Critical Evaluation of Lego Group Family Business

In the past decade, the family business has increasingly attracted substantial public

attention, leading to comprehensive general discussions and other augment family business

studies. For years, family businesses have shown imperative in the economic development

of various nations by taking part in contributing to astounding percentages of economic

and social-economic growth. However, other studies had also proven that before, family

businesses were not doing well as they are associated with various drawbacks regarding

strategic talent management, capital management, and effective governance. On the other

hand, multiple studies have taken it upon themselves to evaluate practices that promote

family relationships instead of business performance. Therefore, studies have stated the

different considerations that underpin the growth of the family business. However, we are

yet experiencing family-related conflicts promoting uncountable losses, characterized by

inadequate knowledge in strategic business management, which becomes a significant

problem. Therefore, there is a need to identify essential criteria that can be used to assess a

given family business; financial ratio, overall assessment of the business performance, and

governance employed by the company. A family enterprise is any business family

members share ownership. They also have essential commitments to the general well-

being of the company. Criteria used to assess the relative success include financial ratios

that look at the business's economic structure. Some of the factors that promote enterprises

to take this assessment include; a jump in expenses, low cash reserves, and an expansion

project. Again, where a family business borrows a lot, there is a need for a financial

assessment. Thus, looking at one's financial ratios is essential to evaluate the businesses'

financial stability.

Ratios are used to make efficient comparisons between different aspects of how a

business stacks up within a given area. The ratio helps the business owner evaluate
whether they have accumulated debt or stockpiled a lot of inventory. Balances should thus,

be reviewed monthly to see the progress of the business. It is also essential to identify

which financial ratio works best for the family business.

The other criteria are the overall assessment of the business performance.

Continuous evaluation of the business performance is vital in determining the success and

the health of a family business. It helps the stakeholders identify areas that need to be

attended to and correct any arising issue. It also gives the involved people an opportunity

to evaluate essential responses (Hienerth and Kessler, 2006). Some ways to help family

businesses assess their business performance are by reviewing their business plan by

employing SWOT analysis. They can also benchmark, use a competitor profile chart, and

evaluate market performance.

Business governance is another criterion that family businesses can use to assess

their success. Family governance is a business family that entails some of the structures

and procedures families use to organize themselves and guide their associations with their

business (Erbetta, Menozzi, Corbetta and Fraquelli, 2013). Well-designed family

governance is thus essential for it helps members set important boundaries, promote

harmony in the business, and promote clarity in the industry, supporting a more focused

company (Erbetta, Menozzi, Corbetta and Fraquelli, 2013). Thus, to maintain effective

governance in a family business, everything should reflect a given culture, objectives, and

dynamics. Therefore, in assessing if the company is healthy, it is essential to evaluate if the

business governance is flexible enough, its simplicity, pace, and purpose. If the

government meets these aspects, then the business is said to do well, but otherwise, correct

some of the company's elements to do well.

It is also essential to understand what success means in a family business and some

of its challenges. What success means to a business company can have divergent reasoning
where some people argue about the business's financial stability (Haynes et al., 2020). But

the majority of the members focus more on qualitative factors and intangible things. Some

of these factors include; sustainability and longevity, honesty and integrity, creating a

legacy (advisors, Flexibility is Key to Succession Planning for LGBTQ and governance,

2021) having fun and sharing with one's relatives. So, what is success to these firms? This

question is yet to be resolved to date. However, one sure thing is that success is a multi-

dimensional concept. It includes both indirect and direct as well as qualitative and

quantitative facets. Other researchers argue that success is a set of aspirations and goals

sought by family businesses compared to other non-family firms. An article by Villalongo

and Amit, "Financial Performances of Family Firms", (advisors, Flexibility is Key to

Succession Planning for LGBTQ and governance, 2021) The main reason this concept

creates confusion is that it is dependent on how family businesses define success and how

they measure it. Therefore, any family business practitioner needs to understand this

concept to offer the right advice to affect effective solutions.

