Jash Parekh and Rasik Mangal

Assignment 3

1993-1998

According to us, Lego spread itself too thin during these years. With competitors such as
Mattel and Hasbro starting to move manufacturing to Asia and the age of computers and low
birth rates making its presence felt in the toy industry, Lego continuously faced strong
headwinds form external factors. As a result of this, the management felt it was prudent to
diversify into different operations such as theme parks, children’s wear, robotic bricks,
movies, merchandise of its products and watches.

While it may look prudent to diversify into other markets when the toy industry was itself
stagnating, Lego made a mistake by nit investing in its core competence and focusing on re-
invigorating and consolidating its resources on its main product- which are the brick toys. As
mentioned, the industries which Lego is diversifying into are heavily dependent on the
success of its core products. For example, if there is a strong and sustained craze for a
particular line of Original Lego products, then only can that craze generate demand for the
other products. For example, if a child really likes the superhero collection of Lego, then only
he will demand to buy other items such as clothes, watches or go see a movie about it. We
felt Lego should have invested heavily in upgrading its competitive advantages which were
showing signs of decline. For example, Lego could have stepped up investment in
advertisement of its brand image. This would prevent depreciation of Lego’s intangible assets
such as goodwill, if not increase them. In a world where technology was disrupting the basic
foundations of several consumer goods, such an investment would not allow the Lego
customer to think of buying alternatives and would continue to feel pride in owning a Lego
set and being associated with the ‘brand’ of Lego.

1999-2004

According to us, the changes in organizational structure and supply chain management were
necessary. Lego had been stagnating from 1993 to 1998. It was time for a more hands-on,
active and creative approach. If managers are given more freedom, they would be more
motivated which would in turn lead to better designs and production of sets, boosting sales
and productivity. The layoffs were also a well thought out move in retrospect. It would have
freed up a significant amount of constrained capital for Lego to invest in their retail stores
and online marketplace. Lego’s supply chain also took a massive hit in these years. As a
result of the layoffs and giving a tremendous amount of leeway to managers, Lego’s resource
management went down in shambles. It was impossible to decipher the unit costs of each
small component and there was a lack of accountability. We felt that Lego should have
allowed managers to get creative, but still have them follow the strict costing and supply
chain rules as enforced earlier.

Lastly, we felt that Lego had made a lot of their brand value dependent on their franchises.
For example, in 2003 when there was no major movie from Star Wars or Harry Potter, Lego
Sales tanked and Lego lost DKK935 million. This translated to an approximately 50% drop
in sales which was massive. Hence, we felt that Lego needed to develop more ‘in-house’
lines and build their brand value and secondary products based on those, not from Disney,
Star Wars and Harry Potter.