Lego Case Analysis

Topics: Lego Group, Strategic management, Ole Kirk Christiansen Pages: 8 (1542 words) Published: September 11, 2014

Summary of the case

The LEGO Group’s vision was to “inspire children to explore and challenge their own creative potential”. Its motto, “Only the Best is Good Enough,” had stuck with company since 1932 when Ole Kirk Christiansen, a Danish carpenter, established the company in the small town of Billund in Jutland, Denmark, to manufacture his wooden toy designs. As the company itself stipulated it: “It is LEGO philosophy that “good play” enriches a child’s life — and its subsequent adulthood. With this in mind, the LEGO Group has developed and marketed a wide range of products, all founded on the same basic philosophy of learning and developing — through play.”3 With this simple idea, the company had through its history grown into becoming a major multinational corporation, and was by 2009 the world’s fifth largest manufacturer of toys in terms of sale. The LEGO group began in 1932 by Ole Kirk Christiansen, a carpenter from Billund. LEGO is from the Danish phrase leg good, which means play well. Since thousand 1960, the LEGO has release thousand of set variety of themes. An Adventure journey through five years from 2004 to 2009 has taught LEGO Group the fifth largest toys company who has signed contract with Flextronics. In 2004, radical changes took place within LEGO, organization as consequence of its internal crisis that drew the company near bankruptcy. One of the causes for dropping the revenue is about loosing of confidence of its core product, LEGO bricks. Furthermore, the diversification had resulted in vast complexity and inefficiency which confuse the customer and employee. The LEGO group had at the time roughly 11,000 supplier, a number that almost twice compare with Boeing used for its plane, that number has also the contributor of the dropping of LEGO revenue. In October 2004, Jorgen Vig Knudstorp was appointed as Kristiansen’s successor. The Jorgen was only the second person outside the founding family who held the position of CEO. He defined and implemented the three core principles :

1. Be the best creating value for its customer and sales channel 2. Refocus on value we offer to our customer
3. Increase an operational excellence
Issues/problem identification

The issues of LEGO at 2004 was the unreliable its supply chain which cannot compete with the nature of the LEGO business. Due to many products/SKU, the supply chain cost was hit significantly, how to ensure the right component was in stock, furthermore, due to the level of distribution channel, many small distributors which create a huge of complexity and the fluctuate demand that cause very terrible effect on the supply chain. Many products came with the high cost because of its mold. By having of outsourcing option can reduce the cost. Related to the distribution problem, the new policy distinguished explicitly between approach of retailer helped the company focus on large chain. After deciding the Flextronic as outsource company with had the 80/20 composition (outsourcing/inhouse). However after 3 years, unpredicted demand plus minus 30% and 60% of LEGO production was made in the second half years, which caused the relation between LEGO and Flextronic broke. Flextronic just focused on the cut cost and reduce the complexity, not focusing on LEGO value. Related theory/frame work/models

COMPETITIVE FORCES AND FIRM STRATEGY: THE FIVE FORCES MODEL
Five forces model A framework proposed by Michael Porter that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy. 1. Threat of entry
2. Power of suppliers
3. Power of buyers
4. Threat of substitutes
5. Rivalry among existing competitors

Threat of Entry
Entry barriers are obstacles that determine how easily a firm can enter an industry. High entry barriers can correspond to high industry profitability, assuming there is no excess capacity in the industry. The Power of Suppliers

The bargaining power of suppliers captures pressures...
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