Background
LEGO Group is a Danish, family business. Typical of family enterprises, growth is substantial in early company lifecycle phases, only to plummet – rapidly – few years later. The specific causes for LEGO Group's rapid decline in sales (and hence market share) fall into five strategic areas: (1) macroeconomic variables, (2) brand identity, (3) supply chain management, (4) retailing strategy, and (5) product design & development. As shown in every growth indicator, most notably company's cash flows over 1995 – 2004, LEGO Group has witnessed not only sharp decline in sales growth but also, sadly enough for company's owners and executives, a risk of bankruptcy. The five strategic areas just mentioned represent, if anything, company's loss of strategic focus overall, over long range, as she has passed across different (early) expansion, (midlife) restructuring and (developing) shrinkage phases. The central question is, accordingly, one about "core" as proposed by Jørgen Vig Knudstorp, company's newly appointed young CEO, and questioned by company's CFO. This background requires a deeper analysis in order to offer recommendations, if any, for future direction.
Analysis
LEGO Group started off as a small family business in a small European country. Experiencing steady growth, initially increasingly rapidly (until, perhaps, late 1980s), LEGO Group has been positioned as to cater for needs becoming increasingly obsolete for demographic and behavioral changes developing over years. Notably, childbirth growth rates (particularly in Europe) and playing indoors vs. outdoors duality (against a backdrop of more extracurricular activities) has, if anything, introduced macroeconomic changes LEGO Group has not accounted for during her growth and expansion journey. The entry of video games, or in gaming parlance, Massively Multiplayer Online Games (MMOGs), has added further complexity to gaming-as-usual industry. The late entry of LEGO Group into online gaming and, not least, poorly branded toys based on movies produced by Disney and Pixar is another case in point of poor prediction of future market patterns and trends. By failing to properly manage, let alone predict, developing macroeconomic variables, LEGO Group has lost product leadership to not only big players but also emerging niche market toy manufacturers.
As admitted by senior management, company's late decision to outsource manufacturing efforts to cheaper labor markets has cost LEGO Group not only a supply chain management edge (according to Porter's Five Forces Analysis) but also, more significantly, more profit margins on company's balance sheets. This late decision could be attributed to a streak of "Europeanness" in company's culture. Specifically, by offering toy products for consumers in, mostly, European and, less, U.S. markets, LEGO Group products, as shown in case, appear to be designed for high-spending consumers. In a more conventional, welfare-based, European economic system, competition over price is not as fierce compared to globalization of not only labor force but many components in running accompany in a global, open market context. Thus, by marinating a "local" mentality in a global business ecosystem, LEGO Group has, in fact, miscalculated her strategic management of her supply chain.
The retailing strategy, or put differently, LEGO Group's management of product distribution channel partners, has been nothing but flawed. For one, LEGO Group has expanded her retailer network over years but only under competition pressure and in response to developing, quarter-based market conditions instead of catering for customer needs across different geographies and, of course, needs of business partners, a significant driver of business growth in current business ecosystem. This under utilization, so to speak, of business partners does not only limit LEGO Group's business opportunities in short and medium ranges but also, more significantly, decreases company's chain value.
Not least, in company's efforts to promote sales against growing competition and swinging profits, LEGO Group has continued to roll out products, apparently indiscriminately in recent years. To shore up company's profits in short range, LEGO Group has given up brand identity. Indeed, at no point particularly in recent years, one can identify what a LEGO Group stands for and, probably worse, how any of company's products are differentiated from current offerings in display by competition online and on retail shelves. To lose one's (brand) identity, particularly for toy products emotional as are, is, if anything, to be out of affection business, sooner or later.
Recommendations
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