Apart from the mentioned criteria, there are other criteria provided by academic

kinds of literature that are also used to assess the success of the family business. They are

categorized in those that consider the history, current status, and other desired future

business objectives. The second rank is based on the relationship between the players

involved; the health of the family sub-systems, and the diversity of perspectives (Sharma

et al., 2013). The last class explores the levels of efficiency and effectiveness of the family

business.

On the first class, it comprises of various tools

Davis's 3-circle Model

This tool discusses a family business in three dimensions; owners, employees, and

family members. It helps concerned people understand the current position other
perspectives critical to internal stakeholders in the organization. The first step involved in

this model is analyzing the business by placing the protagonist and other essential players

in one of the seven regions of a three-circle model (Sharma et al., 2013). They have a

unique position in the model. The model also aims to distinguish between employees,

owners, and family members. It also categorizes families such as; junior generation

members, in-laws, senior generation members, and blood relatives (Sharma et al., 2013).

Thus, the model is essential as it provides insights for better business performance; if such

insights are met in the future, then the business is a successful failure, which the company

is termed to have failed. This model is thus essential in assessing the performance of a

family business.

Three Axes Model

This tool is used to capture any changes that happen over time as the business is

being conducted. It consists of ownership, business, and family axis. This model is

essential in evaluating the family business's performance (Sharma et al., 2013). It helps

them identify the current positions and other positions that they may desire in the future

and other key stakeholders in each axis. This enables members to evaluate how they can

meet such needs (Sharma et al., 2013). If the family company is in a position of meeting

these requirements with ease, the chances are that it is doing well and if otherwise, then the

company is not in a good state, and changes need to be mended.

Governance of Family Firms

Governance in family enterprises is more complex than in conventional firms.

Therefore, when assessing the performance of a family organization, it is important to

understand what the firm is employing governance mechanisms at the moment (Sharma et

al., 2013). Thus, where management respects each other and adheres to set rules, then the

business is healthy, unlike when there are conflicts between leaders in the firm.
 Rules to Entry and Exit

This criterion employs two criteria; eligibility of ownership and conditions of

employment (Sharma et al., 2013). In a case where the right, succession growth of the

firm, and sibling relations meet the listed rules of exit and entry, then the business is said

to be successful, unlike when one of the rules is breached.

Performance of the Firms

Any family business firm that can balance family and business goal is to say be

successful, where this criterion makes it possible to determine this. On the other hand, a

family business that cannot differentiate between business and family goals has failed.

On assessing the family dimension in family businesses, genograms are essential.

Genograms are a visual representation of activities undertaken by a family member in

meeting the membership rules set in the industry. In analyzing family firms, therefore,

genograms are powerful for it helps capture the system key players in the business and

some of the relationships employed to ensure there exist harmony in the industry (Sharma

et al., 2013). This allows the practitioners to understand the dynamics and the family

players, making it easier for them to assess the well-being of the business.

On the business level, organizational charts can be used to determine the well-

being of the family firms. These charts used depicts the structure of the organization and

other related ranks of its parts (Sharma et al., 2013). This is helpful in business assessment

as it helps practitioners understand the positional authority of family members in the

business and departments. A company with no succession issues and other issues on ruling

matters are healthy as everyone is satisfied.

Apart from scholars, investors, customers, and business members, business

journalists can also assess the performance and success of a family business. Investors

loving investing in a profitable business may yield profits. To determine if the company is
worth investing in, there is a need to assess its well-being and success (Haynes et al.,

2020). Customers can also evaluate the performance of the business by observing how

services are rendered and how stockpiled the business is (Haynes et al., 2020). A company

with no stock is termed as a failure hence not successful. The business owners can also

take it upon themselves to evaluate how their business is running by observing how many

outstanding debts they and things like the relationships amongst themselves and with their

customers (Haynes et al., 2020). A company with a lot of debts is seen as a failure hence

not successful. Lastly, a business journalist can also assess the performance of a family

business before writing the business review.

Lego Business Description

Lego group business is a family business that globally deals with toys. It is also the

leading company that manufactures toys in Europe and the fifth-largest worldwide. Its core

product is in line with plastic that is interconnecting building blocks (Lego Group, 2017).

