Case Study
Introduction
Lego group is a family-owned company with headquarters in Denmark and Billund. Main offices of Lego is in 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 provide an explanation for 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, call for toys shifted unexpectedly. In many areas of the world, children had more after-school activities and less time to play than in 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 declining the profits of the company. Children over 3 years of age started preferring toys related to technology like video games and online activities. 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 the companies. Diversity in the products is one of the main issues of Lego. Lego was expanding its product line, as it was trending, without even knowing that these products that they are manufacturing is actually not related to the core product line of Lego and this was digging them into more debt. There has been a variety of product imitation and restrained protection of intellectual belongings and retail opposition had heated up in recent years. The change in industry structure, mom & pop stores disappeared and retail channels consolidated, competitors pushed manufacturing into ASIA.
Most of the issues that Lego was facing at a lower level were related to 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 the decision making is another one of the internal issues that Lego faced. They were pushing responsibilities to the front line managers. Growth became Lego’s new focus. Heavy investments 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 was focusing on operations efficiency rather than focusing on strategy. One of the disturbing problem that lego faced was not having enough knowledge about what product should they made and to whom should they sell. This was huge for Lego with its products which were licensed 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 that its products were profitable in which areas, who is its consumers and how much they are. 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 they were licensed after them.
