Question One
The sales of the Lego’s movie themed products keyed to popular film franchises, such as Harry Potter, Lord of the Rings, and Spiderman are performing well according to the company’s main shareholder and the Chief Executive Officer Kjeld Kirk Kristiansen who has served the company from 1979 to 2004 (Lego). The increased sales can be attributed to the increased number of alliances with Walt Disney Company and Lucas Films, which is the creator of the popular Star Wars Series. According to my opinion, I think this was the right strategy for the company to adopt considering the increased sales registered upon adopting this strategy. This strategy has enabled Lego Company’s products to have a strong brand image across all its markets around the world due to the formation of alliances with well-established companies and global celebrities.
In the subsequent years after the extremely good sales for the Lego Company products, the Christmas sales for the 2003 season were quite disappointing since the company was left with goods worth millions of dollars unsold that year. However, the drop in sales can be attributed to the weakening of the dollar relative to the Danish krone leading to a record loss of 166 million dollars in 2003 (Lego). The Lego products are very popular among the boys and they are sold in more than 130 countries around the world. Considering one of the key markets for the products is North America with an overall market share of 85 percent, the weakening of the dollar value was a big blow to the revenues of the Lego Company since the demand for the products in North America dropped drastically.
Therefore, the reduction in sales in the products cannot be associated with the strategy adopted by the Chief Executive Officer since the strategy had already produced excellent results previously. The movie themed products of the Lego Company had become popular among the young people because of the excellent design of the products (Lego). Apart from the brand popularity among the young people, the Lego’s products have enjoy brand success among the parents of the young people. The parents consider them not just as toys but special products specifically designed to improve the learning skills of their children and developing new life skills.
The decision by the company to further leverage the Lego brand by forming more alliances with Walt Disney Company and Lucas Films is one of the best decisions ever made in the company. Such alliances have given the company a strategic global acceptance as well as reducing the production cost for the toys (Chapter 9: Competitive analysis and strategy). It has enabled the company to embrace cost leadership strategy; hence, providing cheap and quality products for all its markets around the world. Such alliance improves the brand image of the products while maintaining increased sales in the global market.
Finally, the company has registered a tremendous increase in the sales of the licensed merchandise that related to the popular Harry Potter, Lord of the Rings, Spiderman, and Star Wars movie franchises. The increased sales of the products result from the acceptance of the company products in the global market due to strong brand image created by the formation of franchises with well-known celebrities (Chapter 9: Competitive analysis and strategy). Therefore, the strategy of forming such franchises has impacted positively on the financial performance of the company; hence, the strategy was the right and perfect one for Lego Company.
Question Two
The Lego Company has focused on key competitive advantages to ensure it remains competitive in the global market. Some of its focus include creativity, innovation, and superior quality, which serve as the basis for the company’s product development process. Using the Porter’s generic strategies framework, detailed analysis of the Lego Company in terms of its pursuit of competitive advantage can be assessed. The competitive advantage of the company can be established by determining whether the company’s profitability is above or below the industry average for the purpose of establishing its long term sustainable competitive advantage (Chapter 9: Competitive analysis and strategy). The competitive advantage for Lego Company will focus on the main generic strategies for achieving competitive advantage, which include cost leadership, differentiation, focused differentiation, and cost focus.
In the cost leadership strategy, Lego Company concentrates on being the low cost producer in the broad market and across the wide range of the products it delivers to the global consumers. In such a situation, a cost leadership advantage will occur as a result of improved efficiency of the company’s facilities, and acquiring a large market share so that the cost per unit becomes the lowest in the entire industry. This strategy has been met through the high creativity and innovation within Lego Company, which has enabled it to improve its operational efficiency by innovating improved systems (Lego). The cost leadership strategy has given it a substantial lead in terms of experience with building its products to suit the changing tastes and preferences of its customers around the world. Such an experience has also enabled the company to make more improvements in the entire process of production, delivery, and customer service; thus, leading to further reduction of the costs incurred by the company for the purpose of attaining its cost leadership strategy.
