CONSIDERING (The LEGO Group case) related to the integration of strategy and risk management of a large, international company.

kindly discuss these points:

1. An overview of the case

2. What are the advantages of integrating ERM with strategy and strategy execution as described in the case?

3. How does scenario analysis as described in the case help an organization prepare for uncertainties?

4. What are the advantages of using the PAPA model to categorize risk?

5. The mission of the strategic risk management team is to Drive conscious choice. How does the Active Risk and Opportunity Planning (AROP) element of strategic risk management at LEGO help to drive conscious choice?

CASE!!!! CASE!!!! CASE!!! CASE!!!

Headquartered in Billund, Denmark, the family-owned LEGO Group has 12,500 employees worldwide and is the second-largest toy manufacturer in the world in terms of sales. Its portfolio, which focuses on LEGO bricks, includes 25 product lines sold in more than 130 countries. The name of the company is an abbreviation of the two Danish words leg god which means "play well." The LEGO Group began in 1932 in Denmark, when Ole Kirk Kristiansen founded a small factory for making wooden toys. Fifteen years later, he discovered that plastic was the ideal material for toy production and bought the first injection molding machine in Denmark.

In 1949, the brick adventure started. Over the years, the LEGO Group perfected the brick, which is still the basis of the entire game and building system. Though there have been small adjustments in shape, color, and design from time to time, today's LEGO bricks still fit bricks from 1958. The 2,400 different LEGO brick shapes are produced in plants in Denmark, the Czech Republic, Hungary, and Mexico with the greatest of precision and subjected to constant controls. There are more than 900 million different ways of combining six eight-stud bricks of the same color.

To understand strategic risk management at the LEGO Group, you need to understand the company's strategy. This is consistent with the first step in developing strategic risk management in an organization: to understand the business strategy and the related risks as described in the strategic risk assessment process.^[1]

The LEGO Group's mission is "Inspire and develop the builders of tomorrow." Its vision is "Inventing the future of play." To help accomplish them, the company uses a growth strategy and an innovation strategy.

Growth strategy. The LEGO Group has chosen a strategy that's based on a number of growth drivers. One is to increase its market share in the United States. Many Americans may think they buy a lot of LEGO products, but they buy only about a third of what Germans buy, for example. Thus there are potential growth opportunities in the U.S. market.

The LEGO Group also wants to increase market share in Eastern Europe, where the toy market is growing very rapidly. In addition, it wants to invest in emerging markets, but cautiously. The toy industry isn't the first one to move into new, emerging markets, so the LEGO Group will invest at appropriate levels and be ready for when those markets do move. It will also expand direct-to-consumer activities (sales through LEGO-owned retail stores), online sales, and online activities (such as online games for children).

Innovation strategy. On the product side, the LEGO Group focuses on creating innovative new products from concepts developed under the title "Obviously LEGO, never seen before." The company plans to come up with such concepts every two to three years. One of the latest examples is LEGO Games System, which consists of family board games (a new way of playing with LEGO bricks) with a LEGO attitude of changeability (obviously LEGO). The company also intends to expand LEGO Education, its division that works with schools and kindergartens. And it will develop its digital business as the difference between the physical world and the digital world becomes more and more blurred and less and less relevant for children.

Strategic Risk Management Lab Commentary

This four-step approach is a good illustration of how organizations can develop their risk management capabilities and processes in incremental steps. It represents an example of how to evolve beyond traditional ERM and integrate risk management into the strategic decision making of an organization. This approach positions risk management as a value-creating element of the strategic decision-making process and the strategy-execution process.

In our research on high-performing companies, we've found that the LEGO Group, like those companies, achieves sustainable high performance and creates stakeholder value by consistently executing the strategic activities in the Return- Driven Strategy framework (for example, the focus on innovating its offerings toward changing customer needs) while co-creating value through its engagement platforms that is, the online community, including its My LEGO Network, which engages more than 400 million people and helps its product development process; see Venkat Ramaswamy and Francis Gouillart, The Power of Co-Creation (Free Press 2010). Its strategic risk management processes incorporate distinct elements of cocreation by engaging its employees (internal stakeholders) throughout the strategic decision-making, planning, and execution processes, as well as engaging external stakeholders (suppliers, partners, customers). The LEGO Group's approach is a good example of how an organization can engage stakeholders in co-creating strategic risk/return management (see Mark L. Frigo and Venkat Ramaswamy, "Co-Creating Strategic Risk-Return Management," Strategic Finance, May 2009).

The evolution of ERM toward strategic risk management is represented in Exhibit 6.2. Strategic risk was missing from the ERM portfolio until 2006.

To fix this, based on his then 25 years of LEGO experience and a request from the CFO, Hans Lsse started looking at strategic risk management. "I was a corporate strategic controller who had never heard the term until then," he says. The company had embedded risk management in its processes. Operational risk minor disruptions was handled by planning and production. Employee health and safety was OHSAS18001 certified. Hazards were managed through explicit insurance programs in close collaboration with the company's partners (insurance companies and brokers). Information technology (IT) security risk was a defined functional area. Financial risk covered currencies and energy hedging as well as credit risks. And legal was actively pursuing trademark violations as well as document and contract management. But strategic risks weren't handled explicitly or systematically, so the CFO charged Hans with ensuring they would be from then on. This became a fulltime position in 2007, and Hans added one employee in 2009 and another in 2011.