Name : Aditya Tri Sudewo

NIM : 29318428 – BLEMBA 2

Course : Business Strategy and Enterprise Modelling

LEGO’s Turnaround brick by brick

Question

1. Why did LEGO face bankruptcy in the early 2000s? in your reasoning focus on both external and
internal factors.
2. What is LEGO’s core competency? Explain
3. Apply VRIO matrix to show how LEGO Leveraged its core competence over both Hasbro and
Mattel since 2007 because it grew much faster. What explains LEGO’s competitive advantage?

4. In terms of revenue growth, LEGO experienced a competitive advantage over both Hasbro and
Mattel since 2007 because it grew much faster. What explains LEGO’s competitive advantage?
5. What must LEGO do to sustain its competitive advantage in the future? One avenue to tackle this
question is to think about diversification, both along product but also geography. Another revenue
is partnerships such as strategic alliances or even acquisitions. What lessons from LEGO’s past
should guide its future diversification?
Answer
1. Reason that LEGO face bankruptcy in the early 2000’s
a. External Factors
Five Force’s Porter Analysis
a. Competitive rivalry
LEGO has low concerns on its major competitors because there are limited competitors
in their industry. Furthermore, there are low switching costs in the toy industry. Rivalry
is LEGO’s strongest force, that LEGO has low concerns on its major competitors. Toy
industries is oligopolistic. LEGO company still exist until now (88 years exist) that’s
mean have a very strong customer loyalty. LEGO’s amount of rivalry has helped the
business to look for creation of its values via head to head competition. So I conclude
that Competitive rivalry for LEGO is HIGH.
b. Threat of Substitutes
LEGO’s products can easily to substitutes with others that can reduce the consumers.
LEGO main target is children and they fast to get bored with toys. As technology
advances into the digital, video games and electronics are widely available in the
market. Therefore consumers are able to substitute LEGO with ease. So threat of
substitutes is relatively HIGH.
c. Bargaining Power of buyers
Buyers are able to switch to alternative toys without paying a fee and with the
technology advancement. Bargaining power of buyers is HIGH.
d. Bargaining Power of Suppliers
Plastic is commonly used in toys and easily to get anywhere. There is an intense
competition within the suppliers to provide the ingredients at a competitive low cost.
 This allows LEGO to have an advantage to over the supplier to provide the high quality
plastic with competitive low cost. Bargaining Power of Supplier is LOW.
e. Threat of New Entrants
In order to enter to LEGO’s market, level of capital investment is required do research
and development to ensure safety of toys. Initial investment of production machineries
is also costly to producing the toys. Threat of New Entrants is LOW.
b. Internal Factors
 LEGO started hyper innovating and diversified into too many areas, too quickly, and
two far away from its core.
 Fail to patent LEGO brick as the advantage to competitors

According to external and internal analysis that already explained before, that’s the
technology era in 2000’s is the widely available in the market that make LEGO is easily to
substitute with other products and buyers have big power to choose the product. Not focusing on
the core product is also the reason that LEGO face bankruptcy. To many business segment that
LEGO take such as theme parks, etc.

2. LEGO’s core competency is LEGO had become master of the mould, By 2014 Knudstorp would
talk of the manufacturing of 30,000 individual components every minute, a staggering 25 billion
pieces every year. Each component manufactured with precision by world masters in moulding.

3. First tangible resources would be analyst under which the financial resources are valuable for
LEGO and rare to which provides it with competitive parity and competitive advantage. LEGO’s
trademark offers LEGO name a valuable resource and its innovative process are rare, valuable, and
very costly to imitate, therefore LEGO’s innovative production process offer it sustained
competitive advantage. LEGO has modern plants and facilities and location is valuable as it has
moved its production to countries that have cheaper production cost and located close to markets
but this resources is easily imitable and easily available.

Resource Valuable Rare Costly to Exploited by Competitive

imitate the Implication
Organization
Financial Yes Yes CP
Physical Yes Yes No Yes CA
Technology Yes Yes Yes Yes SCA
Organization Yes Yes Yes Yes SCA
Human Resource Yes No Yes CP

Innovation and Yes Yes Yes CA

Creativity
Reputation Yes Yes Yes Yes SCA
Organizational Yes Yes Yes Yes SCA
Capabilities
4. In the competitive toy industry, innovation remains critical to success. Focusing in the core product
and divested a number of assets including its theme parks that decreasing the cost, and drastically
culled 50% of products make the business start to raise. LEGO also create an online platform
community, that users can submit ideas for new products, on which other user vote. With licensed
with some Characters movies such as Star Wars, Indiana Jones, Harry Potter, Lord of The Rings,
Batman and etc. makes LEGO have another benefit to increase the Revenue. Keep focused on core
competencies and leveraging the core intellectual property. LEGO owned the intellectual property,
which meant that LEGO did not need to split profits with existing brands.

5. To create sustainability in competitive advantage in the future, LEGO should aim to target its open
innovation practices not only at Adult Fans of LEGO and end-users, but also at parents. Parents is
decision makers while buying toys, not only the child. By sourcing new products ideas from parents,
LEGO may be able to further expand the top of their product innovation funnel to better understand
what products interest both parent and child. LEGO also might consider capitalizing upon it’s
significant brick and mortar footprint to drive additional open innovation. Create additional
opportunities for creative input from its customer base through live contest, in-store customer
surveys that can ensure by capturing data not only from active online users, but also from retail
visitors to maximize opportunities.