Introduction
The Lego Group is a firm that manufacturers toys that are well known for their innovation, quality and safety. The objective of this paper is to conduct an external environment and internal competitive analysis for the firm. The paper is divided into four sections. The first section conducts a five force analysis of the firm. The second section identifies if any other environmental force (other than five forces) impact the organisation. The third section identifies the firm’s resources, capabilities and competitive advantage. The fourth section discusses if the business is sustainable given the external and internal environment.
Five Forces Analysis for the Lego Group
This section of the paper uses Porter’s five forces framework for analysing the external environment of the Lego Group.
The first force in the analysis is the bargaining power of the buyers. Globalisation has impacted the industry significantly and lot of competition from global players is increasing the bargaining power of buyers. Buyers have lot of options of purchase, both local and international brands. The proliferation of large retailers across the globe has changed the purchase behaviour of customers and increased competition for shelf space in the manufactures. The Lego group was banking on the smaller retailers for distribution of its products, which worked wonders till 1990s. But, dominance of the retail biggies like Walmart and Carrefour affected the Lego Group as it was not ready to perform prepared in this distribution segment (Oliver et al n.pag.). Apart from retail giants, consumers have various options like playing online, purchasing cheaper brands (lot of Chinese cheaper products in the market) and substituting toys with leisure alternatives like comic books and video games. So, bargaining power of buyers is high.
The second force is the bargaining power of suppliers. Suppliers and quality of raw materials are important to ensure that the final products are safe and likeable. But, the Lego group is a big brand and suppliers would take pride in its association with this renowned brand. As such, the bargaining power of suppliers is considered low to moderate.
The third force is threat of substitute products. The Lego toys are innovative and it is difficult to find direct substitute of these toys. It operates in a niche segment. It has created a brand that people aspire to own a Lego toy, similar to the way they aspire of an I-phone. But, having said this, the fact that Lego toys are just toys for children cannot be ignored. So, any other toy or leisure activity can be substitute of the Lego toys. Be it a gaming console, a comic book or other cheaper toys available in the market. So, threat of substitute is medium to high.
The fourth force is threat of new entrant. The toy industry has become more dynamic with opening of global markets. It is a lucrative market for businesses and new players keep trying to enter the market with their own set of innovative products. For example, educative wooden toys, doodles and play clays are some new and innovative products in the market that are cheaper and readily accepted by customers. Given this backdrop, the investments made in creating the Lego block an inspirational product cannot be ignored. So, the threat of new entrant is medium to high.
The fifth force is intensity of competition in the industry. The industry is highly competitive and new entrants also find the industry lucrative as entry barriers are low. But Lego blocks are the dominant players in their segment of operation. The substitute products in the segment have not been able to gain the same acceptance level among the customers. So, intensity of competition in the industry is medium to high.
The five forces analysis reveal that the Lego Group is operating in a highly competitive market and it needs to constantly innovate and motivate customers to buys its niche product. This is because the other forces have further empowered the position of the buyer and their bargaining power is very high.
Other Factors Affecting/Likely to Affect the Industry
There are a variety of other factors that affects or is likely to affect the industry. First, the currency fluctuations can reduce or increase demand for a particular product impacting the demand for other products in the industry. The firm has witnessed a sharp decline in demand for its toys when the Denmark Krone became overvalued about a decade ago. Because of this, the firm lost its competitive edge in the market. Second, change in per capita income of consumers affects the demand in the industry. With industrialisation, globalisation and economic boom, the average disposable income of people have gone up. So, there spends on toys and other leisure items has also gone up. This factor is positively influencing the company. In fact, a few times, the demand surge is such that the firm falls short of supply. Kottasova & Liakos (n.pag.) highlight that there the demand of Lego bricks was expected to be higher than its supply in the last Christmas season.
Firm’s Resources, Capabilities and Competitive Advantage
The Lego group was founded in 1932 and is headquartered in Denmark (Forbes n.pag.). The business strategy of the firm is imbibed in its name itself. Lego is derived from two Danish words that mean ‘play well’ (Forbes n.pag.). So, its motto was to deliver quality leisure products to its consumers.
