EASE gTUtsY

The LEGO Group: working with strategyAnders BitLe Jensen

fhe LEGj 6raup has histaricaUy been a successf L fanily led, innavative and high growth cornpany in the gllb.ttoy industry' Then it experienced a period aÍ paaf performance and strategic uncertainty, The conpany impfawdits situatian in 2008 and aqain in 2a09 DeveLoping the Canpany requires on7oing eÍÍarts Which invoLve naal

;;

I

i

ti

FIIi

I

ln its annual repo.t lor 2009 the LEGO Group announccdsales of 11.661 million DK(' (= 11397m = S21l4m =€1566m) and operating prolits o| ]002 million DKK(=|]6om= s549m = €40]m] (ligues 1 .Úd 2)' This wasa im!Íessive incleae o|22 per.ent in sales (oveY 2008)and an even more impre$ive inoease of over 50 pe. cenlid ptulits. Even though 2008 had been a soo.l yee frr lheIDCO Group with sales 19 per cent up. the performancein 2009 was even better. What made this padicularlyencourasing was thal the global toy markel was stagnanto. cven decLiDitrg.It looked as itthe LEGO Group in 2010could bc ba.k on a healthy groM{h back after a turbulent

T| 'e creat ion énd in ieínét i rBal € xpans ion . f iheLEs0 síoup

LlGo wás lbunded jn l9]2 in the village of Bi]lrrnd'Denmark. by Ole Kirk Christialrsen and remained a lamilyrun lirm lbr mosl olits history. The .ompany manufactu.cdícpladdere. ironing boards' stools md wooden to],s' Thewoodcn ioys quickly became the best seljng item. In 1914the company chDged its name to IEGO a conjunctiono| the l)ánish words'LEg Godt, ('play We]],)'

| . ' qro |h. .onD2o\ c 'é |eJ o|oJu ' J8 ra l \ \a |o | .o| Lhe well known I,EGo plastic bricks' HoWeVer. plástic Wáslhcn a ncw matc|ial a.d üe pub]ic lvas hesitant to acceptil preLrrins more traditional wooden toys.In 1958 thecurcnt Lllcrlocking principle wilh studs ed tubes wasinvenLd aDd patented. The tightLy grippjng pieces Badeit possible 10 bui]d more stable aüd b1gger constructions

tha! bcto|e. The sáfuc yea.ole died and his soD' cTdtlrcdiook over the compmy' Ás a junior Vice PresideDt' Godtítdhad fu láct been one oi üe maj]ú drivilg forces belr]nlthe gfowth oflhe.ompey fof years.

The LEGo bri.]s gained in popularity md the bóic b clswere supplemented with ligües and technical fuatuÍs'such as small eleclronic engjnes, which extended ihrp]aying opporLmities' The ffBt LEGoIÁND themc park uestablished in 1968 in Billund. The Ll(lO Group began togrow on d intdDational scdle ed the number olenploy.esincreased liom just 65 jn 19 50 to 1000 in I970.

In 1978. Godt]ied's son, Kjetd' tooi! over as cEo aí|dg.aduatijrg from busines school and sainilg expeienrin the Swiss subsidiary. Godtlred contlnued servids o! lltboard and remained passionare abrDt the deveLopmeDt olthe company and its producl.s until his death in 1995.' DKK1= !0 ' l2 =$0 l8 = €0 . ] ] ] as a ! ] Iune2010

Íh is case s t ldywas p .epa.ed byAnde.s E i t l e ]ensen ' Un ivers i ty oísoUthern Denma.k ' i t s n tendedasabas ic lo rc ta$d5cLss ion and no i as an i t lus t ra t ]on o i qood or bad p|ac i j ce ' o Anders B iue ]ensen 20 l0 Not to be .ep .odUced or q lo ledwIhoÚ lpermiss ion LE00 and the LEGo togoare t radema|ks o|The LEo0 6roup Ihanksto theLEGo0roUp lo . .ont rbutn9tothÉ.á*

