Module 4 – Group 3

Case study: The LEGO Group: Building Strategy

Questions:
1. Identify and discuss LEGO’s strengths and weaknesses.
The name ‘LEGO’ is an abbreviation of the two Danish words, “leg godt,”
meaning “play well.”
Lego Group is one of the world-famous toymakers; Lego bricks seem to be a must-
have toy for all children in the world.
The LEGO Group was founded in 1932 by Ole Kirk Kristiansen. The company has
passed from father to son and is now owned by Kjeld Kirk Kristiansen, a
grandchild of the founder. (LEGO A/S n.d.)
As of March 2021, Lego Group and its subsidiary Lego System are ranked in the
top ten largest company in Denmark
Strengths:
 Family ownership company: Active and engaged family ownership is crucial
to the Kirk Kristiansen family, keep the company core value align with Lego
Group mission “Our ultimate purpose is to inspire and develop children to
think creatively, reason systematically and release the potential to shape
their own future - experiencing the endless human possibility.”
 Global enterprise: now one of the world’s largest manufacturers of toys.
 Highly brand recognition: The LEGO brick has been named “Toy of the
Century” twice.
 Core business well-maintained: products have undergone extensive
development over the years – but the foundation remains the traditional
LEGO brick.
 Pioneer in the industry: utilize leading technology in the field with unique
interlocking plastic brick
 Creativeness: The Lego brick is patented with a new coupling principle
opening up to endless building possibilities
 Consistency brand: All product line under the brand name LEGO
 Hight business acumen: Key opportunity to design a new structured system
of toy product called Lego System in Play
 Top-quality product: used the highest quality materials and workmanship.
 Product durability: last through many years of play
 Quick expanding: vast wide range of customer base potential to every family
 Innovative human resources: Employees participate in the LEGO Group’s
Performance Management Programme (PMP). The program is designed to
ensure all employees work towards achieving the LEGO Group’s short and
long-term growth ambitions. Employees have targets which are aligned to
 Group-wide targets and are awarded a bonus based on performance versus
target. (LEGO A/S 2020 annual report)
 Strong operational management: The first leadership team assembled by
Knudstorp led Lego Group to overcome the crisis in 2004. The LEGO
Group’s top management consists of an Executive Leadership Team made
up of 10 members and a Board of Directors.

Weaknesses with the standpoint from the textbook:

 Faulty estimates of production costs: higher cost but less profit in return for
newer generation Lego sets due to designers did not consider the cost of
material nor production resulted in serious waste
 Insufficient in supply chain management: Lego had to deal with 11,000
suppliers as designers often selected their own vendors
 Poor organization in production: costly retooling and created extended
downtime leads to the production facility only operating at 70% of capacity
 Insufficient logistic coordination: 26 logistic providers that shipped product
from multileveled distribution networks that created a backlog of orders and
inefficient inventory levels
 Improper distribution channels: thousands of small stores represented one-
third of revenue, but 200 larger chain stores generated two-third of the
revenue
 Environmental issues: Lego acknowledges the impact of its operations on
the environment, particularly in areas such as climate change, resource, and
energy use and waste.
Present Weakness:

 Expiry of the Lego plastic brick design patent in 1988: The competition
barrier was lowered in the building toy market.
  Lost in a lengthy legal court battle with major competitor Mega Brand: the
European Union court revoked the Lego brick trademark. The threat for
completion increases.
 The enormous advance of money to licensor Disney: after the acquisition of
Marvel Entertainment by the Walt Disney Company, it placed a large
amount of entertainment licensing under control of one company Disney. In
the licensed industry, all toy makers included Lego have to depend on which
direction Disney would proceed with future toy licensing agreements.
According to Tom Staggs (Disney CFO), “As many of these deals conclude
over time, we will have the flexibility to either bring them in-house or
pursue third-party licensing agreements depending on how we feel we can
create the most value.” (Bigus and Meister 2013)

The LEGO management team needs to identify where to expand current product
lines and business operations in order to develop a competitive strategy to continue
dominance and financial success in the years ahead.

2. Provide a brief analysis of LEGO’s business operations.

Founded in 1932, the LEGO Group is a privately held company based in Billund,
Denmark. The company is still owned by the Kirk Kristiansen family - KIRKBI
A/S (75%) and the LEGO Foundation (25%).

Based on the iconic LEGO brick, it is one of the world’s leading manufacturers of
play materials and provides unique play experiences to children of all ages.

The LEGO Group employs more than 20,000 people in 36 countries by the end of
2020, and its products are made available across almost all countries in the world.

Lego successfully builds an ecological system with every product line under the
Lego brand. The “Lego System of Play” is a key opportunity to design a new
structured system of toy products. (Bigus and Meister 2013). Every Lego sets are
not discrete toys but have the ability to connect each other and stimulate the
endless creativity of children.

