Bricks & Code: Open Innovation at LEGO Group

The iconic toymaker LEGO Group faces a crisis in the mid-2000s as increased competition and changing consumer habits threaten its business. Turning to its passionate customers, LEGO uses open innovation to reimagine its product development process and catalyze radical change within the company.

In 2004, LEGO Group (LEGO) was in the midst of a crisis. On the verge of bankruptcy, the iconic company had produced a series of new products that failed to excite customers. In addition, LEGO was facing fierce competition from other toymakers, and, increasingly, their core customers – boys aged five to nine – were turning to video games and online activities at earlier ages. To survive, LEGO realized that it needed to improve the effectiveness of its product development process. Only by radically reimagining and speeding up the process could LEGO hope to create breakthrough new toy ideas and save the company.[1]

LEGO soon realized that it had an untapped resource – its adult customers. Adult fans of LEGO were passionate about the products. For example, after LEGO released a brick-based robotics kit called Mindstorms aimed at children, adult fans hacked the software code and made their own modifications. Within LEGO, there were diverse opinions about how to react to customers changing products without permission. In the end, the company decided to embrace open innovation and collaborate with customers on new products.[2]

For the next iteration of Mindstorm called Mindstorm NXT, LEGO incorporated fans with expertise in sensors and software into the product development process. After Mindstorm NXT launched, the company credited its success to the involvement of its fans.3 To increase fans’ involvement, LEGO also introduced an Ambassador program that provided a direct way for the company to access new ideas from its community. A new platform named LEGO Cuusoo was also launched to allow fans to upload product designs. If a design received 10,000 votes from community members, LEGO agreed to consider it for possible production. This process maximized the possibility that a new product would have mass appeal.[4]

Accessing customers through open innovation provided a number of benefits for LEGO. The company gained access to external knowledge and expertise not available internally. As new products often fail, collaborating with customers helped the company to increase the chances that a new product would appeal to customers and, therefore, limited risk. New products created with users also expanded the LEGO play experience by exposing the company to possibilities that had not previously been conceived internally.[5]

LEGO continues to foster open innovation by testing ideas and concept experiences through pilot projects. The company recently launched its first pilot to test a new product called LEGO FORMA “designed for adults looking for looking for creative activities” on Indiegogo, the crowdfunding platform.[6] Through the pilot, LEGO hopes to determine whether there is an appetite and market for a new kind of product that allows customers to “create artistic interpretations of plants and animals.”[7] In the medium-term, LEGO will run various pilots in different locations and formats to crowdsource new ideas and get feedback from its community on whether product concepts should be developed and scaled. LEGO hopes that “this more transparent approach to product development” will limit risk, “accelerate innovation by validating and iterating new ideas,” decrease the time it takes products to go to market, help the company create distinctive product launches, and access new markets.[8]

Despite a decade of impressive growth, LEGO has faced declining sales in the last year, reporting a drop of 7% in 2017, which forced the company to cut 8% of its global workforce.[9] Since 60% of its product line changes every year, LEGO needs to focus on creating innovative products now more than ever. As trends in toys change rapidly, LEGO must find new ways to identify “the themes that are cool and right for kids,” as the new CEO remarked recently.[10] Open innovation at LEGO to-date has focused on harnessing the creativity and enthusiasm of adult fans. In the short and medium term, the company will need to learn how to collaborate with children and their parents to understand what they want in their play experiences. LEGO may need to explore the creation of new platforms to engage children in their product development process. The company may also wish to consider a design thinking approach that involves interviewing children and their parents as well as observing them as they play with LEGOs and other toys from competitors.

Currently, LEGO faces challenges navigating the worlds of digital and physical play, especially as children increasingly turns to smartphones and tablets. How might LEGO harness the power of its community to address these challenges? How can LEGO stay true to its identity as a toymaker of physical bricks while also expanding that experience into digital worlds? As LEGO moves into new geographic markets, particularly in Asia, how should the company engage and collaborate with new customers? Does LEGO need to reimagine any of its current open innovation processes to reach new fans and create products that appeal to children in these markets?

(Word count 795)

