Management of Innovation Lego Study

7/27/2019 Management of Innovation Lego Study

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408 409 411 420 421 422LEGO CASE STUDY


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Company Profile

A Denmark basedconstruction toymanufacturing company.

Founded in 1949, it is yetone of the frontrunners inchildren toys, due to theirinnovation strategies andcalculated risks.

Its flagship productsconsist of interlockingplastic bricks, mini figures,and accompanying array of

gears.


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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-familiarbuilding 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


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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-blockmaterials 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 thesame 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


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These challenges precipitatedthe firm's 2000 innovation binge.Many of the new items receivedpositive reviews within theindustry and from customers,

particularly the Star Wars andHarry Potter-themed products."They were successful -- untilthey weren't," Robertson stated,noting that the Star Wars andHarry Potter-centric toys, forinstance, were blockbusters --

but only in the years when newmovies or books in those serieswere released. Other toys eitherfailed to gain traction or wereonly popular within small nichemarkets.


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Legos Expansion

Movies

Video Games

Theme Parks


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Children Clothes

Board Games

Television

Books and Magazines

Exclusive Retail Stores


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Vision

To create a virtualplatform whichenables all fans tocreate their own

LEGO World withtheir own models,own rules and owngames.

InspiringBuilders of

Tomorrow.


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What the Case Entails?

The case tells the story of a company whereinnovation is tremendously important, but notworking well. In 2003, the LEGO Group had anumber of positive attributes: it had a well-

respected brand with some very good toy lines.

It had a passionate customer base that in manyareas was more sophisticated than its internaldesigners. And it had been able to extend the

brand into many areas such as toys, games,clothing, theme parks, movies, and many otherstypes of play, earning significant revenues (but notprofits).


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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 thatdid not favour the LEGO Group.

These changes, coupled with some poorly

planned investments and a downturn in thesales of some important toy lines, combined to

almost put the LEGO Group out of business.


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The company lost nearly DKK 1 billion in 2003 and itscash dwindled dangerously low. This was the largestloss in the history of the company, and many analystsbelieved that bankruptcy and perhaps even thebreakup and sale of the company were likely.

The company quickly sold off assets, reducedheadcount, and outsourced production to cut costsand generate cash. But it knew, to turn around thecompany, it had to improve its overall innovationsystem.

It had to improve the time to market, success rate,and profitability in its innovation system. The casepresents a number of representative challenges thatLEGO was facing during 2004 and beyond


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INNOVATION

STRATEGIES


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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 lackedfocus,

was separated and charged with developing

new


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The definition of innovation was redefined

through

the LEGO innovation matrix.


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A new stage-gate process was implemented.


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A new way of working

with

external inventors and

complementary product

producers was integrated

into the structure and

process.


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Users were involved inthe

development of new

toys, in particular thenew

generation of LEGO

Mindstorms.


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Through these and other activities, the LEGO

Group dramatically improved its performance,

returning to profitability in 2005 and achieving

very healthy profits in 2007.


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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.


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Documents

Management of Innovation Lego Study