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