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Innovation Management - (N14G05) Individual Report (008169)

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1.0 INTRODUCTION

The aim of this report is to understand the process of innovation management


at LEGO Group in different streams. The author has carried out details
research into journals to procure the relevant information for this assignment.
The author will be analyzing the innovation management and lastly make the
appropriate recommendations for the LEGO group to improve their Innovation
Management further.

In this report, the author analyse innovation strategy and management of


LEGO and how its responds historically to threats and opportunities, the
sources of innovation used at LEGO Group, the processes for innovation
ideations, as well as how the organisational structure at LEGO Group have
supported or inhibited innovation at the LEGO Group Company and lastly
make the appropriate recommendations for LEGO to likely improve their
innovation management further.

The author has noted, with support from various literatures, that innovation
and how it is managed are key factors in ensuring a company‟s continual
success. Companies with new products tend to capture a larger market share
as compared with companies with old products. As innovation streams and
how they are managed need not be status quo, the author supports the
initiative at the LEGO Group to constantly explore new possibilities for them to
succeed in this competitive world. Innovation management played a key role
in the successes achieved at LEGO Group through her initiation of the
“shared vision strategy” as an incremental strategy for growth is core to the
success that stabilize the LEGO Group to be the most profitable toy company
to capture totally new markets and are currently employing sustaining
innovations to increase their market share and profitability.

In analysing the innovation initiatives as employed by the LEGO Group, the


author discovered that the approaches to and management of innovation are
significant and different from one organisations to another. The LEGO Group

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Innovation Management - (N14G05) Individual Report (008169)

extensively conduct Research & Development (R&D) projects simultaneously


and are protective about their innovative ideas. Her dedicated R&D team was
able to inculcate a creative culture within its organisation in addition to its
appointment of Jørgen Vig Knudstorp as president and CEO of the LEGO
Group in October 2004. His strategic process for innovative ideation has
made significant encouragement and growth. This accounts for a higher
share of innovations due to its better capability to exploit its innovative
capacity for more innovative ideas and thus produce a higher share of
innovations.

1.1 THE LEGO COMPANY

Company Background and History

The LEGO Group was founded in 1932 by Ole Kirk Christiansen from a small
carpenter‟s workshop to a modern global toy manufacturer with products sold
to more than 130 countries. The LEGO Group started with craft of wooden
toys in the founder‟s carpenter workshop in Billund, Denmark. LEGO was a
shortened form of the Danish phrase, “leg godt” (play good). Ole Kirk
Christiansen built a business based on offering high quality products that
encouraged creative play. He designed his toys to captivate the imagination of
the local children; through building, they were supposed to develop a sense of
pride in accomplishment and learn while playing. In 1947, convinced that he
had found the ideal new material for his growing company, Christiansen
bought his first plastic injection-molding machine. The eventual result was
LEGO‟s iconic product, the plastic brick with eight studs, which the company
patented in 1958. It became the focus of a tight-knit community of devoted
enthusiasts, with their own newsletters, competitions and even conventions. It
was in the bid for legacy – for quality, creative play, community and
experimentation – that Christiansen passed on to his sons, who continued to
own and run the company. Tremendous achievements have been registered
since LEGO Group was founded in 1932, but to mention a few significant
landmarks. In 1988, the firs Lego World Cup building contest was held. The
Lego Group‟s Educational Products Department was renamed Lego Dakta in

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Innovation Management - (N14G05) Individual Report (008169)

this year. MIT‟s Dr. Seymour Papert from the Laboratory of Computer
Learning was named “Lego Professor of Learning Research”.

