LEGO is everywhere—toys, games, books, magazines, competitions, retail stores, theme parks, and now movies.

If all of the approximately 400 billion colorful interlocking bricks ever produced by LEGO were to be divided equally among the world’s population, each person would have 86 bricks (!). Fortune magazine half-joked that “at least ten billion are under sofa cushions and three billion are inside vacuum cleaners.” By itself, a single LEGO brick is lifeless.

But snap two of these plastic blocks together, and suddenly they take on a life of their own. A world of nearly infinite possibilities opens up. Igniting the imaginations of millions of children and adults around the world, the little LEGO brick has become a universal building block for fostering creativity.

Accolades such as “the toy of the (20th) century” and “the most popular toy of all time” are routine for LEGO. Around the world, LEGO fan clubs abound, often with their own conferences and competitions. “With the possible exception of Apple, arguably no brand sparks as much cult-like devotion as LEGO,” noted one expert. What are LEGO’s secrets?

Relentless innovation and experimentation are one of the foremost characteristics of LEGO. Derived from the Danish phase leg godt (“play well”), LEGO was founded in 1932 by Ole Kirk Christiansen, a carpenter from Billund, Denmark—a rural town three hours from Copenhagen.

(LEGO Group is still headquartered in Billund today.) As a firm self-styled “to stimulate children’s imagination and creativity” and “to nurture the child in each of us,” LEGO is known for its willingness to entertain numerous experiments in order to capture the hearts and minds of its fickle primary customers—boys age seven to 16—as well as the wallets of their parents. You may not know that LEGO started out making wooden toys. In 1947, it became the first Danish toymaker to experiment with plastics, even though trade magazines predicted at the time that plastics would never replace wooden toys.

The now-ubiquitous LEGO brick was not the company’s original invention. Actually, it was based on “self-locking bricks,” which were patented in Britain in 1939 and released to the public domain in 1947. LEGO tinkered with the brick, and initial efforts were not successful. The bricks snapped together, but could not be separated easily. LEGO continued to experiment, eventually hitting a stud-and-tube coupling design that the company patented in Denmark in 1958.

When a child snapped two bricks together, they would click into place and stick together. The two bricks would stay together until separated with an easy tug. Because such bricks would not come apart, kids could build from the ground up, leveraging what LEGO continues to call “clutch power.” While the brick proved to be one of the toy industry’s greatest innovations, LEGO’s experiments marched on, with numerous hits and also numerous misses in the six decades since the finalization of the basic brick design.

Another LEGO hallmark is insisting on excellence. Coming from the founder, “Only the best is good enough” is a company motto engraved on a plaque that graces the entrance to LEGO Group headquarters’ cafeteria even today. The seemingly simple tight fit of two bricks—and their easy separation—calls for extremely precise manufacturing. Because the size of each brick is so tiny, misalignment in the range of a few millimeters can easily create misfit when bricks are stacked together.

Competitors can produce LEGO look-alikes that tolerate higher levels of variations, but kids often quickly figure out that LEGO is the best after playing with competing products for a short while. This is not to say LEGO’s quality is perfect.

On average, 18 out of one million bricks produced fail to meet LEGO’s quality standards and have to be tossed. In addition to tight fit and easy separation, LEGO bricks are also known for being virtually indestructible. More than half a million people

(mostly parents) have liked the Facebook page “For those who have experienced the pain caused by stepping on LEGO.”

LEGO is famous in the business world for generating a system—not merely a product. Long before the days when computer programs were supposed to be backward compatible (a new version of Windows must allow users to open old files), LEGO made its bricks backward compatible— new bricks would click with old bricks of the 1950s vintage.

As a result, kids (and adults) can mix and match old and new sets, and the LEGO universe can grow exponentially. Likewise, the bewildering array of new LEGO gadgets and experiences—such as board games, online games, competitions, books, magazines, theme parks, retail stores, and movies—unleash a powerful and mutually reinforcing ecosystem (or product family) centered on the brick.

Being privately held enables LEGO to sacrifice short-term profit to supply building blocks for long-term growth. Given the current slowdown in developed economies, LEGO is now focusing on China and India. Between 2017 and 2019, it opened 90 LEGO stores in China, enjoying strong, double- digit growth. It is a lot easier to persuade parents who enjoyed playing LEGO themselves as kids—as often is the case in developed economies. But in emerging economies, LEGO is often trying to attract first-generation users. To promote interest in China, LEGO has developed three toy sets specifically for China—the first time it has done that for any country. With a 4.5% market share, LEGO has become the number-one player in the toy industry in China (not including video games). It is also planning to open its first store in India in 2020, endeavoring to replicate its success in China.

Of course, numerous other secrets reside within LEGO, each contributing to its success. Dozens of books and hundreds of articles have been written, slicing and dicing LEGO in a variety of ways in order to probe its secrets. In the end, what exactly these secrets are remain elusive.

Case Discussion Questions

1. From a VRIO standpoint, what are LEGO’s resources and capabilities that contribute to its success?

2. From an industry-based view, how would you characterize the five forces governing competition in the toy industry?

3. What are some of LEGO’s weaknesses and potential sources of concern?