Analyses and evaluation milestone of Lego Group

1999 The Lego brick is elected “Toy of the Century.” The company succeeded in
diversification, developing new products, and cultivating new markets; for the first
time, the company acquired the licensed rights to famous movies and children
themes, which lead to the launch of Lego Star Wars and Duplo Winnie the Pooh
product lines. The Lego Star War theme was a huge success, quickly developing
into one of Lego’s most profitable product lines ((Bigus and Meister 2013).
According to the 2020 annual report of the Lego Group, Lego Star Wars awarded
high-performing themes. This illustrates that new product strategies for these
product lines are appropriate, and the product life cycle will last long forever
because next generations will be potential customers.

In 2004, The Lego group faced a serious crisis and established a survival and
turnaround plan. Jorgen Vig Knudsorp succeeded Kjeld as President and CEO. He
revitalized the company by reintroducing a strong focus on the core business – the
brick and the Lego System in Play. Lego group divested Legoland park to Merline
Entertainments Group. The significant changes to design, production, distribution,
and sales resulted in Lego increasing inventory turnover by 12% in 2005. In this
period, the company regains focus on its core competencies and thus manages an
impressive turnaround followed by more than a decade of continuous growth.

We evaluated this as a wise strategy of Lego’s management board. When the

family company faces a crisis, it should restructure the company from the top
management to revitalize the company with fresh ideas and focus back on core
business.

In 2016, Kjeld Kirk Kristiansen and Thomas Kirk Kristiansen took the first steps in
the smooth handover between the 3rd and 4th generation. They swapped roles in
the Board of Directors in LEGO A/S, where Thomas Kirk Kristiansen became
deputy chairman and Kjeld Kirk Kristiansen became an ordinary board member.
On the LEGO Foundation board, Thomas Kirk Kristiansen became chairman and
Kjeld Kirk Kristiansen deputy chairman. Kjeld Kirk Kristiansen continues to be
the chairman of the board of KIRKBI A/S - the mother company of Lego Group.

In 2017, LEGO Brand Group was established in KIRKBI with the dual purpose of
protecting, developing and leveraging the full potential of the LEGO brand and to
ensure active and engaged family ownership of the LEGO branded entities through
generations. (KIRKBI A/S n.d.). To prepare for a new tomorrow and further
explore the LEGO idea, including new strategic ventures, the Kirk Kristiansen
family consolidate governance of all brand-related activities in LEGO Brand
Group, effective May 1, 2017.

The year 2020 is another massive success for the Lego group, with impressive
organic growth double-digit despite the Covid-19 pandemic outbreak. It proves
that the company runs and manages its business efficiently.

In 2020, the LEGO Group made significant investments in initiatives designed to

deliver future growth. This included portfolio innovation, investing in brand
awareness, expanding the number of LEGO® branded stores globally, upgrading
the LEGO.com e-commerce platform, and building a presence in newer markets
such as China. (LEGO A/S 2020 annual report)
The Lego Group is accelerating its sustainability efforts with the governance from
the top management boards of the Group. There are three pillars in the Lego Group
sustainability headlines 2020: Children, Environment, and People.
We can read about the sustainability headline in the chart below
In conclusion, innovation is critical to the LEGO Group’s success, and each year
new products make up approximately 55% of the portfolio. (LEGO A/S 2020
annual report)

References:
Bigus, Paul and Darren Meister (2013), “Section 4 Case 10 The Lego Group: Building Strategy,”
in Marketing Management: Knowledge and Skills, J. P. Peter and J. H. Donnelly, eds.,
New York, NY: Mcgraw-Hill Irwin, 337–47.
KIRKBI A/S (n.d.), “Active and engaged family ownership through generations,”
www.kirkbi.com, (accessed March 20, 2021), [available at
https://www.kirkbi.com/about/family-ownership/].
LEGO A/S (n.d.), “Management,” www.lego.com, (accessed March 19, 2021), [available at
https://www.lego.com/en-us/lego-history/management-
a90ace8d78e443b894b1dc65059d4048].
LEGO A/S (n.d.), “Reports - Policies and Reporting - The LEGO Group - About us - LEGO.com
US,” www.lego.com, (accessed March 20, 2021), [available at https://www.lego.com/en-
us/aboutus/lego-group/annual-report/].
LEGO A/S (n.d.), “Reports - Policies and Reporting - LEGO Group - About us - LEGO.com
US,” Lego.com, (accessed March 20, 2021), [available at https://www.lego.com/en-
us/aboutus/lego-group/policies-and-reporting/reports].
Statista (2021), “Denmark: largest companies, by turnover 2021,” Statista, (accessed March 19,
2021), [available at https://www.statista.com/statistics/555126/denmark-20-largest-
companies-by-turnover/].