Children can use such bricks in various ways, such as following the manufacturer's

instructions in building the unions or by employing their practices (Lego Group, 2017).

Legos are thus aimed at children from birth to nearly 14 years old. Though in various

countries, such toys are also sold to adults.

The firm was started in 1932 when ole Kirk Christiansen decided to extend his line

of work by employing a new line of wooden toys where he called the newly invented toys

Lego which meant play well (Bedford, 2021) The founder then sold the toy firm as he was

going through financial problems, and form the journey of this business has never been

easy. The firm has had a rough beginning where it has spent a decade trying to launch

different products, the recovery itself, employing top designers, and committing to

continual innovation (IMD, 2015). It also invented robotics and other computer-
related games (Lego Group, 2017). It also majored in different themes; parks and followed

new lucrative paths by working with the various movie franchise.

In early 2000s, the COO of the business implemented new approaches to business

innovations. Such innovations were; hire and create people from different cultures and

ethnicities, customer-driven, implementing disruptive innovations, fostering open

innovation, and building an innovative culture (IMD, 2015). But in 2004, the firm almost

went insolvent because sales decreased approximately by 30 per cent in the previous year,

where businesses run negative cash flow) (IMD, 2015) They also had a debt of 800 million

dollars. Such crises lead to questioning governance, strategies used, product development

models, distribution, and manufacturing procedures. For the governance issues, the owners

were in a dilemma of choosing another non-family chief executive or not. As at the time,

they needed a solid party to help them recover. Currently, the business is doing well,

which calls in for assessment,

Criteria used in Assessing Lego's Success

In this study, the two criteria that were important in assessing the success of the

Lego firm included; the type of business governance employed and the overall assessment

of business performance. In determining the performance of a business, the quality of

products and services rendered are of importance. Additionally, customer satisfaction,

innovation of new products, the company's ability to attract and maintain talents, the

relationship between employees and management are also to be considered (Zachary,

2011). On the other hand, in evaluating the governance of the Lego group business, some

factors needed to be examined. Such factors included:

· The consistency in the management of Lego business.

· Social coordination of the firm.

· Overall management metrics.

 Business performance

Business performance entails all endeavours or achievements associated with the

firm from its beginning to a certain point in gradual growth measured in terms of public

input. Thus, in assessing a family corporation, it is crucial to acknowledge some of the

strengths and weaknesses of the Lego group in this context. Therefore, to evaluate the

performance of the Lego Group, the following models were applicable.

Assessing The Quality of Products

A successful business is identified by the type of products they produce. It is

common for family businesses to make good quality products as they channel most of their

efforts into their production process, especially when the company bears the family name.

Talking of quality products, the Lego group is not an exception. This firm is renowned

mainly due to the quality of toys they produce since it's appearance in history and that is it

is one of the best five toy selling companies in the world and the best in Europe

(Sudhakaran, 2021). Again, the toys are also designed in an efficient way that they are safe

to its consumers.

Clientele Relationship

Usually, the success of any business is mainly linked to how management relates

with their customers. These aspects hold because the relationship between the clients and

the industry is symbiotic (Venables, 2013). Customers promote the prosperity of a

company because businesses are dependent on the motions and activities of their

customers. Thus, for any enterprise to maintain and have a highly competitive advantage,

they need to add value to their consumers as it paramount.

Hence customer loyalty and satisfaction determine whether they will exist an

excellent or lousy clientele relationship. In the context of Lego group business, this is not

an exception. These firms have dedicated their time to ensure their customer's needs are
met, as seen from their mission that their goal is to provide their customers have high-

quality and safe experiences by using their products (Venables, 2013). They also take their

customer's feedback to design new play experiences according to their specifications.

Additionally, a net promoter score can also be used to measure the satisfaction of

the consumers in this context. This metric globally asks shoppers and children if they were

satisfied by the products and recommends the products to other potential shoppers

(Williams Jr, 2018). Thus, the clientele relationship between Lego group business and their

clients is good, promoting their success. This was majorly felt in 2017 where the business's

NPS reached the highest level in history as it exceeded the firm's target by 2.7 points, and

it is still doing well to date.

