LEGO

Case solution

NOVEMBER 23, 2018

SUBMITTED TO: SIR ADNAN KEHAR
Submitted by: Kainat Baloch
 1. PESTEL analysis:

Definition Identify/Reason Strategy

Political These Fall of Berlin Wall. Lego should properly forecast the demand
factors verify the Millions of Eastern Europeans eager to get theirand preferences of new customer
extent to that a hands on Western Products population.
government might inf Boost In Demand Plan and produce according to forecasts and
luence the economy customer preferences in order capture the
or a precise trade. potential business and be benefitted from
the opportunity
Economi These factors are Toymakers increasingly shifting their production Due to its in house production, Lego is
cal determinants to Asia where the labor is inexpensive bearing higher production costs than the
of associate Due to declining birth rate in core markets house industry. Lego should focus on outsourcing
degree economy’s hold spending on toys declined and hence the their production functions to some Asian
performance that profit pool shrunk. country where cheaper resource like labor
directly impacts a are available. In this way Lego will be able
corporation and to cut costs and maximize profits.
have ringing long
run effects.

Social These factors Children have more after school activities and As the social trends are favoring tech toys,
scrutinize the less unscheduled time to play than in the past Lego should focus on producing tech
social setting of the Children have given up traditional toys for video embedded toys to capture the business.
market, and gauge games Considering the children having short time
determinants like Birth rates in the core markets of LEGO to play, Lego should focus on producing
cultural trends, (Western Europe and North America) Declined toys that take less time to setup and provide
demographics, and more time to enjoy the end leisure
population analytics.
Lego should diversify in those countries
that shows growth in birth rate.

Technolo These factors pertain Shift from traditional toys to video games Product life cycle is declining, Lego should
gical to innovations in Demand shifted to toys coming with technology shift its focus on technology that should
technology which inside them or in the form of toys coming with produce products with short life cycle, high
will have an effect access codes to online worlds value in a low cost
on the operations of Collaboration with MIT lab on robots Produce Tech Embedded toys
the trade and Provide access to extra tech toy solutions
therefore along with basic Lego Product, like access
the market favorably to online video game
or unfavorably
Environ These LEGO’s basic raw material in making its Blocks. Lego should shift its focus from reliance on
mental factors embody all th Plastic is dangerous for health of our plastic, and look for other ecofriendly and
ose who influence environment sustainable strategic solution that they can
or are determined Ban on plastic by various countries can use a raw material for their production
by the significantly affect business of LEGO
encompassing setting.

Legal These factors Licensing of Brands Theft of intellectual property is a problem

have each external Safety of right to intellectual property for Lego. Lego should enter into proper
and internal sides. legal licensing agreement before
 There are sure laws introducing any brand theme based toy like
that have an effect Star wars.
on the
business setting durin
g sure country where
as there are sure polic
ies
that firms maintain
for themselves. So
that
they incorporate each
of those sides.

2. Porter’s Five Forces Analysis

Forces Who they are Level of Reason Strategy

Threat/Barg
aining
Power
Threat of New Potential entrepreneur Low Initial Capital investment is very Maintain quality and brand
Entrants aspiring to enter into toy high image
industry and be new Existence of strong competitors Stay competitive
competitor with strong brand image in the
market
Products are differentiated
Bargaining People who buy products High Many substitutes in the market Patents and licensing
Power of of LEGO Chinese Imitated products
Customers Retailers (Walmart) available in the global market
Retailers have high bargaining
power over ordering and
displaying the product
Bargaining Raw Material Supplier High It is high because they are They should diversify in getting
Power of Chinese subcontractors licensing the products so the one licenses from different
suppliers Licensing who they are giving them businesses and make good
licenses they can switch to other relationship with them.
toy makers because of high
rivalry in toy manufacturing
industry.
Threat of High Video games Tech embedded toys
Substitutes Preference changes
Intensity of Low as a In Brick toy market competitors Improve the cost structure and
Rivalry brick toy are, Best-Lock from Hong Kong focus on cost cutting
manufacture and Mega Brands from Canada, Focus on overall quality of the
r they compete with Lego on cost, product to maintain the brand
High as a toy but they are comparatively small image in order to compete
manufacture and very least known brands so successfully with other brands
r in general they don’t create strong rivalry Continuous improvement and
In the toy industry as a whole, continuous innovation is the key
there is major competition. Big to success.
names like Mattel and Hasbro
 lead the industry so rivalry in the
industry is very high
Slowly growing market
High exit barriers
High costs associated with going
out of the business

3. SWOT Analysis of LEGO

SWOT Identify/Reasons
Strengths  Creates a Lego community
 Good working relationships
 Collaboration and trust
 Strong community of loyal fans
 Long term experience of market
 Excellent quality
 Adaptation capability to the latest
market trends like Star wars, harry
Potter etc.
 Brand is highly emotionally appealing

Weaknesses  Higher pricing

 Does not have innovative capability to
compete with digital toys
 High diversification of markets that is
Aggressive expansion
 Losing identity
 Complexity of products

Opportunities  Continues with license characters

created as models like Harry Potter,
Star Wars
 Potential through web
 LEGO digital designer
 Good Marketing research
 Licensing of products
 Translates production to other places
where it is cheaper

Threats  Changing trends in toy industry like

video game consoles, websites,
Smartphone mobile games, electronic
games
 Outsourcing the manufacturing to Asian countries puts pressure on
pricing
 Declining USD
  Stiff competition as substitute products
available for lower price and much faster than Lego products

4. What are Lego capabilities?

Answer: Dynamics Capabilities: The redundant Capabilities of LEGO because of which it announced a 7
year process of rebranding starting from 2004.
The dynamic capability of LEGO is that it has flexible backbone model as an organization which is a hybrid
approach offering low-cost messaging as well as support to some of its customers while deeper sense of
collaboration and precise tailoring offers to other customers and these capabilities help it in education,
logistics, new product development , augmentation and technical support
Distinctive Capabilities: The distinctive competencies of Lego which helps it in achieving competitive
advantage are: large capacities of installed production facilities; innovation and creativity; Raw materials
knowledge extensive; creativity in product designing; efficient supply chain; reputed brand name across
globe; focus on high quality standards; and efficient management organization and leadership.

