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EXECUTIVE DIPLOMA IN MANAGEMENT

(ADMINISTRATION & OPERATIONS)


AND
(HUMAN RESOURCE)

GROUP ASSIGNMENT :
‘THE LEGO GROUP’

COURSE CODE : UESH 1101

COURSE TITLE : INTRODUCTION TO MANAGEMENT

MATRIC NUMBER : UFA 150179 ( SUKMAWATI AKWA ABD AZIZ )


UFA 150138 ( FAEZAH NOOR MOHD FOUZI )
UFA 150140 ( HAMIMAH MOHD YUSOF)
UFB 150062 (SOFIA ZAHRAH NORMAN)

CLASS : UFA AND UFB 416

LECTURER : SYAHIRAH MOHD BAKI

1
BACKGROUND

Before the 20th century children had few toys and what they have were precious.
Furthermore children did not have much time to play. Only a minority went to school but most
children were expected to help their parents doing simple jobs around the house or in the fields.
They also played with toys like dolls, toy soldiers, wooden animals, ball, marbles, spinning tops
and knuckle bones (which were thrown like dice). This was when the toys commercial industry
started.
LEGO Group is a privately, family-owned company founded in 10 Aug 1932 in Denmark
by a carpenter, Ole Kirk Kristiansen. It started in a carpentry workshop during the early 20 th
century; manufacturing stepladders, ironing boards and wooden toys such as piggy banks, pull
toys, cars, trucks and houses. However, the demand in his products were fallen sharply during
the global financial crisis.

Ole needs to find an alternative to save his business. He found out that there are high
demands on production of wooden toys even during the hard times. His son, Godtfred Kirk
Christiansen started working with him since the age of 12 as his principal assistant.

Having to launch a toy production, Christiansen started looking for a name of his new
company. He gathered his employee and in the factory to suggest a future company’s name.
There were many ideas, but in the end, he chose the name that came up with himself – the
word LEGO, which is derived from Danish leg and godt, which together mean “play well.” A few
years later Ole learned that the phrase LEGO means “I put together” in Latin.

There were only 7 employees working at LEGO. They were all carpenters who are
passionate and derived great pleasure from creating new things. They were very particular
about the quality of the product. The LEGO factory was burned to the ground; however, the
production of wooden toys is quickly resumed. It became clear that LEGO would deal only with
toys. Over the next several years, the company grew exponentially that it reached 40 people in
1943. One year later, the company were finally officially registered as “LegetOjsfabrikken
LEGO Billund A/S”.

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In 1947, they started to produce plastic toys and obtained samples of inter-locking bricks
originally designed and patented by Hillary Page from Kiddicraft.
Godtfred and Ole (first owner of LEGO and his son) seem to have a special love to
traffic. Before they invented the LEGO System in Play, they made a traffic game and came out
with LEGO with the board game Monopoly, a game based on safety in traffic. The poses off the
policeman of set '1271 Traffic police' are based on this game from 1947.
In 1947, they began to produce similar bricks (red, yellow, blue, green, black and white)
inspired by Hillary’s bricks, called Automatic Binding Bricks and renamed it to Lego Bricks five
years later. However, the LEGO Bricks weren't selling very well, because the bricks don't attach
good and the color weakened after a while. The first Bricks were made of Cellulose Accetaat.
(CA).
After further developing the LEGO Bricks, the company launches the revolutionary
"LEGO System of Play". The first Lego System of Play Complete set sold in Sweden in 1955.
It was not until 1958 that the modern-day brick design was developed. The bricks were
improved with hollow tubes in the underside of the brick. This added support in the base,
enabling much better locking ability and improved versatility. The product was patented in 1958.
In the same year, Kirk passed away and Godrfred became the head of the LEGO Company.
Godtfred saw the immense potential in Lego bricks to become a system for creative play, but
the bricks still had some problems from a technical standpoint: their "locking" ability was limited,
and they were not very versatile. 
The use of plastic for toy manufacture also was not highly regarded by retailers and
consumers of the time. Many of the Lego Group's shipments were returned, following poor
sales; it was thought that plastic toys could never replace wooden ones. Despite such criticism,
however, the Kirk Christiansens persevered. 
Another warehouse fire struck the Lego Group in 1960, consuming most of the
company's inventory of wooden toys; fortunately, the Lego brick line was strong enough by then
that the company decided to abandon production of wooden toys.
In 1968, they opened their first amusement park, Legoland in Billund. Since then, Lego
expanded into new areas of toy making and marketing, by introducing Lego wheels, Lego
Airways, train set and their first mini figures/maxi-figs 1970’s.

