Posted: May 25th, 2022

Case Study of Lego Term Paper

Stability means life. People, businesses, and organizations usually attribute change to a type of death where the old way is gone and the new way takes over. Although some may view change as good, change is inevitable. Change is unplanned or planned and is often a response to forces and pressure. Many types of change exist within organizations from transitional to developmental and even transformational change. In order to implement change within an organization, those willing to undertake such tasks must be visionary, implementing sound strategies. Such strategies enable growth and change even when employees may struggle to accept change or resist it.

Often one sees forces for change from several key areas such as customer focus, technology, and/or globalization. If there is a demand for change or a recent trend, this may supply the seeds to alter things within an organization. A good example of this is the Lego Group. The Lego Group had to undergo changes because of the decreasing demand for traditional toys. Electronic games demand grew while traditional toy sales dwindled. In fact, the retail sector began consolidating into major stores leading to outsourcing to Asia. This then created downward pressure on pricing. Adding to this, Lego’s patents started expiring.

The toy company then took action and through several sophisticated steps, altered its innovation system leading to more effective turnout. Some key differences were selling off company assets, reducing headcount, and outsourcing production. These steps reduced cost for Lego as well as limited the amount of people and resources in the company. Sometimes downsizing enables growth or sustainability within an organization. Some may say these steps were innovative.

CEO’s often view innovation as a means of leading into corporate success. However, what is business innovation? Business innovation refers to the formation of substantial new worth for consumers and the business by creatively altering one or more scopes of a business system. To consider business innovation, one must imagine new value, not new things. Furthermore, innovation comes in many forms and is systemic.

There are twelve dimensions of business innovation. The first is platforms or areas to promote and implement change. The second is offerings. The third is solutions as organizations often promote innovation because of a problem needing to be solved. The fourth is customers and the fifth, customer service. Since innovation is about increasing value, the sixth is value capture.

Number seven is organization and eight are the processes involved in the organization. These processes are normally altered in some way to incorporate an organizations much needed change. The ninth aspect is supply chain followed by presence and networking. Much as Lego began outsourcing, this led to a different source for supply chain. The last and twelfth is brand. Organizations leverage a brand into new areas.

Companies, organizations, they must adapt to change because things and markets often become unstable. Such powerful forces make organizations and companies alter strategy like new economics or even more intense, disruptive change. Disruptive change like lawsuits and changes in laws may force a company or organization to change drastically their business model or product quickly. However, certain things always remain constant such as the social responsibility of a business. Any successful business puts customers first.

In conclusion, change is inevitable however, what changes is it depends on the environment and society in general. Things like terrorism will not destroy what makes a global civilization. Society will destroy itself. Biophysical system remain what social systems are dependent on and technology can never fix social dilemmas. If a global civilization is unsustainable, it cannot be made viable.

Jorgen Vig Knudstorp, a Danish economist and the man who saved Lego explained early on in 2003 how Lego would get of the hole it dug itself. Lego got itself into a pickle beginning in 2000 when the company experience a loss of DKK 831m and had little to no growth the subsequent year. Essentially Lego lost $100 million based off revenues of $1.2 billion. Along with losing revenue, Lego lost focus. The company took on wasteful initiatives like wristwatches among other lifestyle products while not improving the quality of its core business.

When Knudstorp took over, he decided changed needed to happen sooner rather than later. “Knudstorp felt the company had lost its way and had no clear idea of who it was nor what products it should offer. It was clear to everyone that changes were needed” (Jick & Peiperl, 2003, p. 4).

“Knudstorp and several colleagues had in early 2004 formulated a new business strategy for the company. Their plan had three phases” (Jick & Peiperl, 2003, p. 4). Those phases began with improving Lego’s cash flow along with eliminating its debt. How the company achieved this was through selling off non-essential or non-core assets. This meant downsizing and minimizing operational complexity as well as outsourcing its manufacturing. As previously discussed in assignment 1, innovation often means complete systemic change. Lego had to find new ways to reduce expenses in order to continue business.

Secondly, the business had to increase profit margins. Their strategy revolved around revitalizing their product lines. Although the endeavor proved tricky, especially in lieu of budget cuts, they managed to achieve the change needed by accomplishing the third and final step. The third step meant making the company grow organically through inventing new ways of generating value. At the end of 2005, Lego accomplished the primary goals of the initial phase, letting them begin the second and third phases. Reinvention then became the focus.

In order to reinvent, Lego had to place greater emphasis on utilizing leading-edge technologies in order to support Lego brand values like extension of the “intelligent brick” idea associated with Lego Mindstorms. This would allow new ways of learning and playing along with initiatives like Lego Studios, which led children to take on moviemaking and concept layout. Innovations such as these meant focusing on core business rather than diluting attention to things that were not profitable. Much like the downsizing took over and the business let go of unnecessary assets, the innovation brought on by the downsizing led to higher quality products overall.

More attention to its core products like the brick led to innovation that promoted growth and revenue within Lego. Products like Bob the Builder and Harry Potter provided children with imaginative and creative “story starters” and produced a product strategy that generated open-ended play scenarios in conjunction with fantasy or popular characters that had Lego elements. Kids need to feel connected to their creations. Adding the additional element of story and open-endedness allow for that connection and drove up sales.

Any further suggestions in order to answer part b of the assignment would be to continue focusing on the imaginative aspect of the Lego’s products. If the company wants to continue to achieve success in the future, other elements much into play that newer technologies may offer. Although outsourcing reduced expenses, it also may have diminished overall quality of products. Perhaps a venture into providing jobs in the base country would allow for a better image of Lego and its ideas. Sure outsourcing provides higher profits because of decreased pay to workers, but it also promotes a feeling of lower quality then when a product is made in a country that provides decent wages to its workers.

Suggestions to improve innovation across the company lie in efficiency and adding to core products. Perhaps involving a build a scenario feature could add an additional layer of creativity for children. Children could buy various scenarios or sets and decide how to play them out by purchasing other scenarios, creating one large set story. It is a way to promote a variety of sets, which led to Legos success in the early 2000’s and also generate higher purchasing rates in consumers.

Children appreciate continuity. The movie industry for example, releases sequels and prequels. Books authors do the same, writing four books or more in a series. Giving the option for a series in Lego products not only allows Lego to venture into a new variety of set designs, but it also propels that connection that urge to buy children get when they’re interested in something. It is a way to increase sales and increase customer loyalty as well as brand recognition.

In conclusion, Lego had a hard time at the beginning of 2001. In 2003 it began downsizing and redeveloping its core business. This led to innovation and a new form of product that allowed children to connect with their toys and build a world to their liking. Although Lego has built a successful business up until this point, it should continue to innovate in order to increase customer loyalty and raise brand awareness. Although outsourcing was useful in the past, it could benefit the company and the brand to relocate some of its factories in the base country in order to promote higher quality to consumers.

References

Jick, T., & Peiperl, M. (2003). Managing change: Cases and concepts. Boston: McGraw-Hill/Irwin.

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