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”.

Danish Export Day – 2009

Danish Export Day 2009

November 19th 2009 I participated at the event Danish Export day supported by “Dansk Erhvervsfremme” and the Ministry of Foreign Affairs. The event was hosted by LEGO in Billund, and was opened by the Danish Secretary of State, Per Stig Moeller.

During the day there were a series of lectures concerning foreign trade and globalization. Joergen Vig Knudstorp welcomed us at LEGO and introduced us to the new reality of LEGO, “Back to Basic”.

One lecture that I especially took notice of was Peder Oestbjerg from Green Team Group telling about how they exported their impressive production of Christmas trees all across Europe.

Another interesting Lecture came from Nuance, which had totally quitted all effort at their local market, Denmark, and had instead focused 100% at foreign export markets. Today Denmark only counted for a few percentage of their total turnover.

At the event I attended a workshop about how to choose markets, presented by Carsten Krogh Hansen and Jens Peder Jensen. The workshop was really interesting and I advanced in my knowledge and general understanding about export markets in particular.

Read the documentation of the program here (in Danish)

First Lego League 2009

First Lego League Trophy

I volunteered for First Lego League 2009 as Coach and I were to guide a team of 7th graders from Hammerum Elementary School in Denmark. The day started out really early in the morning of competition day, with preparation of the participants’ arrival later in the morning.

During the day I was function as a Team-leader/Body/Big-Brother for the team, and was challenged with different social and educational issues/aspects that I had never before been challenged with. It was a really learning-full experience and I got a sense of what it takes to work with youngster.

The day ended late in the afternoon, and I could proudly see my team get awarded the grant price for winning the tournament and the price of qualification for the Nordic championship.

Read the documentation for First Lego League