lego case study report
Lego Case Study Report
Introduction
The Lego Group was founded in 1932 by Ole Kirk Christiansen. For years of development, Lego has achieved the transition from a carpenter’s workshop to a global enterprise. Its Lego brick has been named the ‘toys of the century’ twice and greatly contributes to the company’s stable growth. Nevertheless, Lego struggled mightily in the early to mid-2000s. Sales dropped 30 percent in 2003 and 10 percent more in 2004, and the company was destroying about $337,000 in value every day (Oliver, Samakh and Heckmann 2007).
How could such a seemingly successful toymaker suffer severe financial difficulties and almost stand at the brink of bankruptcy? One prominent problem behind its crisis is Lego’s over-diversification and over-expansion in its product portfolio and ignorance of its core business. In the first part, the report aims to analyse its over-expansion problem from strategy, marketing and management perspectives respectively, and then it provides the Lego Group the ‘focus on the core’ solution, based on related management and marketing theories.
Part 1: Lego’s Over-Expansion Problem
From the early 1990s, the Lego Group began to practise an expansion and diversification strategy, and invested sustainable funds in its new products. The following cost increased, however, it did not produce a desired result. The expansion action cannibalised on the sales of its core products and thus eroded earnings. To examine the reasons behind it, strategy, marketing and management perspectives are all consulted.
1.1 From a strategy perspective, Lego’s expansion and diversification strategy failed to fit into its position.
Strategy is about a set of activities which delivers a unique mix of value to the company and builds its competitive advantages within the industry. It in some ways determines a company’s position in the market. Companies are all trying to achieve the ‘strategic fit’, in terms of initiate activities, including allocating
Introduction
The Lego Group was founded in 1932 by Ole Kirk Christiansen. For years of development, Lego has achieved the transition from a carpenter’s workshop to a global enterprise. Its Lego brick has been named the ‘toys of the century’ twice and greatly contributes to the company’s stable growth. Nevertheless, Lego struggled mightily in the early to mid-2000s. Sales dropped 30 percent in 2003 and 10 percent more in 2004, and the company was destroying about $337,000 in value every day (Oliver, Samakh and Heckmann 2007).
How could such a seemingly successful toymaker suffer severe financial difficulties and almost stand at the brink of bankruptcy? One prominent problem behind its crisis is Lego’s over-diversification and over-expansion in its product portfolio and ignorance of its core business. In the first part, the report aims to analyse its over-expansion problem from strategy, marketing and management perspectives respectively, and then it provides the Lego Group the ‘focus on the core’ solution, based on related management and marketing theories.
Part 1: Lego’s Over-Expansion Problem
From the early 1990s, the Lego Group began to practise an expansion and diversification strategy, and invested sustainable funds in its new products. The following cost increased, however, it did not produce a desired result. The expansion action cannibalised on the sales of its core products and thus eroded earnings. To examine the reasons behind it, strategy, marketing and management perspectives are all consulted.
1.1 From a strategy perspective, Lego’s expansion and diversification strategy failed to fit into its position.
Strategy is about a set of activities which delivers a unique mix of value to the company and builds its competitive advantages within the industry. It in some ways determines a company’s position in the market. Companies are all trying to achieve the ‘strategic fit’, in terms of initiate activities, including allocating