School of Business & Management

Institut Teknologi Bandung

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Name Armita Octafiany

Student ID 29318436 Mobile phone 087787775732

Course code and title MM5012 Business Strategy and Enterprise Modeling
Course time and place 08-09 February 2020 Program SME MBA ITB – 3
Lecturer Dr. Mohammad Hamsal, MSE, MQM, MBA

Assignment number Mid Exam Due date 19 February 2020

Assignment title/topic/case Business Strategy
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Armita Octafiany 18 December 2019

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School of Business & Management
Institut Teknologi Bandung

Armita Octafiany

29318436

SME MBA 3

MM5012 Business Strategy and Enterprise Modeling

1. Why did LEGO face bankruptcy in the early 2000s? In your reasoning, focus on both
external and internal factors.

Internal Factors:

- They Regained Their Focus

Believe it or not, there is such a thing as too much innovation—and Lego is proof of
that. Before their near-demise, the brand began creating many different products,
some of which were successful, but many of which were not what their core audience
was interested in. The firm had lost focus on who its target users and end consumers
were. As a result, the firm procrastinated on what their presumed audience would be
and thus ended up innovating and creating products that lacked a market appeal.

- People That Not Fit in The Field

Also the lack people competency is also become the major reason why they
experience a turn down. Basically they can’t make an appropriate business strategy
and right innovation. The Danish toymaker hired a highly touted turnaround expert to
change its fortune. Unfortunately,
he had no background in the toy industry.

External Factors:

- Personal Computer Revolution in The 1990s

With everything going digital, Lego had to find a way to adapt. The number of sales
going down because lot of LEGO user especially the young ones, change their
preferences from playing LEGO to video games. At that time when LEGO haven’t
found the alternatives yet, children has so many choices and substitutes to another
toys.
School of Business & Management
Institut Teknologi Bandung

2. What is LEGO’s core competency? Explain.

Innovation

More than half a century after its founding, LEGO remains one of the most innovative
companies in the world. It’s not just that the company has been buoyed by the success
of the new blockbuster LEGO movie, which pulled in a whopping $69.1 million— the
company has consistently remained one step ahead of the innovation curve, releasing
new products and finding new ways to engage users of all ages with its tiny, plastic
bricks.
Most importantly, LEGO has been unafraid to experiment with emerging new
technologies to extend its brand from the world of physical play to the world of digital
play. This is especially important because the current generation is growing up as the
first all-digital generation. They are growing up with tablets and smartphones and
expect to use them everywhere they go. As LEGO’s top leadership has pointed out,
the company is “embracing what digital can do.” That means searching out relevant
technologies that are both relevant and complementary to the basic LEGO brick.

Brand Name

Lego is the World’s most powerful brand. It scores highly on a wide variety of measures
on Brand Finance’s Brand Strength Index such as familiarity, loyalty, promotion, staff
satisfaction and corporate reputation. Lego has overtaken Ferrari, last year’s most
powerful brand. Ferrari remains a very strong brand but its power is slowly diminishing.
It has now gone several years without an F1 title and last season struggled even to
mount a challenge.
The Lego Movie perfectly captured this cross-generational appeal. It was a critical and
commercial success, taking nearly US$500m since its release a year ago. It has
helped propel Lego from a well-loved, strong brand to the World’s most powerful.

Materials

Lego is always focused on their material as it creates something that differentiate them
with others. Lego blocks have been made of acrylonitrile butadiene styrene, or ABS.
The hydrocarbon butadiene is derived from chemicals distilled from petroleum. Lego
selected ABS as its material of choice for its structural strength and low chemical
reactivity, its glossiness, its ability to incorporate vibrant color pigments evenly within
the material, and its capability to be extruded and molded to create the interlocking
shapes we know and love.
Since 2012, over 200 potential alternative materials have been created, but few have
lived up to Lego’s high standards of quality. In particular, Lego is following the example
of CERN, which is a collaboration of hundreds of scientists around the world, having
invested about $150 million in the establishment of a Sustainable Materials Center at
it Danish headquarters in Billund. The center will be looking into finding sustainable
alternatives for both bricks and packaging. Researchers at the Sustainable Materials
Center will also be working with companies and institutions that are experts in
developing materials that have a less negative impact on the environment.
School of Business & Management
Institut Teknologi Bandung

Quality of The Product

On its website, LEGO stated its Quality Policy as follows: "Our aim at the LEGO Group
is to exceed customer expectations with regard to our products, service, and their
experience of the LEGO brand.”
Given that LEGO toys were used by children, the company followed strict safety
standards. As with its quality practices, LEGO not only adhered to the safety
regulations specific to each of the markets it operated in, but ensured that all safety
regulations were followed in all markets, regardless of where the toy had been
manufactured.

