Jacob Ponce

Professor Shin
October 15, 2014

The Lego Group Case

Lego is known across the world for being the ultimate children's play toy. These little
plastic bricks are made with absolute quality and precision, virtually indestructible, and have
unlimited imaginative possibilities for construction. After several years of being one of the top
manufacturers of toys, Lego has faced some hardships staying on shelves of retailers across the
nation. From failing short of meeting demand to expanding in new product lines that failed, it is
no wonder that CEO Jrgen Vig Knudstorp is apprehensive on saving the company. Can Lego
catch up to the way present day consumers and their toy purchasing habits? Is innovation truly
the future of Lego, or should they hold to their core foundation of plastic brick products?
Financial pressure urges Knudstorp and his team to find an answer.
A good idea is a good idea. Founder and inventor of the Lego, Ole Kirk Christiansen,
knew this. After losing his wife, he was left to raise four sons. Making toys from wood, he went
on to create small building blocks and later completely manufactured the toys from plastic. As
his business grew, Kristiansen watched the operations of the entire company very closely.
His son, Kjeld Kirk Kristiansen, says that it took him 10 to 15 years to convince his father to
add the color green. From an early point, the family business did not have much creative and
innovation in its product but left that aspect of creativity to the consumer: children and their
imagination. Holding to their ground, it is no surprise that when the market started to change,
Lego fell behind. According to Dr. Mike Lyons, a psychologist for Family Business Institute,
says it is easier to not change. No change does not cost any money or time. No change does not
conflict with the senior generation. No change means no reason to hire any new advisors or
employees. (Family Business Institute) However, no change also means no innovation. While the

Jacob Ponce
Professor Shin
October 15, 2014

Lego group held firmly onto the idea that their plastic blocks would sustain their growth in the
short run, they failed to realize the changing market. Lego fell short of being an ambidextrous
company. That is to say, they only kept short term efficiency in mind and did not focus enough
on the long term life of the company. The population of the target market decreased in the early
90s and the target market age group habits changed as well. The Groups failure to frequently
analyze their market contributed greatly to their loss of sales and their loss of growth.
Instead of catering to the market, Lego Group decides to expand into vastly different
areas in attempt to make their brand known, despite the fact that these fields had nothing to do
with their strengths. Lego felt the need to expand outside and spread their brand before truly
analyzing their internal strengths.
SWOT Analysis of Lego Group
Strengths: Legos current strengths are that its product is able to be innovative in the fields of
education and technology without having to expand out of the companys core foundation of
plastic brick products. The good brand recognition Lego has is due to producing products made
from good quality parts. Lego appeals to a large group from toddler to teens to even adult
enthusiasts.
Weaknesses: Legos weaknesses come in largely from their loss of direction and identity. Their
aggressive expansion into other product lines has mostly failed to deliver profits. The company
also failed to gain an understanding of their target market and the changing wants and needs of
their consumer. Lego Group did not apply their strengths to the new product lines. Expansion
came and increased fixed costs due to the introduction of new molds needed to manufacture

Jacob Ponce
Professor Shin
October 15, 2014

parts. Logistics and supply chain were a mess and products were not able to be sent out to
retailers fast enough to meet demand.
Lego has the advantage of being a very flexible product. The plastic brick can essentially
become anything, and this is ideal for the field of education. Lego recently released the Lego
Mindstorm EV3 set. This robotic product line includes a programmable brick piece that can be
set to do a number of different tasks. With different motion, color, sound, and light sensors, the
Mindstorm EV3 product line leaves room for much more creativity in the minds of a growing
generation that grew up with Legos as well as a way for toys to make their way into the fields of
science and technology.

Lego pieces themselves come with a high price tag. Much of this has to do where legos
are currently manufactured. As of right now, manufacturing plants exist in Mexico and in the
Czech Republic. Egil Nielsen, vice president of global logistics for Billund, Denmark-based The
Lego Group says, The toymaker's board of directors decided that the company needed to cut 20
percent of its logistics costs. A key step in achieving that objective was consolidating most of
Lego's European warehouses and distribution centers (DCs) into one facility located in the Czech
Republic. The single distribution center led to savings that made a 19 percent jump in annual
revenue to DKK 9526 million, profit margin of 21 percent (Suppy Chain Quarterly).

