Class 11 Case Study LEGO B

IN 2004, LEGO NEEDS A TURNAROUND PLAN

Indeed for a strategic turnaround plan to be successful in this case, and really in any other case you really need to have
consistency, both in terms of the things that you are doing inside the organization in terms of how your strategy and
plan aligns and is positioned relative to the forces in the industry and in the broader environment. And of course it has
to be a plan that takes into account the role of time. A strategic plan is not going to be implemented all at once
oftentimes you need the buildup, certain parts of the plan, so that subsequent steps are able to basically take force.

WHAT MADE LEGO, LEGO?

So to get started on this front we quickly need to take stock of where it is that Lego should move forward to. And so I thought it
might be useful here for us to go back in time, once again, and to really think about what it is that lies at the essence of Lego. And
these, these old time commercials might, might go part of the way towards giving us a sense, a sense for this.

AS JORGEN, HOW WOULD YOU DETERMINE THE FOLLOWING FOR LEGO’S TURNAROUND?
Competitive Advantage?
RISPOSTE DEI GRUPPI
Lego major aspect are the brand, because the Lego brands was able to foster a strong connection with the consumer and also the
unique system of play that Lego propose because is a system of play that is very unusual and in this way by optimizing and making
more efficient it will be a major competitive advantage in the market.

Customer Scope?
RISPOSTE DEI GRUPPI
RISPOSTA: we should shift to a more stricked group of costumers and so move from the prospective of costumer to a much more
involve relationship with the retailer so that customers became the retailer and so they are able to discover this relationship that
they were missing in the past. So I think they should move to a closer interaction with the retailers.
RISPOSTA: the role of adult and parents because they also have a power and can influence.

Product scope?
RISPOSTE DEI GRUPPI
During this case they decided to narrow it down to the main core product in order to get read of all the extra products they
developed during 2004 and going back to the origin of Lego. Letting costumers already knew what kind of product they were going
to and also they went back to the aim of Lego products so develop creativity and allowd people to build new think that help them to
develop their young minds like in the case of children
JORGEN’S IDEA OF LEGO’S CORE
So clearly he is discussing the answers to these questions that as I said, don't seem especially profound. So if I can
paraphrase, paraphrase some of what he said. So what is his idea of Legos core?
• Competitive Advantage: High WTP for superior, branded build-and-play experience
• Customer Scope: Loyal fan base of all ages
• Product Scope: Brick-based products, not theme parks, videogames, or other peripherals

Let's think of a strategy to get us there. And this will largely revolve around identifying our resources and capabilities
that we're going to need for the new strategy to move forward. Identify which resources and capabilities need to
become the centrepiece of the new strategy
So we can think of this in a few different ways for the sake of today's analysis, let's actually think of this through a value
chain analysis.

AS JORGEN, WHAT WOULD YOU DO IN EACH PART OF LEGO’S VALUE CHAIN IN 2004?
Firm Infrastructure
• Sell theme parks and other assets for cash to get past crisis
• Invest in forecasting systems and processes
• Develop annual process for manufacturing and product management
• Promote inter-departmental meetings to negotiate component count and other issues
And this is really kind of a broader issue that oftentimes exists within creative industries especially; where you have the
kind of creative design, individuals kind of leading the charge on product development on the one hand. And then on the
other hand you have the manufacturing engineers who really care a lot more about things like efficiency, supply
management and all of these technical matters. And what oftentimes can happen is that these two groups do not see
eye to eye and you end up with pretty serious clashes that can basically bring an organization to its needs.

Human Resources
• Changeout senior team that didn’t have the same view on what it would take to be successful as Lego.
• Stop job rotations
• Decouple sales incentives from forecasts
• Recreate family-like atmosphere
We might also place another particular process that is the hiring of a psychotherapist as part of a cultural renewal within
the firm. Jorgen wanted to really reenergize the Lego culture, the family like atmosphere.
Jorden also provide the stopping of the job rotation program. The logic for the rotation program was to expose the top
executive to all of the different component of the organization which was quite complex. And the idea was that exposing
them to all these different areas would give them a kind of view of the forest rather than the individual tree and
therefore they should become more efficient at dealing within the entire organization. Cleary in alignment with the
strategy for simplification Jorgen said “nonono we have to simplify everything across the board” and therefore this job
rotation program is not necessary, Lego needs people with deep expertises and know-how within each of their domains
so they can create this collective working together to a much better degree.
Decoupling sales incentives from forecasts: So this was a policy that led to tremendous complexity both up and down
the supply chain. And so clearly getting rid of that led to a drastic increase in simplicity.

