Lego is an iconic name in the toy business known for creating anything you can imagine with plastic building block toys. Possibilities and fun are endless with Lego pieces. Their success has culminated in a widely praised movie at the beginning of 2014; it is hard to believe that the Lego company was on the verge of bankruptcy just a decade ago.
The Lego company did everything right to succeed in the early 2000s according to business experts:
- Hire a diverse and innovative staff
- Sought the help of a number of different constituencies from both inside and outside the firm
- Create game changing new products
- Occupy relatively competition free markets where Lego could dominate
- Listen to customer feedback.
Success seemed eminent by following the advice of the experts. But a company as great as Lego can have its own missteps, in 2004, they had debts nearing $1 billion and saw sales slump 40% in just two years.
During this time, the Lego company experienced a lot of internal problems. Lego’s chief marketing officer Mads Nipper said that Lego had no idea how much it cost to manufacture the majority of their bricks and they had no idea how much certain sets made. Part of the reason was that they relied upon top graduates from design schools in Europe that didn’t have much experience with Legos. The crazy part was that certain sets cost Lego more to get these parts than the whole set was being sold for. Every single one of these sets was a massive loss leader, but no one actually knew because of poor management.
Under the guidance of CEO Jorgen Vig Knudstorp, Lego was finally able to escape its troubles. Knupstorp and his team sold off every part of their company that wasn’t necessary to their core product. They sold their four theme parks to Merlin Entertainments Group, sold their video game development division to be handled by outside partners under a Lego license, and shortened product development from 2 years down to 1 year. Thanks in part to good management by refocusing and project crashing; this new structure from Knudstorp got the Lego company growing again.
In 2011, Lego brought in nearly $710 million in income and have become one of the more profitable and faster growing company in the toy industry.
In relations to operations management, Knupstorp and his team did a lot to put Lego on the right track. It was surprising to me that Lego did not have a good operations management system at least during the early 2000s, but it makes me see just how important operations management is when well intentioned plans go awry simply because the business structure wasn’t sustainable. Knupstorp’s best decision was probably involving fans in designing for Lego. By involving the people who buy their products, Lego gets the people who know how Lego can improve and have experienced the joy of creating with Lego.
What is awesome (movie reference)?
What lessons can you learn from the Lego story?
What does Lego mean to you?
2 thoughts on “Lego-lution: The Early 2000s were a Disaster and Now”
I have so many good memories playing with Lego’s as a kid! However, until reading this, I had forgot that Legos still exist. I think Lego was trying to be too much like Disney back in the early 2000’s. Their products were selling left and right and so they created Lego Land and released new toy lines, assuming they would continue to make money. The new CEO’s move to sell everything except their core products was smart. Not all companies can be like Disney and I think Lego learned that the hard way. Companies need to stay true to the products their customers like and need to know when and when not to expand.
Lego is an awesome business to examine and study. They turned themselves from a dying company that makes bricks to one of the most profitable toy companies in history within the span of only a few years. Lego is awesome to so many because it allows you to be the “master builder.” It is an empty canvas and each artists/engineer constructs their own unique art. They started to drift too far from who they were when they got into trouble but brought in a new CEO to bring them back to their core. This is the most important to be learned from Lego. Sure a company needs to grow, diversify, and change or they will die, however, never get too far away from the core. Lego is hugely important to many but it never was that much to me. As stated in the post, Lego had huge issues segmenting and identifying successful sets. In addition, they weren’t good at targeting Lego sets for young girls like they are now so I didnt play with them much as a kid.