The latest manufacturing plant has been opened in Nyregyhza, Hungary. Competitors
have switched to have their manufacturing done in countries where labor costs are the lowest in
the world such as China and other South Asian countries. (The Lego Group) Despite having a
recognized brand name, it would benefit the company to drive costs down as much as possible

Jacob Ponce
Professor Shin
October 15, 2014

and consider opening a manufacturing plant in China. Competitors also are able to deliver
products to retailers much quicker than Lego can. A reconstruction in the companys supply
chain must be delivered and all bottle necks, obstructions, and wait times must be kept to an
absolute minimum in order to meet the demand of the product.
Opportunities: Lego has the opportunity to continue with its licensed products such as Star Wars.
The education factor of Legos products is influential in the science and engineering sector of
many schools and universities. Lego could see potential in hosting competitions and shows
across schools with projects using Lego parts. Lego should also consider licensing into other
mainly view television shows, movies, and video games that the target market enjoys in order to
sustain interest in their traditional toy products.
Threats: Lego Groups main threat was the changing demands of the market. Children have been
more inclined to find alternative forms of entertainment among virtual online games and video
games, along with other electronic devices.
Legos licensing of products has proven to be a huge success. Lego's strength can be
attributed to a mix of licensed products tied to popular franchises, like "The Hobbit," "Star Wars"
and "The Dark Knight Rises," and company-owned brands like Lego City. The company sold its
first licensed line based on "Star Wars" in 1999, and sets based on popular film and television
series generate buzz among fans. But internally developed brands, including Lego Friends and
Ninjago, have also been popular (Market Watch). Michael Mcnally, brand relations director for
The Lego Group says, "We have sold well in excess of 200 million boxes of Star Wars Lego
products since 1999." Lego's strength can be attributed to a mix of licensed products tied to
popular franchises, like "The Hobbit," "Star Wars" and "The Dark Knight Rises," and company-

Jacob Ponce
Professor Shin
October 15, 2014

owned brands like Lego City. The company sold its first licensed line based on "Star Wars" in
1999, and sets based on popular film and television series generate buzz among fans. But
internally developed brands, including Lego Friends and Ninjago, have also been popular,"
(Twin Cities). With new Star Wars movies to be released by Disneys collaboration with Lucas
Films, it is no doubt that Lego should hold onto the licensed products that have sparked interest
for audiences of all ages. Lego Star Wars has become the rare toy line that grows more popular
every holiday -- no matter that there hasn't been a new "Star Wars" movie in theaters for years,
says Mcnally, (Twin Cities). Lego can overcome its major threat of an ever-changing market by
consistently aiming to cater to their audience. Keeping updated knowledge of their consumer will
lead to more discoveries of opportunities available for Lego to expand into. Technology like the
iPad and video games seem to be one of the toy industrys biggest competitors. Incorporating
interactive apps that contain and display the Lego name and characters will spark interest in the
physical product.
Lego has come a long way to where they stood in 2004. With Knudstorp as the first CEO
to be in charge of the Lego Group not in the family, it is fair to say that his actions to re-gain
control of the company's identity is in fact on the right track. Finding the products that no longer
make the company profit and discontinuing them, halting all unessecary expansion of product
lines that stretches out to far from core values, and increasing production speed will continue to
bring Lego out of its financial pressure.

Jacob Ponce
Professor Shin
October 15, 2014

Works Cited.
Cooke, James. "LEGO's Game-changing Move." Supply Chain Quarterly. 1 Jan. 2009.
Web. 14 Oct. 2014. <http://www.supplychainquarterly.com/topics/Logistics/scq200903lego/>.
Kell, John. "Lego's U.S. Sales Soared 26% in 2012." Market Watch. 7 Feb. 2013. Web.
14 Oct. 2014. <http://www.marketwatch.com/story/legos-us-sales-soared-26-in-2012-2013-0207>.
Rivers, Wayne. "The Nine Reasons Family Businesses Fail to Do Succession Planning."
The Family Business Institute. 1 Oct. 2013. Web. 14 Oct. 2014.
<http://familybusinessinstitute.com/index.php/2013-articles/the-nine-reasons-family-businessesfail-to-do-succession-planning.html>.
Rude Trangbk, Roar. "New LEGO Factory Opens in Nyregyhza: A Pioneering
Greenfield Investment, Put Together in Just One Year." Lego.com About Us. 25 Mar. 2014. Web.
14 Oct. 2014. <http://aboutus.lego.com/en-us/news-room/2014/march/nyiregyhaza-lego-factoryopening>.
Webb, Tom. "Why Lego Star Wars Grows More Popular Every Holiday."
TwinCities.com. 2 Nov. 2013. Web. 14 Oct. 2014.
<http://www.twincities.com/ci_24436045/why-lego-star-wars-grows-more-popular-every>.