Lego Case Study Answer

LEGO CASE STUDY ANSWER

1)  What has led the LEGO Group to the edge of bankruptcy?

Ans-1.From the above case we found some external as well as internal factors that have led LEGO Group to the edge of bankruptcy.

External factors:

There was the demand for substitutes and change consumer behavior shown by industry trends.fad toys rising coupled with a decline in product life cycles; In many part of the world children having more after-school activities and less unscheduled time to play than in the past; children having shorter attention spans and seeking more instant gratification; Demand shifting toward technology either in toy itself or in the form of toys coming with access code to online words for kids over 3 Year old . With the time children gave up traditional toys and they become adolescence longer which got them attracted towards fashionable and electronic products. In early1990s as seismic shifts pounded in the toy market. There was Decrease in demand of LEGO toys which led to declining birth rates in core markets of Western Europe and North America and declining household spending on toys in between 1993 and 2003.By this total industry profit pool decreased by 50%. Big Box toy discounters trampled mom-and-pops and lowered prices dramatically. Meanwhile, birth rates declined, children had less time to play and not much interest in toys that didn’t offer instant gratification. Change in industry structure retail channels consolidated, mass discounters featured toys more aggressively; competitors like Mattel, Hasbro and other pushed manufacturing into Asia.

Internal factors:

With the return of Kjeld in 1993, he built Decentralize system of decision making and he pushed the responsibility to frontline managers so that they could be more responsive to market dynamics. The head of production was dismissed. Growth became the new focus. There was heavy investment in product lines expanding well beyond the core product (the brick) into media products, theme parks, and clothing without considering margins. Expansions were done in-house rather than through partners keeping costs high, whereas Lego’s competitors outsourced manufacturing for reduced costs. Design of brick-based product lines became more complex and number of distinct components more than doubled since 1993.Focus on operational efficiency rather than strategy. There was lack of discipline, accountability and coordination across the company. Thus, in many companies, designers and design managers are not invited to help conceive the corporate strategy, and this is one of the essential problems that led LEGO off a financial cliff and into bankruptcy. Rather, putting design and innovation in the right place can lead a company to achieve its business goals and overall strategy.

2) What is your assessment of management move during "the growth period that wasn't" (1993-98) and "the fix that wasn't" (1999-2004)?

Ans- The strategic actions taken during the “growth period that wasn’t” (1993-1998):

Establishment of five person management team with the return of Kjeld in 1993, he pushed the responsibility to frontline managers so that they could be more responsive to market dynamics. The head of production was dismissed and shift of responsibility to frontline managers. This led to decreased coordination, increased risk of confusion and did not provide a clear framework for decision making within the company as the businesses were encouraged to make their own decisions. New focus on growth and there was heavy investment in product lines expanding well beyond the core product (the brick) into media products, theme parks, and clothing without considering margins. Attempting to focus on several avenues at once, especially away from the core product, led to compromises and inconsistencies which exacerbated the erosion of the Lego brand and the competitive advantage Lego once had with its target customers. This expansion led to confusion amongst employees as well as the customers. Some new products cannibalized core products and eroded earnings. New themes and products for brick-based product lines with more complex and chunkier pieces for faster assembly and quicker to play; that were also harder to combine with other pieces. This was inconsistent with Lego’s original strategic position for its product defined in Godtfred’s 10 characteristics.