The other competitive advantage strategy adopted by the Lego Company involves the differentiation strategy. This strategy ensures that its products deliver unique value to the customers by establishing unique products in the broad market; thus, attaining full differentiation advantage. The company has fully differentiated its products through the restructuring initiative that was launched by the new Chief Executive Officer Knudstorp, which created the shared vision. The company’s involvement in offering wide range of products and services, such as its venture in theme parks, children’s clothing, and development of software games prove its commitment to embracing full product differentiation (Lego). This effective strategy of differentiation has enabled Lego Company to defend the market position for its products in the global market and help it obtain above average financial returns from the unique products offered to the market.
The focused differentiation strategy embraced by Lego Company is very successful since it has enabled it acquire a greater market share and improve the quality of its products. The strategy involves the company’s specialization to growth of its products while retaining its narrow focus on highly differentiated products. It has attained this strategy through its decision to focus on the company’s retail customers, such as Toys ‘R’ Us, Metro, Karstadt, and Galeria. Therefore, it has embraced the on time deliveries and dropped the express product deliveries process that used to be quite costly. On the other hand, it has also adopted the cost focus strategy as a source of competitive advantage. This is the final strategy adopted by Lego Company, which maximizes its ability to offer lower prices to a narrow target position due to the company’s lower cost position in the industry (Chapter 9: Competitive analysis and strategy). The strategy has enabled it to offer lower prices to its customers in developing countries where the people cannot afford expensive toys while maximizing the high priced markets in developing countries, such as United States where the customers want quality and premium products.
Question Three
After the disappointing Christmas 2003 season where Lego Company was left with millions of dollars worth of goods unsold, the long serving Chief Executive Officer was succeeded by the Jorgen VigKnudstorp who was tasked with the challenge of developing new initiatives and strategies that could help in restoring the profitability of the company. Therefore, the new Chief Executive Officer responded to this new challenging responsibility by forming a task force consisting of the company’s executives and outside consultants to review the company’s operations and business models (Lego). The task force identified several sources of competitive advantage, which included creativity, innovation, and superior quality. However, these sources of competitive advantage served as sources of weakness for the company because it had become excessively complex in all dimensions.
The new Chief Executive Office of Lego Company had to make strategic decisions to improve its status and restore its profitability, which had fallen drastically. However, the key strategic decisions made had some advantages and disadvantages, which will be analyzed in this section. Knudstorp made the first key strategic decision of launching a restructuring initiative for the entire company’s processes known as Shared Vision. The initiative led to the reduction of the number of Stock Keeping Units from 12,500 to 6,500, slashing the number of color options by 50 percent and outsourcing the production services to a Singaporean company, which had production facilities in Mexico and Czech Republic (Lego). However, the restructuring initiatives had negative implications on the overall performance of the company because they led to elimination of more than 2,000 jobs.
The other strategic decision made by the new Chief Executive Officer was the decision to focus on the company’s retail customers who included the Toys ‘R’ Us, Metro, Karstadt, and Galeria (Lego). The decision was made after a detailed survey of the customers by the task force, which revealed that the customers did not require the express product deliveries that were being offered by the company for a long time. This information provoked the new management to change the delivery system and embrace the once weekly deliveries for orders that were placed in advance. It was one of the best strategic decisions made by the new Chief Executive Officer because of the advantages experienced due to this decision. The company improved the customer services and lowered the costs of delivering products to the target clients. It translated into increase in the on-time deliveries by 92 percent; thus, providing the company with the option of concentrating more on the improvement of product package quality and quantity (Lego).
The new Chief Executive Officer has also made a strategic decision of focusing more on the ability of the company to build a plastic brick rather than focusing only on global success. Through this decision, the company has started producing new themes targeting girls rather than focusing on products that are commonly liked by boys. This decision has been quite effective since it has led to increased sales of the company products (Lego). The company’s forays into video games, such as Lego Batman 2, children’s books like the Lego Ideas Book, and television series on the Cartoon Network have provided more benefits it in terms of increased sales of the products and development of strong brand image.
References
Chapter 9: Competitive analysis and strategy. N.p
Lego. N.p
