In this article Sam Dugdale, of The Marketing Precinct, explores how Lego’s new approach has made them the most valuable toy company in the world.
Lego is one of the world’s most popular brands. But in 2004 the company was nearly bankrupt….what had gone so wrong? “Ironically, LEGO followed all the advice of the experts,” says Professor David Robertson, “yet it almost went bankrupt.” Robertson is the author of a recently published book “Brick by Brick: How LEGO Reinvented Its Innovation System and Conquered the Toy Industry”.
The problems stemmed from;
An inability to meet the changing needs of consumers and customers
During the 1990s, the company faced a number of challenges including slowing market growth, mounting competition from lower cost Chinese manufacturers and changing customer needs – triggered in part by the huge growth in electronics and themed toys. In response, management went on an innovation binge adding to an already large product portfolio – brand alliances with Harry Potter and Start Wars, video games, jewellery just to name a few. Some were successful, but not for long. In their attempts to achieve distinctive new offerings, they often found themselves in niche markets, unable to get mainstream appeal.
Poor process and financial controls
It emerged that the business lacked financial discipline and management systems as it related to innovation – too many new products, too many new costs, and little synergies between the attempts. And their reliance on licensed properties resulted in major stock problems with “Boom and Bust” selling seasons. Management had not addressed key questions needed to sustain profitable growth, such as: What are our innovation goals and how will we get there? Little attention was paid to how the large and expensive innovation effort fitted into key corporate goals.
By the end of 2003 the business had lost $300m, so a new approach was sought:
Focus on what was important
Implementing a rigorous decision making process for innovation was fundamental to turning the brands fortunes around. This included a visible and cross functional management process of toy creation. Essential financial metrics were implemented, and innovation became a fundamental part of their corporate goals going forward.
More importantly they reframed their innovation to focus on the brick….yes the brick! They refocused their attention back to its well understood and core markets. The mission in the Lego organisation became if it wasn’t core it wasn’t critical. Consequently new products had to work harder to show how they addressed real consumer and customer needs, meet financial hurdles, and reflect the core values of the LEGO brand.
And the result?
Lego has become the world's most valuable toy company. It has grown sales at 24% per year and profits at 40% per year, every year for the past five years. And we see that in how they operate today. New products such as board games, brand experiences at theme parks, and consumer inspired products via its Cuusoo platform are part of the success of the business. In addition Lego has become one of the world’s most successful social media platforms, driven by content creation from Lego lovers all around the world.
Sam Dugdale is the founder of The Marketing Precinct; a marketing innovation consultancy that works to develop and drive business growth through innovation. She can be contacted on 0407 363 235 email@example.com or through www.marketingprecinct.me.
Robertson, D 2013, Brick by Brick – How LEGO rewrote the rules of innovation and conquered the global toy industry, Random House Business Books, London. Available at Amazon.