Read the case study LEGO 1-1. Answer the following questions:
1. How did the information systems and the organization design changes implemented by Knudstorp align with the changes in business strategy?
2. Which of the generic strategies does Lego appear to be using based on this case? Provide support for your choice?
3. Are the changes implemented by Knudstorp an indication of hyper-competition? Defend your position.
4. What advice would you give Knudstorp to keep Lego competitive, growing, and relevant?
CASE STUDY 1-1 LEGO
Lego has long been an industry leader in children's toys with its simple, yet unique building block-style products. The privately held company was founded in 1932 by a Danish carpenter whose family still owns Lego today. But by 2004, the company found itself close to extinction, losing $1million a day. A new CEO was brought in, and five years later, sales were strong, profits were up, and naysayers who felt the new strategy was going to fail were proved wrong.
With the advent of high-tech forms of entertainment such as the iPod and PlayStation Lego found itself more antique than cutting edge in the toy world. When new CEO Jorgen Vig Knudstorp, a father and former McKinsey consultant, took over, the company struggled with poor performance; missed deadlines, long development times, and poor deliver record. The most popular toys would run out and Lego was unable to ship enough products or manage production of its more complicated sets. Retail stores were frustrated, and that translated into reduced shelf space and ultimately to business losses.
Knudstorp changed all of that. He reached out to top retailers, cut costs, and added missing links to the supply chain. For example, prior to the new strategy, 90% of the components were used in just one design. Designers were encouraged to reuse components in their new products, which resulted in a reduction from about 13,000 different Lego components to 7,000. Since each component's mold could cost up to 50,000 Euros on average to create, this reduction saved significant expense.
Lego was known for their traditional blocks and components that would allow children to build just about anything their imagination could create. The new strategy broadened the products, targeting new customer segments. Lego managers created products based on themes of popular movies, such as Star Wars and Indiana Jones. They moved into video games, which featured animated Lego characters sometimes based on Hollywood movies. They created a product strategy for adults and engaged the communities who had already set up thousands of Web sites and blogs featuring Lego creations. They embraced the community who thought of Lego as a way to create art, rather than simply a building toy. And they designed a line of Legos aimed at girls, since the majority of their products had primarily targeted boys.
The culture of Lego changed to one where nonperformance was unacceptable. The company's past showed a tendency to focus on innovation and creativity, often at the expense of profits.