There are about 915 million ways to combine six LEGO® bricks . But how many ways are there to keep a company on the right track? Kjeld Kirk Kristiansen, current owner of the LEGO Group, was faced with this question in 2004. On the surface it did not become known that LEGO was in trouble in those days. The small bricks were welcome all over the world and the British Association of Toy Retailers joined Fortune magazine in naming the company’s classic bricks the toy of the century.
But the fifth-largest toymaker in the world showed a completely different financial performance from what it used to be. LEGO had been losing money since 1998 while its sales dropped by about 30 % in 2003 and another 10 % the year after. LEGO Group executives estimated that they lost EUR 250,000 every day . But what was going wrong with LEGO? Could not its product line, from its snap-together bricks for young children to MINDSTRORMS, a line of do-it-yourself robot kits for older kids, satisfy the customers any more?
Was LEGO a victim of the highly developed sector for electronic toys? Were its products no longer competi-tive against low-cost substitutes from the Asian market? Or was LEGO just over-diversified with its great product portfolio and theme parks? All of these questions could be answered with yes but it would not get LEGO’s main problem totally into perspective. The supply chain provides in fact the best opportunity for improve-ments. The family who founded and ran the LEGO Group was sure that they had to change the company’s operations radically to get back on the right track.
In March 2004 the former director of strategic development, Jorgen Vig Knudstorp, became part of the management team together with the board and CEO Kristiansen. After analysing the main problems they passed a seven-year-strategy plan . This case study gives you a deeper insight into the former and current situation of the LEGO Group. It shows how LEGO got back on the right track by focusing on their basic business elements. According to the problem description “is LEGO’s seven-year-strategy creative enough to fulfil children’s demands in the future? this case study will present an answer to LEGO’s management. The case study is divided into four chapters. After the introduction LEGO is pre-sented as well as its product portfolio.
Chapter 2 describes LEGO’s way into the crisis and the reasons for it. The main focus of this case study is on chapter 3 which includes several items. First of all the seven-year-strategy is introduced. It is divided into 3 phases which are specified separately. In chapter 3. you can learn how phases 1 and 2 that have already been implemented concentrate on LEGO’s business performance. Furthermore the comparison of planned and actual data is illustrated in chapter 3. 3 which includes several charts showing the development before and after the launch of the new strategy in 2004. At the end of chapter 3 a critical outlook is given – medium-term and long-term. Finally the case study ends with a summary in which all mentioned parts are once again reflected to close the circle.