New Product Development

• Boost new products to 50%of SKUs and 60-70% of sales
• Establish strict processes for new product development
• Co-create new products with kids and parents
• Develop new products in four new departments
• Set a minimum “reuse rate” of components
• Focus on products that are “obviously LEGO but never seen before”

they streamline this product development process? they restyle old sets such as Duplos that they rebranded in a way
that customers didn't understand. So they took back the old line and they got back to what was the core ideas of Lego.
And they also reduced the collaborations with the external partners, such as star Wars. They focused more on what was
their brand capacity, their history.

So I want to say that for Lego, I feel like one of the most important things was innovation, but the problem with that was
that it wasn't really manageable. So what they did was to organize the team of product developers in two groups and
they say that it was really important to focus on continuing producing new teams but they were part of the lines, so the
product marketing development team was the biggest one and they're responsible for most of the products.
And then they create like a club that was a smaller and was responsible for more innovative things that were just a little
part of the sales.
I also wanted to add that they decided to focus the production of new items based on the market demand. So they
decided to look at the market at the consumers so that they could produce better things.
So they did all kinds of stuff. And all really with the intention of having all of this information trickle up to the managers
that matter. So indeed it was a kind of a comprehensive process in that regard.

Manufacturing
• Quickly cut component count to 5,000
• Increase inventory of shared components
• Decrease inventory of finished goods
• Develop systems to measure product profitability
In terms of manufacturing, indeed there was a quick move to cut component counts to down to 5,000. They increased
inventory of shared components right. That is having multiple products who shared the same underlying components.
And that the key here really was the development of systems to measure product profitability. Something that up to this
point had not existed within Lego.

Distribution/Sales
• Tailor value propositionsby customer
• Shift from push to pull distribution and manufacturing system
• Develop systems to measure customer profitability
In terms of distribution and sales. So they tailored the value propositions by customer. So you might remember that with
Walmart, they really focused on lowering prices with target, they focused on exclusivity and with “toys are us” they
focused on the breadth of products that were available. Really a shift from push to pull and distribution and
manufacturing and then again, this development of systems to measure customer profitability. So to really understand
how it is that the retailers were performing relative to each other.

Marketing
• Foster AFOLs and LEGO user groups
• Develop highly appealing website for kids
• Engage in deep customer research (e.g., sending designers to live with families for weeks)
In terms of marketing, again, we touch some of these things, which are related to new product development: fostering
of the fan groups, developing the appealing a website for kids was a significant part of this strategy to increase
engagement and of course, really carrying out deep customer research to understand the demand side in a much better
way.
And a big part of this kind of extensive process of simplification was to really help deal with the inherent complexity in
the industry itself.

So what are the two primary points of complexity within this industry?
There's a reason that simplifying the internal operations was so important, and that is because of two particular
complexities that existed within the industry.
• One of the main difficulties in the market is that the demand changes very quickly, especially because it's up to
kids. So they had to adapt to the changing market. On the one hand, the kids have relatively short attention
spans and therefore their preferences are constantly turning over so they're going from one preference to the
next.
 • And then tied to this is the complexity caused by the cyclicality of the industry, such that most of the sales come
during the holiday season.
And when we put both of these things together we really come to a deep understanding for why being able to reduce
the product development timeline to under 12 months really becomes quite important as part of this overarching
strategy across the whole firm to be able to serve this market.

JORGEN’S NEW VALUE CHAIN: INTERNALLY CONSISTENT (riassunto)

JORGEN’S TRANSFORMATION TIMELINE
Jorgen got the board to agree to a 7-year agreement to restructure and restabilizethe business.

It is not the case that all of these changes were launched at once. So, we identified the changes that were made in the
different parts of the firm. But there had to be a temporal sequencing to these changes. This is what we would refer to
as dynamic consistency, are these proposed strategic changes consistent across time.

MANAGE FOR CASH (2004-2005)

MANAGE FOR VALUE BUILD NEW CAPABILITIES(2006-2008)

MANAGE FOR GROWTH DEPLOY NEW CAPABILITIES (2009+)

So all in, I would say that bandage the temporal nature in which they organized the deployment of the strategy kind of,
you know, is fairly consistent, it's dynamically consistent.
IF YOU LOOK AT THE BIG PICTURE, WHAT WAS JORGEN REALLY DOING?

COUNTERING THE FIVE FORCES: EXTERNALLY CONSISTENT

So indeed it appears that that Jorgen was externally consistent with his strategy. So his strategy aligned and addressed a
lot of the weaknesses in the industry environment.

IN 2004, LEGO NEEDS A TURNAROUND PLAN

So I think we can agree that the plan, the turnaround transformation was externally, internally and dynamically
consistent. And so I encourage you to think about these qualities with your business ventures.