Lego Sustainable Efforts for For Innovation

1. Introduction

LEGO is a combination of the Danish words "leg" and "godt", meaning "play well".

As their name and ideal, Lego has been beloved by the children as well as the parents for decades. Not only as plastic toy bricks, but also effective educational tools, the LEGO Company enjoyed continuous growth and broaden the global brand value. The LEGO brand moved to third place in 2002/2003 with only Coca-cola and Kellogg having greater respect among families with children. Even though as the overall toy market faces challenges, LEGO's revenue and profits are increasing rapidly, especially since 2005. This profitability didn't change even in the current recession in the global market. The LEGO Group achieved record-breaking profits in 2011 that secured the health of the company. Interestingly, not far from this climb, the LEGO Group had a deep retreat in the late 1990s and the beginning of the 2000s. Major strategic efforts such as theme parks, Clikits craft sets (marketed to girls), Galidor (an action figure) couldn't respond to management teams' goal, and brought failure. As a result the LEGO group created bad financial results: their profit margin was -2.5 and Return on equity was -3.5 in 1998. What intrigues me, as one of thousands of enthusiastic users of its products, is a simple curiosity about what kind of sustainable efforts could enable the LEGO to survive from the turbulent recession and gain even better market share. In order to observe the effective management strategies, this paper will trace the new or consistent strategies under the current CEO, Jørgen Vig Knudstorp (2004 - current). In addition to this, I will take a brief look at progress reports to get better sense of what the LEGO Group's brand positioning and analyze the annual reports to observe financial status. Some financial ratios need to be drawn for a journey to discover how LEGO's innovative efforts are effective.

2. Brief History of the LEGO Group

Ole Kirk Kristiansen founded the LEGO GROUP, a privately held company based in Billund in Denmark, in 1932. The company has passed from father to son and is now owned by Kjeld Kirk Kristiansen, a grandchild of the founder. It has come a long way over the past almost 80 years - from a small carpenter's workshop to a modern, global enterprise that is now, in terms of sales, the world's fourth-largest manufacturer of toys. The LEGO brick is the most important product. In 1947, the company moved from wooden toys into plastics, launching its first version of the now famous Automatic Binding Bricks in 1949. The products have undergone extensive development over the years - but the foundation remains the traditional LEGO brick. The brick in its present form, stud-and-tube interlocking system was launched in 1958. The interlocking principle with its tubes makes it unique, and offers unlimited building possibilities. The LEGO Group started exporting in 1953 and quickly gained international awareness with an extensive subculture that supports Lego movies, games, competitions, and five Lego themed amusement parks over 130 countries. To date, the LEGO Group has sold 320 billion LEO bricks, the equivalent of 52 bricks per capita worldwide, and has approximately 10,000 employees, and it is the world's third largest manufacturer of play materials.

3. Sustainable Strategies for Innovations

In this chapter, I will examine the innovative strategies that were central to LEGO's turnaround. The current CEO, Jørgen Vig Knudstorp, was just 36 years old when he was promoted in 2004. He is only the fourth CEO of LEGO Group, and the first from outside the founding family. Lego experienced a turbulent period from 1998 to 2004, characterized by increasing competitive stresses and financial losses. When he took charge of the LEGO Group, it was losing nearly $1 million per day. In order to save the Group from this crisis, Knudstorp outsourced the Legoland theme parks, selling the resorts, with Blackstone Group, a LEGO partner, to Merlin Entertainments Group in 2005. He supervised the restructuring of the company's financial governance and reduced the number of elements Lego designers could draw upon to create new kits from 12,900 to 7,000. In addition to this restructuring, innovative management under new leadership began creating positive synergies in 2005.

1) Collaborating with Customer Communities

In spring 2012, MIT Sloan Management Review had an article about the lessons from the LEGO Group, regarding collaborating with customer communities. The authors explained how the LEGO user communities emerged and how management's involvement with user groups has evolved and the core principles that LEGO has formulated for successful interaction with its user groups. This article let us explore the answer for an ongoing question to many organizations; how can companies collaborate effectively with their customers? By February 2012, there were more than 150 known user groups, with over 100,000 active adult fans worldwide. In 2005, LEGO created the Ambassador Program to provide a fast and direct way for the company and its pans to get into contract with each other. Representatives, drawn from across the community of LEO user groups, provide a fast and direct way for LEGO managers to get in contact with adult fans. The program has provided considerable value to both sides. Not only do fans inject energy and ideas, but in some cases they help refocus products. For example, after the innovative communication with one of the users who participated on the development team and was in the business of manufacturing high-tech sensors, LEGO could offer 12 different types of advanced sensors with Mindstorms NXT. The user groups developed completely new strategy games, new modular building standards and specialized software. These user-created innovations have expanded the LEGO play experience and pushed the use of LEGO materials into new and virtual media, enriching creative possibilities that weren't possible before. LEGO management has found, when outside parties have a particular area of expertise, such as architecture or sensor design and manufacture, that individuals within the company don't have. In recent years LEGO hired more than 20 adult fans. By hiring experienced users, LEGO can benefit from the extensive knowledge and skills these users have accumulated over the years. On the other hand when users seek to push the products beyond their intended limits, the concern is rising and collaborating seems to be less successful. LEGO Group has developed a set of principles about what they are learning from this collaboration. First, the Group learned that adult users were more cooperative