Coming from Behind, LEGO Becomes Number One

Following is a short case on LEGO that discusses the company$$s rise to number$-$one toy maker from the depths of failure. As you read the case, think about the concepts presented in the first chapter: the impact of leadership, setting a clear vision, and empowering your team to do the work of turning the company around. Innovation was the key to returning LEGO to health, but the company cannot rest on their past success and must continually focus on the future. The goal of this exercise is to encourage you to think critically about the relationship between the reading and the real world.

Read the case and then answer the questions that follow.

LEGO is a mission driven company and the mission is to $$inspire and develop the builders of tomorrow.$$ LEGO is about problem solving, collaboration, and acquiring the skills to be more successful$$play matters to educational development. The vision of the company is to reach $300$ million children by $2032.$ LEGO Group is worth $$7\mathrm{.}57$ billion, ranking it as the world$$s most valuable toy brand by a huge margin according to Brand Finance. This is amazing because the company had a remarkable turnaround from the brink of bankruptcy just a decade earlier.

Founded in $1932,$ LEGO initially produced a variety of toys. A transformation came after LEGO$$s second$-$generation CEO, Godtfred Christiansen, had a conversation with the owner of a Danish department store. According to David Robertson, the author of Brick by Brick, the store owner told Christiansen, $$What we need is not another toy, but a system of play. Something where if you buy a second set, you don$$t add to your toys, you multiply what$$s possible$$these things can interlock and you can do more, much more.$$ Christiansen was so inspired by this observation that he removed $90$ percent of the toys from his inventory as they did not meet the criteria of being part of a system of play. What remained were the stackable plastic bricks that are now synonymous with the name LEGO.

Focusing on its system of play and offering a fun learning$-$by$-$building experience to young users of the bricks, LEGO enjoyed many years of success. For example, from $1978$ to $1993$ the company grew at an average of $14$ percent a year, doubling in size about every five years. After that, however, LEGO entered a period of decline. From $1993$ to $1998,$ LEGO$$s growth tapered off as it reached saturation points in many markets. LEGO tried to keep the growth going by tripling the number of new toys that it offered. However, sales remained stagnant while costs skyrocketed, leading to the company$$s first loss, in $1998.$ They hired a new CEO, cut staff, and diversified into theme parks, television programming, clothing, and publications. However, the company$$s lack of expertise in those areas led to poor results.

LEGO$$s recovery did not begin until $2004,$ when Jorgen Knudstorp was brought in as the new CEO. The goal was to focus on LEGO$$s traditional values and products. Diversification is an important strategy at LEGO with the creation of an array of movies, video games, and a very popular social media presence. Sticking to principles and aligning diversification efforts with the core values of the company were critical to the stunning turnaround. LEGO embraced social media and crowd$-$sourcing as a way to develop new and exciting products. LEGO has more than one million adults in the LEGO Ideas Online Community. In $2017,$ the Women of NASA product came through the online community and within $24$ hours of launch was the top selling product on Amazon. Bringing the consumer into the design process has been critical for LEGO$$s success.

LEGO discovered that how you innovate matters, just rolling out new products is not a recipe for success. They went back to basics and focused more on the police stations, fire trucks, and other products that were not only what their fans wanted, but were also pretty profitable for them. Then they invited customers to participate in the innovation process$$which customers willingly did! In $2018,$ revenue in all markets grew, and in China, a strategic growth market, revenue growth was in the double digits. Investing in new markets is critical if the company hopes to achieve the goal of reaching $300$ million children. LEGO believes that blending bricks and digital play is the key to creating play experiences that are more exciting and relevant.

According to Goldin, the Chief Marketing Officer, $25$ to $30$ percent of sales come from new products, and bringing those products to market efficiently is critical to profitability. Empowering work teams, partnering effectively, and staying humble and true to their core values achieves the necessary efficiencies. It is easy to be arrogant when you are number one and assume that everyone knows about your products, but the key to success is developing new markets with products relevant to the market. $2017$ was a tough year, but LEGO believes their existing stra