THE LEGO GROUP 543

Figu!'e 1 Sates history Éiguíe 2 ProÍit history

'i;

1

2500

,1500

2úa

HÉ€ÉEEEEE$ €FH

> 30,0

2 A A

E A A E A

ÉHÉEHB

EE$EEHÉÉ€áE

flgure 3 NumbeI oÍ employees

Ln the 1970s and 1980s the envirrmcnt becme

mmc hostile. The oil crisis caused the world economv to

l]ow doM' Tbe LEGo Groüp dealt With th€se chalcnges

successtuUy by introducing innovative produots (e g LEGo

TIcuNIc, anil new play themes like I,EGo caíle. LEGo

space and LEGo cowboys)' They also eDtcr€d neü' maikets

n ]he Us. south Ámerica aDd Asia' In 1985 the com

0aÍy omploycd 5ooo pcople (]ooo in Bi]]ud]' The strollg

d.v.lopment continoed into lhc eely 1990s' lt réí:eived

rumerous prjzes, including the 1996 IMD Distinguished

fmily Eusincss ̂ wdd' Success had been buiit on a

mmbinatioo or efleclive lead€.ship, innovaiive pro.]n.Ís

anl] international growtb' Abole ail thc LlGo bránil had

bÚome estab]jshed as unique and iconic'

Á n €v . ! s iíatégy {1995-98]

(jcl.l Christiansen wanted the compmv 1o contilue its

lnp.essive srowth. Bul how was this to be acbievedi'

As a stariins point the LEGO brand held a strong

position in its mdkets' But iL álso faced strong compeLi|ion

Aom thc taditionat and much bigger tov manulacture$

N'Íattel md Easbrc' New compeiitors such as solry. Nin|endo.

AcLivision ald vhua1 Árts we.e entering tbe scene with

incleasingly more advánced electronic gaDes' i\'4arkcl

.esearch showed thát childlen séem to matÜre ealler thus

deranding úore |rom the toys they a.e uslrg a| ayoünger

age' Thjs meant ihat the age spM düring whi.h.hild|enp]a]r with LEGo produ.ts might geí sholter un|ess ne

company ileve]oped new' úorc e{citing produc|s'

A kcy queíion was shou]d the compáíy 1bcus Tn lhe

tradilional bric.k or should itusc its brand as allaUonn t0

innolale in new des?some anbiÍous objectives werc set id 1995 |o guide

lüture srrategic developments|

* |he brand should be.omc the beí Loom g|obal bland

among lamilies with chjldren bv 2005;

s sales sbornd be increased by 10o 2o0 per ceDl over üe

$ ] 4 lew LEGoL{ND párlc shoü]d be built L! di 'ercI]L

FigÜíe Á Gearing (eqUity ratjo}

l;ii ,j j .r:iiliiilirliiii;l

544 THE LE6o 6RoLlP

. the bfand sbould be expanded into dominating chil&enk

rooms by entering into alliances With paÍDe.s in relat€d

a.eas such as flLns. clothjng andsames.

At the same tjme a new and more decentralised manáge"

menl style was inlroduced. The ide. was to stenglielr

the 'lanagemenl ot the orgalisation, mahing iL less

dcpendenl Tn Kjcld' over the ncxt |ew yees. a nunher Tí

scnnn a.d loDg se.ving manageís left as they disag.eed

wjth thc ncw nanagemcnt style and/o. with t|re new

stral.gy' New nanagement á[d specialists were bired to

suppod the new strategy.Resullr lbr I995. 1996 and 1997 remajned prolitable

bul on a doMwá|d trend' In 1998 the LEGo Groü! had

Cr.s ,5 j r . U i"us"a inéblé iurndroJnc d i fP-t j i s

119 t9 -7n l3 l

Kjeld rcálised that the company was in unlamiliar tenitory'

