LEGO is one of the largest companies in Denmark and a company with a very strong brand. But even so, their economy fell apart in 2003-2004 and we are interested in what they did wrong and what they did to turn their significant loss around to a profit in 2005. So our problem is: What caused LEGO's financial problems in and what did they do to turn it around? This is very relevant, because it shows how even one of the biggest brands in a market can’t afford to relax in any aspect of the value chain. Even though LEGO is a big brand, their profitability is not to be taken for granted. To answer the problem we used a history of LEGO, made a Value Chain, a SW-model and organization structure. There has been some significant limitations when sourcing for LEGO’s inbound logistics. But otherwise we have used LEGO homepage, 2 online weekly newsletters, a homepage for logistics and a book about organizational theory.
LEGO was founded by Ole Kirk Christiansen under the motto “Only the best is good enough”. In 1934 the LEGO name first appears. LEGO is a combination of “leg” and “godt” in Danish, meaning “play well”. In 1935, LEGO manufactured their first wooden construction toy, not looking anything like the LEGO brick we know today. In 1949, the first plastic blocks “Automatic Binding Bricks” were marketed and in 1955, Godtfred Kirk Christiansen developed LEGO Systems of Play while creating a new play platform. The LEGO brick was patented in 1958 with internal tubes as the interblocking component. Later that year, Ole Kirk Christiansen died and Godtfred Kirk Christiansen took over LEGO as CEO. In 1960 there was a fire in a wooden-toy warehouse and they therefore started focusing the production on plastic LEGO bricks instead. In 1968 the LEGOLAND theme park opened in Billund. In 1969 LEGO DUPLO, the large LEGO bricks, was launched and in 1978 they launched the Minifigure as well as the LEGO TECHNIC product lines. Kjeld Kirk Christiansen became President and CEO in 1979. In 1980 they built up an educational department to handle the company’s relations with children’s and educational institutions. The LEGO TECHNIC Computer Controls was launched in 1986 and in 1993 Children’s clothing was starting to be manufactured. In 1996 www.LEGO.com website was set up. In 1998 LEGO Mindstorms was integrated and the FIRST LEGO League was announced. In 1999 they had their first license deal, LEGO Star Wars and in 2001 BIONICLE came along. In 2004 Kjeld Kirk Chistiansen retired as CEO and handed over the position to Jørgen Vig Knudstorp. Lego is releasing their first massively multiplayer online game in the 26th of October 2010 in cooperation with NetDevil and Warner Bros. They also already have a new trading card game that will be released in 2011.
Reason for LEGO’s financial problems:
In an interview of Jørgen Vig Knudstorp , he talks about what went wrong in LEGO. He says that between 1932 and 1998, the company had never made a loss and a culture of complacency had set in. Profit was considered a dirty word among the 8.300 employees. ‘We are not used to talk about money’. Ole Kirk Christiansen saw LEGO more as a standard-bearer of educational virtue than a mere business product. In 1998 LEGO posted a small loss; in 2003 a bigger one; in 2004, carnage. ‘We had a dress rehearsal for the world financial crisis – a strong decline in sales and a massive increase in indebtness.’ This was caused by a bad credit and unrealistic ambitions – LEGO had overstretched itself. To solve this problem, the former CEO of LEGO, Kjeld Kirk Kristiansen, stepped down and let Jørgen Vig Knudstorp took over. One of the first things Knudstorp did was to fly to Virginia for the annual Brickfest. AFOL told him that LEGO is a unique creative material. After the Brickfest, Knudstorp went to Massachusetts Institute of Technology to consult a colleague. This colleague told him that LEGO is the ideal way for a child to learn how...