Lego Case Study

1. How did the information systems and the organization design changes implemented by Knudstrop align with the changes in business strategy?

Lego Company had a disappointing year in 2003 with its net sales fallen by 26 percent from DKK 11.4 billion in 2002 to DKK 8.4 million. Play material sales declined by 29 percent to DKK 7.2 billion. The underperformance of the organizations was due to misaligned supply chain, the problem was hard to find because these they grew out of the company’s core strengths, its capacity for innovation and its commitment to quality. There intricacy and attention in their product lines has resulted in various new products, disregarding the cost of innovation and misalignment of supply chain. Designers in Lego dealt with an astonishing array of suppliers approximately 11,000 suppliers more than the Boeing uses to build its aeroplane. The company has the largest injection moulding operations in the world with nearly 800 machines. But the teams operated in haphazard and changed them frequently, preventing operations from piecing together a reliable picture of demand needs, supply capabilities, and inventory levels.

Knudstrop gathered a diverse group of senior executives and managers to make striking changes to the organizations downfall. The executive made many strategies to rebound and the sales, marketing, development, engineering and designers coordinated to make operational level changes. The executives paid attention to details, priorities to set clear, scope of the project and there progress.

Major changes to align with the business strategies were:

1. To move the US plants to Mexico in search of cheap labour.
2. Stabilized the prices of the raw materials with the suppliers. The designers were advised to make more cost effective innovations by reusing the kits still in their inventory. Lego group cut down its suppliers to 80 percent. Cutting the number of colours used in the designs.
3. The team set a 4 to 12 production cycle, specific machines to specific moulds.
4. Sales and operations would work on monthly changes in the requirement, compared to the constant changeovers.
5. The Lego group outsourced 10 percent of its manufacturing units to the Asian market. The group outsourced the manufacturing to its Hungarian facility belonging to Flextronics, electronic manufacturer based in Singapore.
6. Redesigned the entire distribution system,  The centers at France, Denmark , Germany were phased out and one new center at Czech Republic was established with DHL operating as distribution system. Logistics providers were cut down from 26 to three to four.
7. Lego customers were invited to participate in product development discussions at certain phases.
8. The changes in supply change management, operational strategies have helped align the business strategies.
9. Penetration into video games and virtual gaming, movies, their launch into the entertainment world was the biggest step to wider audience.
10. Lego creating business models with IBM and SAP. IBM Technology with SAP Software has proven a flexible, compatible, ideal and commercially successful business model for Lego Group.

References:

(n.d.). Retrieved February 10, 2015, from http://www.strategyand.pwc.com/media/uploads/RebuildingLego.pdf