Lego Case Study: The Lego Group Competitive Advantage & Strategy

Main Feature of Organization, Strategic Products and Current Mission

The Lego Group is a toy-manufacturing company which is based in Billund, Denmark. The company was founded as a family organization in the year 1932, by Ole Kirk Christian. Today, the company stands high as a global player in the world of toys, among other strategic entertainment products (LeGoff 557).

Initially, Lego started as a manufacturer of ironing boards, toys, stepladders, and stools. Among these products, the wooden toys have been the best selling items, thus according the firm a strong reputation in the entertainment business. By the year 1949, the firm started manufacturing early versions of the popular LEGO plastic bricks and this was a strategic approach by the organisation, considering the fact that plastics had just greeted the markets as a new material (Simoes and Dibb 219).

However, the outcome was not what the company managers had anticipated, since the public was a bit hesitant in accepting the new material. The company would rapidly gain popularly in most parts of the world, as a result of progressive development of its products. For instance, the basic bricks were sustained with extra figures and features, in a manner that diversified the playing opportunities for children.

The company’s sales and profit scales were rapidly taking a positive charge between 1950 and 1970. However, the period between 1970 and 1990 proved to be a difficult moment for the company, owing to the serious economical implications that greeted the world then, following the oil crisis of the time.

In the course of this era and the period that followed afterwards, the Lego Group underwent serious fluctuations, due to a number of reasons which included; rapid change in the business environment witnessed at the time, complications in logistic matters and financial control, and the extended times that would be required to run into the future plans of the company.

Among the many problems which threatened to shake the firm’s potential, was the issue of the rising competition from much bigger companies such as Hasbro and Mattel (Hicks 41). Other new firms such as Sony, Activision, and Nintendo, who had just ventured the scene with more advanced electronic products, also posed great challenge to the productivity of the Group.

In this regard, the company’s only survival option in the competitive market was to adopt a strategic development plan that would see it come up with new and more exciting products. According to Claus, Riggs & Sekeran, the toy company enjoys a wide range of products that are fit for children of all ages (71).

These products are grouped in various categories, and some of the latest developments include video gaming, pre-school products, play themes, bricks, licensed products, and educational-based products for children, just to mention but a few. This is a clear indication of how the company has managed to remain high in the current competitive business of toy products.

The Lego Group was actively been involved in several turnaround attempts for the better part of 1990s and in the early 2000s, but with little success. No one could have foretold a possible solution to the progressive issues which appeared to claim the company, until towards the end of the year 2004, when a glimpse of hope shone onto the firm.

It was in the course of this period when the company’s serving CEO, Kjeld, took on more involvement in strategies that helped to identify the factors responsible for the company’s downsizing. This helped in the design of effective strategies that would eventually see the firm come back on track. The design and implementation of these strategies was based on the company’s organization, management and business expectation plans.

This involved the replacement of over three quarters of the senior management team with a new batch. Other strategies would be centered on the firm’s operational systems, among other key interventions.

For instance, a thorough revision was carried out on the cost and the supply chain operations of the company, and major changes were inflicted on the sectors right away. More importantly, the Lego Group had realized that working alone would not take them anywhere, and this would see them cooperate with licensing partners in the widely acclaimed gaming sector.

These interventions were sustained with a progressive development of the company’s products, to fit the demands of the modern era. The company has shown steady advancements lately, as a result of these interventions. The climax of this success was realized in the 2008-2009 financial year, which saw the company registering the biggest rate of growth in sales and profits, since the year 1981.

With these positive outcomes, there can’t be any doubts that the Lego Group is now back to its place in the development of children’s creativity, after several years of financial loss and failure (Irani, Sharif & Love 59). The objective of the company is to develop innovative products to meet the expansive consumer requirements, as they occur in the market.

As part of their recovery strength, the Group has reclaimed its position in the global listings, where it is ranked among the top five toy companies, with an approximate value of 4.8 percent in market shares. Lego’s success can also be associated with their mission, which aims at inspiring the current generation of children to be able to explore and challenge their own potential in creativity (Stacey 79).

This has been achieved through the group’s brand values, which are tailored on aspects meant to bring a significant impact on children. Some of these aspects would include things such as quality, imagination, fun, creativity, caring, and learning.

