Case Presentation Chapter 10

Case study: LEGO

This case study discusses Lego’s complications that led them to almost at a loss and what new initiatives and strategies were taken to bounce back from this. In 2004, the company was struggling to meet deadlines, produce enough products, and deliver in a timely matter. A new CEO named Jorgen Vig Knudstorp was brought in to turn the company around. To cut cost, he moved manufacturing and distribution centers to a less expensive area. Also, he changed the way the products were developed for a more cost efficient manner. For instance, instead of using most of the Lego parts for just one design, the employees started to reuse the Lego parts to create new products. Lego started to expand the company by implementing ways to reach a wider target audience. Not only targeting boys but as well as girls, adults and video-gamers. They created virtual online games for those who enjoy playing on the Internet. Also, the company tried to keep up with recent popular trends so they could create new products relating to that. Lego changed the way they paid their employee so that they were compensated more for coming up with new, creative innovations for the products while managing to keep cost low. This encouraged the employees to perform better. As Lego started to do better, the company sparked an interest in moving on to a bigger platform such as the movie making industry. As the company was growing, it put more stress on the company’s information systems. They created a system to support all the new employees hired. They also included an enterprise system to help the management, data and operations of the business to simplify some of the work.

1. How did the information systems and the organization design changes implemented by Knudstorp align with the changes in business strategy?

The company’s business strategy was to cut cost, focus on product development, and reach a wider target audience. Knudstorp wanted to reduce expenses as much as possible yet still produce quality products and develop a product in the most efficient way. Also, he wanted Lego to branch off to other greater industries such as the movie making industry as well as expand the companies target audience. Changes within the organization and information systems were made to support this. Some organizational strategies used to cut cost were relocating the distribution and manufacturer sites to a less expensive area. Also, to cut cost and focus on product development, they reused Lego parts for multiple designs and products. Before they were using majority of the Lego parts to create just one design, now they reuse and recycle parts. This was a tremendous cutback made towards product design and also this lessened the burden on the company’s supply chain. Another change they made in the organizational design to reach a wider audience was that they included video gaming and virtual interactions online through the Internet. This helped target more video gamers and young adults. This was not only an organizational change but also an IS change because of the initial software and database created to start up the online virtual games. Also, instead of mainly aiming their toys towards boys they created a line of products for girls as well, which was an organizational change. Some of the information systems changes made to help align with the business strategy were that they created a new employee management system that supported the new employees that were hired due to the growth of the company. Also, the company integrated enterprise system that supported the management, production, data and operations. Although there are many more organizational design change made then information systems, all these strategies ultimately align with the changes in the business strategy to cut cost, focus on product development, and to reach a wider target audience.

2. Which of the generic strategies does Lego appear to be using based on this case? Provide support for your choice.

Based on this case study, Lego appears to be using the two of the generic strategies. The two strategies are cost leadership and focus. The focus strategy comes in two parts, which are the cost focus and differentiation focus. Since cost leadership basically falls under one of the variants of focus, I will say Lego mainly seems to be using the focus strategy. For the cost aspect of focus, the company redesigned their products and how they create them by using Lego components, which minimized cost. Lego was able to come out with a product that was just a good that targeted all different audiences such as boys, girls, adults, and gamers. Many other initiatives were taken to cut cost such as “the number of its logistics providers was cut from 26 to three or four — enough to ensure resilience and gain greater economies of scale while still encouraging competition among the suppliers. This step alone saved more than 10 percent in transportation costs” (Oliver). For the differentiation aspect of focus, the company wanted to be as innovative as possible to reach all different audiences. As mentioned in the article, “Brick by Brick”, “the new CFO and CEO take draconian measures to repair the company, focusing on “profitable innovation”—rather than innovation for innovation’s sake—and listening to the customer” (Brick by Brick). The company expanded their platforms to enter into the movie making industry. Also, they created video games online to attain a greater target audience allowing them to achieve a competitive advantage.

3. Are the changes implemented by Knudstorp an indication of hypercompetition? Defend your position.

I do not believe the changes implemented by Knudstorp are an indication of hypercompetition. Hypercompetiton is when there is a lot of very strong competition between companies and the market is changing very quickly. Lego does not seem to be competing with any other rapidly growing company. The company is only competing with its self to become better. According to the article “When it clicks, it clicks”, the author explained “as a privately held company, Lego has no need to demonstrate anything to markets or shareholders. According to Knudstorp, he only has to worry about “the shareholder” -- Christiansen's heirs -- who have two official objectives: that Lego continue to create innovative play experiences and reach more children every year” (Ringen). This proves that the company goal is just to satisfy its customers and continue being innovative. The company was close the extinction so they were initially just trying to cut cost and get the company up and running again. Knudstorp was more worried about cutting cost and making a profit rather some competition to be #1 in the market. If throughout the process of bouncing back from the lose accrued and new product innovation led Lego as a leading company in the industry then great, but beating their competitors was not Knudstorp’s goal.

4. What advice would you give Knudstorp to keep Lego competitive, growing, and relevant?

To keep Lego competitive, growing, and relevant, I would advise to the employees and company to keep learning. According to Forbes, “companies need to push past conventional wisdom that causes them to think in a box” (Bagley). To really understand and know their customers and what they want. Also, for the company to stay on track with what is new and trending in the moment so that they continue to target new markets. I would suggest improve marketing and advertising techniques as well.

What I have learned working on this case study is that it is important have strategies that can support one another to run things smoothly. Also, I learned you can turn a company around by forming a well thought out plan and making the necessary changed needed to reach the top. Ever since this case study was published, Lego has managed to continue growing and expanding. They are still till this day one of the largest leading competitors. In recent study from the Busniess Insider, “Lego retained its position at the top following a brief respite last year, beating out Google, Nike, Ferrari, and Visa, and its future continues to look bright” (W, Christian). In 2014, they released The Lego Movie that was a super hit and are planning a sequel in the near future. I can learn what I learned in this case study in my future consulting job to help clients with solutions to their company problems.

Works Cited

My referencing style is from Forbes.com

Bagley, Rebecca O. “Innovate, Grow, Succeed: Staying Competitive in Today's Economy.” Forbes, Forbes Magazine, 18 Mar. 2013, www.forbes.com/sites/rebeccabagley/2013/03/18/innovate-grow-succeed/#3883d9d235b9.

My referencing style is from Journal of the Association for Information Systems

"Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry." Publishers Weekly, vol. 260, no. 17, 29 Apr. 2013, p. 123. EBSCOhost, ezproxy.lib.uh.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=f5h&AN=87450712&site=ehost-live.

My referencing style is from Strategy-business.com

Oliver, Keith, et al. “Rebuilding Lego, Brick by Brick.” Strategy Business, Booz & Company, 29 Aug. 2007, www.strategy-business.com/article/07306?gko=99ab7.

My referencing style is from Information Systems Research

Ringen, Jonathan. "When It Clicks, It Clicks." Fast Company, no. 192, Feb. 2015, pp. 72-98. EBSCOhost, ezproxy.lib.uh.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=100345129&site=ehost-live.

My referencing style is from Busniessinsider.com

W, Christian. “The Lego brand skyrocketed in 2017 - surpasses Google as the world's most powerful brand.” Business Insider, Business Insider, 19 May 2017, nordic.businessinsider.com/legos-brand-value-skyrockets-2017-5.