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The Miracle in Lego

The Miracle in Lego. Niels Lunde Aller Top 100 Inspiration April 18th 2013. The next 60 minutes. 1970s The big leap 1980s The dangerous success 1990s The confusing decade 1998-02 The false sense of security 2002-03 Full speed on the wrong strategy

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The Miracle in Lego

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  1. The Miracle in Lego Niels Lunde Aller Top 100 Inspiration April 18th 2013

  2. The next 60 minutes 1970s The big leap 1980s The dangerous success 1990s The confusing decade 1998-02 The false sense of security 2002-03 Full speed on the wrong strategy 2003-04 Breakdown and crisis 2004-05 Two questions for JørgenVigKnudstorp 2004-05 The uncertainty 2005-06 Shared Vision 2006-10 New mistakes - new understandings 2008-12 Lego 2.2 Learnings of Lego

  3. 1970s: The big leap History: OKC: The best is not good enough GKC: The LEGO system Kjeld Kirk Kristiansen’s speak 1978 ”The timeless genius product idea”

  4. 1980s: The dangerous success Growth, growth, growth Patriarchal owner and leader Self-satisfaction, slow decision making, a dull culture… … but slowly the market changes…

  5. 1980s: The dangerous success …so that: Children stay children for a shorter period of time The number of digital toys increase The life of the products lasts shorter The customers consolidate The competitors consolidate The competitors move their production … but the earnings increase, so they don’t notice it

  6. 1990s: The confusing decade Compass Management Kjeld Kirk Kristiansen’s dream: Play and learn ”The strongest brand among families with children in 2005” The owner’s dream and the management’s strategy falls – apparently- into place Consequence: Explosion in production of products

  7. 1998-02: The false sense of security 1998 accounts, first deficit. Fitness 1999 accounts, profit Turn around? No, a Star Wars movie 2000 accounts, deficit, cost-cutting 2001 accounts, profit Turn around? No, a Harry Potter movie 2002 accounts, profit Turn around? No, a new Harry Potter movie - Fleeting profits shadow the management’s vision

  8. 2002-03: Full speed on the wrong strategy They are chasing a brand, while they are neglecting their engine room. They don’t have an operational strategy they can communicate to their employees. They underestimate the small signs that indicate that there is something wrong with their way of running the business; • The new parks are more expensive than expected • The new stores are more expensive than expected • The production can’t keep up with the demand • The relationship with the retailers, who are customers and competitors at the same time, is weakened • They don’t have any control of the internal communication • Lack of innovation

  9. 2002-03: Full speed on the wrong strategy They loose faith in the brick: “Even though we are one of the top brands among families with children, we are closely connected with the building brick. Even though the brick is a central part of our product portfolio, LEGO shouldn’t be too closely connected to this. As long as LEGO products stay synonymous with the brick, our ability to form new perceptions of LEGO will be limited.” - “ The LEGO Brand Foundation and Future Brand Strategy”, December 2001 The Duplo disaster. 

  10. 2003-04: Breakdown and Crisis Jørgen Vig Knudstorp’s notes: The sales stagnate, the brand strategy is unsuccessful, the relationship to the retailers is unsustainable, the production is ineffective, rollout of the new stores lack focus, no synergy between the parks and business. Financial perspective: LEGO has had non-profit growth in ten years. Mads Øvlisen and Kjeld Kirk Kristiansen take their time, but in January 2004 PoulPlougmann is fired. Jørgen Vig Knudstorp and Jesper Ovesen become de facto leaders.  . 

  11. 2003-04: Breakdown and Crisis Action plan: 1. Establishment of a clear direction for LEGO (product portfolio has to be brought back to the brick, LEGO has to be less dependent of IPer, the production has to be made efficient and flexible, factories have to be shut down, the development process has to be shortened and the company’s finances have to be more transparent.   2. Increased effort in improving the competitive position (the relationship to the biggest customers in retail has to be improved.) 3. Reduction of risks through adaption of activities, expenses and assets for a lower turnover (closing or sale of activities which stress the company, sale of parks).

  12. 2003-04:Breakdown and crisis January 2004: ”Kjeld comes home” August 2004: JørgenVigKnudstorp is appointed October 2004: The crisis is present, at last there is a burning platform.

  13. 2004-05: Two questions for Jørgen Vig Knudstorp Question 1: What went wrong? “Do you take responsibility? Or do you put the blame on external factors like currency, the financial crisis or the weather? If that is the best explanation to how your company is doing, then what the hell are you doing in your job?” - Jørgen Vig Knudstorp, Meet the Boss. 2010.

  14. 2004-05: Two questions forJørgen Vig Knudstorp Question 2: Why do you exist? The ride with Chris Zook The question for Bain & Co…. … and their answer.

