Lego Strategic Management Case Study

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CONTENTS

1.  Executive Summary………………………………………………………………………….         2
2.  Introduction………………………………………………………....…………………………. 3
3.  External Analysis…………………………………………………….………………………..         4

• PEST Analysis…………………………………………………………………………..         4
• Porter’s Five Forces Analysis…………………………………………………..         6

1.  Internal Analysis……………………………………………………………………………...         8

• Key resources and capabilities………………………………………………..         8
• Core competencies………………………………………………………………..          12

1.  Business Level Strategy…………………………………………………………………..          13

• Overview………………………………………………………………………………..          13
• Manufacturing Process & Supply Chain…………………………………          14
• Marketing and Sales……………………………………………………………….         15
• Services and Promotions………………………………………………………..         16
• Innovation and Technology…………………………………………………….         16

1.  Corporate Level Strategy……………………………………………………..............         17

• Overview…………………………………………………….............................          17
• Vertical Integration…………………………………………………………………         17
• Product Scope………………………………………………………………………..          19
• Geographical Scope………………………………………………………………..         19
• Rapid Diversification……………………………………………………………...          20
• LE-GOing Digital……………………………………………………………………..          20

1.  International Level Strategy…………………………………………………............         21
2.  Recommendations…………………………………………………………………………..         23
3.  Reference………………………………………………………………………………………         25

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1.0 Executive Summary

The LEGO Group is a privately held company based in Denmark since 1932. It is one of the world’s leading manufacturers of play materials. The external analysis focuses on factors affecting the company such as political, economic, rivalry among competitors, threat of new entrants etc., to identify the Group’s various threats and opportunities. This is done using PEST and Porter’s five forces analyses. A further study of the Group’s strategies is performed in three levels: business, corporate, and international. The report finds that its business strategy is to increase brand value and drive product sales by defining its target customers and identifying the customer needs which are to be satisfied. It seeks to meet customer demands by providing value to the customers in terms of quality and a creative way of learning experience. The Group’s corporate strategy follows a related linked diversification framework. It attempts to increase the competitive advantage by following extensive vertical integration, diversifying its product line and expanding into untapped geographical locations. The Group has a systematic approach for its international strategy which changes along the four-stages of expansion, which are introduction, growth, maturity, and post-maturity.

Finally, after the analysis of the company and evaluating its various threats and opportunities, the report makes three recommendations, namely, creating a new product line targeted at expanding its customer base, expanding further into the Asian market, and integrating physical toys with digital products.

2.0 Introduction

The Lego Group is a privately held company based in Denmark. It is one of the world’s leading manufacturers of play materials. The Group motto, “Only the best is good enough”, reflects its commitment to child development by offering play materials to enhance learning and creativity.^[1] The mission is “to inspire and develop children to think creatively, reason systematically and release their potential to shape their own future - experiencing the endless human possibility.”^[2] Along with the vision: “investing the future of play”^[3], the Group integrates innovation in its products and constantly reshapes its business to maintain competitiveness in an industry vulnerable to rapid globalization and digitalization.

“LEGO”, an abbreviation of the two Danish words “leg godt” which mean “play well”, is not only a name but also the principle of the Group. The Group was founded in 1932 by Ole Kirk Kristiansen and is now owned by his grandchild, Kjeld Kirk Kristiansen. Since its founding more than 80 years ago, it has come a long way from a small carpenter’s workshop of wooden bricks to one of the world’s largest manufacturer of toys, especially its famous LEGO® brick, which has been its most important product since 1958.^[4] LEGO bricks that interlock and detach easily are known to encourage creativity and imaginative play among children. For six consecutive years since 2010, the Group has been in the top ten of the Reputation Institute Annual RepTrak®100 report.^[5] For financial year 2015, the revenue, operating profit and net profit increased by 25%, 26% and 31% respectively.^[6] On the corporate social responsibility front, the Group focuses on: children, planet and society. Children are always the first priority; the Group continued its three-year partnership with UNICEF throughout 2015 as a champion for Children’s Rights and Business Principles. Through the partnership, the Group reached approximately 100 million children across 140 countries.^[7] The Group believes in sustainable development and improved its energy efficiency by 5% in 2015.  As a major producer of plastic products, the Group invested DKK 1 billion for a Sustainable Material Centre.^[8] The Group was certified for attaining the goal of using 100% Forest Stewardship Council-certified paper.^[9]