Case

Analysis
SONIA NAJAM

MBA - 7
LEGO CASE ANALYSIS BY SONIA

OVERVIEW:

The Lego Company was initially started in 1916 in Denmark focusing on building homes and
furniture for farmers. Lego found its niche in 1932 when the first wooden building blocks were
created, from that moment the company had found its purpose in creating toys for children. The
toy product was developed further and eventually the wooden blocks were phased out for plastic
pieces. Lego grew its brand by developing several product lines for different age groups and
specializing its development and production process. However, Lego, as well as the rest of the toy
industry, experienced slow growth in the period from 1993 to 1998. The declining growth was
originally attributed to a declining youth population in key demographics, a decrease in amount of
time spent playing and the increase in technology driven toy products. This time period served as
a warning for Lego and the company started to diversify to push growth. Even with these new
changes Lego still wasn’t experiencing the growth it needed to become a large player in the toy
industry this can be accredited to several key problems within the Lego infrastructure externally
and internally.
LEGO CASE ANALYSIS BY SONIA

Question : 1 Do a Swot analysis of LEGO?

Strengths Weaknesses
1. Patented Building Block 1. Internal Record Keeping (good it
2. Educational toy system)
3. Strong Branding 2. Cost Of Manufacturing
4. Quality 3. Declining Growth
4. Low margins
5. Not focusing on retailers
6. Not managing the theme parks
7. Cost and benefit analysis

Opportunities Threats
1. Technology Based Branding 1. Childhood “Play” Decreasing
2. Licensing for Films and Video Games 2. Rise in technology
3. Licensed Toy Market 3. Imitation
LEGO CASE ANALYSIS BY SONIA

Q: 2 DO a environment scan (pestle) of Lego?

Political Factors:

LEGO being international organization gets affected by the political situations in the countries
wherever it has its presence. They are already present in Denmark and planning to build a factory
in China too, which will be ready for production by 2017. Since to be distributing its products in
more than 130 nations therefore the local political decisions of these nations will also impact it.

Some nations like US have regulations for promoting safer toys for kids, while some countries
are against the biased advertising and marketing of LEGO toys as just for boys which are gender
biased
LEGO CASE ANALYSIS BY SONIA

Socio-cultural Factors Lower fertility rates across the nations due to more involvement of
women in the labour markets, increased standard of living and education has resulted in delayed
pregnancies , which in turn increases the spending power of families one educational toys

Technological Factors

Technology and new product development are of significant importance for LEGO. Moreover the
threat is from high access to Internet across the world, and smart mobile technology which is very
much popular in Smartphones and used by kids. The new 3D printing technology used by LEGO
can be easily imitated by its competitors

Environmental Factors

LEGO has always emphasized on corporate social responsibility and has implemented several
CSR initiatives to be ranked with the topmost companies regarding renewable energy and work
safety LEGO products being made of plastic it has immense pressure to make environment friendly
toys.

Q:3 Do a Porters analysis of LEGO?

Force 5 Reasons Countermoves

Threat of new  Entry of the Chinese and  Reduce manufacturing

entrants Asian manufacturing and cost by buy/outsourcing
High

merchandising your productions

 Rapid imitation  In house production cost
 Invest in new toys
/products.
Threat of  Online activities  Invest in online
High

substitutes o learning,, activities

 video games activities  R & D in product line
LEGO CASE ANALYSIS BY SONIA

Bargaining power  Customers have product  Tracking system of

of buyers range and price sensitivity inventory of LEGO
at the retailers. SKU`S at the retailers
 There is loyalty of and company stores

High children  Improve and develop

 They have so many LEGO products and go
alternatives in to other segments
 which cater the all
levels of children.
Barraging power  Licensing have lots of  Lego needs to be
of suppliers leverage (harry porters) preferred licensing
 Own characters
High

 Product diversification
new product line
(video games and online
games)

Competitive  Cost competitive by
rivalry  Very competitive outsourcing and
 Price base Rivalry increasing
 Fast product cycles manufacturing
 Fads efficiency and also
High

 Seasonality systems
 Birth rate is declining  More product lines
market is shrinking,  Economies of scale
-  Competitive position
LEGO CASE ANALYSIS BY SONIA

Q:4 What are the key problems faced by LEGO?

The key problems that Lego faces are primarily external and internal issues.

