Since 1949, the LEGO Group has manufactured over 400 billion plastic bricks, tiny tires, mini-figures, and other inter-compatible play pieces, making it the world's fifth-largest toy manufacturer, and the largest in Europe. From 1932 to 2001, LEGO group achieved remarkable successes, capturing 80% of the US toy market in 1992. From 2001 to 2004 though, LEGO group experienced significant financial difficulties due to adverse industry changes and internal problems. More recently, LEGO has launched a three-phase turn-around strategy with the aim of establishing a profitable core platform, and preparing for growth. In this study, we will walk through the important phases in LEGO´s history, focusing on the changes within the company and the industry at-large, and conclude with a critical analysis of LEGO's turn-around strategy. How attractive has the traditional toys and games industry been over the 20th century? Porter´s Five Forces model provides a framework to evaluate the power of suppliers, threats of new entrants and substitutes, buyer power and the degree of rivalry.
[...] The LEGO brand is of course a unique resource which the LEGO group is clearly better off parlaying into non-toy sectors (as evidenced by the success of some of the resulting products). However, LEGO‟s former horizontally integrated portfolio was not the best alternative mechanism to leverage the brand name; LEGO‟s employees simply do not have any experience operating theme parks or video game studios while other firms have superior expertise in that area. Although there is some benefit to integration in that LEGO can maintain tighter control of its brand image, contracts with licensees can be and have been easily formulated to retain much of that control; LEGO‟s divesting strategy represents its best alternative. [...]
[...] Slow and Dull Old Fashioned Limitless and Fun Construction as CREATIVITY Pride & Achievement Variety Construction as ASSEMBLY Difficult Child not in control Child in control Limited Possibilities Another type of toy DECLINING RELEVANCE Endless Possibilities Not just a toy ENDURING RELEVANCE54 This, as the table denotes, shifts the focus of the LEGO brick from being just a and a LEGO set as one just meant to be assembled, to a means of creativity, where different bricks can be arranged in different ways, from different sets to create something totally new, unique and original to the child playing with it. [...]
[...] LEGO created value by expanding on its core product in order to sell it as a staple toy International Directory of Company Histories. Vol St James P p Year Key Events in LEGO's History Christiansen‟s wooden toys business in Billund, Denmark. Automatic Binding Bricks LEGO System The LEGO brick as we know it Legoland Park, Billund Duplo Toys LEGO figures Enfield, Connecticut, plant Legotechnic Patent expires Tyco‟s Superblock series Legoland Park London Mindstorms Lucasfilm ltd licensing agreement for Star Wars Legoland Park, California Technic Bionicle Harry Potter and Jurassic Park 3-phase Action Plan Sell Legoland Parks Table Key Events in LEGO's History (from Company Profile) However, the patent on the design of the Lego brick expired in 1981 and LEGO‟s ability to capture the profits yielded by its core products was challenged. [...]
[...] According to one source, Lego executives estimated that the company was destroying $337,000 in value everyday just by staying in business Revenue Profits There were many reasons for this drastic fall in profitability. These reasons had to do both with industry-wide factors as well as company-specific factors linked to the LEGO Group‟s own line of business. Keith, Oliver, Edouard Samakh, and Peter Heckmann. "Rebuilding Lego, Brick by Brick." (Strategy + Business 48: 2007) Industry Specific Factors: The rapid changes in the worldwide toy industry means that the toy and game industry can today be divided into two main segments: the traditional toys and games industry and the videogames industry. [...]
[...] Accordingly key themes run through LEGO‟s changes to its Value Chain: first, through changes in Product Generation and Sales & Marketing, LEGO refocused on its core LEGO brick products to differentiate itself from competitors with lower quality; secondly, through changes in Manufacturing and Distribution, LEGO has focused on driving down costs in order to move closer to its efficiency frontier. Common Themes Refocus on core LEGO products to achieve differentiation Drive down costs to reach efficiency frontier By refocusing on its core competency of developing and marketing creative LEGO products for children while simultaneously cooperating with partners across its global value chain, LEGO has succeeded in pushing on Willingness to Pay Cost and Volume Pg "Lego Group Annual Report 2006." Lego Group Website Pg "Lego Group Annual Report 2005." Lego Group Website Correspondingly, LEGO has acted to augment its position as a premium toy brand and has set a long-term operating margin goal of Product Generation Sourcing and Manufacture Distribution Marketing Product Generation LEGO‟s changes in Product Generation were crucial to achieving its strategy of differentiation, which improved profitability while leveraging on its heritage of making creative high-quality toys to augment brand awareness. [...]
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