Strategic Analysis of Lego

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Strategic Analysis of the LEGO Group of LEGO Group|
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Business Policy and corporate strategy

9th January 2012

Strategic Analysis of the LEGO Group

Discussion and evaluation of strategies adopted by Lego during 1995-2009 Strategies adopted by Lego 1995-2009
Strategies are processes businesses carry out, the directions they take and the decisions they make to reach their goals (Thompson & Martin, 2005). Strategic models such as the Ansoff matrix can be used to aid companies in choosing a suitable growth strategy. The Ansoff matrix proposes that a company’s growth strategy depends on whether it markets new or existing products in new or existing markets (Ansoff, 1957). The diagram of the Ansoff matrix below details what growth strategies are most suitable depending on whether the company is selecting new or existing products/markets.

Other types of strategies, corporate-level strategies, are outline by Hill & Jones (2007). They explain that corporate-level strategies should help a business to produce goods at a lower cost or in a way that allows for differentiation and premium price. The corporate level strategies they outline are: * Horizontal Integration – this involves buying or merging with industry competitors * Vertical Integration – this involves entering new industries to support the company’s core product * Strategic Outsourcing – this involves handing over the running of company processes that are not central to the businesses core competences Using the Ansoff matrix and Hill & Jones’s corporate level strategies as guides it is clear to see that LEGO progressed through different strategies from 1995-2009. These different strategies can be split up into the periods of time shown below: 1995 – 1998

From 1995-1998 LEGO went through some huge strategic changes and set very ambitious future objectives in 1995. They shifted their company structure from a traditional hierarchical structure to a flatter one and were looking to expand into many new markets. * Product Development –. They aimed to introduce lots of new products and services to the countries they were already well established in. They wanted to expand into films, games, clothing and theme parks therefore were using a product development strategy. 1998-2004

1998-2004 was a difficult period for LEGO. LEGO reported losses for the first time since it was founded in 1998 and the company restructured again, leaning out and cutting over a thousand jobs. * Market Development – From 1998-2004 LEGO shifted its priorities toward “getting closer to the customer”. The company felt that it was not communicating enough with its end users and wanted to develop new markets by opening up retail chain stores. * Vertical integration – LEGO adopted a forward vertical integration strategy by selling more directly to consumers, expanding their online store and opening retail shops. 2005-2009

2005-2009 saw the turnaround of LEGO as it returned not only to profitability but setting record sales in 2008 & 2009. The company was once again restructured with Kjeld enforcing more of a dominant CEO role and the setting of more realistic, clear company goals. * Product development – LEGO shifted back to a product development strategy in 2005 as it felt needed new products and services to cater for the “digital media age”. The introduction of successful LEGO films, computer games and an online multiplayer universe helped get the company back to profitability. * Strategic Outsourcing – LEGO also wanted to focus on cutting costs in the production of its toys. Many other toy companies had shifted their manufacturing to cheaper countries such as China but LEGO was still producing its toys in more expensive European countries. LEGO decided that a suitable option would be to outsource 80% of its production to other countries which would be managed by Flextronics. However this deal fell through as LEGO felt it could...
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