Introduction
The ability to adapt to the changing environment, customer demands, and market forces is vital to the success of a business. The mindset and practices that have propelled a company to success are not necessarily the ones that would help stay successful in the future. It is often advisable to discard the elements that drag the company down, even if they have been a part of it for half a century. These elements can be regarded as metaphorical sacred cows, which are expected to be exempt from any form of metaphorical animal cruelty. This irrational reverence can make a business go bankrupt before giving up on the familiar but obsolete practices. That exact fate almost befell LEGO, one of the most recognizable toy manufacturers in the world. Only through cutting the unnecessary ideas and changing the litigious mindset could the company save itself from the brink of ruin.
Background
Lego has been a part of popular culture for decades. The company was started in 1932 by Ole Kirk Christiansen, a carpenter. In the beginning, he was producing buildings and furniture, but then an economic depression in Denmark made that business model untenable. He switched to making smaller objects, such as ladders, boards, and other small furniture. Christiansen was making toys for children on the side from leftover materials, but eventually, he made that his factory’s leading product and renamed the company to LEGO in 1934 (Lauwaert, 2008). They were making toys from wood until 1960 when a fire destroyed their stored stock. After that, they began making toys exclusively from plastic, as did many other toy manufacturers. The war effort required vast amounts of wood and metal, creating a shortage of these materials for other industries, which has made plastic a more viable alternative for toymakers.
The shift to plastic as the primary material vastly broadened the possibilities of play. Although there was public prejudice against the use of plastic in the toy industry, LEGO got ahead of the criticism by employing higher-quality materials and devising a particular method of manufacturing that was not possible with wood. They began producing blocks with the stud-and-tube coupling system that is used to this day. The plastic blocks that appeared in 1958 were built with a very low tolerance, thus making the constructions sturdier and more rigid, while still capable of being disassembled. The use of wooden blocks necessitated using individual slots for windows and doors, but the new plastic blocks did not. While the wooden blocks could only be used to create simple and basic structures, plastic allowed for greater complexity and freedom of expression. Children could build not only simple houses, but also cars, planes, or even skyscrapers.
The shift to plastic blocks with stud-and-tube couplings also meant interchangeability between sets. Any purchased collection of blocks united into one set would fit together with any other, allowing children to construct spontaneously, drawing ideas from their imagination. The plastic-molding machines also allowed LEGO to create much smaller pieces than was previously possible. They began creating mini-figurines of humans, animals, hairstyles, flowers, hats, and furniture. They could make the spontaneous construction even more detailed, informing the culture of creativity and integration.
The Brink of Ruin
The company had been successful and profitable for many years, which is why, when difficulties finally began, the managers were complacent and unprepared to deal with them. Lauwaert (2008) writes that in the late 1990s, it became apparent that LEGO’s brand was getting weaker. The children of that time were less interested in the construction play that has been LEGO’s staple for several decades. The perception was that the traditional “brick” was not technologically advanced or “cool” enough to attract the attention of modern children. The technical innovation and the Kids Growing Older Younger phenomenon contributed to the lessening popularity of LEGO. The company had long-term plans to strengthen their brand by that time, and they were fast-tracked. The company began diversifying into theme parks, video games, and children’s media.
The core concept of LEGO’s toys up to that point was assembly. The primary play activity, according to LEGO’s branding and corporate perception, was building what the instructions directed the player to make. As part of the diversification and renovation, the company started marketing its product with messages about imagination and creativity. The products themselves, however, failed to live up to these messages. As the company noted that the assembly aspect of play became less popular, they started introducing sets with unique parts and pre-assembled structures that did not fit anywhere else. They were supposed to be quick to assemble and designed to be played with, which went directly against the marketing messages and the spirit of the previous products. The traditional brick-based sets were selling well, but the toys like Galidor or Znap were extremely unpopular, and the unique nature of their parts drove manufacturing costs up (Moore, 2015). In a misguided move to distance its brand from the plastic brick, LEGO created a product that went against creativity, earning the company no favors among the press and the customers.
Another part of the company’s diversification strategy was aligning itself with existing properties such as Star Wars and Harry Potter. These two franchises were very profitable, but only when a movie was released (Moore, 2015). The income generated from selling these themed sets did not cover the increasing cost of production. Some of these properties were also unpopular, and the licensing fees with media giants such as Disney were an enormous financial burden (Lauwaert, 2008). These measures resulted in the opposite of what LEGO planned: the brand image became even more diffuse. The business ventures that were unrelated to making toys also contributed to that diffusion.
