The LEGO Group

Introduction

Exploring strategy of the LEGO Group, first of all, I need to identify its present
position, which through using the TESEL framework, by analysing its macro-
environment. After that, I will use the value chain framework to examine its
strategic capabilities, and then, I need to identify its strategic choice in the
period of Kjed as CEO. Finally, I use deliberate strategy to approach a strategy
development.

What features of the external environment have influenced strategy

development at the LEGO Group?

To analyse the features of the LEGOs external environment, I use the TESEL
framework to analyse its macro-environment. The PESTEL includes six
elements, which are political factor, economic factor, social factor, technological
factor, environmental factor and legal factor.

The features of the external environment have influenced strategic development

at the LEGO Group I think include technological force, social force and global
economic force.

Ole Kirk Christiansen founded a toys industry in 1932 (Jensen 2013). He named
the company in Danish LEGO. At the starting time, LEGO produced wooden
toys, it was popular and selling successful. With the continuous development of
technology, technological changing drives the LEGO products material
development. In 1949 the company started producing plastic bricks instead of
wooden one (Jensen 2013). Technological changes are both an opportunity and
a threat. Actually, at an earlier time, the public did not receive the new material
products.

The public attitudes and cultural values affect an industry. Sociocultural

influences drove the LEGO to continue develop products with figures and
technical features, therefore, plastic bricks gained in popularity. Social force
drives the company to recognize the opportunities to develop products. The
LEGO also continuously invented new products, such as the current
interlocking principle with studs and tubes in 1985 (Jensen 2013). LEGOs
products development, invention and innovation extended the playing
opportunities, drove sociocultural changes on the attitudes toward the
products development; it also creates and provides more opportunities for the
company to extending market share, improving the product more attractive to
customers and increasing profits. The LEGO was at family-led position.
Technological changing promoted the LEGO creating a host of new product
possibilities (Hill, 2013, page, 73) to achieve higher market shares and increase
its profits, it could derive competitive advantage; increase the height of barriers
to entry.

Technological changes always affects social culture, and compels industries to

constantly learn new knowledge to develop products, processes, materials and
outputs. Industries have to monitor social culture changes to ensure the
products development is consistent with the social culture. In the mind-1990s,
continuously technology development boost electronic toys growth fast, it also
affect players habits are continuously changing. For the LEGO, this macro-
environment might bring both opportunities and threats. The opportunities are
that the LGEO has strong capability to develop product to meet marketing
requirements, such as mainstream electronic toys. The LEGO even can create
new electronic toys which with high-tech content, leading customers, staying
ahead of the competition. The threat is kids changing their playing habits
whether will make the traditional toys lose its market.

The LEGO was focusing on products development and innovation. It was

constantly establishing various thematic products since in 1968. The LEGO was
successful and attractive and grow fast. It continuously extended marketing
share, and global economy provide an opportunity for it entering international
market. Global economic system has tumbled the barriers of international trade
and investment, and more and more countries have enjoyed sustained
economic growth, such as China and India has created large new markets for
companies goods and services and is giving companies an opportunity to grow
their profits faster by entering these nations (Hill, 2013, page, 72). As the
LEGO opened up a new market in the USA, South America and Asia very
successful by introducing innovative products, it began to grow and the number
of employees increased fast.

Global economy drives industries innovation. A successful innovation can

satisfy customers expectations in the worldwide, because the innovation must
be derived from an understanding of global standards and global expectations in
terms of product functionality (Hitt 2011, page, 12). Thus, to identify global
expectations are opportunities to develop products and/or create new products.
Simultaneously, the industry has to prevent the threat from competitors
imitation.

LEGO believed that by going to global markets they would increase the number
of peoples beliefs about their products; which is a good way to establish a
famous brand. However, global markets are always bringing both opportunities
and threats. When LEGO enters foreign markets as well as foreign enterprises
they may enter the domestic markets of them. There are many inferior
imitations try to enter the LEGO market share with lower costs.

What resources and competences of the LEGO Group have enabled them
to regain their successful position in the global toy market?

Core Competencies

The LEGO products development, innovation and technological changing are

its distinctive competencies. Those competencies allow the LEGOs products
more attractive, and differentiate those products from its competitors, and even
make them could not imitate. Technological changing may also improve
productivity and reduce cost to achieve substantially lower costs than its
rivals (Hill, 2013, page84), such as production technologies development.
Distinctive competencies arise from two complementary sources: resource and
capabilities (Hill, 2013, page84).

Resources

The LEGO has a number of valuable intangible resources, including traditional

business competitiveness, data and ideas of product development and
innovation, unique and iconic brand (Jensen 2013), knowledge from abundant
human capital, technology of product innovations, capability of high quality
maintaining and development, knowledge of product material development,
solid and enormous sales channel and supply chain. The LEGO also has a
number of valuable tangible resources, including technology of product
innovations, production technology of raw material, attractive products, the
LEGOLAND parks and increasingly profitability from traditional business.

