Lessons learned from the LEGO turnaround

Lego_marina_bay_sands

As part of my Strategic Management course at the Nanyang MBA, I did a strategy report on LEGO’s turnaround in 2004. I grew up building LEGO and I have been following LEGO’s business for many years. When it came to pick a topic for my strategy report LEGO seemed like the natural choice.

LEGO is a fantastic case study of a successful turnaround of a failing organisation, attributed to selecting the right strategy. The LEGO management took less than 5 years to almost bankrupt what had taken 3 generations 70 years to build. In 2014, the LEGO group announced record net profits of DKK 7 billion after having turned around a net loss of DKK 935m and DKK 1931m in 2003 and 2004 respectfully.

These are my main findings and the key lessons learned from studying the LEGO turnaround.

If you are not familiar with the background of the LEGO turnaround, Economist and expert in Corporate Strategy John Ashcroft has done a very nice case study which is free to download online. www.thelegocasestudy.com

  • Know your core competencies and keep perfecting them. You core competences should be your competitive advantage and you don’t want to forget that. In the late 1990s LEGO experienced stagnating sales and stated to divest into new areas outside of its core competencies. The new product lines generated short term sales {DKK8,379m in 2000 DKK10,116m in2002 DKK9,475m in 2001}. However, the massive divesting was followed by large costs {DKK(9,000m) in 2000, DKK(8,554m) in 2001, DKK(9,248m) in 2002}. When the short term sales eventually failed to DKK 7,196m in 2003 and DKK6,704m in 2004, LEGO was carrying costs that it couldn’t bear.
  • Stay focused on your core business and ensure that your core business will always be your main attention. In case of divesting, don’t lose track of your cash flow and what puts money in your pocket. LEGO didn’t lose because it divested, but because it lost track of its core business.
  • Ensure you have the right measures to manage your business. LEGO’s accounting standards deceived the management and didn’t provide them with the necessary information to make strategic decisions. Instead of tracking the performance of individual product lines, the management was deceived by tracking country specific performance, hereby hiding alarming performance results of new product lines.
  • Listen to your consumers, but keep retailers first. LEGO has experienced impressive growth by constantly being close with their consumers. However, they don’t forget to keep their retailers happy with good margins and a well-structured supply chain. By ensuring that you vendors have the right quantity at the right time, you save them money and they will be happier customers.
  • Control you value chain. The value chain is where you create value for your customers and your consumers. Keep improving and optimizing your value chain to stay ahead of the competition.
  • Keep your organisation transparent and encourage communication. LEGO’s management was acting on wrongful information, due to lack of communication. As Jorgen Vig Knudstorp says: “a CEO needs every avenue to the truth that he or she can find”.

Match-making your dream job

What matters when picking your first job after graduate school?

Graduation season is coming up, which means that a lot of student are actively starting to look for a job. As part of that process there will be a lot of questions coming to the surface. What am I good at? What do I want to do? Where can I get paid well? Who should I work for? Which industry am I passionate about? All of these questions are important. However, I will argue that one particular question is more important than the others:

What are my values and do they match the values of the company?

There are several reasons why you should be asking yourself this question:

  • Joining a company is like joining a new family and you will get new brothers and sisters. Some will be annoying and others will be lovely. This is your opportunity to join a family that you care about.
  • You spend more time at work than you do with your companion. Make it count.
  • If you are not passionate about what you do, you will never do a good job. This will affect the company and it will eventually affect your continues career.
  • Your life is short! Why waste time working on something that doesn’t matter to you.

To help you map the companies that match your values I have created a simple model.
I have chosen to call it: “The 3 Core Values Model”

3 core values model by Alexander Hold 20-Feb-2016
3 Core Values Model by Alexander Hold 20-Feb-2016

The model consist of six elements. 3 core values, job function, industry and location.

The 3 core values
The core values are the 3 values that matters the most to you. You must select 3 values that you really care about and which should serve you as a guideline for choosing the right employer. The rational for choosing 3 and not 4 or 5, is that it is important for you to focus. 3 stands for Past, Presence, Future. Birth, Life, Death. However, most importantly you must focus and narrow down what really matters to you.

Job Function
Narrowing down on your preferred job function is very important. Sadly too many graduate students, especially within business are not focused when applying for jobs. Because they are educated generalist, majority will apply to Marketing, Strategy, Finance, Communication, Operations and whatever course they studied in school. The lack of self-awareness affects your concentration and will come across as unprofessional with employers.

Industry
Selecting the right industry is similarly important for you to target your job search. If you know which industry you are really passionate about you can take on any job function and over time excel to become an executive manager of the firm.

Location
Location is for some really important and for other less. A lot of global companies’ value mobility and international profiles do often have a wider variety of companies to select from.

These are my 3 core values that matter the most to me:

Sustainability – as I want to work for an organization that makes a positive impact in the world.
Innovation – as I want to surround myself around people that challenge the status quo and make changes in their industry.
Growth – as I want to accelerate my career and see greater opportunities to excel with a fast growing company.

Now it is your turn to customize the model to fit your values. It is important that you take the time to reflect and figure out what really matters to you. Maybe you are all about fame, money, or maybe you seek security. It is all about YOUR true values.

Playing Bowling with Bumpers

When a student you live in this bobble of cool people, lectures, impressions, and if you are lucky you find some time to reflect on it all. According to the theory that is where the true learning is to be found; reflection.