Internal and External Environments of the Lego Group

Lego group is a good example of the international companies that have managed to balance the nature and constraints of the internal and external environments, to make a notable difference in the current competitive world of business. From the perspective of various reports about the company, it is apparent how the toy company has reacted in adapting and utilizing the potential offered by its internal resources, in meeting the demands of its external environment.

According to Dyllick, Thomas & Hockerts, the company’s current strategic development has been achieved through the focused leadership of its former CEO, Kjeld Kirk (139). A better part of this success however, has been reached upon through the feedback which had been received regarding the internal competencies of the firm and its external operating systems.

Internal Environment – SWOT Value Change of the Company

A major tool that can be used to assess the overall potential of a firm is the SWOT analysis structure, which stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis basically considers two main parts; a company’s inward elements which normally constitutes of its strengths and weaknesses, and the attempts to consider the way these factors would come to fit against the external aspects of an organisation’s threats and opportunities.

Strengths

The company’s key strengths are commonly associated with its constant ability to apply the concept of brand recognition in all its products and services, without having to compromise their core values. The company also maintains a close mutual relationship with its suppliers and retailers, and this gives it a powerful business advantage over its rivals in the industry.

The toy market is an industry bulging with a big number of competent players, but Lego’s products and services are the most preferred by majority of the people in the world (Oliver and Roos 911). This is due to their effective leadership in the development of a wide range of children products that have been praised for quality and originality. The newest products by the company are real manifestation of how the power of innovation applies, in meeting their goals and objectives in business.

Brand heritage is another strength which has succeeded at keeping the company ahead of its rivals in the industry (Hatch and Schultz 597). This is evident in how the company’s products are manufactured to fit in their brand values, which are aimed at making a significant impact on the lives of children all over the world.

Weaknesses

Lego’s weaknesses in business can be observed through a number of ways. For instance, even though there have been serious attempts by the company to diversify its products, the company has been poor in technology and IT related matters compared to other competitors, who have fully embraced the power of technology in making their products more enticing to the users in the new media age (Schau 43). Lego Group has also been operating through large toy retailers, and this has been one of their biggest drawbacks in the market.

The large retailers are effective marketing outlets, but they normally operate on high costs and this is likely to deprive the company of substantial amounts of money in profits. More importantly, the company has failed to understand the marketing concepts which are in line with their consumers all over the world.

In other words, Lego group seems to be lacking full understanding of their consumer preferences in the market, and due to this lack of a strategic fit, they have often ended up losing more sales to their competitors in the market, who are well informed of the consumer needs regarding toys and gaming products.

It is also apparent that, Lego Group lacks the ability to effectively translate potential strengths into implemented strategies. This actually explains the company’s gradual response to financial and management issues, among other problems which have affected the company previously (Hölzl 39).

Opportunities & Threats

The company’s notable opportunities and threats can be linked together as key aspects which the company can utilize in achieving its goals and mission in the toy business. According to Schultz and Hatch, while the company has been widely acclaimed all over the world for its production of toys and other children products, there has been a decline in the sales of its traditional toys which constitutes the largest part of their products, due to the increasing attention of children on devices from other companies, that are more electronic (21).

The other biggest threat of the group is the growing number of giant competitors, who are utilizing every opportunity possible to thrive in the industry, thus making it one of the most competitive sectors in the world (Johnson 11). However, Lego Group has always seen these threats as opportunities for further developments in business.

New developments and increase on products has always remained the biggest opportunity to the company. More importantly, as a result of the rapid competition in the market, the company has managed to come up with numerous categories of products, a key strategy which has enabled it to be able to meet the needs of children in the modern era of technology.

External Environment – PESTEL, Porter Five Forces

Porter’s five forces analysis is observed to have a significant impact on a business, in relation to elements of the external environment (Michael 13). These forces include level of rivalry, power of suppliers, threat of entrants, power of buyers, and threat of substitutes. Each of these five forces is considered individually in assessing and analysing the external environment of the company in this case.

Level of rivalry

The level of rivalry is quite intense and strong for the Lego Group. While it is clear that the company enjoys a strong position in the industry, with relatively few giant competitors, it should be considered that they are taking part in a broader market of toy production, which also includes key players in the electronic sector, such as Sony and Nintendo, among others (Martin 84).

Power of suppliers

The company, whose main products are largely based on standardised inputs, has an average power of suppliers. However, it should be noted that, the power of suppliers is likely to go up, in case the company decides to major in more sophisticated areas of productions, such as games or films.