Vision

“Only the best is good enough”

Mission Statement

“To nurture the child in each of us”

“Children are our role models. They are curious, creative, and imaginative”

The Product

The name Lego which is “leg” and “godt” in Danish, meaning “play good”
came out in 1934. This name is used for any products of this company until
date with core product – Lego bricks. Motivated by the appearance of plastics
in Denmark, Lego purchased the plastic injection molding machine in 1947. At
that time the British Company Kiddicraft released the products name
“Kiddicraft Self-Locking Building Bricks” which is the plastic interlocking bricks.
Then Christian designed the similar products named “Automatic Building
Bricks” in 1949. The product name was later changed to “Lego Bricks” in
1953. However, the product did not catch the interest of customers who were
familiar with metal and wooden toys and later positioned herself to develop
innovative products which promote creativity and fun-packed play for all
stages of her process development.

2.0 THE LEGO STRATEGY FOR INNOVATION: Strategic Focus

The concept to the start of Cycle 4 was focused on brand coherence across
regional markets and business areas outside of play materials (e.g., five
geographical regions and business areas, such as Interactive, Lifestyle, and
Parks). During the crisis at LEGO (October 2004), The CEO and Top
management felt that, although the specific ways of communicating and
marketing the LEGO brand could be adapted to different regional markets, it

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Innovation Management - (N14G05) Individual Report (008169)

was the clear vision of the CEO and other top management to create global
relevance and attraction through continually referencing the LEGO core
values of “playful learning, active fun, self-expression, endless ideas, and
stakeholder trust.”

Figure 1: The incremental Strategy (Mintzberg, 1987)

The motivation to the application of this concept was the pace at which
applying the incremental strategy at the beginning could help LEGO Group to
create new ideas. The Incremental strategy is the core and successful
strategy that help Lego to be the most profitable toy company. Although it was
also faced with significant challenges later on, many scholars proved that this
strategy is the best choice for those with limited information in strength and
weakness. These issues happen at the time the company has just started.
And the Lego Company applied it perfectly.

2.1 Innovative Strategy: “Shared Vision Strategy”

Following the series of challenges facing the LEGO Group as at 2004 in need
to innovate and birth new strategy that will serve as “an action plan for
survival” titled a strategy called “shared vision.” The plan had three (3)
phases:

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Innovation Management - (N14G05) Individual Report (008169)

Figure 2: Phases in the “Shared Vision” Strategy

1. The first Phase - “Stabilize for survival” was positioned to be carried


out in 2004 and 2005 which is aimed at reducing cost, eliminating
debt and returning the company to profitability.
2. The second Phase - “Profit from the core” scheduled to be carried
out in 2006 and 2007, aimed to improve the profitability and growth
of the company by revitalizing the core product line and
transforming the business process/platform. These they mentioned
could be achieved through outsourcing of manufacturing and
strengthening of the IT Platform.
3. The third Phase – “Achieving Vision” scheduled for 2008 and 2009,
to be focused on developing innovative new play experience that
will profitably grow the company financially.

Era Specific Plans Effects

Stabilize for • Cut off 50% workplace. • Decreased cost


survival • Outsource 80% products to 35%.
(2004 – 2005) low cost countries. • Debt free.
• Sold 70% share of the four • Solid cash
LEGOLANDs. position.
• Produced only 6500
components.

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Innovation Management - (N14G05) Individual Report (008169)

Profit from • Core Competencies: brick, • Earned profit.


the core building system, brand, • LEGO City and
(2006-2007) LEGO community. Bionicle is
• Refine the LEGO revitalized.
Development Process
(Innovation Matrix).
• New approach to connect
with outside inventors and
complementary product
producers.
• User involvement.
• Simplify the programming
language for the Mindstroms
product line
Achieving • LEGO Factory. • Attracted more
Vision • LEGO universe game. users.
(2008 – 2009)
Table 1: The effect of the “shared vision” strategy

Challenges At The Lego Group


- Limited cash:- the company was at the verge of bankruptcy
- Increasing price pressure:- The toy industry was evolving in ways
that did not favor the LEGO Group.
- Competition was on the increase and No clear idea of what is
happening and what can be done.

- Powerful retailers, high fixed costs and in particular, the shift away
from traditional play and the consolidation of retail-outlet power.

