management of innovation lego study
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408 409 411 420 421 422LEGO CASE STUDY
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Company Profile
A Denmark basedconstruction toymanufacturing company.
Founded in 1949, it is yetone of the frontrunners inchildren toys, due to theirinnovation strategies andcalculated risks.
Its flagship productsconsist of interlockingplastic bricks, mini figures,and accompanying array of
gears.
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History
The first half-century of LEGO's history, however, is the tale of a
successful post-World War II Scandinavian company. Ole Kirk
Christiansen started making wooden toys in his town of Billund,
Denmark, during the Depression of the 1930s, eventually naming
his company LEGO, which loosely translated from Danish means
"play well.
When the war was over, Christiansen bought a plastic injection
molding machine and experimented with it to see what kinds of toys
he could make. By 1949, he had developed the now-familiarbuilding blocks with circular studs on the top, an advancement that
allowed children to lock connecting blocks into different shapes
rather than just stacking wooden blocks on top of each other. Half of
LEGO's output was plastic by 1951. Later that decade, the company
developed a more durable plastic polymer for manufacturing the
toys and also trademarked the building-block style for which LEGO
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Over the next two decades, LEGO's sales and profits grew steadily but
modestly as the firm focused primarily on its trademark building sets with
just a few variations, including castle and space themed toys. Beginning in
1978, however, the popularity of LEGOs surged, and profits doubled every
five years during the 1980s. LEGO's rise came during the peak years of the
baby boom and that generation's children. The firm's building-blockmaterials continued to appeal to those groups for years, as the company
turned out more and more themed building sets and expanded its markets.
In 1993, however, sales slowed to a crawl. The Chinese had started
manufacturing similar items at a fraction of the cost. LEGO added more
toys to its product line, but did not sell more items overall, thus inflating
manufacturing and delivery costs while not increasing revenues. At thesame time, consolidation among some retailers and the phenomenon of
big-box stores made it tougher for company leadership to negotiate prime
shelf space for LEGOs. Further, with the advent of video and computer
games, boys -- and it was primarily a "boy toy" company -- began giving up
LEGOs in favor of more sophisticated toys at an earlier age, reducing the
company's potential market. "Kids were getting older younger," Robertson
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These challenges precipitatedthe firm's 2000 innovation binge.Many of the new items receivedpositive reviews within theindustry and from customers,
particularly the Star Wars andHarry Potter-themed products."They were successful -- untilthey weren't," Robertson stated,noting that the Star Wars andHarry Potter-centric toys, forinstance, were blockbusters --
but only in the years when newmovies or books in those serieswere released. Other toys eitherfailed to gain traction or wereonly popular within small nichemarkets.
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Legos Expansion
Movies
Video Games
Theme Parks
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Children Clothes
Board Games
Television
Books and Magazines
Exclusive Retail Stores
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Vision
To create a virtualplatform whichenables all fans tocreate their own
LEGO World withtheir own models,own rules and owngames.
InspiringBuilders of
Tomorrow.
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What the Case Entails?
The case tells the story of a company whereinnovation is tremendously important, but notworking well. In 2003, the LEGO Group had anumber of positive attributes: it had a well-
respected brand with some very good toy lines.
It had a passionate customer base that in manyareas was more sophisticated than its internaldesigners. And it had been able to extend the
brand into many areas such as toys, games,clothing, theme parks, movies, and many otherstypes of play, earning significant revenues (but notprofits).
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But, in 2003, the company had gotten itself
into deep trouble.
Over the previous 5-10 years, the toy industry
had been changing dramatically in ways thatdid not favour the LEGO Group.
These changes, coupled with some poorly
planned investments and a downturn in thesales of some important toy lines, combined to
almost put the LEGO Group out of business.
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The company lost nearly DKK 1 billion in 2003 and itscash dwindled dangerously low. This was the largestloss in the history of the company, and many analystsbelieved that bankruptcy and perhaps even thebreakup and sale of the company were likely.
The company quickly sold off assets, reducedheadcount, and outsourced production to cut costsand generate cash. But it knew, to turn around thecompany, it had to improve its overall innovationsystem.
It had to improve the time to market, success rate,and profitability in its innovation system. The casepresents a number of representative challenges thatLEGO was facing during 2004 and beyond
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INNOVATION
STRATEGIES
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Restructuring the company to make
responsibility for
each part of the business clearer. Each toy line
was
given responsibility for its own sales and
profitability,
and the Concept Lab, which before had lackedfocus,
was separated and charged with developing
new
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The definition of innovation was redefined
through
the LEGO innovation matrix.
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A new stage-gate process was implemented.
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A new way of working
with
external inventors and
complementary product
producers was integrated
into the structure and
process.
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Users were involved inthe
development of new
toys, in particular thenew
generation of LEGO
Mindstorms.
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Through these and other activities, the LEGO
Group dramatically improved its performance,
returning to profitability in 2005 and achieving
very healthy profits in 2007.
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Conclusion
Learning objectives:
How to restructure an innovation system.
How to encourage all types of innovation
(innovation in pricing, business model, channel
to market, branding, customer experience,
etc.) and coordinate these innovations across
the company. How to involve external parties such as
customers, complementary product producers,
and external inventors in your innovation
system.
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