Endnotes
1. Jonathan Ringen, “How LEGO Became the Apple of Toys,” Fast Company, June 15, 2015 [https://www.fastcompany.com/3040223/when-it-clicks-it-clicks], accessed November 10, 2018.
2. Henry Cherbourgh, “Bringing Open Innovation to Services,” MIT Sloan Management Review (Winter 2011, Vol. 52 No. 2): 88
3. Karim R. Lakhani, Hila Lifshitz-Assaf and Michael L. Tushman, “Open innovation and organizational boundaries: task decomposition, knowledge distribution and the locus of innovation” in Handbook of Economic Organization: Integrating Economic and Organizational Theory, edited by Anna Grandori (Northampton, MA: Edward Elgar Publishing Limited 2013) 386 – 371
4. Yun Mi Antorini, Albert M. Muñiz, Jr. “The Benefits and Challenges of Collaborating with User Communities,” Research Technology Management (May-June 2013): 22
5. Yun Mi Antorini, Albert M. Muñiz, Jr. and Tormod Askildsen, “Collaborating with Customer Communities,” MIT Sloan Management Review (Spring 2012)
6. “LEGO Creative Play Lab Takes Pilot Project to Indiegogo for Open Innovation” LEGO Press Release on LEGO website, September 27, 2018, [https://www.lego.com/cs-cz/aboutus/news-room/2018/september/lego-forma], accessed November 11, 2018.
7. “LEGO Creative Play Lab Takes Pilot Project to Indiegogo for Open Innovation” LEGO Press Release on LEGO website, September 27, 2018, [https://www.lego.com/cs-cz/aboutus/news-room/2018/september/lego-forma], accessed November 11, 2018.
8. “LEGO Creative Play Lab Takes Pilot Project to Indiegogo for Open Innovation” LEGO Press Release on LEGO website, September 27, 2018, [https://www.lego.com/cs-cz/aboutus/news-room/2018/september/lego-forma], accessed November 11, 2018.
9. James F. Peltz, “New LEGO CEO takes on rebuilding the battered toy company, brick by brick,” The Los Angeles Times, June 13, 2018 [http://www.latimes.com/business/la-fi-lego-toy-troubles-20180613-htmlstory.html], accessed November 11, 2018.
10. James F. Peltz, “New LEGO CEO takes on rebuilding the battered toy company, brick by brick,” The Los Angeles Times, June 13, 2018 [http://www.latimes.com/business/la-fi-lego-toy-troubles-20180613-htmlstory.html], accessed November 11, 2018.

Previous:

Baidu: Using Machine Learning for Voice Cloning to Get Closer to Consumers…All In Just 3.7 Seconds!

Next:

Machine Learning in Drug Discovery

15 thoughts on “Bricks & Code: Open Innovation at LEGO Group

  1. Great article! Very interesting to see that digitalization is really threatening all industries, even the toys/ games!
    I agree that it will be challenge to engage the new generation for off-line activities. My suggestion would be focusing on parents! LEGO is still a very strong brand among adults and I believe that most parents see the value of LEGO in their children development. I would focus my communication and promotional activities to capture parents and I would also involve them in the open innovation processes. I would like to hear their needs and concerns related to their kids recreational activities.
    In addition, I would do a PR effort to communicate in the media the benefits of children playing real games instead of staying connected all the time.

  2. I found the idea of crowdsourcing product development very interesting. I think LEGO has shown an ability to produce popular content outside of traditional LEGOs (for example the LEGO movies and TV shows). I would apply crowdsourcing to those models as well. For example, you could crowdsource ideas for the next show or movie theme.

  3. The concept of dedicated users hacking the Mindstorms’ code reminds me a lot of the modding community found in the video games industry, as discussed in our LEAD case on Valve. Occasionally, talented modders are actually hired by video game developers to design future games, therefore also representing a form of crowdsourced innovation.

    I see Lego’s process here mimicking that trend, which I think might encourage younger audiences (along with adults) to participate more with the LEGO brand in the future. The entire experience becomes much more interactive, and products like Mindstorms can achieve a significantly longer period of relevance, because they can be used for applications far beyond original intentions. Creating these interactive channels can create a long-lasting loyalty among customers, which may be ideal for LEGO as it considers its strategic vision in lessening the impact of recent financial woes. It may also create some stability by mitigating the risk that new product launches will be losers, since they are already tested.

  4. Nice article! I agree that it is critical for Lego to appeal to the younger demographic as to create a longer customer lifetime value. As there is a trend towards parents reducing the amount of screen time they allow their kids to have – this could be a way of targeting parents to reach the younger population. It may be beneficial to look into using open innovation to explore ideas on what is important to parent for the development of a kid – perhaps adding a educational aspect to the Lego experience.

    Also, it would be interesting if kids would be able to send in drawings of the sort of structures they would like to see Lego come out with – or perhaps collaborate with other kids digitally through a sort of Lego network to have a structure come to life.

  5. Thanks for this! I agree that Lego needs to adapt to the digital age if it is going to remain relevant. I think crowdsourcing can absolutely be used in solving this issue. For something like new product development, I’d like to see Lego use some additional types of crowdsourcing. One example is running contests for ideas and paying the group that wins, better ensuring that you get quality answers to your product development question.

  6. This is a very interesting read. As one of the mindstorm user, i totally see the appeal to be involve in the development process of the toy. I think the same can be applied to the innovation with electronics screen. Can collaborate with 3rd party developer or offer open source agreement for developers to develop apps with Legos. I could see this has a huge potential.

  7. Before reading this I had no idea that LEGO was struggling so much to innovate, but now I understand how disruptive the digital economy has been to companies like LEGO. As I read through this I am curious if you came across any information (my hypothesis is that you probably did not) about how much “momentum” an idea must receive for LEGO to consider it worth pursuing. In other words, what is their open innovation evaluation framework. Additionally, perhaps I have a pessimistic view on this, but even with the open innovation work that they have been executing, their sales are still suffering. This makes me wonder to what extent LEGOs as a toy are going to be around for much longer. Technology for Generation Z has become so widespread that I am wondering if LEGO is going to be able to tap into that market enough in this growing age of technology to be successful in the long term. To one of the comments above, I wonder how LEGO can transform their product offerings to be more digitally focused.

