CORPORATE BACKGROUND
LEGO was founded in 1932—during the Great Depression--by Danish carpenter Ole Kirk Kristiansen and his sons. LEGO Group continues to be a family owned business. Kristiansen made these toys with high quality standards of workmanship and materials. By 1934, the organization took the name LEGO from the words “leg” and “godt,” which means “play well” and “I put together” in Latin. LEGO Group offers a wide-range of quality products that encourage children to play creatively and utilize their own imaginations. The most popular and significant product creation for the LEGO Group was the LEGO brick. This brick was produced with the new plastic technology and sold in 1949. The LEGO bricks were the first toys to promote connectedness among different products and systems—known as the LEGO System of Play. This System of Play created “a toy that prepares the child for life, appeals to the imagination and develops the creative urge and joy of creation that are the drive force in every human being.” Since then, LEGO Group has expanded considerably. They extended their product offerings and services to their building sets (both licensed and non-licensed) stores and merchandise, online website, board games, theme parks, and video games. By 1990, LEGO became one of the top 10 largest toy manufacturers in the world. Recently, LEGO has become successful in gaining licensed rights to manufacture lines featuring Star Wars, Harry Potter, Spiderman, Batman, Indiana Jones, professional sports organizations and more. These products have also expanded to the video and online game world as well.
PROBLEM
SWOT ANALYSIS
STRENGTHS
WEAKNESSES
Strong brand
Quality of product
Value of product (promotes creativity and learning)
Leadership and management
Market leader
Premium prices
Outsourcing struggles
High costs of manufacturing
Very dependent on licensing rights
OPPORTUNITIES
THREATS
Emerging markets and expansion
New products and product lines opportunities
Competition and substitutes
Age restriction
Short product lifestyle
VALUE CHAIN
Between 1998 and 2004, LEGO struggled and lost money. Revenues had dropped 30 percent in 2003 and fell another 10 percent in 2004. LEGO’s leadership discovered that as new products represented a larger amount of annual revenues, newer generation LEGO sets has become more elaborate while providing less profit in return. This meant that LEGO was dealing with over 11,000 suppliers and creating serious production waste. Also, LEGO was spending disproportionate amounts of time with chain and big box stores that caused inaccurate forecasting and inventory shortages—decreasing sales. This encouraged a much needed organizational turnaround and restructuring. Leadership introduced numerous changes. LEGO cut costs in production in individual LEGO bricks, which helped identify and reduce the most expensive items. This then led to an 80% reduction in the amount of suppliers needed. They also increased production capacity by assigning specific machines to specific production; this reduced downtime and retooling. They also increased revenue by moving more inventory and reducing number of suppliers form 26 to 4. Smaller distribution centers were replaced by large hubs which were strategically located (which mean more control and fewer stock changes). All of this created value and optimized sales. These significant changes in design, production, distribution, and sales resulted in increasing inventory turnover by 12% and earning $72 million in profit in 2005. This restructuring modernized LEGO’s operations.
COMPETITIVE ANALYSIS
As mentioned, LEGO Group has been in the toy manufacturing industry for over a span of 50 years. Being innovators in this industry, LEGO has faced and dealt with a variety of competitors. Competing toy companies have even tried to mimic LEGO’s own unique design. In the toy manufacturing industry, some of LEGO’s closest competitors include: Fisher Price, TYCO, MEGA Brands, and
