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Case Study on The Lego Group: Building Strategy

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Case Study Assignment on – The Lego Group: Building Strategy

Question Description ::
A) Draw a competency tree for Lego.
B) What is their core competency?
C) Does it pass the tests?
D) Are their markets – they are currently not in, that it could be applied?

Attached is the case.

On  February  15,  2011,  world-famous  toy  maker  the  LEGO  Group  (LEGO)  assembled  an  internal

management team to create a strategic report on LEGO’s different product lines and business operations.

Over the past two years, numerous threats had emerged against LEGO in the toy industry: the acquisition of  Marvel  Entertainment  by  The  Walt  Disney  Company  created  major  implications  for  valuable  toy  license agreements; LEGO had lost a long legal battle with major competitor MEGA Brands — maker of MEGA  Bloks  —  with  a  European  Union  court  decision  that  removed  the  LEGO  brick  trademark;  new  competition  was  preparing  to  enter  the  marketplace  from  Hasbro  —  the  second-largest  toy  maker  in  the  world  —  with  the  company  launching  a  new  rival  product  line  called  Kre-O.  It  was  critical  for  the  management team to identify where to expand LEGO’s product lines and business operations in order to develop  a  competitive  strategy  to  continue  the  organization’s  financial  success  and  dominance  in  the  building toy market.

 

COMPANY HISTORY

1

LEGO first began during the Great Depression in 1932, when Danish carpenter Ole Kirk Kristiansen and

his sons started making wooden toys after the demand for building houses and furniture declined. Some

of  the  first  toys  they  made  included  yo-yos,  wooden  blocks,  pull-along  animals  and  wooden  vehicles.  Kristiansen believed that “only the best is good enough” in manufacturing children’s toys; this motto was so important to him that it was carved on a sign and hung on the workshop wall to serve as a reminder to always produce top-quality products. He used the highest quality materials and workmanship to produce toys  that  were  designed  to  last  through  years  of  play.  In  1934,  the  company  name  LEGO  was  created  when Kristiansen held a friendly competition among th

e workshop employees to help name the company, with  a  bottle  of  wine  as  the  prize.  Kristiansen  won  the  competition  himself  by  creatively  combining  the first two letters of the Danish words leg and godt, meaning “play well,” to form the name LEGO, which also meant “I put together” in Latin. In 1942, disaster hit the small company of only 12 employees as the entire   workshop   burned   to   the   ground.   Not   willing   to   quit,   Kristiansen   rebuilt   the   factory   and   painstakingly remade all of the lost designs from memory in order to kee the company going.

Following the end of World War II, LEGO became the first company in Denmark to purchase a plastic-injection  molding  machine  in  1947;  however,  the  new  machine  came  at  a  high  cost,  requiring  the  company  to  risk  a  large  portion  of  revenues  and  face  the  additional  financial  risk  of  plastic  toys  being  expensive  to  manufacture.  With  the  acquisition  of  the  new  machine,  one  of  the  first  plastic  toys  to  be  created by LEGO was a baby rattle that was shaped like a fish. It did not take long before the investment in the machine proved to be a success, as LEGO quickly expanded its business operations to produce over 200  varieties  of  plastic  and  wooden  toys.  Using  the  new  technology,  the  first  plastic  LEGO  bricks  —  named  Automatic  Binding  Bricks  —  were  created  and  sold  in  sets  in  1949;  however,  this  name  did  not  last long as it was changed to LEGO Bricks in 1953, with the addition of the LEGO name being molded onto every brick manufactured.

Godtfred  Kirk  Christiansen,  one  of  Kristiansen’s  sons,  had  grown  up  with  the  family  company  and  eventually  became  the  junior  managing  director  of  LEGO.  Upon  returning  from  a  toy  fair  in  1954,  Godtfred and a co-worker had a conversation during which they realized that no system existed to connect different products or items in the toy industry. To Godtfred this represented a key opportunity to design a new structured system of toy products, selecting the LEGO brick as the best company product with which to create what he referred to as the “LEGO System of Play.” The idea behind the LEGO System of Play was  that  each  and  every  LEGO  brick  should  connect  to  each  other  —  not  just  within  one  set  but  across  multiple  sets.  A  ‘Town  Plan’  series  with  28  building  sets  and  eight  vehicle  sets  was  developed  and  released. The strategy was simple but important: each additional LEGO set obtained by a child increased the  amount  of  LEGO  bricks  that  the  child  had  available  to  build  with,  thus  more  sets  equalled  more  creative opportunities. The different Town Plan models included LEGO bricks as well as various plastic people, trees, vehicles and road signs. In order to help market the product to children and parents, the sets were  creatively  designed  in  collaboration  with  the  Danish  Road  Safety  Council  to  help  teach  children  about traffic safety. Godtfred commented on the LEGO System of Play: “Our idea is to create a toy that prepares the child for life, appeals to the imagination and develops the creative urge and joy of creation that are the driving force in every human being.”2
The development of the LEGO System of Play lead Godtfred to realize that improvements were needed to the LEGO brick design so that bricks could lock together firmly yet come apart easily: he referred to this as  the  brick’s  ‘clutch  power.’  Finding  the  correct  clutch  power  would  allow  for  more  stable  and  secure  LEGO  brick  models  that  would  not  easily  fall  apart.  With  such  a  brick  design  and  building  capability,  Godtfred believed that it would be possible to create anything out of LEGO bricks. In attempting to find such a design, LEGO experimented with different plastic-injection molding designs that included various shapes and connection methods before finally selecting a brick design that added hollow connection tubes to the bottom of the existing LEGO brick design. With the improved design, when two bricks were placed directly on top of each other, the hollow tubes on the underside of the top brick connected firmly between the existing circular studs on the top of the bottom brick, providing the perfect amount of clutch power. Pleased with the results, Godtfred submitted an application in Denmark on January 28, 1958, to officially patent the improved LEGO brick design. The year signified a historical event for LEGO; unfortunately, it also represented a major loss with the death of LEGO founder Kristiansen. This left Godtfred in charge of the company, which had grown to 140 employees.

The 1960s During  the  1960s,  LEGO  had  experienced  rapid  success  with  the  new  brick  design,  expanding  sales  to  many European countries as well as new markets in the United States, Canada, Japan and Australia. After another fire destroyed the workshop where LEGO wooden toys were made, the company decided to stop selling  wooden  toys  altogether  and  focus  completely  on  the  LEGO  brick  and  System  of  Play.  By  1967,  more than 18 million LEGO sets had been sold in 42 different countries, with LEGO employing over 600 people. The company had also expanded the LEGO brick design to include over 200 different shapes such as wheels, flat bricks, train tracks, windows, doors and flags; this added further detail and allowed more creative possibilities to the System of Play sets. In an effort to help children and parents with the variety of  bricks  and  the  increased  complexity  of  build

ing  sets,  LEGO  introduced  building  instructions  as  a  standard  feature  of  each  building  set.  The  increased  success  and  popularity  of  LEGO  around  the  world  lead  to  the  development  of  the  first  LEGOLAND  theme  park,  opening  in  LEGO’s  home  country  of  Denmark in 1968. During the same year, LEGO continued to experiment with new products, introducing a  brick  called  DUPLO  which  was  eight  times  the  size  of  an  original  LEGO  brick  and  safe  for  children  under five.

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