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.