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Their products and services includes:

o Lego Video games


o Lego Board games
o Lego Serious Play consultant services
o Amusement park (Legoland)
o Retail stores

Their closest competitor for their flagship product (Lego Bricks) is Mega Blok from
Mattel. Other than that are:

o Mattel
o Hasbro
o Bandai
o TOMY/Takara
o MGA Entertainment

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MANAGEMENT FUNCTIONS

1. Planning

Among the mission in Lego Group, is to describe its ultimate purpose. The company would
want to inspire and develop children to be more creative in terms of thinking skills. The children
will have reasons to systematically and release their potential to create and shape their own
future that is “experiencing the endless human possibility.

Pioneering new ways of playing play materials, business models of play and inventing the
future play is a few list of Lego Group mission statement. This is by any means will leverage,
globalizing and digitalize on children’s toys.
Lego Group brand values are as per below;
 Imagination
 Creativity
 Fun
 Learning
 Caring
 Quality

Every company worldwide has a future goals, this is definitely includes one of the largest toy
company Lego. They have however seen the company growth tremendously over the previous
5 years and sales have increased by double-digit growth rates in the last few years. Thru this,
growth goals have been determine by the company among the goals it would be increase
market share in USA, increase market share in Eastern Europe, invest in emerging markets,
and develop innovative new products and also to expand direct to consumer activities.
The Lego Group had also planned to create growth in expanding the LEGO education. They are
also in the mists to prepare the educational materials for preschools, schools and also
educational institutions all over the world.

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2. Organizing

Organizing is the function of management that involves developing an organizational


structure and allocating human resources to ensure the accomplishment of objectives. The
structure of the organization is the framework within which effort is coordinated. The structure is
usually represented by an organization chart, which provides a graphic representation of the
chain of command within an organization.

Organizing also involves the design of individual jobs within the organization. Decisions
must be made about the duties and responsibilities of individual jobs, as well as the manner in
which the duties should be carried out. Decisions made about the nature of jobs within the
organization are generally called “job design” decisions.

Organizing at the level of the organization involves deciding how best to departmentalize, or
cluster, jobs into departments to coordinate effort effectively. There are many different ways to
departmentalize, including organizing by function, product, geography, or customer. Many larger
organizations use multiple methods of departmentalization.

Organizational Structure

The LEGO Group consists of several subsidiaries, including LEGO® Education. 75% of the
Group is owned by the third and fourth generations of the Kirk Kristiansen founding family, Kjeld
Kirk Kristiansen and his three children, through their investment company KIRKBI A/S. The
remaining 25% is owned by the LEGO Foundation. Kjeld Kirk Kristiansen functioned as
President and CEO of the LEGO Group from 1979 to 2004 when Jørgen Vig Knudstorp
succeeded him as President and CEO of the LEGO Group. Today the LEGO Group
Management Board represents four strategic business areas: Operations, Market Management
and Development, Product and Marketing Development, and Business Enabling

Operation team will be responsible for the procurement, planning, manufacturing,


processing and distribution of LEGO products. They will be focusing on the operations
capabilities across the LEGO Group. Commercial functions of the Lego Group like product
innovation, research and development, marketing effort, market operations, sales to customers
and consumers are under the responsibility of the marketing team. They will combine the

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current functions in CED (Communication, Education and Direct) and M&P (Market and
Products). ‘Business Enabling’ will be responsible for supporting the overall business of the
LEGO Group. This new area will mainly comprise functions from the current CC (Corporate
Centre) and CF (Corporate Finance).

 LEGO Organizational Chart

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 LEGO Management Board

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3. Leading

When Jorgen Vig Knudstorp took over as the CEO of LEGO in 2004, things were not looking
good in this well established, family-owned business. For the next 5 years, he turned the
company around under his leadership. He created a new vision, build better relationships with
employees and customers, empowers employees to make decisions at all levels of the
hierarchy, and, at the same time introducing tight fiscal controls.

