A Case Study Of The LEGO Group

The present study will analyse the strategic approaches adopted by The Lego Group. LEGO group has a renowned name in the toy industry. This Danish originated company established in the year 1932, in Billund Denmark (Lauwaert, 2008). The company initiated with making of wooden toys and soon these toys became bestselling items; later in 1949 the company started its best known plastic brick which became the company’s bench mark. However, the company has faced certain challenges in 1990s and later in 2000 as well (Hat. But soon company regains its position back by adopting different strategic approaches and analyzing environmental aspects.

1.A Study of the Strategic Approaches of the Lego Group:

The Lego group has been taken in the present study to analyse the company’s strategic approaches because of a number of interesting strategic aspects.

1.1Globalisation

The LEGO is an 80 years old brand, with time LEGO bought changes in their products and let the company in remarkable position. But late in 1980’s when economic environment of the world changed drastically and thus originated the concept of globalisation. According to () in the era of diversity where organistaions are no more operating in an insular environment they envisioned a more integrated societies and businesses. Whereas this globalisation on one hand blurred the boundaries of traditional businesses while on the other hand it also created a tough environment for the organisations to survive because of the volatile market, technological up gradations, human capital and high competition. In such instances organisations has to move towards adoption of more comprehensive approaches for their development and sustainability in the economic environment.

In case of the Lego group the company according to () has been very reserved in adoption of strategic approaches for its growth. The owners of the company in order to keep intact the values attached through the company history of 80 years showed less flexibility for the company’s growth. Therefore in the year 1990’s Lego group faced numerous challenges from the business environment. Numerous analysts were of view that Lego group has embraced ethnocentric approach in the company’s environment. This approach does not allow the company for enabling diversity. However, in the era of globalisation, organisations are approaching for diversity in order to gain more markets and to diversify their businesses in many geographical regions. Jackson (1992) argued that work force diversity is associated with the similarities and differences of individuals on the basis of characteristics associated with age, gender, abilities or disabilities, ethnicity, sexual orientation and culture amongst the employees of an organization. The DiTomaso et al. (2007) incorporated that work force diversity is the need of organizations in this information age as more talent is required by the companies. Therefore, companies are striving hard to attract and retain the talented employees though they belong from any country, religion race, gender or background. Thus, work force diversity is todays Multinational Corporation’s requirement in this war of talent raging between their competitors in order to sustain in the competitive market.

In addition to diversity another important aspects needs to be considered while entering in to the global market is innovation. As () suggests innovation helps in creating and sustaining the position in the world market. With the increase in competition for the survival of any company largely depends on the innovation of product or services. Adoptions of different strategies are based on the type of the organisation. Lego needs to focus on the consumer mass market, as company manufactures and sells consumer goods they need to focus on incremental strategies for innovating their product line and also focusing in adopting new markets.

1.2The Lego Group Five Forces Model

The porters five forces analysis will be a better approach to analyze the LEGOs external environment. The first force is the level of rivalry, the company has high number of competitors, the children entertainment has also widened up with companies producing electronic products for entertainment which includes Sega, Nintendo. The bargaining power of LEGO is much high as it has been predicted that there is low switching cost amongst the LEGO products. The LEGO group’s bargaining power of supplier is considered much lower as the company depends upon the standardized inputs such as chemicals and plastic involved in the manufacturing of their products. If however, the group takes initiatives for diversification strategies and gets involved in production of non-traditional products then LEGO may face high bargaining power from their suppliers. The porter fourth factor is the threat of substitutes; the LEGO group has to face a high turnover on substitute goods. The threat is relatively very high for LEGO because the alternatives products of children entertainments are introduced in the market such as video games and electronic products. Finally the threat to new entrants is relatively low as to enter in the market it requires high capital investment and high cost for research and development is associated as to sustain in the market.

1.3The LEGO Group PEST Analysis

PEST analysis is a strategic approach for the external macro environmental analysis of the organisations. This approach is used to study the external macro environment and identify its potential impact on any organisation. As () argues that conducting PEST analysis helps in identifying the potential threats of any organisations that are beyond the firms control prior analysis and its mitigating strategies help companies to take constructive steps in any unforeseen situation.

As recently company’s growth strategies involved market penetration, were company is making initiatives to introduce their existing products in new market. In order to increase its market share company has taken initiative to move to China to expand the business and increase its share in international market. The Lego Group in order to take initiatives of being international needs to do PEST analyse it includes, Political factors, Economic factors, Social factors and Technological factors.