3. Apply VRIO matrix to show how LEGO leveraged its core competence into existing
and new markets over the past decade.

From the VRIO Analysis of Lego, it was identified that the financial resources and
distribution network provide a sustained competitive advantage. The patents are a source
of unused competitive advantage. There exists a temporary competitive advantage for
employees. There exists a competitive parity for local food products. Lastly, the cost
structure of Lego is a competitive disadvantage. Research and Development is also a
competitive disadvantage.
School of Business & Management
Institut Teknologi Bandung

4. In terms of revenue growth, LEGO experienced a competitive advantage over both

Hasbro and Mattel since 2007 because it grew much faster. What explains LEGO’s
competitive advantage?

Stay Strong with Their Identity

Some analysts believe that LEGO's recent success is because it’s attributable to
millennial parents, which are attracted to toys that 1) geared towards child
development and 2) are levered to entertainment.
Lego’s are probably every child’s favorite toy. If you get a set of Lego’s, you are
definitely going to try and build your fantasies to reality. That’s the power of these
building blocks of pure creativity. Lego’s are toys that show children another dimension
to their imagination. Think about building whatever you think of. Lego’s come in so
many shapes, sizes and colors, and remind you of pixels in so many ways. It’s the
perfect recipe to brewing innovation of childhood into the future.
Also, while Hasbro and Mattel have grown by creating and acquiring a diverse array of
toys, Lego has adopted the opposite strategy: focus on the one, iconic product, but get
more kids to play with it. In China, where parents are increasingly seeking out
educational toys, has become the world’s second-largest toy market. The Asia-Pacific
region will likely overtake North America as the largest regional toy market sometime
next year.
Lego acknowledges the educational value of its marquee products, but is careful not
to let it overshadow Lego’s appeal as a source of diversion.

5. What must LEGO do to sustain its competitive advantage in the future? One avenue
to tackle this question is to think about diversification, both along products but also
geography. Another avenue is partnerships such as strategic alliances or even
acquisitions. What lessons from LEGO’s past should guide its future diversification?

Build Lego x Musician

Innovation is the key to sustained profitable growth. By innovating, firms can renew
their products, improve customer experience, differentiate from competitors, and
sometimes even create new uncontested product categories.
We all know that music plays a huge part on anyone’s life. Many people have their own
musician crush. For now, Lego has some sets of legendary musician such as Queen,
The Beatles, and etc. As we know that Lego user co-creation as their strategies to
come up with new ideas, this thing can be used to collect which musician that have a
big impact and exposure nowadays, also pick a musician that have a strong relation
with their fans to be created as a Lego figures.
This strategy is driven by LEGO and music fans. In essence, LEGO became an open-
source company and involved its customers in this new business adventure, elevating
its innovation processes to the highest degree.

Focus On Asia Market with Different Strategy

Like Starbucks do, Lego can enter to every counties or even city by making a new
design based on geographical. For instance, if they want to penetrate Asian market
more, then they can launch its limited edition Architecture series – the first product line
made for adults – Borobudur or Great Wall of China for Indonesian and Chinese
market. This can be also attracting for tourist who visit those country and searching for
something that shows a particular place uniqueness.
School of Business & Management
Institut Teknologi Bandung

Also, sometimes Lego still perceived as a “boy toy”. About 70% of the business comes
from boys. It is a challenge. They have to work towards creating a balance. They have
to ensure that the content is in line with what today’s girls want to see. It’s not
necessary that girls just like cupcakes. They want to build rockets and superheroes
too. This new product range have to be introduced across all markets.

Go with Eco-Friendly Material

By 2030, the company intends to manufacture most of its products and packaging
using environmentally friendly materials or recycled sources.
In 2018, the company took its first step towards these goals by introducing plastic
blocks made of plant-based materials — in the shape of plants. The company
announced the introduction of sustainable LEGO blocks in March 2019.
LEGO's new blocks are 98% polyethylene, made from sugar cane. The material use
of sugarcane plastic is in line with the guidelines of LEGO's partner World Wildlife Fund
(WWF) but LEGO blocks are still not biodegradable.
Though “sustainable material” can be a loose term, Lego notes that it believes the new
material must “have an ever-lighter footprint than the material it replaces.” This is
considered across impact areas like fossil fuel use, human rights, and climate change.
Lego also has investments in wind power and has introduced paper pulp trays for its
Lego advent calendars, which reduces plastic waste in landfills.