Power of buyers

The power of buyers is relatively high for the Lego Group, with minimal costs between alternative products.

Threat of entrants

As it would be expected, the toy product industry normally requires huge investments of time and money, in a number of ways that include things such as business capital, research funds, and development costs. All these serve as obstacles to entry in the industry, thus restricting the number of new entrants in the sector. In that case, there is a relatively low threat of new entrants in the wider entertainment market, and this offers the Lego Group a much stronger bargaining power over majority of its competitors in the market.

Threat of substitutes

This is arguably one of the biggest threats facing the entertainment product company today. Even though the company is said to have developed electronic products such as video and games, there is still evidence that some of the company’s products are still made in the traditional form. This has the meaning that, the company is faced by a big threat, given that users are likely to substitute between traditional toy and gaming products through to the ones that are made into electronic features.

Power Interest Matrix of the Lego Group

It is also apparent that the Lego group has touched many people with its products and services in the entertainment sector. Through the engagement of the right people in its management and productivity systems, the company has made a big success in its mission and objectives in business (Beal 29).

As it would be observed in the above internal and external analyses, the company has tried to implement a number of strategies, in order to influence and attract people on their products. Through these interventions, the company has successfully managed to impact a large number of people from all over the world, with both electronic and alternative traditional products for children entertainment. Among other key players in the market, the company has a high interest on its stakeholders and the community.

The firm recognises these as the people who play the greatest role in helping them achieve their business goal and for that reason it treats them with much respect. Both the shareholders and the people from the diverse community have a positive impact to the company’s financial interest and what motivates them most is to get nothing less of the best from the company. In that respect, the Lego group is fully engaged in putting the necessary efforts which are needed to satisfy these significant groups.

New Strategic Directions for the Organization

The Lego group is arguably one of the most successful companies in the toy manufacturing industry. Through a wise interaction of its internal and external systems, sustained by the effective management, the company has gained a sustainable competitive advantage over many of its rivals in the market.

However, there are numerous strategic directions which the product company can utilize, to be able to maintain a more sustainable competitive advantage over its rivals.

The Lego Group may have amassed great reputation and success in the entertainment sector, but changing the company into an all-time winner in the global toy market is something that would require much effort, from the company (Schroeder 54). Some of these efforts would tend to involve numerous aspects of strategic management, whose significance in business has often been underestimated.

Some of the strategic directions which the company can incorporate in its operation systems would include; a focus on international opportunities, expansion of digital systems and strategies, constant focus on cost, expansion of target markets, widening of product range, and focus on effective online distribution strategies.

The Lego Group may have made significant attempts in trying to incorporate some of these strategies in their routine business operations, but there is still room for improvement which can be achieved by revising these strategies over and over, to eliminate all the problems which continue to pose a big challenge to the company’s productivity and accountability in children’s toy and entertainment products (Morgan 45).

For instance, the company should focus on the many opportunities provided by the international community and try to utilize them effectively. A good way of achieving this goal is by ensuring that the toy products are manufactured and distributed in all regions of the world, where they are needed most by families, as a key engagement for their little ones.

It should also be considered that, things are changing with the times nowadays and in that respect, expansion of digital systems and strategies is very crucial for the development of the company to fit in the demands of the modern era, which is defined by technology (Cooper 75). To be able to comply fully with this call of modernity, the company should try to ensure that all their products are made into electronic features, to fit the growing demands of technology (Laudon and Traver 18).

It is also necessary for the company to make a constant focus on cost matters, to ensure that there is a two-sided benefit between the producer and the consumers. More importantly, there is also the need for the Lego Group to conduct extensive research on new developments to widen its product range.

Through a corporate level strategy aimed at increasing international coverage and product diversity, the company would be certain to realize more sales and profits out of its toy products. The company should also consider the vast potential business opportunities that are offered by the upcoming trend of e-commerce, and try to utilise these online mediums as effective distribution channels for their wide range of products.

Apart from these strategies, the Lego Group should also try to make good use of other strategic tools in today’s dynamic business world, such as important business information that would provide them with good lessons on how to achieve and uphold a sustainable competitive advantage in business affairs. All these strategies, sustained with the magical touch of an effective organizational management style are likely to bear promising results in the future operations of the company.

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