Capability

Michael porters value chain framework (Porter, 1985) as a tool to help the
LEGO examine its strategic capabilities, analysis its products value; identify its
cost position and future strategy decisions. Moreover, Value chain can help the
company to create additional value without incurring significant costs (Hitt
2011, page77). Value chain involves both primary activities and support
activities. Primary activities include inbound logistic, operations, outbound
logistics, marketing and sales and service. Support activities include material
management, human resources management, technology development and
company infrastructure. In this LEGO case I think it involves six part activities,
which are inbound logistics, operations, outbound logistics, marketing and sales,
technology development and firm infrastructure.

Since 2005, Jorgen Vig Knudstorp take as CEO, he developed strategic planning
to improve the effective use of resources, in order to sustain the companys
competitive advantage.

The renaissance of traditional business improved LEGOs profitability; reduced

the debt burden. In 2008, LEGOs financial capacity has stayed at a very strong
position. The powerful financial strength pushed the pace of product innovation.
The LEGO did not only focus on product designing and creating, product
material quality development and innovation has been regarded as core
competence.

In inbound logistics part, the LEGO accumulated knowledge to improve

production technology and create new materials, such as non-poisonous plastics
which competitors could not imitate. The new material really boost the LEGO
to increase its market share and profitability, but inferior imitations are able to
threat the brand, because inferior imitations with lower cost to attract customers,
whereas, customers buy inferior imitations for LEGO products. Therefore, to
create greater products value is very important operation for the ELGO to
remain and protect its brand power.

In operations part, Jorgen Vig Knudstorp established very strong product

development team that include 160 employees are dedicated to development
(Jensen 2013). The LEGO created an open innovation processes (Jensen
2013), which can help the LEGO to research user habits, expectations from all
ages and in the worldwide. Users ideas can help the company to identify
product developments and innovations. In addition, the LEGO Group built very
good relations with its retailers in order to collect expectations from the retailer
and customers, for planning the future product portfolio. LEGOs products are
becoming more attractive and valuable for customers, as its products constantly
developing and innovating. LEGO became more and more famous in the world.
It is big support to sustain its brand famous and attractive in the international
market position.

In outbound logistics part, the LEGO Group decided to outsource production

in order to reduce cost. In order to complete an effective outsourcing
transaction, the LEGO developed its supply chain. The LEGO built good
relations with its suppliers in order to collect expectations to enhance market
feedback, therefore, improve innovation capability; obtain market information
to improve fast adjustments of sales in both the short and the long run. Those
factors development promote the success of seasonal sales; improve the
competition of the company, simultaneously, increase its market share and
profitability.

In marketing and sales part, Jorgen Vig Knudstorp expanded various retail
channels to boost selling and increase marketing share in the worldwide, such as
big companies Toys R Us and Wal-mart, online sale channels and brand retail
stores (Jensen 2013). The successful establishment of a broad retail channels
attributed to the high quality and very attractive products and the brand power.
As LEGOs product attracted more and more retailers, the LEGO bargaining
power was increased. This is very important factor to let the LEGO expand and
consolidate its global position. Building good relations help the company get
market feedback more quickly, and enhance flexibility of sales in both the short
and the long run.

In technology development part, LEGOs product innovation and

development even entered into the digital circumstance, such as online multi-
player game (Jensen 2013). Digital world provide more options for children, if
they dont like physical toys. More options and facilitative options provide for
children is also a good way to keep your customers loyal. The LEGO
developed diverse products, cover all ages enable to satisfy different customers
requirements, and constantly products development and innovation in
technology development to sustained LEGO products attractiveness; led sales
fast growth and global market share extension since 2005.

In firm infrastructure part, the LEGO according to its privately owned

business style, it improved a capital structure to try to reduce its debt burden.
During the crisis years, the LEGO divested part of its the LEGOLAND for
getting money to reduce the debt burden, simultaneously developed its
traditional business. The traditional business development boosted the company
growth, improved profitability and reduced the debt burden. As the traditional
business continuously grow fast, the LEGOs profits having increased, in result
its financial situation get resurrected.

What alternative strategies were open to the LEGO Group in 2004? Why
do you think the group chose the course they did?

Since start-up LEGO has been focusing on product development, until Godtfred
died in 1995. In the same year CEO Kjeld set new strategic objectives for the
future 10-year. He focused on establish a famous brand in worldwide. The aim
is to create more opportunities for the company, in order to promote sales, boost
the growth of the company and increase profits fast in a short-term. Hence, he
expanded the brand enter into alliances with partners, such as clothing, film and
games, and then he also want to establish more theme parks. Simultaneously, he
introduced decentralised management style to strengthen the management of the
LEGO. The aim of the management style changing is to try to reduce
dependence of the management on Kjeld, in order to increase the flexibility of
local management to improve the performance of the company.