Hc decidc.l to hire a new Chief Operating Olli.er (COO)

with iu rnarou nd experieuce. The Lons lerm objeciives were

úainláittd but the immediate problems Were addressed

With a 'lritncss' procr.L'nme (essentially a restructÜbg and

costcu||ing programe). As a |eslrlt a total oí 10oo people

wcre laid olT. 1999 concluded with the successful lam.h

o| Ujco sln| ü/ars products (büilding Tn the phenonena]

succoss of lhc slm) aüd tlGoLÁND in cali|ornia beiüg

opencd. .fhc .ompany rctuntd to profitábility bui Ú was

shorl liled. ln 2OO0 sales declined once aganr md this

resultcd in a l6s close to I billionDKK.ln 2(101 the com-pány wds bacji in profft a8a!n aDd iD 2002 thjngs were

lookiog up wixh thc opcninB oÍ|EGoLÁND i! Germany aDd

lhc.e was anoLhcr year ol prolils ln 2003 the LEGO group

Mnounced lhe Sustainable GroNth lroglamnt which

in.ludcd a ncw dhtribution strategy bv settitrg up lEco's

owD dcdi.aLcd shops in the lrs Uowevef 200S tilmed

out to be disaí.ous. Weak salcs (dTM 25 per celtt) and a

dcticit close lo I billirn DKK. Thcse were turbulenr vearswith lbc LEGO Group s fortunes llu.tuatins liom vear to

year ir unp.cdiclable fashjon and apparent inconsisxencv

in stratcsi. resprnses (see Figures 1_41'l.he I,E(]o Gfuüpt erylanations at the tijne for these

6 ihe rapiilly changing environmentlo dimculties in linancial conbol and logisticsir longcr l.ad tiües necded |or runDing in íeW a.Íiütjes

su.h as the nelv ]'EGoLÁND parlis'

.|.b€ public. however, began Lo be mole critical aboul th!

developnetlt orüeLEGo Group ihe cornpany expenPn ll

a sbarp drop in image suneys from a solid lst o| ]úpu{r,o ro 7 8r 'por ' oD ror t" ro{ Jd n i ' .d omo r '

Thé türn inc lo int . :00{,

At the beginnbg o| 2004 Úe]d took on molc i ]oht

ment and responsibility |or íralegy and thc coo let dt

.ompany. I(jeld admjtted lhat serious misiaks had bcÚ

m a d e d 4 d | ' P ' o n p d n y 1 . P d P d | ^ P e ' b i c k . n ' Í a .Kield identiffed a combiDation of intemal and externa!

facto$ reslonsible for l-he problems. There had Lree! too

tew and Loo weak product launch.s Alter tbc specr..t rr

success in 2002ldith HeryPolter and stír 14/dB' plodu(

tion capacity had been eapandcd bLrt in 2001 th*e t{{!

no new movies üat cou]d drive LEGo sa]es' In an ailemlrl

lo expand !n LLrc snall childrcn s segment lhe lamous and

strong name ol LBGO DUPLO had becn chansed inln lxllo

!)(PLORER but consumels did not welcome this cbangemd sales Were down. on the retail side 2003 íarted vidr

too high invento.i €s in the shops' Which had to be sold

befole the shops could buy new I,!Go supplies' Ánded tn

this. competitors we.e mole active and ihe ex.hádge raie

ol the Us$ had weakened ágainst the Dánish Xlonc Í]x()Whai ü'ere |hc solutions io these challenges?

Gelt ing back on i .a .k i2B05'ú9l

The main strates'c dcveiopments since 2OO4 can be

suma.ised as follows:

?rganlsaairn, nanaIen2nt a,d exPe.ta cn.

one ol thc I]asi. chd'|enges |or ihe 1,lco Cr.,üp 'as t0

set some kind ot nerv, stable djrection for the organisaLio!after many layoffs' shi|tjng píiolities a changes ar seüo|

managemenl level.r By reioforcing his CBI responsibil8Kjeld sent a signal that the iamily was behind the conptnv

Heavy ü,rite.oífs on I,EGo!AND parks and othe. assets

were an attempt lo mark a new beginning. Kjeld also rt

a modest objective lor sales initially ollicjal eaTectations|or 2004 we|e set at the 1998 le!e]. I,áler' in octoLrer2004, Kjeld hatded over the CIO position Lo Jorgen Vis

Knudstorp ('lorgen l. then a 35-yea. old cxeclrijve vie

President' His r.latlvely young age md his bact8.roÚdcaused som€ djs.Bsion in tlre pless' Would he b€ ablc 10

hándle ihe task T! wou]d he táil?'

