Lego Case Study

Question1

Lego was a company established by a Danish carpenter in 1932, but in 2004 company was about go bankrupt as it lost 40% of its sale. When Knudstorp was made CEO of Lego in he made some organizational changes and was able to put Lego back on track and after five years there was rise in their profit and sales. Knudstorp had implemented a strategy where designers were asked to reuse the components in their products which reduced the components from 13000 to 7000 which saved a lot of money for the organization as every single component mold was very costly. Another important change in structure of the company was employees were given incentives for any innovation or when an employee’s shows a good sale record. Manufacturing units were moved to cheaper locations as it would decrease the production cost but quality was never compromised. Lego concentrated on their strengths like their traditional blocks and components. Lego even entered the video games and virtual market they adapted the change and took feedback from their customers at real-time. They even made their toys in association with famous Hollywood moves like star wars and toy story. Knudstorp planned that they should even target adults by forming committees, websites and blogs. Using the reusable parts had some relief on Legos supply chain unlike before where could not supply enough which affected their branding. Knudstrop implemented an integrated enterprise model with help of IT giants like IBM and SAP which helped the company to expand and continuously transform as they keep track their data so they could analyze where the profits where coming from and they were able to reduce the losses. Knudstrop even wanted a simpler architecture so their company’s efficiency and profits doesn’t get affected.    

Question 2

Lego used many generic strategies like Cost leadership where Lego had cut cost by reusing the components for their products which had very great impact on reduction of production costs as the components used were reduced to 7000 from 13000,so they successfully eliminated 6000 components. Where average cost to produce one mold was nearly 5000 euros. Some of the manufacturing units were relocated to cheaper locations which saved company lot of money without altering the quality of the products produces by Lego. Another strategy is differentiation as Lego was leader in building blocks, Lego always tried to innovate with their toys. Lego was involved with famous Hollywood movies like   Star wars, Indiana Jones and Toy story to make special edition toys which were very unique and attracted lot of people. Lego wanted to change their approach towards consumers as they only targeted boys they started making toys for girls as well. Communities, websites and blogs were formed for adults to create their own design. They even entered the virtual and video game segment which indicated that Lego was ready to adapt the change according to market conditions. Lego was founded in 1932 was a monopoly but in 2004 company was incurring heavy losses and could not stabilize the situation that is when Knudstorp was appointed as new CEO he has made many organizational transformations as part of his strategy to develop Legos sales and profits. He offered incentives for those employees who show product innovation and increase in sales. Knudstrop wanted integrated enterprise model which would help Lego maintain efficiency and strong sales. Complex architecture of Lego was re structured and designed to identify the sales, stock, profit and loss. Since toy markets evolve continuously this was a very good move by Lego to be simple so it’s easier to transform rather than being complex.

Question 3

When Knudstorp took charge as CEO, the model of business was hyper competition as there is continuous change happening in toy industry people are wanting toys which are new and interesting. Knudstrop tried to decrease the cost of production by reducing the number of components used in the production he even shifted the manufacturing units to inexpensive locations so it would save manufacturing costs by not negotiating on quality of the product. Knudstorp encouraged to his employees to innovate about products and to increase the sales by giving them incentives. He knew that they must evolve continuously to stay in race, so implemented toys that were path breaking; they teamed up with many Hollywood hits to create unique kind of products. Knudstorp wanted all kinds of people can use their products, so he created toys that targeted girls as end users. He formed sites and blogs for adults where they could build their own designs this created a curiosity for adults to get involved. Knudstorp had anticipated the future outcome of toy market so he implemented Lego products into gaming and internet. He mechanized the manufacturing of Lego products so the demand for popular Lego was met so it didn’t affect the retailers, so he was able to maintain the brand value for the company. Knudstorp wanted to simplify the process in Lego so that it can easily adjust to toy market and its outcome and even complex business process can create certain problems like Lego did know how they incurred losses and where they are making more profits. Knudstorp tried to expand the market into various countries for that he hired additional employees. He set theme parks called Lego Land for public entertainment and opened new stores across the world, this way he developed a hypercompetitive model for business.