Actually, Kjelds strategic development did not really successful. Indeed, he

successfully established a famous and attractive brand, but diversification
strategy impeded traditional business development, lost internal strategic
capability development, such as, supply chain development and product
development. The LEGO diversification development dependent on its brand
power, however, traditional business development is the greatest power to
maintain the renown of the brand. Diversification strategy only can increase
profits in a short-term, whereas, focus on traditional business development will
be able to sustain profits increasing in a long-term.

On the other hand, decentralised management style is not suit for a family-run
company at all. It changed ELGOs culture. Moreover, there is no any
corresponding management measure to assist the reform. Decentralised
management style makes strategic leaders manage their locations all focus on
their own profits. It will result in internal quarrels among top-level managers
themselves, in result a number of senior and long-serving managers left
(Jensen 2013). A good leadership should emphasize meeting the requirements of
the firm, to create value for all stakeholders not just focus on increasing profits
for shareholders (Hitt 2011). As leadership in the LEGO who should know the
history and the culture of the company very well; understand the meaning of the
product very well. At this background, the leadership may have the ability to
service the LEGO for its sustained development. That is why the LEGOs
profitability continuously declined, after Kjeld hired new managers and
specialists, even hired an external chief operating officer, and he chose stepped
back. Because those new employers were not familiar LEGOs history and its
culture; could not identify problems were exiting in the LEGO, so they could
not help the LEGO running better. Therefore, in 2004, Kjeld stepped in again,
he changed quondam strategic objectives and chose business-level strategy.

Looking at the LEGO Group today how would you approach strategy
development to ensure success for the company in the future?

Strategy development processes includes deliberate and emergent two different

strategy processes. Deliberate strategy has three different ways that you can use
to develop a firms strategy. You can through strategic leadership formulation,
strategic planning or externally imposed strategy method to develop the firms
strategy. Emergent strategy is asset of continuum processes, which includes
logical incrementalism, political processes, continuity and the product of
organisational systems.

In the case of the LEGO Group I use deliberate strategy to approach LEGOs
strategy development to ensure success for the company in the future. In the
case of the LEGO Group strategic leadership of Jorgen as command, he added
that the core strategy will continue to be the LEGO brick. The goal of the
LEGO is to increase market share by raising awareness and attracting new
audiences to LEGOs products (Jensen, 2013). The LEGO should through
formalize business-level planning to develop its strategy.

First of all, the LEGO should continuously focus on traditional product

development. The LGEO should constantly improve the material and the design
of the brick to develop it more value, attractive and competitive.

Secondly, the LEGO should try to identify more opportunities, such as to create
more female toys to increase market share. Hence, the company should improve
customer service to promote research operation, in order to identify customer
value to enhance product development and innovation capability. Customer
requirements are market opportunities, to identify customer requirement will
help the company to increase its marketing share.

Thirdly, digital technology requires constantly development. Technological

innovation is core competence of digital product, such as game product to
produce more easily and simple operating process game product will be more
attractive to customers. Digital technology development is also very helpful to
educational toys development. Continuously develop educational toys boost the
LEGO entering into various markets successfully. Educational toys successful
sales increase the brand awareness, and enhance the brand power.

Finally, the LEGO attempts to constantly increase global market share, such as
Germany, USA and Asian. Global market expansion requires the company not
just try to identify customers requirements and product development
opportunities. There is also another most important operation needs the
company to be done, that is the company has to ongoing investments in local
organisations and facilities spread over the world. This project requires
powerful funds support. Thus, the company has to make sure it has a healthy
cash flow and a good equity ratio (Jensen 2013) before decide to do it.

Conclusion

I used the TESEL framework to analyse that technological, social and global
economic external environment factor have influenced strategy development at
the LEGO group. Confronting external environment changing result in the
LEGO chose a diversification strategy and introduced decentralised
management style to strengthen the management of the LEGO, in result LEGO
profitability declined. Value chain framework examined its strategic
capabilities, and helped the LEGO identified its valuable resources and core
competences. Then deliberate strategy process approached LEGOs strategy
development.

Bibliography

Hill, J. (2013). Theory of Strategic Management. 10th International Edition.

South Western, Cengage Learning.

Hitt, A, M. Hoskisson, E, R. and Ireland D, R. (2011). The Management of

Strategy Concepts and Cases. 9th edition. South Western, Cengage Learning.

Jensen, A.B (2013) The Lego Group: Adapting a strategic Approach: Case
Study. University of South Denmark.
Porter, Michael E. (1985). Competitive Advantage: Creating and Sustaining
Superior Performance. New York.: Simon and Schuster.