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
Speaker - PHILLIP 1. LEGO founded in Billund, Denmark, 1932, is the worlds 5th largest toy
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
1984 Early R+D
1986 Launched computerized building set for schools; deemed
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
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
Instability in the developing world;
WTO free-trade negotiations breakdown; and
European Parliament elections.
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
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
SANDEEP (10secs) SANDEEP (10 secs)
1. Common European Currency, euro announced. 1. Changing attitudes to early childhood development, away from
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
4. The internet bubble is bigger than ever and still ‘bubbling’
Labour market reforms in Denmark; and
potential changes to intellectual property laws.
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
Increasing global concern for the environment; over
consumption and over population; governments
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.
Industry Rivalry Critical Success Factors
Flexibility Adaptation; speed to market; pricing; and
Innovation In products; services; support; and
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
High: heavy competition from entrenched competitors and new entrants to the
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
•Flexible, timely operations
•Products reflect LEGO’s‘constructionism’ foundation
•Strong launch and initial sales
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
PHILLIP (15secs) PHILLIP (15secs)
•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
Declining profitability; Unfamiliar substantive
New competitors; and competitors, i.e. Sony,
Microsoft, Nintendo and
Increased internal conflicts;
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.
-Increased Internal conflicts
•Unfamiliar substantial competitors i.e. Microsoft, Sony, Nintendo, Sega
Corporate Strategy Perspectives LEGO’S Current Corporate Strategy
Since the early 90’s senior management have been
working towards an integrated organisation
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
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)
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)
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
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.
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.
Hybrid Corporate Perspective
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?
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.
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
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