,471

(142)
4,889
4,889
3,718
23.2

(100)
2,887
2,887
2,204
24.9

96
1,352
1,852
1,352
22.0

(22)
1,028
1,414
1,028
18.1

According to Exhibit 1, Lego Group has a cost advantage because their profit margin
between 2010 and 2007 is on average 22.5, which is really good. Coca-Colas profit margin
between that time is 20.5. In contrast, Lego Groups business model is a lot simpler than of
Coca-Cola.
3.

Lego Group was on the brink of bankruptcy between 1998 and 2004. Problems existed
not with the LEGO products, but because of how the company manufactured and
distributed LEGO around the world. That was also in part of years of continuous growth,
which added layers of complexity to LEGOs operations. One internal force that is
hindering the CEOs turnaround is the CEOs inadequate ability to adapt and respond to
LEGOs continued growth and expansion in manufacturing and distribution. As stated in
the case, revenues had dropped %40 because of poor operations on LEGOs part. One
recommendation for the CEO is to take a page out of Howard Schultzs book and hiring a
completely new management team. Also, I would recommend that the CEO takes a step
back, and regroups his companys strategies. Another internal force that is hindering the
CEOs turnaround is the need to refocus on their core competencies. A well-established
core competency can drive competitive advantagewhich LEGO desperately needs.
With a key competitive advantage, the Lego company can go from being the number one

Huynh 3
toy company, instead of being number four. One recommendation for the CEO is to
reinvest profits from the successful Lego bricks line to hone and upgrade their core
competencies.