 Externally the market affects how Lego grows tremendously. Lego competes with the
two big name toy brands, Hasbro and Mattel. Both of these brands feature very popular
toys such as Transformers, Play-doh, and Monopoly for Hasbro, and Barbie, Hot
Wheels and Fisher-Price for Mattel.
 One of the main issues Lego has with their competitors is its lack of diversity
 This need to add greater diversity to its core Lego products eventually added to Lego’s
downward spiral when it started reaching over 3,560 shapes, 157 colors and 10,900
elements in their assortment.
 . Technology was a huge factor amongst the three year old and up age segment. One of
the main issues Lego had with breaking into the kid’s technology market was how
would they take their core value of “development, imagination and creativity” and
embed it into their toys.
 Lego was quick to realize that they along with parents wanted to continue to drive
learning through its toys.
 This growing shift in the market would soon prove to be one of their most difficult
external issues. Lego eventually started development of video games with a learning
focus, which it found great success.
 Some of the internal issues in summary were the lack of accountability throughout the
company, and a costing system which no one could figure out, Lego themselves had no
idea what the costs of doing business were.
 Another internal issue Lego faced as stated before is their lack of knowing which
products were profitable and when to sell them. This was a huge problem for Lego with
its licensed products such as Lego Star Wars and Lego Harry Potter.
 The problem with this was that Lego was unable to see that their licensed products were
its new bread and butter especially after they had evolved their standard Lego lineup
into a hemorrhaging problem.
LEGO CASE ANALYSIS BY SONIA

Q: 5 what are the alternatives to solve the internal and external issues of Lego?

There are several viable alternatives that are available to Lego in remedying its continued loss of
profits in the years of 2003-2004.

 The first is centered on the financial management system

 the second is the costs and sales related to the Lego-brick products specifically the
mold.
 The third is focused on increasing sales by following the footsteps of its competitors
and add technology to its products.

In order to be able to reduce cost Lego needs to take specific action. The underlying issue Lego
faces is its inability to properly record its financial transactions. This issue can be remedied with
proper financial management and record keeping; this will require an evaluation of how processes
are currently done within the Lego system.

An alternative to spending a large amount of money on an internal audit from an external company
would be for Lego to employ an internal auditor themselves. This would reduce upfront costs and
would allow Lego to consistently get feedback on its record keeping and financial management. If
this proved unsuccessful, other measures to get its financial department up to standards could be
done by a third party financial consulting group. Once Lego’s financial department and record
keeping has been fixed, analysis on its cost can be done properly.

Q: 6 what are the Key Strategic Decisions Faced by LEGO Currently?

LEGO is an organization which portrays the best example of not just managerial complexity but
also organizational dynamics which helped it in developing a worldwide or global brand LEGO.
The framework which includes the branding efforts included the initial focus on Academic Assist
marketing as well as company-wide reorganization which covered many change management
programs, along with an initiative to manage as well as create global brand coherence
LEGO CASE ANALYSIS BY SONIA

Q: 7 What are the tangible and intangible resources of LEGO?

TYPE RESOURCE SCALE EXPERIENCE SCOPE

Tangible Large installed production
+ + +
facilities
Intangible  Brand Name
+ +
 Innovation
+
 Focus on high
+ + +
quality standards
 Raw materials
+ + +
knowledge
 Product design
+
creativity
Organizational  Management
+ +
organization and
leadership
 Involvement of
+ +
operational teams
in turnaround
 Effective supply
+ + +
chain

Q: 8 what is the business strategy of LEGO?

The business strategy of Lego is differentiation strategy.

 We want to be the best not the biggest. New product development and innovation.
 Create a synergy between physical play and digital play.
 Targeting middle class families
LEGO CASE ANALYSIS BY SONIA

Q: 9 what is the corporate strategy of LEGO?

Ans: Adventurous journey sustainability and progress goals.

Q: 10 what are the competitors of LEGO?

1) Mattel
2) Bandai- Namco
3) Hasbro
4) Tomy takaba

Q: 11 VRIO framework of LEGO?

RESOURCE VALUABLE RARE COSTLY TO

IMITATE
Financial Yes To an extent
Physical Yes Yes No
Technological Yes Yes Yes
Organizational Yes Yes Yes
Human Yes No
Innovation and Yes Yes To an extent
creativity
Reputation Yes Yes Yes
Organizational Yes Yes Yes
capibilties
LEGO CASE ANALYSIS BY SONIA