LEGO Group
     Corporate Strategy
                                                Founded in Denmark, 1932
     1999     ...
LEGO Mindstorms
      1984   Early R+D
      1986   Launched computerized building set for schools; deemed
Instability in the developing world;
Changing attitudes to early childhood development;
                                                                                           Labour market reforms in ...
Increasing global concern for the environment; over
     consumption and over population; governments
Industry Rivalry                                                       Critical Success Factors
                                                                                   LEGO                         ...
Weaknesses                                                               Opportunities
        LEGO                       ...
        LEGO                            Mindstorms

        Declining profitability;        Unfamiliar substantive...
Corporate Strategy Perspectives                                               LEGO’S Current Corporate Strategy
LEGO’S Current Corporate Strategy                                          Business Strategy Perspectives
LEGO’S Current Business Strategy

         Variance in business strategies across the SBU’s;

         New business units ...
Mindstorms Capabilities                                                                                         Mindstorms...
Hybrid Corporate Perspective


PHILLIP (10 secs)                                                  ...
Manufacturing and Production                                                  Suppliers and Channel Partners
    Sharing v...
Internal Cultural Challenges                                                         Finance
References                                                                                                                ...
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  1. 1. LEGO Group Corporate Strategy Founded in Denmark, 1932 1999 Worlds 5th largest toy manufacturer Manufactures, distributes and retails plastic building block kits - LEGO Primo, LEGO Duplo, LEGO System and LEGO Technic Employees 10 000 people Revenue US$1.1 billion CEO, Kjeld Kirk Kristiansen New businesses - LEGOland, LEGO Lifestyle, LEGO Media, LEGO Mindstroms CLARE (45secs) Speaker - PHILLIP 1. LEGO founded in Billund, Denmark, 1932, is the worlds 5th largest toy manufacturer (10secs) 2. Famous for its interlocking plastic building blocks Welcome and group introductions 3. Which are sold under 4 age related brands - LEGO Primo, LEGO Duplo, LEGO System and LEGO Technic. 4. Employing almost 10 000 people across the globe 5. Revenue just short of US$1.1billion 6. Traditionally, the business is organised into various strategic business units in Europe, the Americas, Asia-Pacific and Japan and business units focused on the global supply chain. 7. CEO, K Kristensen, (founders grandson) wishes LEGO to become ‘the most powerful brand in the world among families with children by 2005’. 8. To aid this goal, LEGO begun adding new business lines in the 1990s – LEGOland Theme Parks - Windsor, UK (1996); California, US (1999); and Gunzberg, Germany (2003 completion) LEGO Lifestyle (1991) - consumer products such as clothing, footwear, bags, watches and puzzles LEGO Media (1996) - children's software, music, video and books LEGO Dacta - school use AND………LEGO Mindstorms 1 2
  2. 2. LEGO Mindstorms 1984 Early R+D 1986 Launched computerized building set for schools; deemed premature 1993 Strategic business unit created after the successful trial of a programmable brick 1995 Home PC ownership and Internet usage is sky-rocketing. Market dominated by game-oriented ‘edutainment’ products Integrate or continue unabated? 1996 Target market identified: Conscious, Caring and Capable parents, (CCC), 20% of US households 1997 LEGO Mindstorms launches CLARE (30secs) CLARE (45secs) 1. Mindstorms R+D began in the 80’s The introduction of Mindstorms was a radical change for Lego Group. 2. In 1986 LEGO Launched an early school version but was deemed It was separated from the core business from Research & Development premature for the consumer marker due to low PC ownership to production and marketing. 3. Development continued through the late 80’s It even created its own channel partners and supply chains. This has 4. And in 1993 after LEGO successfully tested a programmable brick a created various advantages such as increased responsiveness and new strategic unit was created. market agility, but its operating style has been viewed by core Lego management as against the norm, thus creating a conundrum for 5. As PC ownership and internet usage increased. Lego saw a Kristiansen regarding future directions – whether to integrate the new emerging market, business or allow it to continue unabated 6. The new products were to target CCC parents, approx. 20% of US households. This analysis will put forward recommendations to the Lego group in 7. March 1997 Mindstorms launches regards to the best strategy for the Mindstorms business that will maintain the Lego brand, benefit customers globally and drive economies of scale within the core business. In order to present these recommendations, an extensive internal and external environmental analysis has been undertaken, along with identification of the critical success factors, current capabilities and performance 3 4