These challenges did not only spur LEGO to become more innovative, but
was a source of strategy for innovation among the LEGO Group. The
successes achieved were significant to the business strategy which the
management imbibes after the crisis in 2004.

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Innovation Management - (N14G05) Individual Report (008169)

3.0 SOURCES OF INNOVATION


“By restructuring the company, redefining the innovation process, connecting
with outside development partners, and putting in place a number of
mechanisms to coordinate innovation efforts, the company had reversed its
slide,” (Robertson et al, 2008).

All these tasks were the bedrock of LEGO‟s recovery putting them back in the
game, a result of the evolution of their business model.

3.1 Internal Sources - Structural Changes:


The firm made two drastic changes internally to promote and improve rate of
innovation;
 LEGO designers whose performances were not measured by
profitability were given targets to meet. Groups were formed among
designers, creating a competitive environment that helped foster
innovation among the designer‟s and the firm as a whole.

 Secondly, the company went a step further to restructure what it calls


its Concept Lab, a laboratory functioning solely for innovative
purposes. The firm‟s aim was for the lab to develop radical innovative
products that emphasized the LEGO trade mark. According to
Robertson et al 2008, “They challenged the Lab to develop new
experiences that were „obviously LEGO, but never seen before‟.” In
addition to this, LEGO opened new concept labs in their major markets
which include; US, Germany, Spain and Japan.

The concept lab was also charged with handling the LEGO
Development Process (1995), a process with four major stages which
involve; idea exploration for toys, development, prototyping and
implementation. This concept turned out very successful reducing
product implementation time from three years to one and an increase
in products that made it to the market.

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Innovation Management - (N14G05) Individual Report (008169)

3.2 External Sources - Customer Led Innovation:


The rule of business that says “Customer is King” applies in the case of
LEGO; one of the major turning points for the firm was to involve customers in
product design and development, a total shift from the traditional closed
innovative culture. This led to an open innovative platform where the consent
of customers helped enhance product quality and usability (M. Schultz, 2003).
LEGO sought out a couple of ways to reach out to customers and get their
feedback on new product which include;
 Organizing fan events and fairs for customers to get a feel of such
products.
 The involvement of families in the process innovation.
 Surveys and researches carried out in LEGO retail stores and among
adults that use LEGO products.
 The firm also employed the help of some die hard and creative LEGO
fans called the “fab four” for their reviews and inputs on new product
before their introduction into the market.
 LEGO Company owns quite a comprehensive in-house R&D. It has
one of the biggest and most technology driven research institute (MIT)
as partners for creative innovation.

This open innovation culture saw a big improvement in company‟s sales and
the generation of new successful ideas like the LEGO factory and LEGO
universe.

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Innovation Management - (N14G05) Individual Report (008169)

4.0 PROCESSES FOR INNOVATION AT LEGO

In LEGO, there are four main innovation processes with two sub categories
namely;
 Business; sales channel and business model
 Product; product offering and platform
 Communication; messaging and interaction
 Processes; core processes and enabling processes.

Innovation stage Gate at LEGO Group

Figure 3: The new LEGO Development Process (Cooper, 2000).

The effectiveness of new LEGO Development Process of innovation was


significant to the shortening of the development time from 36 to 12 and
constructively increases the number of finishing products with new ideas (1 or
2 to 8 or 9) and increased happiness of designers involved in the process life
cycle.

4.1 Process of Innovation Initiatives at LEGO Group

The following is a table geared towards producing innovative ideas, for both
Radical and incremental innovation method used in selecting ideas and the

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Innovation Management - (N14G05) Individual Report (008169)

initiatives from the CEO and corporate management team resulting to her
competitive advantage over its competitors in the market:

Scope LEGO Company


Innovation Progress Incremental Innovation

The company promoted its values from the


beginning. LEGO‟s first value Statement “only the
best is good enough” dates from 1933 and reflects
the company‟s commitment to quality.

