The Lego Group is a Danish company producing toys based on elementary bricks to assemble. In 2014, Lego became the first toy manufacturer in the world after having been 2nd in 2013 and 4th in 2011.
It hasn’t always been like this. In 2004, it was even very close to bankruptcy after a too ambitious diversification strategy. In 1983, the company had diversified into theme parks, merchandise, and products a bit distant of the main entertainment produced by the construction and creative play.
Therefore, massive losses and decline in sales were recorded at the end of 2004, which led to the arrival of a new CEO, Jorgen Vig Knudstorp, former manager of Lego’s internal strategic planning unit. At this point, his role was to innovate the Lego business model in four key dimensions:
– Reduction of the product offer (number of inputs used for Lego products)
– Restructuring of the supply chain by substantial outsourcing and offshoring
– Opening up to customers by creating user communities
– Engaging in joint new product development efforts with major customers like Wal Mart and Toys’r’Us
As a result, Lego has known a double-figure growth in almost all the markets until 2013.
Last year, the company invested DKr2.6 billion ($478m) in production facilities and added more than 1,300 full-time workers, a 13% increase. It is expanding two existing factories – in Kladno in the Czech Republic and Monterrey in Mexico – and building two new ones – in Nyiregyhaza in Hungary and, most important of all, in Jiaxing in China.
Its management is being globalized too, with regional offices being opened in Singapore and Shanghai (as well as in London). The aim is twofold: to replicate in the rapidly growing east Lego’s success in the west; and to transform a local company that happened to go global into a global company that happens to have its head office in Billund (Denmark).
The company is now at an inflection point, building its organizational capacity and embracing globalization, to help it find new sources of growth.*