  3. 3. Instability in the developing world; WTO free-trade negotiations breakdown; and European Parliament elections. Macro Environmental Analysis Political SANDEEP (10 secs) SANDEEP (10 secs) For those of us, that are to old to remember or to young to know, lets 1. Political instability in some regions of the developing world (i.e take a broad look at what 1999 was like and the factors that may have Balkans); been influencing LEGO’s operations. 2. World Trade Organisation December negotiations in Seattle breakdown due to contrasts between USA, European Union and developing nations proposals on free trade; 3. European Parliament Elections, may see a shift in policies 5 6
  4. 4. Changing attitudes to early childhood development; away from instructional methods; and leisure time is evolving from outdoor activities. Euro introduced as Denmark abolishes the Krone; changes to the Danish taxation system; and the Internet boom is still aiding economic growth Economic Sociological SANDEEP (10secs) SANDEEP (10 secs) 1. Common European Currency, euro announced. 1. Changing attitudes to early childhood development, away from instructional methods 2. Denmark officially abolishes krone; 2. The use of leisure-time by young children is evolving away from 3. Denmark announces more uniform taxation system to be traditional past-times, such as outdoor activities introduced; 4. The internet bubble is bigger than ever and still ‘bubbling’ 7 8
  5. 5. Legal Labour market reforms in Denmark; and potential changes to intellectual property laws. Technological Speed of information technology increasing; communication networks impacting on society; and internet and PC games impacting the toy market. SANDEEP (10secs) SANDEEP (10secs) 1. Speed of information technology rapidly changing, 1. Denmark announce labour market reforms in relation to 2. Increase societal impacts of communication and networks unemployment schemes. 3. Widespread use of internet and advanced video/PC games impacts 2. Rapid changes in technology especially in the internet impacted the global toy market world legal bodies to consider updating the intellectual property law 9 10
  6. 6. Increasing global concern for the environment; over consumption and over population; governments intervening Industry Analysis Environmental SANDEEP (10 secs) CLARE (5secs) 1. Concerns that the global economy could be seriously effected by How were these environmental factors affecting the toy industry? over consumption and increasing populations; 2. Governments intervention such the EU ban tobacco advertising and smoking in public places. 11 12
  7. 7. Industry Rivalry Critical Success Factors Flexibility Adaptation; speed to market; pricing; and distribution. Innovation In products; services; support; and technology features. R+D Continual new and exciting products Brand awareness Market appeal Economies of scale Vital for profit margin Business Synergies Across LEGO group CLARE (45 secs) SANDEEP (45secs) For the LEGO Mindstorms business to survive within the highly Threat of new entrants competitive global toy industry the Critical Success Factors are: High: risk of existing competitors (e.g. K'Nex) entering the computerised building Flexibility to adapt to market requirements including product design, block market speed to market, pricing, proper distribution channels and service and support from core business management and staff. Medium: risk of competitors outside the toy industry (Sony, EA), who have existing brand relationships with the target market through games and software. Innovation in products, so that the target market does not become bored and move to a more exciting product. Consumers in this Buying power of suppliers market also expect more and more in terms of service, support, High: Heavy reliance on partnerships in order to keep the unit lean technological features Threat of substitutes Research & Development investment to ensure that new, exciting and High: due to the plethora of education and entertainment options available relevant products are brought to market ahead of the competition Buying power of customers Brand awareness and appeal to the target markets. Low: in the consumer market, due to size and fragmentation. Economies of scale for production is essential due to the high cost of R&D, marketing and distribution High: in the schools market where many decisions are centralised Multi-Business synergy across the LEGO group Competitive rivalry High: heavy competition from entrenched competitors and new entrants to the market 13 14
