Lego Case Study
LEGO
Introduction
LEGO is seen as an extraordinary company not only in the eyes of parents who proudly watch their children build castles and town halls, but also in the eyes of high-minded academicians. Playing with LEGO sets is widely believed to develop motor skills and creativity in children, considered essential tools for real-world problem solving. The firm, founded in 1932 by a Danish carpenter did well continuously.
Business Problem
But by the late 90’s signs that something was amiss at LEGO started emerging. Lego found itself more antique than cutting edge in the toy world. In 1998, the firm posted a small loss. By the early 2000’s, the firm was burning cash losing almost $1 million a day. Jørgen Vig Knudstorp, a former McKinsey consultant who came to the family-owned Lego Group as an outsider in 2001 was named CEO in 2004. How did Knudstorp make a huge turnaround and rescued Lego?
Knudstorp’s Business strategy
Knudstorp understood the company was struggling mainly because of poor performance, missed deadlines, long development times, and poor deliver record. LEGO Company increased its focus on cutting costs, especially by adjusting production capacity to the reduced activity level. Knudstorp believed the company needed not so much a strategy, more an action plan so he developed an action plan in the short term rather than a comprehensive strategy. In a streamlining exercise, he cut the number of bricks or elements used to produce LEGO toys from 13,000 to 7,000. He demanded that designers be creative with existing parts because each new element was less useful in the overall scheme of things and the mold needed to produce each part cost nearly 50,000 Euros. In a firm where deadlines were set and then casually postponed, resulting in delays of months and sometimes years in the product development labs, Knudstorp demanded and achieved a newfound discipline.
Lego was known for their traditional blocks and components that would allow
Introduction
LEGO is seen as an extraordinary company not only in the eyes of parents who proudly watch their children build castles and town halls, but also in the eyes of high-minded academicians. Playing with LEGO sets is widely believed to develop motor skills and creativity in children, considered essential tools for real-world problem solving. The firm, founded in 1932 by a Danish carpenter did well continuously.
Business Problem
But by the late 90’s signs that something was amiss at LEGO started emerging. Lego found itself more antique than cutting edge in the toy world. In 1998, the firm posted a small loss. By the early 2000’s, the firm was burning cash losing almost $1 million a day. Jørgen Vig Knudstorp, a former McKinsey consultant who came to the family-owned Lego Group as an outsider in 2001 was named CEO in 2004. How did Knudstorp make a huge turnaround and rescued Lego?
Knudstorp’s Business strategy
Knudstorp understood the company was struggling mainly because of poor performance, missed deadlines, long development times, and poor deliver record. LEGO Company increased its focus on cutting costs, especially by adjusting production capacity to the reduced activity level. Knudstorp believed the company needed not so much a strategy, more an action plan so he developed an action plan in the short term rather than a comprehensive strategy. In a streamlining exercise, he cut the number of bricks or elements used to produce LEGO toys from 13,000 to 7,000. He demanded that designers be creative with existing parts because each new element was less useful in the overall scheme of things and the mold needed to produce each part cost nearly 50,000 Euros. In a firm where deadlines were set and then casually postponed, resulting in delays of months and sometimes years in the product development labs, Knudstorp demanded and achieved a newfound discipline.
Lego was known for their traditional blocks and components that would allow
References: http://www.businessinsider.com/how-lego-made-a-huge-turnaround-2014-2 http://hbr.org/2009/01/lego-ceo-jorgen-vig-knudstorp-on-leading-through-survival-and-growth/ar/1 http://www.thomaswhite.com/global-perspectives/jorgen-vig-knudstorp-ceo-lego-group/ http://www.meettheboss.tv/video/full-version-man-who-rescued-lego