Political Factors

Lego Group is trying to distribute its product in about 130 nations of the world (LEGO, About US, 2013). Every nation possess its own laws and regulations such as in US safety concerns for the kids involved in toys are very much observed while some nations are against biased advertisements and marketing.

Economic Factors

According to the International monetary Fund the general trend of economy will be seen as growing in the 2016-2017. Thus is growth enables that high trend is observed in world economies through increase in public wealth which in turn increase sells. This is an opportunity for the LEGO group to enter in different markets because of the progressive trend is predicted in public wealth.

Socio-Cultural Factors

Spending of parents towards educational toys is been observed from past few years. According to social analysts that due to lower fertility rate and both parents being involved in labour market increase spending power of families and therefore they try to spend more on products that benefits their children psychologically and also helps them in their education. In such instances The Lego group educational toys are considered as a best products in such markets,

Technological Factors

The complete shift of toy industry where kids of new millennium were more inclined towards the digital world became a great threat to LEGO. Technological changes bring both an opportunity of growth and a threat for the company product line. With the advent of technology it completely revolutionized the LEGO group in 1949 they started on producing the plastic bricks instead of wooden toys. However, with the technological revolution of 1990’s it completely affected the macroeconomic environment of the Company (Lauwaert, 2008). The continuous technological development created a new trend of digital gamming in the market and steadily changed the playing pattern of children. However, LEGO started in investing in video gaming projects though they are yet unable to compete with companies offering programming of video gaming such as Nintando, Valve, Rockstar.

1.4The Resources and Competencies of LEGO Group

1.4.1Strategic Capabilities

Strategic capabilities refer to the resources and competencies involved in gaining competitive advantage for the firm. The Lego Group strategic capabilities involved with the company resources and its experience in the market. Table 1 will illustrate it in detail:

Table 1: Strategic Capabilities of The Lego Group

Resources

 

Competences

Raw Material (standardized plastic and chemicals)

Technology in making LEGO bricks

Company’s well established Infrastructure

Physical

Installed Production facilities

LEGO brand

Shareholders

Financial

Lego brand can bring in large number of investors in the company

Better financial position

Company has well established staff

Human

Experienced Staff

Highly capable employees

Creative designers

 

1.4.2Thrush Hold and Distinctive Capabilities

The thrush hold and distinctive capabilities of the Lego group which help them in achieving the competitive advantage includes:

  • Highly efficient Leadership and management
  • innovation and creativity
  • Raw Material Availability
  • Lego Brand Name
  • High quality and standard
  • Diversified product Line
  • knowledge intensive
  • High Customer Loyalty

1.4.3VRIN Analysis of Lego Group

The organisations strategic capabilities can be assessed through these four factors value, rarity, inimitability and non-substitutability in terms to gain sustainable competitive advantage. Firstly analyzing the Lego group tangible resources, the company plant is highly equipped with modern technology and other affiliated resources which help the company to sustain its position in providing a certain kind of Lego toys in the market. The raw materials in which a standardized mix of plastic and chemicals were used enabling a high quality and safe product for the children and it is not imitable. Focusing on the company’s financial position according to Harvard Business review reports of 2015, the company faces challenges regarding finances.

Analyzing the intangible resources of the firm, the Lego group has a large number of loyal customers which enable the company to become brand of choice amongst its competitors. Experienced and skilled work force of the company also strengthens the company position amongst the stakeholders as they facilitate better decision making process.

Table:  2 VRIN framework of Lego Group

Resources

Value?

Rarity?

Imitability?

Non-substitutability?

Competitive

Implications

Economic Implications

Financial

Yes

 

Yes

 

Partially

Partially

Physical

Yes

Yes

No

Yes

Competitive Advantage

High

Technological

Yes

Yes

No

Yes

Competitive Advantage

High

Human

Yes

Yes

 

Yes

Competitive Advantage

High

Company’s Position

Yes

Yes

Yes

Yes

Competitive Advantage

High

Customers

Yes

No

Yes

No

Partially

Partially

Organisational capabilities

Yes

Yes

Yes

Yes

Sustained Competitive Advantage

High

 

1.4.4Value Chain Analysis of the Lego Group

The value chain analysis is a tool that how to create best possible value of your product to deliver it to the customers. It includes primary activities and certain secondary activities.

Primary Activities

In Bound logistics

As the company supplies raw material from a certain source which enables the company with best possible raw product to turn it in to finished good. Therefore the company does not possess any certain kind of uncertainty to add value in the raw material production.