Sustaining Innovation: “Shared Vision”

2004 – The company went through incremental


innovation during this period she innovate ideas
that led to LEGO Group regaining her market
share position internationally.

Where to get The application of the Innovation Matrix to ensure


innovative ideas? different types of innovative ideas were
coordinated and appropriately staffed.
The new LEGO Development Process had four
major gates: P0,P1,P2,P3
To prepare for each gate the team went through
three phases: Exploring emphasized the need for
outside input to ensure that customer and partner
feedback was collected and incorporated into the
design. Developing required the development of
prototypes for testing. As the process moved from
P0 to P3 these prototypes became more realistic,
starting from rough sketches and moving to
realistic models. In the later stages of the process
the models would include packaging designs as
well. Validating required the team to test the
prototypes
Table 2: Innovation Initiative at LEGO Group

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Innovation Management - (N14G05) Individual Report (008169)

5.0 ORGANISATION STRUCTURE FOR INNOVATION MANAGEMENT

The table below shows the LEGO Group demonstrated learning


towards innovation performance and explains how LEGO Group has
supported or inhibited innovation management. The same table also
reveals the issues and challenges faced at the LEGO Group:

Components of
Innovative LEGO Company
Organization

Position of the World‟s 5th largest manufacturer of toys in 1999


Global toy manufacturer in producing plastic
company
bricks

Size of Innovating The LEGO Company has sold 320 billion LEGO®
bricks, the equivalent of 52 bricks per capita
Firms worldwide.
Market Size For export market to Europe, East Asia and
Australia.

Objective of Innovation Both product and process innovation.

Shared vision, Strong top management commitment and clearly


leadership & the will to articulated shared purpose of innovative/creative
innovate culture in the LEGO company.

Appropriate Structure Encourage organizational design that enables


creativity, learning and interaction among various
business teams.

Extensive Emphasis of communication is central to the


Communication business heads and open community.

High Involvement in Encourage participation from the related


Innovation business units only and the customer community.

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Innovation Management - (N14G05) Individual Report (008169)

Components of
Innovative LEGO Company
Organization

Creative Climate & Encourage creativity within R&D and related


supported by business units as well as the loyal customer
motivated system community.

R&D Capability Own quite comprehensive R&D. Good networks


built around its associated group and customer
community. e.g MIT‟s Dr. Seymour Papert from
the Laboratory of Computer Learning was named
“Lego Professor of Learning Research”.

How the ideas are put The experience of its CEO and management
into practice? team and up-to-date knowledge of the industry
strategic analysis are factors in deciding the best
ways to implement innovation to remain ahead of
its competition.

How they think they After the appointment of the CEO, Jørgen Vig
are lacking in terms of Knudstorp. It has good R&D and management
innovation? teams which will ensure it is ahead in innovation
in the industry.

How they prioritised No priority is given. All R&D projects are


ideas? conducted simultaneously. Any other ideas (such
as packaging) are studied at the same time.

How they protect the The R&D is segmentalised whereby each team is
ideas from handling separate parts of the overall R&D. The
competitors? output from each team are coordinated and
complemented at management level.

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Innovation Management - (N14G05) Individual Report (008169)

Components of
Innovative LEGO Company
Organization

How they gain LEGO Group was flexible to changes by


combining market adaptation with innovation.
competitiveness from
competitor?

How to counter The LEGO Company responded to these through


advantage that expansion into life-style products, opened theme parks
competition is having? (in the U.S., UK, and Germany), and collaborated
with other leading global brands (e.g., Lucas
Films, Disney, Microsoft, and Warner Brothers) to
develop new product concepts.

Benchmark the level of The company is highly innovative compared with


innovation with others its competitors. For example, LEGO‟s Bionicle
range is an enormously successful experiment in
innovative branding and revitalised the image of
the traditional construction toy company bringing
it firmly into the 21st century.

How they develop The company encourages creativity at all levels.


innovative culture?

