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LEGO: Innovation of Business Strategy

LEGO

A Case Study

Problems and Issues Faced by the Firm and Leadership

  • The Lego Company faced its first financial crisis in 1998 and addressed the largest internal economic decline by 2004.
  • The Lego Group’s supply chain did not manage to follow the changing dynamics within the market and timely manufacturing. The issue of complexity affected the design, production, service supply of retailers, forecasting, and inventory control.
  • The restructuring program targeted at the cost-cutting strategy resulted in a staff reduction of about 10% of the total employees.
  • The company has a poor organizational strategy since there was an evident lack of monitoring of the engineering, manufacturing, and production costs processes.

SWOT Analysis of Strategy

SWOT analysis of LEGO.
Figure 1. SWOT analysis of LEGO.

Marketing Strategy

Four P’s

Product
LEGO is one of the most prominent leaders in the market that derived the maximum benefit from both its products and the marketing strategy (Rivkin et al., 2013). LEGO’s products are based on a strong culture of creativity and have a high-quality brick system.
Price
The company’s pricing strategy is targeted at middle-class families with children (4-12 years old). The high-quality materials and a complex production process promote the high price level of the LEGO toys. However, the prices remain reasonable to ensure that the company maintains its position in the market.
Place
While having headquarters in Denmark, LEGO has no problem opening new retail stores worldwide. The majority of toys are available at popular department stores, amusement parks, and even small local toy stores (Rivkin et al., 2013). The company has several distribution centers in Europe and Asia.
Promotion
LEGO uses unique marketing strategies to promote its products. The most popular approach implies using LEGO sets where toys are linked to a specific phenomenon in pop culture (Batman, Star Wars, etc.). One may also establish a premium account with LEGO to gain access to additional privileges.

PESTEL Analysis

Macro Force Rationale
Political LEGO has to consider the local political issues to succeed in the market since changes in the political environment could be either detrimental or advantageous to the company’s future.
Economic The company improves the domestic economy and creates opportunities for external businesses. For instance, the US market majorly benefits from collaborating with LEGO through movie production and pop culture references.
Social LEGO ensures that its products are accepted by the market and consumers concerning that a good image of the brand is a key to its marketing success.
Technological LEGO adjusts its practices to the latest innovations in order to maintain its strong competitive position in the market.
Environmental The company tries to manufacture toys and other products that are not detrimental to the environment. LEGO’s waste system is one of the most innovative in the industry.
Legal LEGO does not break any laws to protect the brand portfolio and follows the market rules properly.

Recommended Courses of Action

Improve Online Communication

The first step toward an improved organizational strategy would be to work on LEGO’s social communication, both online and offline. It is vital to include more initiatives aimed at the ability to increase customer engagement and build a stronger community with a focus on the parents’ population. LEGO might create a database of parents who would establish a community of loyal customers and engage in open discussions concerning the development of creativity, new ideas, and effective ways of applying LEGO blocks in education and other spheres of children’s development. Such a strategy can enhance the company’s relationships with customers and validate the existing price tags.

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Focus on Supply Chain and Cost

Considering the company’s failure with supply chain management, cost-cutting should be the primary objective of the Lego Company. This step might involve the assessment of the general procurement process, as well as the reduction of the suppliers. Therefore, this strategy can reduce costs significantly and provide high-level savings for the company annually. In addition, the Lego Group can implement an outsourcing approach in order to save production costs. Finally, referring to the seasonal nature of Lego’s toys, it should have a flexible supply chain to manage its international manufacturing process more efficiently and focus on the association with Flextronics. Hence, this can help in avoiding the staff reductions that happened during the restructuring program.

Reconsider the Organization Strategy

The manufacturing and distribution sites should be located close to the biggest markets of the company. This would reduce the delivery period and have a beneficial impact on delivery costs. The complexity issue that Lego faced can be eliminated by the removal of a niche market. The flexible and eased level of products’ complexity might promote using more common Lego’s parts in terms of the product range. The company should reorganize its purchasing norms, lessen the number of suppliers, improve business communication, and advance the management of innovation costs and product development. To conclude, the Lego Company should not participate in supplementary and not-profit-making enterprises and prioritize the production that makes a profit. Lego can re-establish its leading position in the market by implementing a reliable and innovative business strategy and critical changes based on the analyzed weaknesses and issues that led to the financial crisis.

Reference

Rivkin, J., Thomke, S., & Beyersdorfer, D. (2013). Lego (A): The Case. Harvard Business School. Web.

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