My friend Oskar Kader shared this analogy of playing bowling with bumpers. At the time I didn’t think about it; however, when giving it some thought I realized that it’s a great analogy for growing up in Denmark. When living abroad you meet a lot of people from different cultural background. As you get to know these people and you hear their stories, it becomes obvious that the simple nature of where you were born has a great impact on the opportunities that is given to you.

When born in Denmark, you have to do pretty bad not to live a decent life, catering for the majority of the needs you might have. Every citizen is offered free education, access to free hospitals, and the government will even provide for you if you can’t do so yourself. These are privileges that people of the 3rd world can only dream of. The good thing is that they are actually dreaming and they are working extremely hard to change the nature of their social and financial status in society.

In other words; growing up in Denmark is like playing bowling with bumpers, whereas the majority of the world’s population is playing bowling without and is aiming for the strike.

The privilege of fresh air

Oh I am so privileged! So privileged to breathe fresh air, so pure and clean that 50 years from now, my doctor will compare my lungs with that of a new born child. However, that isn’t the reality for certain regions of this plant and I have come to discover that with my recent move to Singapore.

When growing up in Scandinavia, no one is questioning the quality of the air. True there is smog and pollution in the air mainly from cars and from a few fossil fuel power plants. All over the air quality is considered very well on the PM10 and PM2.5 indexes.

However, that is not the case everywhere in the world and currently Singapore is one of those places. Not that Singapore choose to be a polluted environment, but because of its geographical location that allow its neighbors to contaminate the air of Singapore. Every year Indonesia is hit by forest/wild fires that are intended to clear the land and make space for plantations, mainly for producing palm oil and paper.

Naturally the firers causes smoke that is send into the air and can travel for hundreds of miles, depending on the size of the particles in the smoke. This is defines as haze, which is currently contaminating the populations of Indonesia, Singapore, Malaysia and other neighbors. The implications over time can be serious health issues and in worst case lung cancer.

When living and experiencing this smoke season, where people are encouraged to wear N95 masks, and avoid outdoor activity. That is when you realize that fresh clean air is not a birthright and something that shouldn’t be taken for granted. A lot of people’s health is jeopardized for somebody else’s profit. A professor of Nanyang Technological University shared this article about how we as political consumers can exercise our powers to avoid haze in the future. Exercise Consumer Power to Fight the Haze

If you want to know more about the effect of haze, the Straits Times shared this explanatory article, which features a live satellite map provided by NASA, showing the fires all over South East Asia. Straits Times Haze Graphics

Fires South East Asia

Key lessons learned from doing this exercise?

In July I started a new chapter of my life. I quit my job in Norway and moved to Singapore to pursue my MBA with the Nanyang Technological University.

The MBA is an intensive 1 year program spread over three trimesters. I’m being taught by world class faculty and I am learning from a class of rich diversity, with 16 different nationalities, from different functions and industry backgrounds. Every week is packed with modules leaving no room for much else but school.

We started the program with a 6 week course about leadership and how to lead people globally. For every lesson we have been debating real life cases on leadership from around the world, and the course have been truly rewarding. As part of my final assessment I was asked to write a report about my own personal development as a leader and to reflect over the lessons learned in class, applying some of the tools and methods we had been experimenting with.

The final question of the assessment was to identify the lessons learned from doing that particular exercise. With this entry, I would like to share my answer with you.

Questions answer as part of the assessment:

  • Identify your personal profile and key developmental experiences thus far in your life.
  • What were the key lessons you drew from the readings that were personally meaningful to you. How do you integrate the lessons from the readings?
  • What are your personal and career goals?
  • Leadership Philosophy: How would you describe your perspective on what leaders should do?
  • What are your key leadership strengths? What do these strengths deliver for you? Are there any downsides with these?
  • What are the key leadership development needs that you have identified for yourself? Why are these the key needs?

What were the key lessons you learned from doing this exercise?

At first when approaching an exercise like this, it is a little hard to figure out where to start. It would be logical to start with the first question and work your way through the paper, however, you quickly realize that meaningful thoughts and moments of clarity, doesn’t necessarily fit into the chronological order of the assessment. Personally I jumped straight to the goals section, believing that it would be easy and get me started. However, it became very clear to me that I wasn’t confident in stating a set of goals that I would pursue for the next years to come. Realizing that really sat my mind sparkling, because it forced me to reflect over my own personal experiences from my childhood till today.

In the classroom we have worked with a number of tools to identify ones personality type. The classroom experience has been great, however, when asked to put the lessons in writing, you are forced to reflect on your own results. As John Dewey said it “We do not learn from experience… we learn from reflecting on experience.” And that was exactly the feeling I had after completing this assessment. I forced myself to reflect over the topics and tools covered in class and I had this feeling of actually learning. I wasn’t learning quantum mechanics. I was simply getting to know myself better.

Reaching the final parts of the paper, I started to see this pattern of the lessons learned lining up on this invisible dotted line. Suddenly it appeared obvious that I could relate the leadership lessons learned at LEGO, to my own personal development growth. I could connect Argyris; Teaching Smart People How to learn, with the theory of Liz Wiseman on Rookie Smarts. And this would support my results from the Myers-Briggs Type Indicator. With other words. What previously appeared to be individual lessons, now seemed to come together as one.

I would like to thank Professor Patrick Gibbons, visiting faculty of the Nanyang Business School, for an inspiring 6 weeks on strategic management and leadership. It has been an enriching experience that has allowed for self-reflection and self-development.

LPG_prof_Pat