An Analysis on the LEGO Case Study conducted in Harvard Business School

Factors that affected the decline of LEGO’s business

LEGO having started as a small Danish wooden toy business soon evolved into a
unique global company centered on their iconic “brick”. The company then steadily grew
becoming the top construction toy brand, however by the early 90s, the business started to
decline. By 1993, there were drastic shifts in the toy market that the LEGO company was no t
ready for. Due to lack of market research, LEGO was less proactive when it came to predicting
market trends and adapting their company that they were only able to make improvements
after these changes have already made a big dent on the company’s sales. The company was
also focused on controlling sales growth to a consistent pace, when they could have been
thinking of how the company would fit society moving forward. This could have avoided their
oblivion to current and future market changes.

Because of the market shift that came as a shock to LEGO, they started releasing
various projects that tapped different industries and sectors that the company was yet
exposed themselves to. This included LEGOLAND Windsor, www.lego.com, LEGO
MINDSTORMS, and various LEGO themed media products. Despite the efforts of LEGO to
expand their market, their sales instead halted. Releasing numerous projects all within a limited
time-span did not do any good for LEGO because sufficient time was not allotted for proper
product development and market research.

In order to save the company from further sales loss, major changes were made
internally. Many employees from low to high positions were laid off in an effort to cut off
organizational layers and give managers more accountability. LEGO had also continued
developing their product and partnering with licensed brands such as Star Wars and Harry
Potter. Due to this, their sales hiked and demand was increasing. However, the internal
organization of the company could not keep up with the demand of the consumers. Employees
and consultants had noticed the poor management of the business with little to no attention
given to production costs and inventory management. This caused inconsistent inventory in
LEGO products and unhappy consumers. LEGO’s sales continued fluctuating from 1999 until
they almost went bankrupt in 2004.

How LEGO used their understanding of the market environment to shape their company’s
mission and goals
As LEGO appointed Jørgen Knudstorp as the new CEO in hopes of turning the
company around, Knudstorp made it a point to go back to LEGO’s core and totally revamp the
company’s business structure. He emphasized that fixing the business would take time. He
developed a 7-year strategy to remind the company of their core values. He reinstated
camaraderie within the work environment and reminded his employees on their values of
relationship, collaboration, and trust. He recognized that before, LEGO looked at consumer
data as it is. They were mere words and numbers when they were actually data that needed
deep understanding. When LEGO was finally able to empathize with the market environment,
they were able to work closely with their consumers and learned what exactly what they
wanted and needed. This new understanding lead them to create their mission to “inspire and
develop the builders of tomorrow”. Their goals were to instill creativity and craftsmanship
within children. LEGO has the power to teach young minds the basic mechanics of building.
Their ability to have a close connection with their consumers allowed them to tap this new
found understanding on what their brand is truly about.

Key takeaways from the LEGO story

Though the LEGO story was not a smooth one, there is a different level of appreciation
that is granted to companies who had to learn to rise above failure. The LEGO story is one of
the truest business stories because it shows how the journey of being an entrepreneur will not
always be easy. Sometimes, it will bring a person to the brink of giving up, but what I learned
from the LEGO story is that reminding oneself of his/her core values will bring his/her business
back on track. It is also important for a company to have a clear structure and that each
department has clear goals to fulfill. When Knudstorp revamped LEGO’s organizational
structure, he defined the jobs of each department. Each employee knew his/her tasks either in
a team or individually. He also emphasized the importance of honing one’s skills in one sector
rather than moving employees from one department to another.

The LEGO story also taught a lot about the importance of understanding the market
environment of any industry. The company rose to success because they discovered the need
to read between the lines of consumer data. Many companies do not take the time to
understand the data that is actually one of the most important. One can only be successful if
he/she understands his/her consumers. Any time spent to understand his/her consumers is
time well spent. At the end of the day, they are the ones buying the product.