The only successful line of toys that was borne out of this strategy was the Bionicle. The line began as an attempt to attract young boys who were not interested in construction, but physical activity and role-playing. The Bionicle’s primary drive was to be seen as “cool” and compete with other established brands in that demographic, such as Pokemon or Star Wars (Fonnesbaek & Melbye Andersen, 2005). LEGO focused on delivering a story that was told through various media and drew public interest to toys. The toys themselves were easy to assemble, and the advertising was cinematic and compelling. The premise was a universal story about the fight between good and evil, which reached the audience across the planet. The line achieved great success, improved the perception of LEGO among the target audience, and earned the company large sums of money in the process. The toys remained popular for years and generated direct-to-video animated movies, books, and video games. Unfortunately, Bionicle was an exception rather than the rule, and it could barely keep the company from failing while a permanent solution was sought.
The Killing of the Sacred Cow
One of the most harmful mindsets in the company was the assurance that the situation was under control and that the problem could be dealt with by merely creating more products. However, according to Mark Stafford, while the company was months away from bankruptcy, nobody in the higher echelons knew how much the production cost them, or how much revenue the different sets pulled (Feloni, 2014). When a then-consultant Jorgen Vig Knudstorp analyzed the company’s finances, production, and customer input, he reported that the company would continue to lose money. However, the top management of LEGO did not believe him and asserted that they “did not see things that way” (Ng, 2017). In 2004, Knudstorp was appointed CEO by Ole Kirk Christiansen’s grandson and began his “back to the brick” strategy. The pre-made parts of the new sets were discontinued, and the number of unique pieces produced by LEGO was halved. Every property that had nothing to do with producing toys was sold off, a third of the workforce was let go, and even the executive offices were downsized (Moore, 2015). The toy lines were standardized to cut production costs, but it also resulted in increased compatibility.
Another necessary change was the creation of a more open and creative environment for the adult fans of LEGO. Previously, the company was rather protective of its trademark, but in the 2000s, LEGO became more customer-oriented. The employees were instructed to engage with the fans and participate in online communities. An innovative Mindstorms kit, which allowed users to create and program robots based on LEGO blocks, was updated by building a team of dedicated fans. The company embraced their adult fans’ tendency to hack and tinker with these kits and even allowed it in the Terms of Service (Lauwaert, 2008). The younger fans of LEGO were directed to forums and digital construction tools, allowing them to build with virtual LEGO blocks. The company also began some initiatives to collect ideas from its fans, which resulted in some community-suggested toy lines. Some fans were even hired as designers for future sets of toys to revitalize the creative force of the company. These new designers knew both the product and the consumers, and that move was incredibly beneficial.
Conclusion
The “back to the brick” strategy that Knudstorp employed brought the company back to its roots. The core competence of LEGO was making interchangeable plastic parts that could be combined to build something from scratch. The sacred cow that needed to be sacrificed was the reliance on fad-based toy lines, the rigid protective mindset, and the blind assurance of the management that everything was fine. LEGO was stretching itself thin by deluding itself into thinking that more product meant more success. The opposite was the case: streamlining the core product and playing to its strengths allowed LEGO to survive and thrive while diversifying too much almost destroyed it.
Some sacred cows, like quality toys and the focus on the consumer’s imagination, should be revered and cherished. Others, like outdated trademark protection and mindless growth, need to be mercilessly sacrificed. The company did not go bankrupt because select individuals in it had the resolve to oppose the accepted worldview and dramatically change the entire structure. They cut the excess spending and focused on bringing the single core competence into the XXI century. Nowadays, LEGO is one of the most successful toy brands on the planet, and for a good reason.
References
Feloni, R. (2014). These are the disastrous LEGO kits that almost ruined the company. Web.
Fonnesbaek, J., & Melbye Andersen, M. (2005). Story selling: how LEGO told a story and sold a toy. Young Consumers, 6(3), 31–39.
Lauwaert, M. (2008). Playing outside the box – on LEGO toys and the changing world of construction play. History and Technology, 24(3), 221–237.
Moore, R. (2015). The rise and fall (and rise again) of LEGO – brick by brick. Web.
Ng, D. (2017). How a rookie brought Lego back from the brink. Web.