  8. 8. Strengths LEGO Mindstorms Resolved vision; Astute marketing; SWOT Analysis Outstanding reputation; Flexible, timely operations; Extensive distribution Global vision; network; Products reflect LEGO’s Success in addressing org. foundation; and mindset problems; and Strong launch and initial High brand awareness sales. amongst target market. PHILLIP (10secs) PHILLIP (25secs) Given that the dilemma is to whether Majgaard integrates Mindstorms LEGO into the LEGO core or not. •Resolved vision, outstanding reputation and extensive brand We have chosen to address the SWOT analysis as a comparison of the awareness two bodies - Lego Core and Mindstorms Business unit. Extensive distribution network, well-established buyer relationships •Proven success in addressing organisational and mindset problems i.e. 1994 Compass Management program, 1999 Fitness Program •High brand awareness amongst the target market MINDSTORMS •Astute marketing •Flexible, timely operations •Global vision •Products reflect LEGO’s‘constructionism’ foundation •Strong launch and initial sales 15 16
  9. 9. Weaknesses Opportunities LEGO Mindstorms LEGO Mindstorms ‘Instructionism’ products; Partnership conflicts. New alliances with major Further market penetration; Poor sales growth in recent Staff that lack LEGO players, i.e. Lucas Films and years; and knowledge and Star Wars brand; and Establish new target market Viewed as ‘entertainment’ Economies of scale with schools. rather than ‘education’ opportunities through company. integration with Mindstorms. PHILLIP (15secs) PHILLIP (15secs) LEGO LEGO •Products tending towards ‘instructionism’ •New alliances with major players, i.e. Lucasfilms – Stars Wars brand •Poor sales growth in the late 1990's •Economies of scale opportunities with integration of Mindstorms •Viewed as an "entertainment", rather than an "education" company MINDSTORMS MINDSTORMS •Further penetration into the existing target market •Partnership conflicts •Establish new target market with schools •Staff that lack LEGO insider knowledge 17 18
  10. 10. Threats LEGO Mindstorms Declining profitability; Unfamiliar substantive New competitors; and competitors, i.e. Sony, Microsoft, Nintendo and Company Analysis Increased internal conflicts; Sega. PHILLIP (15secs) PHILLIP (5secs) LEGO Lets take a closer look at the current strategies, capabilities and -Declining profitability performance of Mindstorms and the Lego Core. -New competitors -Increased Internal conflicts MINDSTORMS •Unfamiliar substantial competitors i.e. Microsoft, Sony, Nintendo, Sega 19 20
  11. 11. Corporate Strategy Perspectives LEGO’S Current Corporate Strategy Since the early 90’s senior management have been working towards an integrated organisation perspective; CEO was preaching a universal approach revolving around ideas, exuberance and values; and Merging activities and processes to become more efficient, realizing synergies ahead of retaining responsiveness. PHILLIP (30secs) PHILLIP (30secs) Majgaard’s dilemma reflects the diametric poles of corporate level strategy perspectives. Since the early 1990’s senior management at LEGO had been working The portfolio organisation perspective - Is a business conglomerate towards an integrated organisation perspective. Kristiansen was where individual business responsiveness is emphasised. preaching a universal approach revolving around the LEGO ideas, And exuberance and values. The integrated organisation perspective - Is where synergy is This translated to merging activities and processes to become more fundamental throughout the entire group of businesses. efficient by realising synergies ahead of retaining responsiveness. (De Wit and Meyer 2004) 21 22
  12. 12. LEGO’S Current Corporate Strategy Business Strategy Perspectives Formally structured core business; Predictable product lifecycles; Continuous marginal improvement; Strategy was focused on planning, forecasting trends, and product programming. The fitness program, involves reducing organisational layers and staff, clearer lines of responsibilities and a greater customer focus. PHILLIP (30secs) PHILLIP (30 secs) Majgaard’s solution not only had to address the corporate level The formally structured core business was successful in dealing with strategy. It had to address the business level strategies of the core and predictable product lifecycles and achieving continuous marginal the various SBU. improvement. The corporate level strategy was focused on planning, Typically, a business can have either of these perspectives. forecasting trends, and product programming. An outside-in perspective - where emphasis is on markets over resources and the business is opportunity driven. The latest strategic approach, the Fitness Program, involved reducing Or organisational layers and staff and establishing clearer lines of An inside-out perspective - where the internal strengths are utelised responsibilities, thereby creating a greater customer focus. and resources assist in attaining a distinctive position. (De Wit and Meyer 2004) 23 24