Operations

The company uses different strategically approaches and new technology to enable the demand of the product. Therefore the Lego group provides best available operations for the manufacturing of the company product line.

Out Bound logistics

The Lego group has its own outlets and stores and therefore no such problems arise of inventory shortage. As regularly company assembles the store data through different sophisticated software as to manage and control product inventory’s to these stores.

Marketing and Sales

The Lego Group invests in marketing of the Lego products as partnering with warner brothers and Lucas arts also helps company in reaching larger set of customers. The company’s policies in providing the best and standardized quality let to higher prices of the product which reduces the sales of the product in low income areas, whereas, the companies competitors such as Mattel and  Hashbro offers lower pricing of the products. Therefore they need to focus on the pricing strategies of the products in order to capture larger group of customers.

Services

The Lego group provides all quality of services to their customers and also they provide customer retention schemes in order to attract and retain their customers. Similarly, Lego clubs organize different events for their customers and community blogs are also maintained.

1.4.5TOWS Matrix of Lego Group

Table 3: TOWS matrix

 

 

LEGO GROUP

Strengths (S)

Lego Brand

Efficient distribution channels

High Quality Product

Loyal Customers

Weaknesses (W)

High Price Product

Specified market

Brand perception (blocks Toys)

Opportunities           (O)

SO Strategies

WO strategies

New Product

New Markets

Diversification

Strategic alliances

Leveraging the Lego strengths and focusing on new opportunities in the market

Counter the weaknesses and also enabling to exploit the strengths

Threats (T)

ST Strategies

WT Strategies

Competitors

Changing customer preferences

Leverage strengths to reduce threats

Counter weaknesses and challenge threats

 

2.Future Strategic Alternatives for Lego Group

After a major setback of company in 2004 the CEO Jørgen Vig Knudstorp took initiatives to bring back company’s position in the market. He primarily focused on the company’s core business that is the LEGO bricks.. Many companies however imitated the product but were unable to reach the bench mark that was set by LEGO bricks. But now company has to take certain initiatives in order to develop and compete in the toy industry further. Certain strategic approaches are required for the company growth and development.

2.1Diversification Strategies

The Lego group needs to take certain initiatives for diversification strategies in order to sustain its position in the market.  The companies trademark were the interlocking bricks of Lego, however now the children playing pattern has changed therefor Lego group needs to take certain decisions in providing digital gamming alternatives to its customers. The company product line naming “Lego universe” is much limited yet. Certain comprehensive plans are required in order to capture attentions of their customers. Similarly, the theme parks are another appropriate strategy for the firm growth and development in the future.

2.2Innovation and Creativity

The creative Lego bricks have led the company to be top for about three decades in European toy market. However, things are changed now company needs to bring certain innovation in the Lego product line. The educational toys are now much in demand the company needs to work in its research and development department to produce new line of educational toys.

2.3Strategic Alliances

Businesses are run in an environment of uncertainty according to Carpenter and Westphal, (2001) the business in situations of swear downfalls or setbacks, there is a room of strategic alliances. These alliances can be related or unrelated diversifications. This would help the companies a certain financial push to get strength back and reduce the major business fluctuations. The joint ventures can be assistance to the company though these ventures should have been for limited time period can help the company to come out of crises. The company however outsourced many of its Strategic business units in order to reduce the financial burden but it worth nothing. Beside of out sourcing the strategic business units the company should aim for creating synergy. Where the company can bring more positive results through collaboration of two companies were they share there competencies together and results in better return.

2.4Strengthen the Company’s Financial Position

The Lego group has to focus in strengthening its financial position. As discussed previously strategic alliances helps in regaining the company’s financial position. While certain other strategies should also be considered for uplifting the financial position of the company. As Lego is a privately owned organisation the owner should bring in investors to the company a single family Capital and recent lower profit margins are unable to meet the company demands of new product development and market penetration plans.

3.Conclusion

As the LEGO grow the company will face more challenges in the global economy. Therefore there is a need of better planning both short term and long term in order to sustain its position in the market. The company’s strategic agendas needs to be very firm and it should include opportunities as well as the threats that company may face. The LEGO being as a private company, it has to generate all its funds from its own account therefore, before making any diversification strategy the capital structure should also be considered foremost before incorporating those strategies. The recent success of the company is under the notice of its competitors therefore, company needs a balance of making plans and sustain its position.

4.References

Lauwaert, M., 2008. Playing outside the box–on LEGO toys and the changing world of construction play. History and Technology24(3), pp.221-237.

 


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