II

I

I 'l!c l,I](;O Oroup is a.tually a sroup ollnvatelv oivned ompanies

Ii.ú.iaL lisurcs havc íot been repoÍ.d consistmtly fld dact

conrpuisTns yearto ycü a.c norposlole

lÁ conservalive €stima|e is rat mo.o tián 75 per c.nl oltb.

top senio| maíagemed g.oüp was rcp]áced Within a liw yean

l €áving only a úeak '.oryorale menorY, otI'EGo croup\ íI|l'Í.

f,.]:'.):- !,l-e busj,?3s a^d ;npraíi3g t|e !ap!teI

,l.he heavy fiüancial losses had also .esulled in a weater{apitat struclure which limited the investment optionsto.lbe íuture (Figu.e 4).It was briefly discussetl whetherüo company s}rould be sold, but this wou]d be the wo6top]ion (jeld corrld |htú ol Instead he decide'd to supportlhe company M'ith a loan, simpliffed the corporate structuieánd he agrccd to sel] thc LEco|ÁN]] parks aíter reaiisingthal ihh busin.ss wás significmdy djllelent trom the rest'Thc divestment took place in 2005. The buyer was theMerlin Ent€rtainmcnts Group which also om a nmberoÍothe. leisÜe busineses, including fol exmple LladameTussau.ls. Kjelds iamily have recently incrcased lheir. | Ír o l J p1 mnI in lh( \e| .up bL| |he bus|"e. . | ' lunMparaÍely from the I,EGo GrouP'

Fa.4r ti. a'rr'ibuiicr^ major pa.t of IEGO sales tate place via big retaiiers md$tne oí lhe major retajl customers were putting si8lilicantpmsurc on the company due to their own problems - wa IMa.t wánted both more innovation and shorte. de]iveryti es. KMÁRT wcnt ban-krupt. Ás mosr toys' includingIECO products. are seasonal and sold arrund Christmas,Ibrecasting is impo.iant but also dilffcult and somelimesbse.d oD rhe peBonal experience ol key employees- Withnany íew people in key positions the IEGo Gtoup hada p.oblem Wúh 'Úrporate menory, md ]ea.ned üe hedWay lháL high stock levels in the retail sector can blockdrc introduction of new Ploducts aDd lcad lo retaile.sdcnaodiíg djscounts' lol this reason the LEGo G.ou! haspú a |oÍ of e1lort into getting closer to letaile.s 'a orderto uDde.sland thei. sales to end.oshme$.

FD..! ar.:.15! 2,1tJ the suPPlY:hajrMos! toys de p.odü.ed in china.esuItin8 in very low.ost'BÜt the LEGo Group had most o| its production in highcost countries. This was a concem ior manaSement. col düc t,lico Group compete?

Ás a li.sl step in cutting costs the whole p|ocurementp.ocess was reviewed and the numbd ol suppliers was cutsigDiíicantly' Cost reductions were signiff.ant'more thmDI(K 1 bil]ion annually in sávings''

I h e I e \ | . | ( p W d " u U | c o u ú ' . 3 c n o | ' o ' . . n g J g r P enenL with Elextronics meaDt lhat only 20 per cent of theproducl.s Were to be matrulactüred in BiliDnd md thé resf

maDu|actüred jn cheaper locations (e.g' lastern Europe)

and managed by llealronics. This would have led to layolTsin DenmarL However, by 2008 the LEGO Grcup changed itsphllosophy about its sülply chain''l IaGo sales are highlyscásrnJ] - wi1b more Lhan hají related to cblistmas' Thismcans that rhe order horizon is rather shorl ConsequentlyíldibiIil-y the ability to react to shoit tem clranges in Lhe