Companies' Reputation

The image of a given firm is dependent on the perceptions it builds on the

population they serve, commonly referred to as public figures. The social interaction

between a firm and the community they serve determines the family image and views

about the firm as a whole (Johnston, 2020). As an indicator of having a successful family

business, the business's vision needs to remain clean for current and future success.

Assessing Lego group's family business, the company has improved both in local

and international relations as it has enhanced various business opportunities with other

partners globally. Additionally, according to the 10th yearly Global rep tank, which is an

institute that ranks business according to how reputable they are, Lego group family

business was ranked as the most respected international company in the 2020 list

(Johnston, 2020) The ranking was based on its commodities, financial performance,

leadership governance and performance, citizenship, and innovation. We can tell that the

Lego business is healthy and it is doing well in the market.

Technology Know-how
 As the world strives to beat the millennium development goals, families' industries

should have a similar interest. In this modern era, technological awareness is an essential

tool of any successful business, including all family enterprises (MartinM, 2016). With

technology, a company is acquainted with factors that are useful in determining the firm's

competitive advantage, for it provides integrative capabilities that promote

opportunities. Lego group business in its 2000s had taken increased strides into the digital

world where they produced numerous generations of console games, interactive websites,

and computer media (MartinM, 2016) Although employing technology in their operation

was not accessible by then, CEO Knudstorp changed everything (MartinM, 2016). He used

strategies that began to grasp on technology to redeem itself. Since then, the business has

offered innovative products such as the "Life George" game that was invented in 2011.

This game enabled players to establish tangible Lego designs that could be raked into the

game (MartinM, 2016). Additionally, in 2015, "Lego Dimension "was launched, which

developed the importance of technology in business (MartinM, 2016). The game could use

300 physical Lego pieces that built the controller (MartinM, 2016). On the other hand, the

controller was used to scan such pieces and render them on the screen. Again, virtual

reality as used in this business is becoming more critical in the gaming industry which

makes it possible to bridge the gap between its physical and digital world, making this

business a success. Moreover, all the employees know how to use technology which they

apply in their daily activities.

Financial Status

The financial well-being of any company is a crucial assessment factor in

determining its health. Several researchers and academicians have unique perceptions of

the businesses' financial status as an essential tool in the social and economic development

of the company (Sudhakaran, 2021). However, I believe it is hard to determine a business's

financial status, although projects run by such enterprises can tell how stable the business

is. Nonetheless, it is also publicly eminent when the family business management fails to

keep its financial secrets.

Regarding the financial status of Lego, the business has evolved significantly over

the past 80 years. It started as a small artisan's plant, and now it is among the incredible toy

brands in the world (Bedford, 2021). In 2020, the company was reported to have made

nearly 5.87 billion euros on revenue and employed other 17500 employees from different

parts of the globe, terming it as the "Toy of the Century" on two different occasions

(Bedford, 2021).

Family governance

On the second criterion, which is family governance, there is a need to look at the

managerial team and culture of the business. Family governance is an essential criterion in

assessing family business success. Business management can be the success or the

downfall of the business-owned business (Sultan, de Waal and Goedegebuure, 2017).

Here, two concepts are crucial, and they include the strengths and the weakness of the

company. On weaknesses, we have high debt, excessive family control, and dependency

on few suppliers in the market (Sultan, de Waal and Goedegebuure, 2017). On strengths, a

successful family business shows the following; strong administrative and financial

support and a superior information system. In the context of the Lego group business, the

management has dramatically been influential in its achievements. Some of its strengths

include; its global presence, customer-oriented culture, and high competency managerial

staff. On the other hand, one of its most significant weaknesses is the price of the

commodities, which is the most felt pitfall of the business.

In conclusion, it is easier to start a family business, but subsequent management

remains a significant challenge. The company's financial performance and governance are
the best criteria for assessing a family business's well-being. In the context of Lego's

business, all these criteria were met, making the business successful.
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