  15. 2004-05: The uncertainty 22. October 2004: Martin Lindstrøm, branding expert, politiken.dk “To me LEGO is heading in a direction where they are forced to make some drastic decisions, and the right one is to lose the bricks. (…) LEGO has to take advantage for their super amazing brand name and produce everything else than bricks.” November 30th, 2004: Morgan Stanley visits Kjeld Kirk Kristiansen and offers to sell Lego.

  16. 2004-05: The uncertainty May 2nd 2005: Bain & Co - analysis for the board meeting: 1. LEGO has experienced a ten year decrease in profit and value creation. 2. LEGO competes in the traditional toy business; but “construction-toys” is not apermanent definition. 3. The core business is in a weak position and for the moment untenable. 4. If LEGO should have a chance to create a sustainable core business, it will demand a dramatic improvement of its performance just being able to stand still. 5. LEGO’s owners should choose if they in fact are willing to try a high-risk reposition and challenging turnaround or if they should find another partner. Time horizon for finding another partner: 12 months.

  17. 2004-05: The uncertainty August 24th, 2005: Bain & Co’s interview with the board: Vision & Strategy: LEGO has lost direction. LEGO has lost its self-confidence. Business model: The whole business model has to be changed. Costs: LEGO has too high expenses. Fix it. Move the production. Governance: If Kjeld is unhappy with the structure, he will have to consider selling the company. Management: The board of directors has to use less time on discussions about vision, strategy, processes and barriers and more time on making right and tough decisions.   Organization: The majority of the board thinks that Billund has to be more or less abandoned.   Partnership: There is a real concern that LEGO won’t present a turn around with the current ownership and that possible partnerships should be pursued.

  18. 2005-06: Shared Vision How should a crisis-struck LEGO be able to survive in a toy industry with tough competition? The meeting with the grown-up fans in the USA Core gravity study JørgenVigKnudstorp: Four unique things at LEGO: - The brand - The brick - The building system - Community with the fans LEGO is more than toys: Children’s play and learning.

  19. SHARED VISION: THREE PHASES

  20. 2005-06: Shared Vision Core business identified, but… Is it too small to be profitable? Is it in such a bad shape that it is too late to save it? Is it just a niche-company? Which products do we make money on? What is going to happen with the activities and employees that don’t belong to the core business? Can the owner stand to sell the parks and outsource the production?

  21. 2005-06: Shared Vision … and then there were hard work: Disagreement on independency or sale Discussions in the Board Hard work in the engine room: IT, production, salary system, innovation, cleansing of leaders Absolution Account wheel Visual factory 2005: First profit + debt-free = first success.

  22. 2006-10: New mistakes - new understanding Flextronics - Woops, it is hard to mould a brick in plastic - Close connection between the brick and the building systems   Daniel Pink’s book - Both half of the brain are important - Systematic creativity - MIT: Yes, children learn from physical activity, yesLEGO stimulates both logical senses and creativity

  23. 2006-10: New mistakes - new understanding Vision: To inspire and develop the builders of tomorrow One business model: Purpose + Core business   The project succeeds: 

  24. SHARED VISION: THE RESULT

  25. 2008-12: Lego 2.2 The new project Inventing the future of play Can Jørgen Vig Knudstorp do like Steve Jobs? 

  26. Learning of Lego Shared Vision has four steps

  27. Learning of LEGO 1. The Diagnosis Understand your business: Which conditions apply, how does the technology develop, customer tendencies, where is the growth? Examples: Is LEGO a producer of toys or plastic? Is “Danske Bank” a bank or an IT company? Is Google a search engine or an advertising platform?

  28. Learning of Lego 2. The Philosophy Why do you exist? If your company died, what would you write the world lost in the obituary? Understand your core business.

  29. Learning of Lego 3. The Strategy Create competition in a way that gives you a strategic advantage: A good strategy contains something that others can’t compete with. Many misunderstand what a strategy is or neglect the analysis and copy others, without knowing the thoughts behind their choice. Build a repetablebusiness model, where you keep improving your core business and where you modify it slowly according to changes in the market.

  30. Learning of Lego Innovation has to be done with a starting point in the core business. Example: LEGO Games and LEGO Friends. The advantages of a repeatable model: Easy to understand, not complicated, makes it possible to make fast decisions, develops loyalty, easy to understand the customers and gives a high success rate for new products. Remember: If you leave your core business, your strategic advantage is at point zero.

  31. Learning of Lego 4. Action Intensive communication, especially the top leader’s blog It doesn’t work because it’s true, it’s true because it works - William James You have to change your whole mindset (like you do, when you go on a diet) Execution

  32. Learning of Lego Or with the words of poet T. S. Eliot: We shall not cease from exploration And the end of all our exploring Will be to arrive where we started And know the place for the first time

  33. Thank you!

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