5. Lego strategy?

• Growth strategy: The LEGO Group has chosen a strategy that's based on a number of growth drivers.
One is to increase its market share in the United States. Many Americans may think they buy a lot of LEGO
products, but they buy only about a third of what Germans buy, for example. Thus there are potential growth
opportunities in the U.S. market.
• Innovation strategy. On the product side, the LEGO Group focuses on creating innovative new products
from concepts developed under the title "Obviously LEGO, never seen before." The company plans to come
up with such concepts every two to three years. One of the latest examples is LEGO Games System, which
consists of family board games (a new way of playing with LEGO bricks) with a LEGO attitude of
changeability (obviously LEGO).

6. What is the purpose of Company’s VRIO analysis?

Answer: VRIO framework helps in conducting internal analysis of Lego and finding the core
competencies.

7. VRIN Analysis of Lego?

First tangible resources would be analyzed under which the financial resources are valuable for Lego and
rare too which provides it with competitive parity and competitive advantage. Lego has modern plants and
facilities and location is valuable as it has moved its production to count tries which have cheaper
production and located close to markets but this resource is easily imitable and easily available. Lego’s
trademark offers Lego name a valuable resource and its innovative process are rare , valuable and very
costly to imitate, therefore Lego’s innovative production process offer it sustained competitive advantage.
The organizational resources offer its “shared vision” and under efficient management of CEO of Lego all
the processes are organized properly and leads to sustained competitive advantage.
Its intangible resources like skilled managers e.g. CEO is very costly to imitate. Lego has always
emphasized on innovative capacities and these resources of innovation and creativity is very rare and
valuable. The brand name offers Lego a world-class reputation as can be seen that it ranks 10th in the world
as the strongest brands.

8. What is the purpose of Company’s value chain analysis?

Answer: Value Chain Analysis is a vital tool which uncovers and highlights the manner in which the firm
adds value to their products with the help of manufacturing processes
 9. Conduct value chain analysis of LEGO?

Inbound Logistics: Since the raw materials are supplied by Lanxess, German Company and Lego has
standard commodities, thus it doesn’t face any bottleneck situation hampering their future production.
Future raw material pricing can be influenced due to 3D printing given that same raw materials would be
used in production of Lego bricks.
Operations: Lego projects the future demand very accurately using analytical approach and sophisticated
software
Outbound logistics: All Lego products adhere to the European CE-labelling, ensuring that products and
production method are as per the; legislations of European Union Outbound Logistics Lego uses several
large hub centers which are located closer to retailers for controlling inventory in better manner and creating
fewer stock shortages. Discounts were offered to small retailers who placed orders earlier. No cartons which
are full are shipped and work very closely with retailers for forecasting and inventory management.
Marketing & Sales: Lego follows a portfolio consisting of themes and licenses which are highly
successful. It entered into strategic partnership with Warner Bros and Lucas Arts whose Star Wars and
Harry Potter became saviors for Lego during crisis. Lego adheres top pricing strategy of “only the best is
good enough”, but its competitors like Mega Bloks, Mattel etc. offer blocks at lesser price.
Service: It has customer retention scheme available online through website where customer gets ‘VIP’
points for online purchases which gives reductions in future purchases in form of online currency .Lego
clubs are established worldwide which host annual events and community blogs are also maintained.

11. What were the major steps taken by LEGO?

Organization, Management and Expectations
After many shifting period, layoffs and senior management changes Kjeld reinforced his responsibilities as
CEO signifying that the family was still behind the company. Some other strategies adopted were:
• Write-offs on Legoland Parks and other redundant assets
• Modest objective for sales in 2004 set at 1998 level
• CEO position handed over to Jorgen Vig Knudstorp
Focus Shifted to Distribution
Since the major portion of Lego sales takes place through big retailers like Wal-Mart and Kmart etc. which
wanted more innovation and shorter delivery times therefore Lego emphasized and got closer to retailers to
understand sales to the end customer chain.
Focus on Supply chain and Cost
Cost cutting was major step and thus the entire procurement process of Lego was reviewed and the number
of suppliers was reduced in significant manner which resulted in costs reduced in highly significant manner
and gave DKK 1 billion savings annually to Lego. Then it started outsourcing which means 20% products
were manufactured by Flextronics and rest outsourced to cheaper locations.
Innovation and End-Users
The users of Lego products are highly enthusiastic as bricks attract people all across the world, but the
concept needs up gradation regularly which should reflect classic play themes along with topical play
themes or various other driving forces.
Playing in ‘New Media or Digital’ Age
Lego has created a new digital strategy where it plans to develop an online game which can be played by
multiple players and is known as “Lego Universe”. This new internet game is was set to launch in 2010.
New growth arenas opened for it by cooperating with gaming industry as well as licensing partners present
in movie industry.