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The Lego Group was founded in 1932 by Ole Kirk Christiansen. For old ages of development. Lego has achieved the passage from a carpenter’s workshop to a planetary endeavor. Its Lego brick has been named the ‘toys of the century’ twice and greatly contributes to the company’s stable growing. Nevertheless. Lego struggled mightily in the early to mid-2000s. Gross saless dropped 30 per centum in 2003 and 10 per centum more in 2004. and the company was destructing about $ 337. 000 in value every twenty-four hours ( Oliver.
Samakh and Heckmann 2007 ) . How could such a apparently successful toymaker suffer terrible fiscal troubles and about stand at the threshold of bankruptcy? One prominent job behind its crisis is Lego’s over-diversification and over-expansion in its merchandise portfolio and ignorance of its nucleus concern. In the first portion. the study aims to analyze its over-expansion job from scheme. selling and direction positions severally. and so it provides the Lego Group the ‘focus on the core’ solution. based on related direction and selling theories.
Part 1: Lego’s Over-Expansion Problem
From the early 1990s. the Lego Group began to rehearse an enlargement and variegation scheme. and invested sustainable financess in its new merchandises. The undermentioned cost increased. nevertheless. it did non bring forth a coveted consequence. The enlargement action cannibalised on the gross revenues of its nucleus merchandises and therefore eroded net incomes. To analyze the grounds behind it. scheme. selling and direction positions are all consulted. 1. 1 From a scheme position. Lego’s enlargement and variegation scheme failed to suit into its place.
Strategy is about a set of activities which delivers a alone mix of value to the company and builds its competitory advantages within the industry. It in some ways determines a company’s place in the market. Companies are all seeking to accomplish the ‘strategic fit’ . in footings of novice activities. including allocating resources. planning and bring forthing. For Lego. its most outstanding resources and merchandises are its brick and edifice system-based playthings. They grow and defend the company’s place on the plaything industry. However. influenced by the next market and challengers. Lego hurriedly developed an enlargement and variegation scheme. which extended its concern into package ( Lego Moviemaker ) . lifestyle merchandises ( Lego kids’ wear ) . books. subject Parkss and so on.
Many of them. such as Legoland Parks. belonged to capital-intensive merchandises. but provided limited return. or even no additions. Lego’s incorrect scheme wasted much unneeded money and energy in new and unfamiliar countries. and forgot to consolidate its place in the nucleus plaything market. Consequently. Lego lost market portion. every bit good as its competitory advantages. 1. 2 From a selling position. Lego’s over-expansion ignored products’ jurisprudence of development. Introducing new merchandises to the market every twelvemonth is non needfully a bad thing. but Lego did non aline its value concatenation with that scheme. From the industry and operation portion. in the procedure of New Product Development. Lego failed to confer with its products’ thought and design. and market demands. Some playthings. such as Scala and worst and Galidor. had jobs in its internal thought and design. The ‘Galidor’ series contains so many new constituents sole to each person set that it resulted in awkward kits that did non comfortably fit a Lego plaything design. Some merchandises. such as the LegoEducation which aimed to cultivate children’s larning capablenesss. received low consumer acknowledgment. due to its absence of marketing research and analysis.
Furthermore. Lego’s Product Life Cycle Management is hapless. In the market. every new merchandise needs certain period to turn and go mature. However. Lego’s uninterrupted debut of new merchandises declined their life rhythm. Consumers did non hold adequate clip to cognize. recognise and accept one merchandise. and following merchandises came up. Such a short merchandise life rhythm led to the figure of stock maintaining units ( SKU ) multiple every twelvemonth and increased the stock list backlog. 1. 3 From a direction position. Lego’s over-expansion resulted from its deficiency of a clear leading with a bid direction construction. In the nucleus of the Lego Group. its leading squad and direction construction was mussy. First. Lego inherited the family-business direction system. The Kristiansen household controlled the concern by coevalss. They might miss professional direction cognition in decision-making. as the market became progressively competitory.