“Knudstorp exercised a style of leadership called strategic leadership. Strategic leadership


enhanced the long-term viability of their companies through the articulation of a clear vision and,
at the same time, maintained a satisfactory level of short-term financial stability. And they
accomplished this while maintaining relatively smooth day-to-day operations” (Rowe & Nejad,
2009)

According to MSG Management Study Guide on Strategic Leadership – Definitions and


Qualities of a Strategic Leader paragraph 1 :
“Strategic leadership refers to a manager’s potential to express a strategic vision for the
organization, or a part of the organization, and to motivate and persuade others to acquire that
vision. Strategic leadership can also be defined as utilizing strategy in the management of
employees. It is the potential to influence organizational members and to execute organizational
change. Strategic leaders create organizational structure, allocate resources and express
strategic vision. Strategic leaders work in an ambiguous environment on very difficult issues that
influence and are influenced by occasions and organizations external to their own.”

The main objective for this type of leadership is strategic productivity. Strategic
leadership develops an environment in which employees forecast the organization’s needs in
context of their own job. Strategic leaders encourage the employees to be creative and follow
their own ideas. They use reward and incentive motivation to encourage their employees to
perform better. This type of leadership requires the leader to have the ability to think outside the
box or at the broader picture.

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He implemented a culture based on openness, trust and their core values are creativity,
imagination, fun, learning, quality and care. Their People Promise enables the execution of their
business strategy. It defines why people should choose and commit their best to the
organization. There are four pillars defining the Lego employees:

1) Purpose Driven
Experience pride, commitment and shared sense of responsibility to deliver our
mission

2) Systematic Creativity
Combine your experience and imagination to find the best solutions – now and in the
future

3) Clutch Power
Feel part of a family and collaborate across the global LEGO community

4) Action Ability
Be accountable, deliver what you promise and unlock your talent in the best interest
of the company

The Lego Group went through a major organizational change since 2005. They
experienced significant growth where the number of employees rises from 3,500 to 10,000. In
2011, Lego Group expanded their Corporate Management team that was originally 6 to 22
members.
Jørgen Vig Knudstorp says they reduce the number of organizational layers and thus
flatten the organization; which allow them to achieve both a broader and a deeper perspective
on the realities of their business. It makes it simpler and faster to make decisions, the main key
to increase their adaptability in the business.

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4. Controlling

The LEGO group uses the balance scorecard (BSC) as their performance management
tool. The balance scorecard was originated by Robert Kaplan and David Norton as a
performance management framework. It is a strategic planning and management system that
can be used by managers to keep track on their employee’s performance. Employer will be able
to control and monitor the consequences from the action taken by employees. LEGO BSC
provides a broad picture of an organization’s heath from 4 perspective:

 Financial – Increase market share


 Customer – Customer Intimacy
 Internal – Making internal products
 Learning and Innovation – Personal Development

Christian Iversen Vice President of Global Human Resources, LEGO Company Global
toy maker, The LEGO Group says “The performance management programme at LEGO is
much more than just a performance and bonus system. It is a development tool that builds the
desired competencies along with rewarding performance.”
The LEGO group was determined that a change in the senior executive reward strategy
would help them to improve, and sustain, business performance. Business success is reliant on
a number of activities, which all need to be considered, so the balanced scorecard is based on
three closely linked domains of financial performance (measured as economic value added),
brand value and people.
The first perspective of LEGO balanced scorecard – Customers, shows how LEGO
Group should appear to its customers and the goal they want to achieve is customer intimacy.
Through this they want to get closer to the customers by improving and adaptation of products
to the customer’s needs. If customers is not satisfied they could find someone else who will
meet their needs, so in this way the quality plays a big role.
For the LEGO Group, quality means a challenging to deliver the best toys that provide
children with exceptional opportunities to learn and develop. For example, over the past 7 years,
the LEGO Group has experienced with only two products recalls in total, and in 2010, no
product recalls were made. This demonstrates how the constant focus on quality and product
safety creates value for the company and customers and in the coming years the LEGO Group
tries to avoid any recall

