The STRATEGIC BUILDING BLOCKS OF LEGO

When you think back to your childhood, what do you remember most? Like many, my childhood is coloured by wonderful memories of countless afternoons spent playing with LEGO bricks and physically constructing the figments of my imagination. As a child, I’ve always been enthused by LEGO and the creative possibilities it offered. As an adult, I am even more fascinated by how the toy company has not only stood the test of changing times but yet remained so relevant today.

LEGO was founded in 1932 in Denmark by Ole Kirk Kristiansen, with a small catalogue of mostly wooden toys, the name LEGO was coined by Kristiansen from the Danish phrase ?”leg godt”?, which means ?play well? and coincidentally the phrase also means ? “assemble?” in Latin . Ole spent much of his savings to purchase Denmark?’s first plastic injection-moulding machine, which proceeded to enable the company to produce ?Automatic Binding Bricks?, creating the ?System of Play? that led to the formation of LEGO sets. The company focused on improving the brick designs to allow better versatility and ?locking?, then subsequently carried on to patenting the perfect stud-and-tube coupling system that has now become world famous.

From a business standpoint, LEGO’s golden period was from the ??1960s to 1970??s, however a decade later, sales began to plummet and market share shrunk. Perhaps, the problem was not that LEGO’s prescriptions for innovation did not work, the problem was that they did work and perhaps, worked so well in the past that LEGO lost sight and lost control of its innovation efforts. Nevertheless, a careful study of the situation may reveal that three fundamental issues plagued the company:

• Maturity. LEGO’s toys (and their associated brick themes) have reached a maturity phase being unchanged for many years.
• Augmented Competition. Entry of more advanced competitors that produced similar (or more technical) brick toys and also cheaply by exploiting manufacturing and labour opportunities in China, achieving a competitive price advantage over LEGO’s more expensive offerings.
• Shifting Consumer Preferences. Consumers preferences were shifting abruptly with an increasing amount of children desiring digital and video entertainment, making LEGO’s traditional offerings somewhat obsolete.

In spite of this, during these declining years, I believe LEGO explored and pursued several important business strategies that allowed it to overcome the difficulties faced and build a stronger competitive position in the market:

Strategic Partnerships 

To begin with, LEGO began establishing numerous strategic partnerships (through investments and licenses) with notable and well-received intellectual properties such as the Star Wars, DC Comics and Harry Potter franchises. This was a rather successful move for the company as many of these franchises already possess vast installed customer-bases. This move effectively allowed LEGO to immediately tap into existing and established customer-bases and gain market share. Importantly, this was complemented by strong appropriability regimes which also allowed LEGO to retain a legal monopoly over these intellectual properties, allowing it to secure and differentiate its toy offerings from the increasing amount of competitors.

Organisational Culture & Structure Innovation

In addition, LEGO began to put much emphasis on design at an organisational level. ?????LEGO?’s management transformed the ?organisation?s approach to design from a product-oriented focus to a company-oriented focus. The company started an internal initiative called Design For Business, which sought to establish a stronger integration between design, product development and business objectives with one of the central aims of improving the organisation’s responsiveness to market changes by reducing the length of the design cycle and introducing a stricter decision making process regarding new designs. The initiative sought to rationalise the organisation’s resources as well as the development and creative processes, thus, at a organisational culture level, how the products are conceived, designed, defined and implemented suddenly became pivotal and carefully guided. In comparison to the past, this move allowed LEGO to become much more efficient and reactive with its utilising of design resources.

Customer Experience Transformation

Other than the product line itself, LEGO also managed to critically examine and redefine the customer experience they provided at their retail stores. In recent times, the company has carefully designed their retail stores to give shoppers a feel of the entire range they offer, the use of interactive digital displays along with play tables where visitors can create their own LEGO figures allows customers to engage multiple senses, and consequently raises both customer incentive and brand awareness. The overall effect is that customers are now introduced to an ?all-under-one-roof? retail experience, that allows LEGO to build an emotional connection with the customers and also reinforce the company?’s emphasis on quality, fun, learning, engagement and experience. The design of the retail environment is essential in creating a meaningful customer journey which altogether differentiated LEGO from its competitors in the way the customer experienced the brand.

Exploring New Segments

The main consumers targeted by LEGO in the majority of its products has always been children between the ages of 5 to 12. Numerous product lines that LEGO has continuously supplied for this particular age group include the recent ?Ninjago? play sets which succeeded the previous ?Pirates of the Caribbean? Play Sets. Although, LEGO has not traditionally pursued a specific gender-specific approach with its product lines, most of its offerings have conventionally attracted and appealed to boys. Nevertheless, in more recent times, the company has been diversifying and adapting its target focus with product ranges that encompass a wider demographic than ever before.

In 2004, LEGO reintroduced its DUPLO line of products, featuring large and colourful blocks with incredibly simple assembly instructions, often revolving around popular licensed cartoons (e.g. Bob The Builder), all of which marks LEGO?s attempt to target young preschool children. Additionally, the company has also introduced LEGO Friends in 2012, which features play sets designed primarily to appeal to girls with its unique themes such as home-making and social outings. LEGO has also been targeting adults as a customer base, this has largely been carried out through LEGO?s more technical and complicated lines such as MindStorm; which features complicated interlocking parts and computer programmable capabilities.

Utilizing Brand Power

LEGO has also strategically licensed its products to numerous filmmakers, video game studios, publishers and even watchmakers in utilising the popularity of its own brand in an attempt to attract consumers that were no more interested in the toys that it was offering. This strategy has been extraordinarily successful because it allowed LEGO to strengthen its brand but more importantly it has allowed LEGO to establish new market segments and capture consumers that may have outgrown its toy offerings. Although some may see the inclusion of entirely new market segments within LEGO?s overall product focus as a significant development which perhaps marks a great departure from its original business model. Yet, the shift itself can be better appreciated through understanding how the company?s has utilised and incorporated the direct knowledge that it has developed from its customers and their needs.

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Ultimately, down to its core, LEGO offers the freedom and ability to create anything from a small lady bug, to a Gothic castle or a futuristic space rocket. The endless creative possibilities provided by its toys can equally be seen as underlying the true ethos of a company which has in the last decade adopted numerous creative strategies that allowed it to successfully innovate and develop into a competitively relevant business today.