  13. 13. LEGO’S Current Business Strategy Variance in business strategies across the SBU’s; New business units have an outside-in perspective; Functional Analysis Core business has an inside-out perspective; but Recent core activities project a change towards a market focused strategy (outside-in strategy). PHILLIP (40 secs) CLARE (30secs) In 1999, the LEGO Mindstorms team was responsible for their own The Strategic Business Units had varied business level strategies. The functional departments; separate to the core LEGO business. This four new business units, (Mindstorms, Legoland, Media, Lifestyle, allowed flexibility with regards to adapting their functions to fit the Dacta) had a greater outside-in perspective emphasising markets over unique product offering of Mindstorms and was not dictated to by the resources. traditional processes of the LEGO core group. This separation however, meant that the team did not take advantage of economies of scale or They were opportunity driven, based on market demand, environmental leverage the existing capabilities and knowledge of LEGO Group staff. adaptation and focused on attaining an advantageous strategic position for LEGO. This structure, whilst causing issues within the LEGO group allowed Mindstorms to develop and launch to market a highly innovative, In contrast, the core SBU’s (including the new products team) displayed successful new product. a greater inside-out perspective concentrating on internal recourses over external markets. However, recent joint ventures such as the new Star Wars LEGO with Lucas Films indicate that Kristensen’s integrated corporate strategy may have influenced the traditional SBU approach. 25 26
  14. 14. Mindstorms Capabilities Mindstorms Performance HR Experienced early challenges; hired Financial Sales are 1% of LEGO; goal to increase externally; global recruitment; seeking fast growth rapidly; high cash needs; and financial paced innovative employees. losses in 1998 resulted in 1000 job losses. Marketing Decentralised from LEGO core. Customer Creating awareness; online communities are attracting adults; competitive robotic events Pricing For price leadership. are attracting children. Distribution Hybrid non-traditional channeling created Internal Build strong supply chains; operational conflict with the core distribution. efficiency; economies of scale. Promotion Outsourced PR/advertising focused only on Growth Synergies aligned with constructionist values the US market. and core competencies; responsiveness to market through innovative. CLARE (1.30 min) SANDEEP (1.5min) HR The Mindstorms team experienced initial challenges in recruiting staff from within the company, as The purpose is to link various key indicators to larger scale objectives of LEGO including vision and the over-riding attitude was that ‘hey didn’t want to be too closely associated with Mindstorms in case it strategy. The focus is to have a measure of various performance based metrics based on the failed’. Due to this hurdle, the Mindstorms team had to seek expertise outside the core group. Balanced Scorecard, which includes; financial outcomes, customer, internal business processes and This resulted in a support services team that was partially located in the U.S to be closer to the target learning and growth. market and hiring people who had specific industry knowledge, yet lacked company knowledge. This Financial: launched to the global market in January 1998 and sold approximately 100,000 units in its geographic diversity meant that the Mindstorms business was truly positioned to think globally. first year. This translates to approximately 154 million DKK, or 2% of LEGO Group sales in 1998. Considering this was a new product, LEGO strategy is to increase growth rapidly at 20% per year compared to average sales growth of 3% between 1995-1998. The culture of the people they hired and the innovative nature of the team meant that it was managed and led very differently than the core group. They operated in a fast-paced, informal environment where As the cash needs of the Mindstorms business would be high, the strategy would be to invest heavily employees worked in partnerships with their external stakeholders, with caused friction with the LEGO to increase market share and create cash inflow or divest/no further investment in Mindstorms. This group. is especially important because in 1998, high investments in new products led to cash outflow almost DKK 1500 Mill, resulting in an earnings loss of almost DKK 200 Mill. Almost 1000 employees have Marketing As this was an innovative product offering, with a completely different marketing message been let go in 1998 (www1.LEGO!.com) than the traditional LEGO products, Marketing was decentralized and controlled by Mindstorms. Customer: Whilst there is a strong market need to create high consumer awareness, this needs to be Pricing In stark contrast to the LEGO ‘magic number’ of not selling anything for more than $39.99, the achieved without expensive marketing campaigns and assume a dynamic, price leadership Mindstorms marketing team employed a strategy of price leadership, due to the uniqueness of their position. Online communities such as LEGO Mindstorms learning centres attracted adults, offering and sold their products for between $200 - $219. additionally LEGO robotic events to attract 9-16 year olds especially in the US helped to capture Distribution Mindstorms forged LEGO’s traditional distribution channels and utilised electronics stores, attention of the new products. direct sales