Table 3: Components of Innovative Organisation Structure

5.1 Analysis of Innovation Management at LEGO Group Company

The charts below provide a framework which enables an assessment of the


innovation management undertaken by the LEGO Group Company, to review
a wide-range of factors affecting innovation successes and shortcomings, a
way of focusing on sub-systems with particular problems, and a guide to

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Innovation Management - (N14G05) Individual Report (008169)

continuous improvement of innovation management (Tidd et al. 2005, pp.


565-569):

Innovation Management for LEGO Group Company

Figure 4: Innovation audit using five dimensions analysis

Effective innovation management is being seen as a challenge of


connecting to and working within one‟s organisation context – from
R&D, product development, supply chain and its networks of strategic
alliances, suppliers or customers which bring the innovation values
across its market (Tidd et al. 2005, p. 71).

The challenge of effective innovation management is not simply one of


putting resources into the system; it is how those resources are
integrated and used within the organisation. Effective management of
innovation streams requires a number of organizational routines,
including clear strategic direction, effective communication and
learning, linkages, processes and the organisation’s innovative
culture (Tidd et al. 2005, p. 92).

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Innovation Management - (N14G05) Individual Report (008169)

Justification

 LEGO top managements play a key role in sponsoring and shaping


innovation within their respective organisation structure;

 LEGO have clear corporate branding strategies with its firm-specific


knowledge – the capacity to exploit its competitive innovative
success as supported by its internal structures and processes that
exploit the innovative capacity through integration across
technological fields, business functions and product division – to
cope with its demanding markets globally (Tidd et al. 2005, p. 108);

 The LEGO corporate management team have a high sense of


„innovation leadership‟ (Tidd et al. 2005, p. 121) to being the market
leader in their respective industrial sector.

To summarize, LEGO has a higher share of innovations due to its


better capability to exploit its innovative capacity and better
organisational infrastructure and access to partners and resources
which are supportive of and conducive for its innovation activities.

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Innovation Management - (N14G05) Individual Report (008169)

6.0 RECOMMENDATIONS

Nevertheless, the author envisages that despite the significant growth of the
Lego group she could further improve her innovation stream and its
management by establishing external linkages with international organisations
as well as other supply chain management systems to explore other disruptive
opportunities for the future and increase overall business performance via
process innovation. These the author recommends can be further supported
via creating an innovative culture, build linkages with government bodies and
local universities, expand its R&D capabilities and, develop training and
innovative incentive programs.

LEGO is doing pretty well in the area of innovation management, probably


due to the internal linkage to corporate leadership. The author think that it may
benefit more if it is able to establish linkages with external organisations, such
as the following leading e-commerce and social networking websites for
example: eBay, Amazon, facebook to promote and diversifies her market and
could seek cooperation on working on expanding their product line at the
upstream level, which could be providing fries and expertise to other
manufacturers, and/or venture into downstream activities such as end product
that is marketable to end consumer directly as follows:

1) To explore other disruptive opportunities for the future

Due to the increasing competition in the global market of toy


industries, LEGO may need to consider venturing into other areas
of the industry by exploring other potential disruptive innovation.
The global competition, change in fashion trends, and the change in
lifestyle of consumers have gradually reduce the margin that LEGO
had enjoyed in the past and is currently enjoying. LEGO should at
least think in what strategic ideas the company need to venture into
in the next 5 to 10 years.

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Innovation Management - (N14G05) Individual Report (008169)

Organisations can sustain their competitive advantage by operating


in multiple modes simultaneously – managing for short-term
efficiency by emphasizing stability and control, as well as long-term
innovation by taking risks and learning by doing (Tushman &
O‟Reilly III 1997, p. 167).

2) To increase overall business performance via process


innovation

Analysis of the market shows that, while LEGO is still a market


brand, the author think it needs to keep the competitive advantage
by constantly innovating, especially on process innovation to reduce
the complexity of its current production process so as to increase its
overall business performance and productivity.

