Academic Master

Business and Finance

LEGO Group Case Study

Introduction

LEGO Group is a family-owned company with headquarters in Denmark and Billund. LEGO’s main offices are in the USA, UK, London, Shanghai, China, Singapore, and Enfield. Ole Kirk Kristiansen founded it in 1932. LEGO is one of the leading manufacturers of playing material. What has led the LEGO Group to the edge of bankruptcy? Focus on external factors at different levels (macro & micro).

In 1998, the LEGO group faced its first financial loss in its records. Knudstorp did not make the right choices. There are numerous factors involved, internally and externally that could explain what led LEGO to the brink of financial disaster.

External Factors

The global market didn’t evolve In a good way for LEGO to adapt to a bigger organization with better sales. As the market became very unpredictable, the call for toys shifted unexpectedly. In many areas of the world, children had more after-school activities and less time to play than in the past, so products like LEGO were no longer needed to have fun. Children’s change of mind about what toy they need to have also contributed to the declining profits of the company. Children over three years of age started preferring toys related to technology, like video games and online activities. The biggest competition that LEGO faced was Hasbro and Mattel. Popular toys like Transformers, Barbie, Hot Wheels, Fisher Price, etc., were the core products of both companies. Diversity in the products is one of LEGO’s main issues. LEGO was expanding its product line, as it was trending, without even knowing that the products they were manufacturing were actually not related to the core product line of LEGO, and this was digging them into more debt. There have been a variety of product imitations and restrained protection of intellectual belongings, and retail opposition has heated up in recent years. With the change in industry structure, mom-and-pop stores disappeared, and retail channels consolidated, and competitors pushed manufacturing into ASIA.

Most of the issues that LEGO was facing at a lower level were related to a lack of accountability in the overall company, along with the costing system. They themselves had no idea about the exact cost associated with the business that they were doing. Decentralization of decision-making is another internal issue that LEGO faces. They were pushing responsibilities to the front-line managers. Growth became LEGO’s new focus. Heavy investments were made in the product line beyond the core product line, clothing, media products, and theme parks without considering margins. These expansions were made in house which I believe was a bad move, they should’ve outsourced it to their competitors. LEGO focused on operations efficiency rather than strategy. One of the disturbing problems that LEGO faced was not having enough knowledge about what products they should make and to whom they should sell. This was huge for LEGO because of its licensed products like LEGO Star Wars and Harry Potter. The main issue was that LEGO was not able to see that these licensed products were his profit-earning products. LEGO was not able to identify which products were profitable in which areas, who its consumers were, and how much they were. If they got some help from any source, LEGO would have earned high profits from its licensed toys. These toys were only profitable for a smaller span of time, followed by the movies for which they were licensed.

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