through LEGO and CCC companies to get their product to market. This caused friction Internal Business Processes: As Mindstorms is a separate SBU, research and development and because developing these channels were unprofitable and had the potential to damage relationships with sales were not part of the core LEGO group. The purpose is to build strong supply chains, lean long-term distributors, which they still relied on for the remainder of the LEGO business manufacturing methods and economies of scale. Promotion Because of the strategy to build a lean team, it meant Mindstorms had to seek expertise Learning & Growth: To ensure alignment and synergies with core constructionist values and continue outside of the LEGOGroup. They outsourced their PR and advertising. As these agencies were located to be innovative and responsive to market needs. Measures that can be introduced include in the U.S it allowed Mindstorms to develop meaningful messages to their largest target market although Employee Satisfaction surveys and completing gap analysis between Mindstorms and LEGO Group it did not allow for local adaptation of messages as was the case with the LEGO group with marketing for core competencies based on performance functions in local markets. 27 28
  15. 15. Hybrid Corporate Perspective Recommendations PHILLIP (10 secs) CLARE (10secs) Based on the analysis undertaken and the strategic vision of the core Thereby undertaking a hybrid corporate strategy that takes advantage LEGO group, it is recommended that LEGO Mindstorms be integrated of and captitalising on synergies whilst remaining responsive in key into the core group with components of a portfolio approach. areas. What will the hybrid approach look like? 29 30
  16. 16. Manufacturing and Production Suppliers and Channel Partners Sharing value-added activities; Aligning positions to improve competitiveness; Lean manufacturing; Channel partner synergies; and Parallel production processes; and Strengthening existing relationships Economies of scale. SANDEEP (25secs) PHILLIP (20secs) Manufacturing and Production (sharing valued-added activities) Supplier and strategic channel partnerships (aligning positions to Lean manufacturing and parallel production processes would be improve competitiveness) implemented into core manufacturing methods to enhance value and Channel partner synergies would be monitored for leveraging value increase reliability and flow. The economies of scale created by this creation versus disturbing existing relationships which are important for centralised production would assist in driving a more aligned pricing the LEGO core business. strategy and reap benefits to customers. 31 32
  17. 17. Internal Cultural Challenges Finance Leveraging resources; Reduced operating costs; Sustainable growth; and Increased Profit margins. Remain innovative; via The creation of a Mindstorms Champion Group. CLARE (20secs) SANDEEP (25secs) Internal cultural challenges (remaining innovative) Financial (leveraging resources) A Mindstorms Champion Group will be created, with members who Projections show that Mindstorms will contribute increasingly to LEGO represent each functional area of the core LEGO group. These Group sales as operating margins are high at 20% and there is members would promote the benefits of Mindstorms and have the sustained growth from integrating some of the functions. Integrating political clout to break through bureaucratic barriers yet have the ability Mindstorms into the LEGO group will actually reduce operating costs to create consensus and direction. due to lean optimization in the whole organization. This will improve dramatically the overall profit margin by an additional 4% per every year. 33 34
  18. 18. References Image References Slide 1 - De Wit, B and Meyer, R 2004, Strategy:process, content, context. 2 - International Thomson, Singapore 3 - Ireland R D., Hoskisson R E. & Hitt M A., 2008, Understanding Business Strategy, Concepts & Cases 2nd Ed. Cengage Learning, 4 - 5 - Hubbard, G 1990, Analysing a Case, in Cases of Strategic Management: Australia and New Zealand, G Lewis, A Morkel, G Hubbard, G 6 - Stockoprt, and S Davenport (eds), 2nd ed, pp. viii-xvi, Prentice Hall Sydney 7 - 8 - Porter, M, (1998) Competitive Strategy: Techniques for analyzing industries and competitors, Free Press 9- 1999 Statistics, Denmark viewed on August 10, 2009 < > 10 - 11 Environmental Issues – Global Issues viewed on August 10, 2009 12 - <> 14 - Lego Financial Accounts 2001 viewed on August 20, 2009 15 - < http://cache.LEGO!!.com/downloads/aboutus/accounts2001eng.pdf> 16 - 17 - Lego Mindstorms – What went wrong? Viewed on August 20, 2009 18- <!.html> 19 - 20 - Lego Pressroom Archives displaying historic financials viewed on August 20, 2009 <http://www1.LEGO! 22 & 23 - .com/eng/info/default.asp?page=pressdetail&contentid=99&countrycode=2057&yearcode=2000&oldXML=true&archive=true> 25 - 26 - Effects of Overconsumption and Increasing Populations viewed on August 10, 2009 27 - <> 28 - BCG Growth-Share Matrix viewed on August 20, 2009 29 - <> 31 - 32 - Historic Exchange rates viewed on 10 August, 2009 33 - <> 35 36