Second. Lego recruited its external directors based on their general leading experience. instead than their direct experience with Lego playthings ( Rivkin. Thomke and Beyersdorfer 2013 ) . Thus these directors lacked a clear vision and mission for the company’s hereafter. Furthermore. there was a large hole in its direction construction. The diminishing of duty resulted its deficiency of subject. control and transparence in accounting. costing and production direction. Such an internal direction pandemonium pushed Lego into a incorrect decision-making. As its rivals like Tyco Toys and Mega Bloks extended its merchandises into digital. Lego’s directors believed that the Lego bricks was traveling to decease. Hence Lego rushed into next markets in the sensed demands to diversify off from the original concern ( Greene 2010 ) . Part 2. The Solution: “Focus on the Core”
Lego’s over-diversification and over-expansion brought several negative effects. The betterment of the basic accomplishments set within the concern were sacrificed for other countries. The R & A ; D costs increased without any important betterment in gross revenues. Higher figure of SKUs within the production procedure led to a low return on assets. As a consequence. rationalizing the merchandise offer. presenting back to the nucleus concern. and concentrating on the Lego brick bequest is a good solution for Lego’s hereafter. 2. 1 The nucleus competency provides the best opportunity for a company’s sustainable growing. Business can non afford excessively much variegation. for its resources and capacities are limited. Rather than spread outing its concern in many countries without accents. it is wise to beef up its nucleus competency. as it is the key differentiated the company from rivals. For Lego. its nucleus competency is the brick and the edifice system. and later its nucleus merchandise is the building plaything.
They are far more than other toymakers like Mattel and Hasbro can compare to. The Core Competence Theory suggests that a company is expected to efficaciously apportion resources to the nucleus and therefore to accomplish the engineering. direction and service betterments. Consequently. in the hereafter. Lego is expected to concentrate its energy on the nucleus concern. introduce its brick and edifice system and develop building plaything for a clearly defined client group. it is an effectual manner to reconstruct Lego’s competitory advantages in the plaything market. 2. 2 Back to nucleus is easy to run into client satisfaction.
In the current selling construct. manufacturers non merely necessitate to bring forth the merchandises. but besides have to maintain clients satisfied with their merchandises. In other words. today whether a company can hold on customers’ demands and wants and convey satisfaction to them will straight act upon the company’s fiscal public presentation and market portion. The Lego brick is designed to rehearse children’s creativeness. imaginativeness and problem-solving abilities. Due to its perfect combination between amusement and acquisition. the Lego brick wins many parents’ penchants. The parents are Lego’s mark clients. Although digital playthings have dominated the market and kids have less unscheduled clip. traditional playthings are still attractive. as they can convey kids the existent and physical enjoys. With regard to consumers’ want of holding merriment in a short clip. Lego possibly simplify its edifice system to convey kids committedness but non busy them excessively much clip. The more market-responsiveness and focussed merchandise scope non merely run into customers’ satisfaction. but besides rebuild Lego trade name.
2. 3 Restrictions of the solution and options
“Focus on the core” is proved to be an effectual solution for Lego’s sustainable growing. It helps Lego achieve the fiscal turnaround by high-quality and customer-oriented merchandises. However. there are some restrictions in the solution. One is the limited potency of the nucleus merchandises. Based on the Product Life Cycle. the Lego brick has reached its adulthood. even decline phase. It is difficult for the company to introduce in it. The other is the restraint of Lego image. Lego’s enlargement and variegation show its aspiration in perforating other countries. apart from toymakers. However. the ‘focus on the core’ solution redefines Lego’s image as a toymaker. and may restrict its possible. For this point. hone its supply concatenation and allow it suit for its enlargement scheme may be an option.
Greene. J. 2010. “How Lego Revived Its Brands” . 23 July. Bloomberg Businessweek. viewed 30 September 2014. & lt ; hypertext transfer protocol: //www. businessweek. com/innovate/content/jul2010/id20100722_781838. htm & gt ; . Oliver. K. . Samakh. E. & A ; Hechmann. P. 2007. “Rebuilding Lego: Brick by Brick” . Booz & A ; Company. Business+Strategy. issue 48. Rivkin. J. W. . Thomke. S. H. & A ; Beyersdorfer. D. 2013. “Lego ( A ) : The Crisis” . Harvard Business School. 9-713-478.
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