7.0 CONCLUSION

Successful innovation correlates strongly with how a company selects and


manages its innovative projects. However, how it coordinates the inputs of
different functions, how it links up with its customers, etc is another issue
entirely. A successful innovation management can give rise to its distinctive
competitive ability by being the market leader in its respective industry (Tidd et
al. 2005, p. 87).

In strategic management, exploitation activities of R&D are strongly driven by


product and market strategy (Cavone, Chiesa and Manzini, 2000). The LEGO
Company have displayed such characteristic by focusing their R&D activities
on commercially viable projects.

The competitors of LEGO Group are likely to conduct R&D activities on a


smaller scale as they seek to gain knowledge and confidence (Pannell, 1999).
In this sense, LEGO have an advantage over their competitors as they have
already logged in years of successful R&D activities. Nieuwenhuis (2002)
mentioned about creative destruction whereby companies with new products

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Innovation Management - (N14G05) Individual Report (008169)

will out-succeed companies with old products. Nieuwenhuis (2002) also


mentioned that “innovation is important for the competitiveness of enterprises”
and “innovation and technology development are the main tools for surviving
this dynamic process”.

In short, the LEGO Group have successfully managed her innovation streams
and were able to relate her innovation streams with business performance
and thus increase her market share and profitability. Nevertheless, the author
will recommend that to further improve innovation management at the LEGO
Group, it is obvious to understand that innovation and how it is managed is a
key for a business to continuously succeed irregardless of whether it is a large
company or a small single-entity enterprise. The author, have also during the
course of this study discovered that a company which has a successful
innovation management strategy can still improve on its innovation
management as reflected in the recommendation section of this report. In
conclusion, innovation and its management thereof is a necessary and
ongoing process that can be changed and improved to enable a business to
succeed in this competitive world.

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8.0 REFERENCE

a) Tidd, J, Bessant, J & Pavitt, K, 2005, Managing Innovation, 3rd edn,


John Wiley & Sons Ltd, England.

b) Tidd,J, & Bessant, J, 2009, Managing Innovation, integrating


Technology, Market and Organisational Change, 4 th Edn, John
Wiley & Sons Ltd, England.

c) Rob Crawford & Professor David Robertson, IMD 2008, „Innovation


at the Lego Group (A) & (B) IMD-380-382, IMD-3-1978-79, A Case
Study of International Institute for Management Development,
Lausanne, Switzerland.

d) De Wilt, JG, Diederen, PJM, Butter, M & Tukker, A 2001,


„Innovation challenges for industrial Marketing‟, Foresight, vol. 3, no.
4, pp. 341-352.

e) Nieuwenhuis, LFM 2002, „Innovation and learning in Manufacturing


industries‟. Journal of European Industrial Training, vol. 26, no. 6,
pp. 283-291.

f) Pannell, DJ 1999, „Economics, extension and the adoption of land


conservation innovations in agriculture‟, International Journal of
Social Economics, vol. 26, no. 7/8/9, pp. 999-1012.

g) Jeppe, F & Morten M, A 2005, Building Brands, „Story selling: „How


LEGO told a story and sold a toy‟. Young Consumers, Quarter 2,
2005.

h) Niek D du Preez & Louis ,L , 2008, „A framework for Managing the


Innovation Process‟, PICMET 2008 Proceedings, 27-31 ,
Stellenbosch University, South Africa.

i) Cavone, A, Chiesa, V & Manzini, R 2000, „Management styles in


industrial r&d organisations‟, European Journal of Innovation
Management, vol. 3, no. 2, pp. 59-71

j) Tushman, ML & O‟Reilly III, CA 1997, Winning Through Innovation:


A Practical Guide to Leading Organisational Change and Renewal,
Harvard Business School Press, Boston.

k) J. H. Mikkola, DK 2000, Technovation - Portfolio Management of


R&D projects: Implication for innovation Management, Copenhagen
Business School, Denmark.

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