  8. To the comment above, I am curious to see the difference between ‘hype’ which you can get from these type of contests and lasting product that people love. My concern is that even with 10,000 votes they may not be capturing an entirely representative sample of the population, especially for young children. To Matt’s point, I feel that the reason mods work well in the video game industry is the continued innovation over time and proof of longevity – DotA for example which was a mod to Warcraft III didn’t get picked up by Valve until several years down the line. Given Lego’s model of a large amount of SKUs, my concern may not be valid as it is possible that they can survive by just keeping up with hype.

    I feel that your point on the intersection of digital and phsyical play has great potential – finding an innovation here that creates a step change in how children play can revitalize LEGO. Open innovation here coupled with design thinking as you mentioned can be the key to unlock a new way of play and perhaps they should be focusing on these big bets instead of incremental improvements.

  9. Great article! I had no clue Lego had turned to open innovation for product development and product improvement.
    I believe that Lego can further expand its reach and attract bright minds and great ideas but creating some form of award for the best innovative ideas. For example, for a person that comes up with an idea, Lego can use a crowdsourcing form of voting for the idea. If the ideas get enough traction, Lego can select the top ideas and provide some sort of monetary benefit to these inventors. In addition, it can implement these ideas and the one with the highest ROI in a year time period could receive some sort of certificate, or additional monetary rewards (if only one idea was implemented, if the ROI crosses some sort of threshold, we can reward the person).

  10. I find the idea of open innovation with product development fascinating. In the above article the idea of limiting risk was raised. I wonder though if this is always the case? I assume Lego is sourcing from across customer bases and validating the ideas that were crowd sourced. But I could see a world where the company looks externally for ideas, sees some emerge and runs with it – to find that the specific toy idea only made sense in a niche market for those few people who submitted the idea. I am also grappling with the idea of trend spotting and data which we have discussed in marketing. Do consumers really know what type of toy they might want? Or are they looking at companies like Lego to tell them and create new and exciting toys?

  11. Thanks for sharing! This article made me consider which types of companies open innovation is useful for and for whom it might be a false signal. Like we saw with LEGO, perhaps crowd-sourcing from power users actually causes them to develop products for the wrong target audience. I also wonder whether more broadly it makes sense for a company to use open innovation if they are losing buyers, since they will likely just appease the people who already love their products versus understanding why people aren’t using LEGOs. It reminds me of IDEO interviewing ‘extreme’ users — it’s important to understand both why people love your product as well as why people don’t use your product. Perhaps it could be a useful tool for idea generation but they’d just want to make sure they balance that with other methods of understanding user behavior and requests.

  12. great article. With the recent bankruptcy of “toys R Us” and some of the other toy retailers, it is evident that the overall industry is in decline. Companies that want to survive in this environment will certainly need to be hyper-focused on the exact characteristics of customer demand and one way to do that is through open innovation.

  13. Bruno – great essay. I was a huge fan of LEGO as a kid and it’s exciting to see them reach out to their fans for product design innovation with Cuusoo. I wonder if they can turn this into an annual contest in the hopes of receiving earned media attention. A poster child for this has been Pepsico’s Lay’s “Do Us a Flavor” campaign, which has run for four years now [1]. I have to imagine that LEGO has the right combination of 1) a loyal and engaged fan base and 2) efficient go-to-market capabilities (given that 60% of their product line turns over each year) to make this a success.

    [1] Pepsico.com. (2018). Get Your Pitch On! Lay’s “Do Us A Flavor” Seeks America’s Next Great Potato Chip Flavor And Celebrates The Stories Behind The Flavors With $1 Million Award. [online] Available at: http://www.pepsico.com/live/pressrelease/get-your-pitch-on-lays-do-us-a-flavor-seeks-americas-next-great-potato-chip-flav01102017 [Accessed 15 Nov. 2018].

  14. Thank you for the great article. I did not know Lego used open innovation for the product development. I wonder the sustainability of open innovation, and how company does not lose its identity as it crowdsource the data from outside.
    I also have an article to share about Lego’s perspective on their product development. ((https://www.redassociates.com/press-1/2015/8/18/strategybusiness-legos-serious-play). It talks about how Lego behaves more like an anthropology department. It mentions how Lego has attacked the question of why we play from many angles, including watching kids’ brains under an MRI to see which parts light up when playing with different toys. I think if Lego successfully define what “play” means to the kids and adults customers, it can find an opportunity to mingle digital and physical to create the value for the customer.

  15. Very well done! I really didn’t have a clue that Lego was struggling at all – I’ve always assumed it was a cool brand, probably due to having wonderful childhood memories with it – I personally think Lego’s success was pretty much associated with its capacity to utilize creativity in different angles. I think this principle could be applied in here. Although I still believe that it is pretty challenging to replace the true joy of playing with an actual physical toy, it is also a clear fact that the digital disruption is taking over in children’s life. Lego can also expand in that category – for instance introducing its own tablets and electronic games that brings the Lego-style with technology, and support this with crowdsourcing.

Leave a comment