Lego - Rediscovered and Unchained - How Lego Solved a Strategic Marketing Problem

Lego: rediscovered and unchained

How Lego solved a strategic marketing problem

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Index

1. Introduction        3

2. Strategic challenge        3

3. Strategizing process        4

4. Outcomes        6

Exhibit 1 – Financial annual results of LEGO        8

Exhibit 2 – Exploring tasks        9

Reference list        10

1. Introduction

Lego is worldwide known as the manufacturer of the recognizable building bricks. Based in the small village Billund, the Danish brand was recently named to be the world’s most powerful brand (Leinwand & Mainardi, Lego's Identity Profile, 2016). Over 2015, the toy company booked a revenue of DKK 35.8 billion, converted into euros more than €4.8 billion (Lego, 2015).

Lego was established by Ole Kirk Kristiansen in 1932 and for decades the company passed from father to son. From the beginning, Kristiansen’s motto was as follows: “Only the best is good enough”.

Nowadays, Lego is owned by the grandchild of Ole Kristiansen, Kjeld Kristiansen, who was the CEO of the company until 2004 (Mortensen, 2015).

Through decades, the company’s profit increased rapidly. With 7000 employees and five factories, Lego had grown to become one of the ten largest toy companies in the world by 1990. But fortune took off from 1998 until 2004, when Lego faced serious threats by losing money in four out of seven years. This turned the company into serious debts (Meister & Bigus, 2011). By 2004, Lego was almost declared bankruptcy. Regarding the unsteady situation of that period, the current CEO of Lego stated the following: “I had the banks breathing down my neck and asking for immediate repayment of all outstanding debt” (Rivkin, Thomke, & Beyersdorfer, 2013).

How could this have happened? What were the underlying reasons that made LEGO lose money in those years? What strategic challenge did they face? And how did the company cause a complete reversal of these circumstances, making profit again in the past ten years? These questions will be answered in the following paragraphs. First of all, the strategic challenge of Lego will be discussed. Second, the strategizing process of Lego will be described. This will be done by following the recently proposed framework of Stefan Stremersch, the IDC model (Stremersch, The IDC Model, 2016). Last, but not least, the outcomes of the strategic decisions will be defined by indicating the latest financial results of Lego and comparing them to the initial results of 2004.

2. Strategic challenge

In 2004 Jørgen Vig Knudstorp was introduced as the new CEO of Lego. Since the foundation of Lego, this position was exclusively assigned to members of the Kristiansen family. But facing bankruptcy and being in deep trouble, the tide had to be reversed. Therefore, Kjeld Kristiansen introduced the 35-year old Knudstorp, a former management consultant of the strategic advisory company McKinsey. When appointed as CEO, the main reasons for the operating losses were as follows:

• Complexity: Since 1993, the amount of (distinct) bricks had increased wildly. In just seven years, the amount of bricks increased from almost 7000 to 12.400 (Greene, 2010). This had major consequences: when one brick was missing in case of wrong sales forecasting, a product could not be sold (Rivkin, Thomke, & Beyersdorfer, 2013).

• Unrecognizable design: By giving designers too much autonomy, the design of Lego became unrecognizable compared to the classic Lego bricks. A good example of this was the Galidor line, a serie of action figures (Stremersch, Recognisable dilemmas: local versus global (Lego and Disney), 2016).

• Dependency: The sales from the ‘Harry Potter’ and ‘Star Wars’ line extensions were strongly dependent on the appearance of a movie, over which the company had no control. In 2003, a year without a launch of a Stars Wars and Harry Potter movie, the overall sales of Lego decreased for more than 50% (Crawford & Robertson, Innovation at the Lego Group (A), 2008) (Rivkin, Thomke, & Beyersdorfer, 2013).

• Manufacturing: During the 90s, Lego lost her leading position in manufacturing when many of their competitors started outsourcing their production activities (Rivkin, Thomke, & Beyersdorfer, 2013).

• Unsuccessful repositioning: Lego repositioned their brand ‘Duplo’, a preschool line extension, into another name. This proved to be less successful (Rivkin, Thomke, & Beyersdorfer, 2013).

All reasons mentioned above are examples of the strategic challenge the new CEO had to face. For years, Lego was focussing on too many fields and developing too many (new) products. The Lego portfolio expanded of products and services such as LEGOLAND and fashion clothes. But instead of creating a “family lifestyle brand”, the company lost focus on their core activities and main target groups. Because of the rising portfolio, it became also unclear whether and which products were profitable or not (Rivkin, Thomke, & Beyersdorfer, 2013). With a lack of overview, Knudstorp knew he had only one task: rediscovering and refocussing Lego in the right, profitable, direction.

3. Strategizing process

According to the proposed framework of Stefan Stremersch (2016), published in his book ‘How Winners Make Choices’, the strategizing process of the company will be described. As mentioned in Stremersch book, the IDC model is like an iterative process that involves three steps: inspire, diverge and converge. Based on literature about Lego’s strategy, extensive information can be linked to the Divergent and Convergent approaches. Therefore, these approaches will be more extensively described.

• Inspiriation

By assigning the 35-year old Jørgen Vig Knudstorp, who worked in the past for the reputable strategy consultancy company McKinsey, there can be assumed that Lego acquired a valuable leader with a lot of inspiration and experience on how decision-makers in other companies addressed analogous challenges.