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In 2003 and 2004 LEGO announced losses of over $400 million dollars on annual sales
of just over $1 billion. The reorganization plan announced in 2001 had begun to falter. The
company was forced to take a hard look at every facet of the operation including costs,
overheads, margins, sales, marketing and the product offer.
Lego suffered critical issue is incumbency, a failure to adapt the business model and
product offerings with industry-relevant changes and adjacency failure or expansion that is not
in accordance with its core so that the positioning of Lego in the industry becomes unclear and
got a less positive market response, especially Lego management also did not have sufficient
experience in venture-new venture
Non-performing assets, including the company's LEGOLAND parks were sold off. A
radical plan for recovery and growth was introduced.
Since then company revenues have increased from $1 billion to $4.5 billion [2013] and
profits have soared to $1.5 billion before tax. The company's share of the world toy market has
doubled from 2% in 2004 to over 5% in 2012. LEGO has overtaken HASBRO as the second
largest toy manufacturer in the world.
In 2015; for the first time ever, LEGO had surpassed Mattel to become the world’s
largest toy maker.

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SWOT ANALYSIS
1. Strength

a) Market Leader

Lego as a market leader has them on ways to boost up their names. Meanwhile,
big toy makers like Hasbro, Mattel and Spin Master have also turned to construction toys
to help bolster their sales. As for smaller companies like the Bridge Direct, Cobi and
OYO Sports have entered the field, putting more pressure on Lego. People’s interest in
construction toys has even led to a secondary market of brick rental. Lego’s competitors
say they want to distinguish themselves from their biggest rival. Another competitor,
MEGA Brands, a subsidiary of Mattel and Lego’s closest rival, goes “above and beyond
the squares and rectangles to compete against Lego.

b) Innovative Culture

LEGO remains one of the most innovative companies in the world. It’s not just
that the company has been buoyed by the success of the new blockbuster LEGO movie,
which pulled in a whopping $69.1 million, the company however has consistently
remained one step ahead of the innovation curve, releasing new products and finding
new ways to engage users of all ages with its tiny, plastic bricks. Most importantly,
LEGO is not afraid to experiment with emerging new technologies to extend its brand
from the world of physical play to the world of digital play. This is important because the
current generation is growing up as the first all-digital generation. They are growing up
with tablets and smartphones and expect to use them everywhere they go. That means
searching out relevant technologies that are both relevant and complementary to the
basic LEGO brick. The company has created a line of programmable robots, such as the
R3ptar, that bridge the gap between physical play and virtual play. LEGO began
releasing its DIY Mindstorms kits, people have been increasingly able to assemble
robots, program them via computer, and then control them via a combination of
Bluetooth, downloadable apps and voice commands. It’s now possible for a child under
the age of ten to get an introduction to programming in a way that’s fun and intuitive.

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c) Supply Chain

To rebuild profitability, the company had to refashion every aspect of its supply
chain. That meant eliminating inefficiencies, aligning its innovation capacity with the
market, and re-gearing to compete in the new big-box world. This was no small matter
for the Lego Group, which by the time CEO took the helm in 2004, had grown to roughly
7,300 employees, working mostly in two factories and three packaging center, each in a
different country turning out more than 10,000 permutations of its products packaged in
hundreds of configurations.

The company’s leadership team recognized that even though transformation


would be painful, it was imperative. Diagnosing the Problem -the symptoms of a
dangerously misaligned supply chain can be deceptive. At the Lego Group, for instance,
it took many years of underperformance before the company realized that the supply
chain was a major source of its difficulties. What made those problems especially hard to
identify was that they grew out of the company’s core strengths: its capacity for
innovation and its commitment to quality. Those were the very advantages that the
company’s leaders had relied on at first to reverse the profitless streak, hoping the
company could innovate its way out of trouble. From the mid-1990s through 2004, the
Lego Group moved into video games, TV programs, and retail stores. But the
diversification added layers of complexity, and the red ink continued to flow.

d) Brand Name

Each year, global consultancy Brand Finance ranks the world’s most powerful
brands, framing the sometimes nebulous moniker “brand” as “a marketing related
intangible asset including, but not limited to, names, terms, signs, symbols, logos and
designs, or a combination of these, intended to identify goods, services or entities, or a
combination of these, creating distinctive images and associations in the minds of
stakeholders, thereby generating economic benefits/value.”

To determine which collection of assets stacks up tallest, Brand Finance


examines factors such as a company’s investment in marketing, equity as measured by

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goodwill of customers and staff, and the impact of marketing and goodwill on the
company’s “business performance.”

