LEGO is a toy company established in 1932 by Ole Kirk Christiansen. LEGO offered high quality toys and at the same time encouraged children to be creative. Over the years they developed their products and company grew steadily and successfully till the mid 90’s. LEGO immediately noticed their fall in the market, in order to keep up they did many innovations.As a result company was expanded with the aggressive innovations such as new amusement parks(LEGOLAND), clothing lines, computer games, new lines/ kits (Harry Potter,Star Wars,Bionicle) etc. At first company’s sales and number of customers were increased but then they realized that their growth strategy was not working and there has been a dramatic decrease within their revenues and net income.
In 2004, after a huge amount of cash loss, LEGO appointed a new president and CEO- Knudstrop. Kundstrop developed a new 5 year plan titled “Shared Vision”. Shared Vision had three different parts and first step was basically planning to achieve increase cash, decrease cost, clarify LEGO’s identity and make sure of that every product produced matches company’s identity. In the second step he aimed to revitalize the core product lines by outsourcing. And in the final step he focused on developing innovative new play experiences.
Texts explain us steps of this plan and helps us to understand why Kundstrop’s Shared Vision was successful and different enough from previous innovations of the company.
Evaluation of Changes
At the beginning of 2000’s LEGO went through several changes and made some radical innovations to change the decrease with their sales and revenues. They started lots of innovative projects such as computer games, clothing lines, amusement parks and movies. They also corporate with Star Wars and Harry Potter movies and produced new licensed LEGO kits. They also created a new series called “Bionicle “. After these innovations company expected to see an increase in sales and revenues but it didn’t turn out what they expected. In 2003 a crisis occurred in the company, and went through a major fall down. There were several reasons why their innovations were not successful. First of all innovations were technological and novel but they should have been also meaningful for the customers. In that sense they were not exactly serving what consumers wants. For example the new licensed series of Star Wars and Harry Potter themed products increased the costs of production because of the creation of new, specialized elements. In return they didn’t reach enough sales to cover their costs because there were no new Star Wars or harry Potter movies released at that time.
That’s why products were neither meaningful or useful for the consumer and not many of them purchase it. Similar thing happened for the Bionicle series, there were too many pieces in the kit and it was far complicated to build. There was no motivation behind for consumers to purchase. Another important factor for failure was the patent issue. Patent of the LEGO was expired and many similar products were produced in China where the costs are much less. So there were toys similar to LEGO in the market and they were cheaper. This situation also affected LEGO’s position towards retailers such as Walmart, Carrefour etc. Retailers gained the upper hand opposing firms and they were able to refuse to place firms’ products. In this case they were preferring to sell similar but cheaper LEGO products in the market.
Also I believe that LEGO realized a game changer in the market, computer games. Because children were leaving traditional toys and tending towards to video games. But still they were not focused enough on computer games and not had a decent strategy so it did not help to save the company by its own. Besides these problems there were economic problems too around the world. US dollar were declining and it affected LEGO in a negative way because of the amusement parks in US.
In brief innovations that LEGO did were not customer oriented, they ignored patent issues which lead problems with retailers and finally they also ruled out environmental factors such as an economic crisis in US.
In 2004, after Kundstrop was appointed as president and CEO of the company his innovations were becoming successful thanks to the Shared Vision plan. First of all he was focused on increasing the cash in the company to be able to make new innovative projects. He sold the amusement parks and decreased the costs by eliminating pieces in LEGO kits. Also they moved their factories to Mexico which reduced to costs. In the second step he re-identify the brand LEGO and made toys unique again even though they had reduced product lines due to decreasing costs. They set up a Concept Lab which I think, was a major factor for their success. Concept Lab is a place where they developed and bring new radical ideas to the market. In order to improve licensing issues they found a way and started working with external partners. These partners produced books, movies, computer games etc.
After they solved the existing problems with the company such as increasing the cash, patent problems, and decreasing the costs they focused on controlling the innovations in order to be both novel and meaningful. They created The LEGO Innovation Matrix to coordinate different types innovation more effectively. Each idea which come from Concept Lab were going through LEGO Development Process. All these strategies were including consumers to creation and development process. Customers were becoming part of the company with organizations like workshops which company gets ideas from consumers. So they get the chance to understand what is meaningful and useful for costumers. Besides these innovative changes they shifted their focus on virtual environment. Company created a web-site where can customers design their own LEGO kits. I believe that it was an great example of combination of technology and meaningfulness. As a result controlled innovation brought success to company.