How often do you let out a loud, painful “Ow!” while trying to walk around your house? That’s right. It’s Lego. Again. The toy company, Lego, is now the proud manufacturer of several creative games and toys, building sets, and building kits. This is a well-known brand among a great percentage of households and a massive source of joy for toddlers all across the globe.
While this toy company has now become known as among the world’s most imaginative and profitable businesses, Lego brand had a deficit of $800m in 2003 and was on the brink of bankruptcy. It had wandered for too many years, increasingly diversified into many varied product lines, and also momentarily flirted with the strategy of becoming a ‘lifestyle’ business with clothes and watches in their marketed inventory; all with no return. This transformation to being the complete opposite in its prosperity has been impressive. Lego is currently ranked as the world’s number one toy company and the most dominant brand across the globe.
Lego had never recorded a loss since its establishment in 1932 until 1998 and was in great shape until 2003. Then, sales were down 30 percent year-on-year and debt was $800m. It had not added anything of significance to its portfolio for a decade, an interim investigation reported.
How did Lego turn its fate around from being almost bankrupt to now being the leading toy company, beating even the toy giant Mattel? Here are a few reasons why –
1. A new CEO was designated by the toy company. Jorgen Vig Knudstorp began in 2001 and, at the age of 36 years, was promoted to CEO; all in three years. This was a bold step, as Mr Knudstorp, instead of running a company as a management consultant with McKinsey, had barely scratched the surface of experience. Instead, it happened to be encouraging. Mr. Knudstorp decreed that the business would go ‘back to the brick’: concentrate on its main items, forget about stretching the brand, and even selling its theme parks. “We are running out of cash… and will probably not survive,” said the new executive officer to his co-workers. He produced a sense of urgency to make the improvements necessary to turn Lego around.
2. Lego concentrated, first, on its main business. Knudstorp sold many of the peripheral operations that are still owned by Merlin Entertainments, including several international properties and Legoland Parks.
3. The toy company approached clients to assist with developing new products. Lego invited fans and gamers to propose and vote on proposals for new versions in one of the first and most popular crowd-sourcing campaigns. On the Lego Ideas Portal, contributors to winning projects were awarded 1 percent of the net sales of the project.
4. Lego organized and streamlined processes and cut prices for operations. The toy brand’s manufacturing activities in Mexico and the Czech Republic were outsourced and the headcount in Denmark was lowered by over 4000. The inventory was reduced from 13000 to 6500 and the amount of different individual pieces of the various games and building sets were cut in half.
5. The toy brand innovated, cooperated, and collaborated. Lego licensed characters and cars from Star Wars in a genius stroke of publicity. For the toy maker, it was a match made in heaven and spawned computer games and short films that were wildly successful.
6. The toy company began researching the consumer in action. 90 percent of Lego’s customers were youngsters as recently as 2011. To decide why this was the case, the brand commissioned extensive ethnographic studies. Differences between how boys and girls play with the creative toys and games Lego produced, were discussed. For a more practical ‘mini-doll’ in 2012, Lego launched ‘Lego Friends’. Sales tripled for children.
7. Fast Prototyping. Lego was an early adopter of an idea, the minimum viable product, which is now all the rage in creativity circles. David Gram, Head of Marketing at Lego’s Future Lab said, in an interview, that the toy company focuses on designing and building just a few main features that are really needed. A traditional engineering error is wanting to invent all the items in one go that the product could consist of. Lego, instead, is tossing each new product piece into the market and seeking customer input.
8. Unconventional Video Application. Lego has made significant investments in films of great quality. The Lego Movie was given a 96% approval ranking on Rotten Tomatoes in 2014. At the box office, the Lego Batman film grossed more than the previous normal Batman film. Huge follow-on purchases of products were induced by each movie.
9. Galvanize the community. The corporate society was revolutionized by Knudstorp, CEO of Lego. The organization had previously concentrated on manufacturing old-fashioned toy goods of extremely high quality with longer production periods. He, on the other hand, converted the community into an innovative, flexible, and quick invention hothouse.
Therefore, Lego company left no stone unturned in not only saving itself from being bankrupt but also becoming an industry leader, beating decades-old household brands such as Mattel with its Barbie doll. The process adopted by Lego has many valuable lessons to impart.The toy company taught the industry that it is dangerous to invent without guidance. Innovation must never deviate from the core. Lego products were known for ‘the brick,’ and it will continue to be known for the brick, even becoming an industry leader along the way.
The toy brand began with simple tasks and limited budgets in order to explore and test new ideas in a secure manner, without the risk of harming the brand image. It then learnt from feedback and took the industry by storm. Lego ensured it produced the next best idea before its rival could and always fostered open creativity and listened to its clients’ demands and wisdom. It developed an innovation culture that provides people with the freedom to be innovative, as well as the direction and focus required to produce sustainable ideas. So, what are you waiting for? Go build a Lego town!