LEGO Group is a toy manufacturing company which dates back to 1916 when Ole Kirk Kristiansen started a wooden toy store in a rural Danish village of Billund. LEGO has a widespread market in Eastern and Western Europe, Asia, and in America and was ranked among the top ten Toy Industries in the world before it started to slump in the late 1990s. After a series of poor performance in the market, LEGO Group hired a thirty-six-year-old; Kudstorp in 2004 to fix the financial challenges the company was facing at the moment. This paper aims at looking at some of the reasons why LEGO Group moved from the helm of the market leadership to bankruptcy and then suggest some of the fixes the company could have applied to avoid getting into such a critical situation.
Strengths of LEGO Group
LEGO is one of the oldest Toy industries in the world. It was founded in 1916 when there were not many industries in the Toy industry. This suggests that the company must be having a huge reputation from the clients. Such a huge reputation, loyalty and trust from the customers gained gives LEGO a strength that other companies will just wish for.
Leadership is the other strength LEGO Group enjoyed for a longer period. The leadership of the company was passed along the family where the founder, Ole Kirk passed the baton to his son Godtfrek Kirk, and later to Kjeld. All of them provided the best leadership skills the company required by then.
Weaknesses
LEGO failed to understand the market well and found itself trailing behind its competitors such as Nike, Mattel, and Hasbro. The major weakness of the company was that it had a single product. LEGO specialized in plastic-brick products. When LEGO tried to diversify its products, through the introduction of watches, the company had no idea about how to manage such production chains and hence cut the watch production in 2000.
Opportunities
LEGO had a better opportunity to command the market due to its experience in the Asian, European and American market. The company also had series of opportunity to fix the situation before it got worse through hiring different C.E.Os. For instance, between 1999 and 2004, Poul Plougmann was hired as the new C.E.O of the company and from his first speech; he was versioned to bringing back the company to its feet. Some of the strategies he applied were laying off of almost ten percent of the company’s employees to cut down the cost of production.
LEGO started to sell their products online and come up with new models such as producing toys with Star Wars theme in 1999. This was a great opportunity to gain a larger market reach since Star Wars during this period was being aired on TV in almost all corners of Europe.
The other opportunity LEGO had been to have its products manufactured by contract manufacturers. Most of the competitor’s products were manufactured by contract manufacturers in Asia where labor was cheaper. It is still LEGO Group big opportunity to let its products manufactured by other companies who will provide cheaper labor and help in the promotion of the products.
Threats
Financial bankruptcy is the biggest threat LEGO is facing at the moment. The company was declared bankrupt in 2004. Apart from financial hitches, the company is facing the challenge of a new generation. Unlike in the past, children of today prefer video games to toys. Additionally, the household spending on toys has decreased drastically. The company’s profit pool decreased majorly due to the declined birth rates in its core markets-Western Europe and North America.
Completion is the other threat that LEGO Group must face to ensure that it realize a profit and above all, remain in the market. The main competitor the LEGO faces comes from other companies providing the same products such as Mattel and Hasbro. Finally, LEGO is facing leadership problems. After the family leadership chain was broken, LEGO has struggled to maintain a manager. Every time they hire one, he or she gets unproductive ending up in sacking.
Having looked at the SWOT analysis of LEGO Group, it can be concluded that;
LEGO is facing a great competitive rivalry from other companies in the market, majorly from Mattel, Hasbro, and Nike. LEGO does have not diversified its products and is facing a huge production cost, unlike its competitors which have contractual manufacturers who manufacture their products. Therefore, LEGO needs to look for the cheapest market where they can manufacture their products at a cheaper price such as in Asia.
LEGO has different suppliers in different parts of the world. Unlike the competitors, LEGO is not having a good grasp on the suppliers. One word to sum this situation is when LEGO’s C.E.O was asked by a Wal-Mart seller on why the products of the company should be placed on the shelf instead of dog’s food? Therefore, LEGO should ensure that it promotes its suppliers through providing discounts.
The customers of LEGO include as well as wholesale and end customers. LEGO enjoyed a great bargaining power from the customers when the children used to love indoor toys. At the moment, the new generation does not love toys anymore as they prefer video games. LEGO must invest in providing more online products than physical toys.
The video game products threaten the market of plastic-brick games. LEGO must be aware that these products will substitute their toys and hence must come up with a better way to handle the advancing technology.
