Rebuilding LEGO

After being on the brink of disaster in 2004, LEGO made a number of critical decisions around product innovation and user engagement that saved the company.

In 2004, LEGO was on the verge of collapse. At the time, it was an example of an organization that was highly ineffective due to misalignment between its operating model and business model. However, after making a number of important changes in product innovation and user engagement, LEGO executed an impressive turnaround and returned to the exemplary organization it had been prior.

LEGO’s business model is centered around its mission, “mak(ing) a positive impact…through our play materials and their contribution to children’s learning and development”(1). LEGO does this by offering a wide range of products, from preschool and children’s products to more advanced building systems such as LEGO Technic to its innovative digital and video game products. The possibilities and potential for creativity are within the LEGO system are almost endless. For example, there are 915 million ways to combine 6 LEGO bricks of the same color. In addition to how it creates and captures value, LEGO also shares value by demonstrating a commitment to “building a future where learning through play empowers children to become creative, engaged, lifelong learners”(2)through the LEGO Foundation. While for many companies social impact is something they pursue in addition to their core business or through a small subset of operations, LEGO is able to blend its social mission seamlessly across its business.

In some ways, LEGO still mirrors a traditional corporation. With regards to structure, its organization is divided into four strategic areas: Operations, Market Management and Development, Product and Marketing Development, and Business Enabling(3). With regards to its assets and capabilities, the company has made sustained capital investments to support distribution and quality of its products (0 product recalls in 5 years(4). However, beyond its organization and production capabilities, LEGO distinguishes itself by employing a number of unique processes that allow the company to continue to innovate and maintain customer-centrism in product development. One example of a unique process is LEGO’s ‘Executive Innovation Governance Group ’(5). After almost going bankrupt in 2004, one of the way LEGO was able to turnaround the company was by creating a process to strategically coordinate innovation efforts across the company. As product development and innovation is distributed across teams and functions, this process has become crucial in making sure that efforts are strategic and resources are allocated effectively. To complement robust oversight of the innovation funnel, LEGO has also taken various steps to engage it’s customer in the product development process. LEGO leverages the global community of LEGO users for extensive product testing. At the adolescent level, “only the products children vouch for reach final production”(6). LEGO also engages its passionate adult users, affectionately referred to as AFOLS (Adult Fans of LEGOs) by allowing them to get directly involved in product development through the ‘Lego Ambassador Program’.

In his 2013 book, Brick by Brick, David Robertson details a number of factors that contributed to LEGO’s fall from grace leading up to 2004. One of the most salient was a sprawling and fragmented product portfolio that did not actually appeal to the core consumers that were passionate about LEGO. They had also missed the perspective of an important customer segment by not paying attention to the resource they had in the AFOL community. The operating model was failing to support the mission and did not actually align. The new processes implemented to streamline innovation and engage users during the turnaround are an excellent example of a shift from an operating model that did not align to the business model to one that was well aligned with the company mission. This was clearly successful as the company was not only able to save itself from bankruptcy but has also been able to sustain double digit growth for the past few years coming out of the turnaround.

(1)2015 LEGO Group Company Profile (Denmark: the LEGO Group, 2015) p.3
(2)2015 LEGO Group Company Profile (Denmark: the LEGO Group, 2015) p.22
(3)2015 LEGO Group Company Profile (Denmark: the LEGO Group, 2015) p.7
(4)2015 LEGO Group Company Profile (Denmark: the LEGO Group, 2015) p.8
(5)David Robertson, “Innovating a Turnaround at LEGO,” Harvard Business Review, September 2009, p. 20-21
(6)2015 LEGO Group Company Profile (Denmark: the LEGO Group, 2015) p.12

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6 thoughts on “Rebuilding LEGO

  1. Interesting case, I used to love LEGO, pretty sure my parents still own a few dozen sets of mine somewhere… I tend to think of LEGO as a very customer-friendly organization but not necessarily an innovative one. How far do you think they can take this “materials and their contribution to children’s learning and development” model and apply it beyond their core competencies of plastic blocks? I know they have tried robotics, not sure if that is a huge part of their business today, I wonder where else they can expand to.

    1. Hey Jackson,

      Great question. I think that’s also the criticism with triple bottom line type models, that they can only be applied so far before you have to pick one corner of the triangle. In LEGO’s case, their next biggest move is digital. They attempted digital way back when processing power was still not quite commoditized. However, thanks to Moore’s Law, I think they’ll have a way easier time this time around actually creating an environment with the complexity that mimicks the physical LEGO catalog. They should still be aligned with their original mission if they can do it properly.

  2. Hey Jeremy, great post and awesome product! I’m not quite to AFOL status but played with them a lot as a kid.

    One of the things I thought was interesting about your post was your point about finding the core passionate consumer and figuring out what resonates with them. It reminded me of our Design Thinking practice of working with the extreme users of a product to figure out what they liked, presuming that their extremism would reveal things that might be more latent in a regular customer. I also would imagine that those few uber-fans drive a good bulk of their revenue.

    How much of Lego’s business is traditional Lego blocks versus other Lego “branded” products? Do you think Lego faces a threat from other children’s entertainment options on-screen with prevalence of apps, ipads, etc.? Or have those threats been around all along, in the form of video game, etc.?

  3. As a huge fan of Star Wars Legos growing up, it still gives me great pleasure when I go home to admire my collection of Legos sitting in my childhood closet. I thought it was really interesting how Legos was able to recover – I do remember seeing many articles about how they were distressed in the mid-2000s. To me, it seems like the two things they were able to do well was re-engage their consumer and focus on their core product portfolio. What has always surprised me about Legos is how they get their products to feel so much higher in quality than their competitors – do you think any competitors could create a viable product that would compete with Legos in their core business?

  4. Really interesting post. I totally agree with your points about the turnaround being driven primarily by this realignment of the operational and business models. In my view, one of LEGO’s core strengths has been their ability to adapt the brand across various mediums as technology has evolved. As you mentioned, there are LEGO video games, but also the LEGO Movie in my mind was pivotal moment for the brand. As the physical toy brand is able to brand out into video games and movies, it is no longer just an item to be stocked in FAO Schwartz, but instead can be considered more of a lifestyle simulation game (i.e. The Sims). In my opinion, this versatility is a core competency of the company that played a large part in their ability to recover as they did.

  5. Jeremy, awesome post; as a kid, I had converted our entire attic into a sprawling Lego town (with a statue of liberty, soccer stadium, train, etc.), spent many many hours there (all to say, I loved Legos). Interesting to think about the role of customer feedback in product development and innovation. What do you think is they key to good customer feedback? I imagine that there are more or less effective ways to get customers involved in the process. Do you think it’s better to get customers involved in creating actual product prototypes, or is it better to solicit their feedback once prototypes are already created, or both? I guess that’s all to say, do you envision scenarios in which customer feedback could not be as beneficial as Lego would hope, and what is the best way to maximize return on feedback?

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