THE LE60 GROL]P 545

demand sltuation - is a priorib, over coí in a nmber o|situai'ons. ̂s a .esult, llea1ronics ánd the LEGo Group haveagreed to end tbe cooperation - the LEGO C.oup lell thal Lhcycould manage their own global manula.turins operationsmore'effectively |hemselves. The layoí.s were cancelled'

:nr:eiali.n - a4d err! u3?rsThe LDCO Crou! is blessed wiih enthusiastic users* -

üe bric]s appeEl to people all over the World and lhcprincille is timeless. But the concept has to be updalcd ailthe time' reÍ]eciing classic play themes such asfuestationsand pilates á5 well as tfunes which are topical due toblockbuster movies or other drivins lorces (e.s. the EarrPotter phenrmenon). Thus, nes' concepls and p.oductsbased on the LEGo bricks a.e paramoüot i' keeping theI,EGo Group alive and growing' As it is very di|íiclr|t topredict what wilL turn our to be a success, innovationrequtes many experimenll and teís' says Jo.gen|

'on]y

1 in 50 ofthe originaL ide6 ever becomes a real product.!'he LEGO G.oup has ben very succsslirl at inviting usersto partlcipate in prodoct development - users kDow whatwould intefest them and the comlaDy recognises Lhcimportance ol customerresponsiveness.

?!ay:rg lc ltedi.dilai,,d .*e!l ín.c;a.!|tThe LEGO Grou! has developed a dew digilal stralegy.Part o| lhis strategy is to develop au online mdtipláyergame _ called LEGo Uüiverse. Players can build, creabeand play together viá thé inie.íet' The launch. however'was postponed a couple oí times whiLe the LEGo G.oupworked on the .ight bálan@ between the .old, and the'new' busüress md bow ihey should wor]. together' The

same was set to launcir in 2010-Cooperation with licensing partdes in Lhe dovie dd

gaming industry opens up new s.owlb lalhs Ior theLEGO Group. In 2OO9 the LEGO Group and Wa.ner Brosannomced that they üIoüid mate a LlGo movie' othelffLrmakeN have had this idea before but the LBGo Grouphad Iejected eár]ier initiatives |or brand reasons' The ft]mwil] p.obably be an action adventÜe in a LEGo world TheLEGo Group is thus |ouowing the strategy Óf Malle| andHasbro which a]ready have sirilár agreements to promo|etheir toy brands and ffsu.es in dovies.

Á de.'j3ive rí6meili . éj-n';|ov!.ih ré.oi'íl ;R l8!.j!af t128f l9" '

ln 2008 md intT 2009 the filancia]c}isis Wás esca]atingon a global scale. The Board decided boldly that lhc LECO

.l! has been es|imlled Llrat approxina|ely 1'5 pe. .énl oI trroconlen! on Youtube,com is related to I,Bco pÍoducrs' Us€snake vlders o| tbeir modcls ánd shoí' them on the nct.

54ó THE LÉoo GRoUP

croup could accommodate more risk and Poduclion wtu

inffeased to p.epa.e tor 2OO9 onwards and new equipmenl

was o.dered. The decision proved to be right and the LEGO

Group bad a vely successtul 200E dd 2009 . the big8cígrowth rate since 1981.

' ' \ . L"OC,.uph" 'Dou hom "Pdd' o 'nE 'e" - '

2oO5' 1be s|rüctur.ü chánges in thecodpmy can be scen

l'rom the |áct that th€ píotit iD 20í]8 was more than triple

Lhat ol2002 with the same sales lelel Both sales and

prolit improvedagáin in 2009'

.Undér con5t.ud. ion.: déí! '1 ing the luí$re

'lhe strenglh ol the recovery came ea.lier and was

sl.onger than expected' ]or8en js proud ol the resülts

and his pcolle' Bu| he is a]so alÍaÍe that the bordellne

be|ríeen success and |ailÜe is sha.p. The challenge is

Lo maintain long term planning &hjkt copins with sho.!