Each brand earns a score out of a possible 100 points. At the top of the list–and
unseating reigning powerful brand Ferrari–is Lego. The maker of the colorful plastic
blocks has been popular with kids and adults alike for more than half a century, but in
recent years has gained even wider appeal through licensed partnerships.

e) Strong Management

During the early to mid 2000's Lego struggled as a business. It was seen to have
lost touch with its customer base and as a result sales were decreasing.
Lego began to turn itself around by reconnecting with its key audience - children.

Lego launched a competition to see what consumers wanted from its brand.
They were shocked to see just how many people wanted the classic Lego brand back.

So Lego re-focused its design process on its core principles and connecting its
design process to strong consumer insights. In doing so Lego began to produce
products that children wanted to play with again.

Lego returned to playing on its strengths - purchasing the licences to popular


movies, TV shows, or characters, and making them into Lego.

Creating toys based in reality and fantasy re-connected Lego with children's
imaginations. Letting them build, or act out, whatever they could imagine.

f) Unique Products

Lego pieces of all varieties constitute a universal system. Despite variation in the
design and the purposes of individual pieces over the years, each piece remains
compatible in some way with existing pieces. Lego bricks from 1958 still interlock with
those made in the current time, and Lego sets for young children are compatible with

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those made for teenagers. Six pieces of 2x4 bricks can be combined in 915,103,765
ways.

Each Lego piece must be manufactured to an exacting degree of precision.


When two pieces are engaged they must fit firmly, yet be easily disassembled. The
machines that manufacture Lego bricks have tolerances as small as 10 micrometers.

g) Customer Loyalty

Top brands understand it’s not rewards programs and incentives that drive
customer loyalty, its customer service. The true test comes when customers have
problems the way a company handles these situations can create a higher level of
loyalty or drive customers away.

A good customer feedback program identifies how well you’re meeting customer
needs and alerts you when you’re not. Before it’s too late to take action.

From here we know that our customer problem is the main key to gain the
satisfaction that could lead to customer loyalty to your product.

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2. Weakness

a) Imitation of products and brand name is a concern


Legal rights as well as common regard for fair play are increasingly violated by copyists
in their attempts to mislead consumers by trading on the reputation of well-established products
and trademarks. The LEGO Group actively opposes all abuses that violate the protection
enshrined in national and international legislation. They felt that they have good reasons to do
so, for one of the aims of such legislation is to guarantee to consumers that they are buying the
genuine, original product and not an inferior copy. However, LEGO Group has come to a
solution to for any attempts below;
1. Policing the Rights
2. Misuse of Trademarks
3. Misuse of Trademarks in Domain Names and on the Internet
4. Attempted Association with the LEGO Group by unrelated parties
5. Product Copying
6. License and Co-Promotion

A search for the word “LEGO” on popular reseller platforms such as Carousell in
Malaysia reveals multiple entries featuring what is believed to be labelled as “Lego-compatible”
products. Some sellers do not even bother to make the distinction between genuine LEGO and
imitations in their item description. Brand names such as Decool, Sheng Yuan (SY) and
Lele are among the worst offenders in cloning LEGO products. There are other brands that are
based on the interlocking brick system but at least try to produce sets that are original, such as
Oxford (which is actually Korean), Megabloks and Kre-O.

b) Intense competition
The LEGO Group has cultivated an unprecedented level of brand loyalty. That is why
the company has seemingly defied market forces. The value of the company is directly tied to
the quality of its product.

In the early 2000s, Lego was nearly bankrupt. Quality at the company had gone through
a precipitous decline and there was talk of a buyout by Mattel. But after going back to producing
a high quality product, the company is now one of the largest toy manufacturers in the world.

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Which means high brand switching and also loss of market shares to online games.
LEGO's largest and most direct competitor is most certainly the MEGA BLOKS of the Mega
Companies.

They offer a very similar product, so much so that Mega Bloks and Lego parts sore
interchangeable and their products are offered typically alongside Lego products in stores that
sell toys. There really isn't a way to be more competitive than having your toy displays set right
next to each other.

Mega Bloks didn't used to be that big of a competitor either but now the quality of their
toys is almost equal to Legos. Now, Legos by far are of a much higher quality, however Mega
Bloks, up until the past several years did not market their toys as being part of big movies or
make tv shows and video games and everything that Lego does. But now they're offering things
like Halo Mega Bloks, Call of Duty and more.

c) Does not have innovative capability to compete with digital toys


LEGO has only one product, which their main business is interlocking block toy. It is
difficult to compete with digital toys that can be created in any design. Children might lose
interest in LEGOs product if they still produce the same type of product.