Resources can be tangible or intangible. One of the key resources of the Lego Group is its brand, an intangible asset that defines the popularity of the company. The firm has a well-established brand with strong brand presence and salience. People are not only aware of this brand as a quality brick manufacture, but they also aspire to own a Lego brick. The brand awareness is strong and people are emotionally able to connect with the brand. Second, the experienced team of employees that have been associated with the company for a long tenure are a key tangible resource. The team is a motivated one that believes “that only best is good enough”, the motto by which the company lives (Delingpole n.pag.). The firm has strength of 120 talented designers that are determined to keep the young generation thrilled about their product (Delingpole n.pag.). Third, the firm’s automated manufacturing facility is a key tangible resource. The firm has invested heavily on building its production facility. Automation or lack of human intervention on the manufacturing floor ensures that there are fewer errors or defects.
There are four main capabilities of the firm that give it an edge over its customers. First, Lego’s production design is innovative, distinctive and creative. It is a collection of models that trigger the imaginative cells of its consumers (Ireland, Hoskinsson & Hitt 5). Over the years, the firm has built upon this capability to build legal protection for its products in terms of the design and material used. This is important as brick is a highly imitable product. Second, the firm has the capability to gain consumer insights, build upon them and offer products that are saleable and relevant for the given market. This gives the firm a capacity to be dynamic to market changes and incorporate the latest trends in its products, like adopting the theme of Star Wars. Third, the interwoven complexity in its production process is another capability of the firm that is difficult to imitate. The bricks made by the Lego group are so intricate, imaginative and creative that substitute products are not even a close match to its quality. Fourth, learning lesson from its dwindling performance in the late 90s and beginning of the 21st century, the firm has strengthened its supply chain and distribution system. To achieve this, the firm streamlined its procurement practice, started to order in bigger quantities to gain bulk discounts and drastically reduced its number of suppliers. They brought about cost transparency to help the research team design cost-effective toys. They also started outsourcing more, especially the simpler products, to reduce cost of manufacturing.
Drawing from the firm’s resources and capabilities, the competitive advantage of the firm is a combination of its design, brand equity and product range. The design of the bricks is innovative, imaginative, safe and relevant to the latest trend. The product safety is important in the toy segment as parents are sensitive about their children’s health. The Lego group fairs extremely well in this parameter as their bricks are made from high-quality and unique plastic, a capability that the firm has created to distinguish itself from competition. It has a wide range of products that come in a variety of attractive colours and large number of intricately designed bricks in offering.
Sustainability of the Lego’s Competitive Strategy
There are three aspects of Lego Group’s competitive strategy that makes it sustainable in the contemporary business environment. Firstly, the firm’s design innovation is customer-oriented and co-created. The company turns its loyal users into designers that help the firm to institute multi-dimensional feedback into its products (Simmons & Crawford n.pag.). This focus on “good design” helps firm gain over its competitors by its product line that excites the customers and makes them yearn for it. It helps consumers get that unique gaming experience that can give the firm an edge over its customers in long run.
Secondly, the toys designed by the company are market relevant. This ensures that the products are in line with the changing consumer preferences in a dynamic world like today’s. For example, the firm included Star Wars’ characters in its blocks at the time when there was craze for such products. Not only did it include these characters, the firm also gave its customers a variety of options to customise their favourite characters through intricate product designing. The market relevance strategy is sustainable and will help the firm tide over any situation.
Thirdly, the Lego products offer something more than the customer’s expectation and bring about change in gaming behaviour of its consumers. This helps the firm to give the customers a little extra. That little extra will take the firm a step ahead of its customers. This strategy can prove to be highly sustainable in the competitive environment of today.
Works Cited
Delingpole, James. “When Lego Lost its Head – and How this Toy Story Got its Happy Ending”. Dailymail.uk.com, 18. Dec. 2009. Web. 07.Mar.2016
Forbes. “The World’s Most Valuable Brands: #95 Lego Group”. Forbes.com, LLC, May. 2015. Web. 07.Mar.2016
Ireland, R.D., Hoskisson, R.E. & Hitt, M.A. Understanding Business Strategy Concepts Plus. 3rd. Ed. Texas: Cengage, 2012. Print.
Kottasova, Ivana & Liakos, Chris. “Lego Won’t Have Enough Bricks for Everyone This Christmas. Cnn.com, 21. Oct. 2015. Web. 08.Mar.2016
Oliver, Keith, Samakh, Edouard & Heckmann, Peter. “Rebuilding Lego, Brick by Brick”. Business.com, 29. Aug. 2007. Web. 08.Mar.2016
Simmons, Wayne & Crawford, Keary. “Can ‘Good Design’ Eliminate Competition”. Innovationexcellence.com, 23. Apr. 2013. Web. 08.Mar.2016
