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LEGO CASE STUDY 408

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Company Profile

A Denmark based construction toy manufacturing company. Founded in 1949, it is yet one of the frontrunners in children toys, due to their innovation strategies and calculated risks. Its flagship products consist of interlocking plastic bricks, mini figures, and accompanying array of gears.

History

The first half-century of LEGO's history, however, is the tale of a successful post-World War II Scandinavian company. Ole Kirk Christiansen started making wooden toys in his town of Billund, Denmark, during the Depression of the 1930s, eventually naming his company LEGO, which loosely translated from Danish means "play well. When the war was over, Christiansen bought a plastic injection molding machine and experimented with it to see what kinds of toys he could make. By 1949, he had developed the now-familiar building blocks with circular studs on the top, an advancement that allowed children to lock connecting blocks into different shapes rather than just stacking wooden blocks on top of each other. Half of LEGO's output was plastic by 1951. Later that decade, the company developed a more durable plastic polymer for manufacturing the toys and also trademarked the building-block style for which LEGO

Over the next two decades, LEGO's sales and profits grew steadily but modestly as the firm focused primarily on its trademark building sets with just a few variations, including castle and space themed toys. Beginning in 1978, however, the popularity of LEGOs surged, and profits doubled every five years during the 1980s. LEGO's rise came during the peak years of the baby boom and that generation's children. The firm's building-block materials continued to appeal to those groups for years, as the company turned out more and more themed building sets and expanded its markets. In 1993, however, sales slowed to a crawl. The Chinese had started manufacturing similar items at a fraction of the cost. LEGO added more toys to its product line, but did not sell more items overall, thus inflating manufacturing and delivery costs while not increasing revenues. At the same time, consolidation among some retailers and the phenomenon of big-box stores made it tougher for company leadership to negotiate prime shelf space for LEGOs. Further, with the advent of video and computer games, boys -- and it was primarily a "boy toy" company -- began giving up LEGOs in favor of more sophisticated toys at an earlier age, reducing the company's potential market. "Kids were getting older younger," Robertson

These challenges precipitated the firm's 2000 innovation binge. Many of the new items received positive reviews within the industry and from customers, particularly the Star Wars and Harry Potter-themed products. "They were successful -- until they weren't," Robertson stated, noting that the Star Wars and Harry Potter-centric toys, for instance, were blockbusters -but only in the years when new movies or books in those series were released. Other toys either failed to gain traction or were only popular within small niche markets.

Legos Expansion
Movies

Video

Games Theme Parks

Children

Clothes Board Games Television Books and Magazines Exclusive Retail Stores

Vision

To create a virtual platform which enables all fans to create their own LEGO World with their own models, own rules and own games.

Inspiring Builders of Tomorrow.

What the Case Entails?

The case tells the story of a company where innovation is tremendously important, but not working well. In 2003, the LEGO Group had a number of positive attributes: it had a wellrespected brand with some very good toy lines. It had a passionate customer base that in many areas was more sophisticated than its internal designers. And it had been able to extend the brand into many areas such as toys, games, clothing, theme parks, movies, and many others types of play, earning significant revenues (but not profits).

But, in 2003, the company had gotten itself into deep trouble. Over the previous 5-10 years, the toy industry had been changing dramatically in ways that did not favour the LEGO Group. These changes, coupled with some poorly planned investments and a downturn in the sales of some important toy lines, combined to almost put the LEGO Group out of business.

The company lost nearly DKK 1 billion in 2003 and its cash dwindled dangerously low. This was the largest loss in the history of the company, and many analysts believed that bankruptcy and perhaps even the breakup and sale of the company were likely. The company quickly sold off assets, reduced headcount, and outsourced production to cut costs and generate cash. But it knew, to turn around the company, it had to improve its overall innovation system. It had to improve the time to market, success rate, and profitability in its innovation system. The case presents a number of representative challenges that LEGO was facing during 2004 and beyond

INNOVATION STRATEGIES

Restructuring the company to make responsibility for each part of the business clearer. Each toy line was given responsibility for its own sales and profitability, and the Concept Lab, which before had lacked focus, was separated and charged with developing new

The definition of innovation was redefined through the LEGO innovation matrix.

A new stage-gate process was implemented.

A new way of working with external inventors and complementary product producers was integrated into the structure and process.

Users were involved in the development of new toys, in particular the new generation of LEGO Mindstorms.

Through these and other activities, the LEGO Group dramatically improved its performance, returning to profitability in 2005 and achieving very healthy profits in 2007.

Conclusion

Learning objectives: How to restructure an innovation system. How to encourage all types of innovation (innovation in pricing, business model, channel to market, branding, customer experience, etc.) and coordinate these innovations across the company. How to involve external parties such as customers, complementary product producers, and external inventors in your innovation system.