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2. Opportunity

a) Continuation of license characters


In response to fashion trends, toy design are based on a concept or story (e.g.,
Star Wars, Spiderman, Harry Porter etc. ) and offer multiple toys related to the same
concept. This type of toy design will always be in demand and attracts all levels of
customers.

b) Good Marketing Research


Involvement of children and stakeholders in product development is very
important. Conducting market research to understand what children nowadays want, look
forward too or expected from LEGO toys will help in developing the best product.

c) Translate production to other places which is cheaper


Asia market are currently growing an expanding. LEGO Group usually transports
they products from Europe to be sold in Asia. This leads to high production cost. By building
production plan in Asia will reduce the unnecessary cost (eg. Transportation)

d) Broaden their LEGO segment to include other product


This will cater to different types of consumers (parents, teachers, teens) and to
reach out to newer segments rather than only targeting to one segmentation

e) LEGO digital designer


LEGO will need to start to have their own digital designer. Example to have a
digital game on designing or creating item (animal, building) using LEGO.

f) Boost awareness of products through media


A good marketing tool to boost awareness of LEGO’s product through all medium
of advertisement for example to organize competition in school on building LEGO

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4. Threat

a) Emerging competitors
New threats from competitors against LEGO group over their licensing
agreement
and loss of trademark protection. Since they are the pioneer in the toy building block
industry, losing their trademark means they will be open to competitors who might imitate
their products. Thus they might sell it for a cheaper price. This will also means the
competitors can steal their ideas. When this happens, they might lose their competitive
edge.

b) Growth of digital world


Competition has intensified as a result of growth in electronic games, software,
and digital toys. Current generation of children are exposed with digital world since small.
They do not use toy not as much as they used to. They are more interested in online/digital
games and might lose interest in building LEGO.

c) Fast Paced Child Development


Children grow up faster and the global market for construction toys is shrinking
due to their changing play patterns. The fast phase of life today affects children’s ability and
interest. The existence of arcade, theme parks, outdoor and indoor games also affects the
child’s interest and development.

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RECOMMENDATIONS
- Revaluate Production Facilities location & Diversify manufactures and Suppliers
- Rebuilt and strengthen LEGO Brands’ image
- Re-produced the wooden toys on a special occasion/anniversary of LEGO, for special
edition collection only
- Research and plan to invest in new technologies, new product types with fit the toys
growing trend: media, electronic & education toys…
- LEGO would consider building new production plants in other growing countries such as
Myanmar or Afghanistan
- Society & Environment sponsoring at areas where facilities locate to increase brand
image and improve local resident about quality and safety standards

CONCLUSIONS
The Lego Group takes pride in their contribution to children. Since 1932, the biggest
contribution has been providing children with fun, engaging, and high quality play
experience that develops their mental and essential skills. Children’s well-being and
interest are the core values of The Lego Group. Hence, they pioneer business conducts
that promote responsibilities to children. They are active promoters of high quality and
product safety standards in the toy industry. In The Lego Group daily business, they
commit to the 10 Children’s Right and Business Principles that guide organizations on
how to conduct business responsibly towards children.

 Inspiring Children to Learn Through Playing


When children play, they develop vital skills. The Lego group is providers of fun,
engaging and creative play experiences that help children develop social, emotional and
intellectual skills, laying a foundation that lasts a lifetime. The Lego System in play is

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unique in that it combines structure, logic and creativity, which enables learning through
playing by reasoning systematically and thinking creatively.

 Safe and High-Quality Play


The Lego Group produce high-quality and safe products that benefit the value of
playing for all children worldwide, and work purposefully on pioneering product safety
and quality throughout the entire toy industry.

 Responsibility to Children
A large part of The Lego Group dedicated work lies in promoting responsibility
towards children and includes promoting children’s rights and well-being. In The Lego
Group daily business, they commit to the 10 Children’s Right and Business Principles
that guide organizations on how to conduct business responsibly towards children.

PICTURES
1. The house and workshop, in 1935 and 2005

2. Old LEGO box 3. The first LEGO

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