lcrm fiüctuationsi however. be nÓw has the lunrythalhe

can work with a longer tirne horizon and mrre tinancial

securily.on a 10 yed horizon hc lbresees au average growül

ot 7 ler cent per yea. Compded wiih the lalesr rPsr rs

this may seem to bc modest grosth.lven so it means that

production will have lo be more than doubled and this

.equtcs significant investments in equipment. pcople.

product developmcnt md marketing Elom a mekeLingpoinL o| view there iS a whole range of oppoÍuni|ies as

the LEGO Group is cunently lhe 5th biggest globaL tov

coúpany with á marL.et shale o| aplrox 4'8 pel cent

.]'he |!co Group has devcloped a new ünderstaDdjng

ol its roots and this lcaves one cleai pnoritv As lorgen

Thc LEGO brick will continue to be our loundation

ln some markets s,e don'i have a huge presence vet,and there ou. goal is |o increase fuarl.et shÚe by

raisinc awareness and attractin8 neü' audicnces to

ou. producll. Whereas in other markets for example

Germany, we álready have a high market shde so to

ilcrease that we need io catcr lor new larget gouls.

Á! examplc of tha| 's our bred new concept I,lGo

Games which &e board gams that invrlve thc M'hole

fdnily and nol only the bbys

This is an example ol the obviouslv LEGO, but never

secn belore priftille You recognise allthe elements the

fáb i € 1 R3nking of top g lobaLtoycompan|es '

6. MGA Enterta inment

1r' MEOA

. Ba5ed Tn e5iimated qtobaLiuÍnoveI l2003] ' relaiL saLes b

sou..e: LÉGo G|oup basgd on NPD 1qU|os'

board, the dice clc. But you have nev$ seen I builddbk

and changeable boa.d ald bujldable and chmgeaLrlcdiü

The iccovery began with a tbree-page shateSv nEno

in 2004 and this pfrved to be the slnrting point Lor lhe

succesful developmeul in the pe.iod up !o 2009 Si j08

jnhisollice t]led with LEGo úode]s and skelches nradebÍ

his chi]dleD Jorgen now needs |o ind thc .jgh ímlqi

for thc contiDued succes o| the I,lco croup. What a!Li]']

you advise hjm to do?

Thé case has been wrtt.n based on muliple sou|cés indldinllqenérat Íeview ol LiiÚáre' TV^ad o intorviews' iílemd *,trh €!

aid nd at tésl' inbd.Ws with kéy peopte át The LEco 6rcup lhl

.ompány s extensively fot|owgd by a bÍoad Érqe ol medh admL

aIe rgported 9imUltaneous|y in mtsny méd a al1he 5ame [m!'

F]nancat figuÍeg and many ía.is á.ecompanys homepaqe nctudinq annual repods press rete** ai!

' " . 1 4 . ' o " ' 4 ' 9 ' ' " ' r Ú 0 r ' oin t|re ]990s.an be found ]n UgebreleÍ Mandag Marg"r nr J'

] Ap.it ]99ó' PP ]7 2siTh s development can tor nstán.e be sedn n the tsanUalsunas

n a,Ée n/BeÍ lhqskes Nyhe|lsh1g' seé é'9 Ee.l f,qskes Nyhedsma9a5jn' 2' sePtember2000. ! ?5

" ]úrg.n has qVen mauyjnléd]éws ln aér'ngske ]Vyhedsm;qaú{

7 o ' oo " / 00o Iq " ' . ó | o ' .thouqhis áfteI iwoye3rs ofi!.bUteit.xPeren.e as cE0

"see a q Jyllands Prston ? Marlr 200s'. see e'q' JylLantls.P6ten'2Fe6|uary, ró May and 2 JUly 20Bi' 5ome ofihe5é éyenls and Ihoughi5 aboÚt the iUtuIe arc sÚnmdíld

ia Barsen Maqdine.,3A Sep\enbet 2A09 ?P 27-33