The LEGO Group: working with strategy.
03 March 2012
Explain how the development of strategy at the LEGO Group reflect the key characteristics of strategic management outlined in section 1.2 and in the model in Figure 1.4?
“Strategy is the long-term direction of an organization” (Johnson, Whittington and Scholes, 2011, p.3). The LEGO Group started with the manufacture of stepladders, ironing boards, stools and wooden toys and has grown into one of the top five toy makers in the world (Johnson, Whittington and Scholes, 2011).
The growth of the company demonstrates the three horizons framework (Johnson, Whittington and Scholes, 2011) for businesses, as can be seen throughout the history of the company, if referenced from a specific point in time.
Corporate level strategy directed the company into the manufacture of the now famous plastic LEGO brick, the development of LEGOLAND, the international growth of the company and more recently, LEGO’s entrance into the digital media age via LEGO Universe (Johnson, Whittington and Scholes, 2011). Business level strategy is reflected in the development and introduction of innovative products like LEGO TECHNIC, LEGO Castle, LEGO DUPLO and many other classic and topical play themes to compete in the competitive toy market (Johnson, Whittington and Scholes, 2011). Operational strategies have driven the introduction and re-organization of management, changes to the LEGO Group’s relationship with retailers and a review of the procurement processes and outsourcing strategies of the company (Johnson, Whittington and Scholes, 2011).
The development of strategy at the LEGO Group reflects the exploring strategy model of understanding the strategic position of the company, assessing strategic choices for the future and managing the strategy into action. On many occasions, the outcome of strategic choices did not meet the desired results, but this only emphasizes the non-linear nature of strategy (Johnson, Whittington and Scholes, 2011).
What features of the external environment have influenced strategy development at the LEGO Group?
Strategy development at the LEGO group has been influenced mainly by the economic, social and technological impact of a rapidly evolving society, and thus, business environment.
Oil price crises in the 1970s and 1980s resulted in a severe economic slow down in industrialized countries. From 1995 – 1998, the LEGO Group continued to face strong competition from bigger toy manufacturers like Mattell and Hasbro. Market share of the toy industry became more competitive when new competitors like Sony, Nintendo, Activision and Visual Arts entered the industry, offering more advanced electronic games. Market research showed that children seemed to mature earlier, thus, reducing the age span during which children play with LEGO products. During the period 1999 – 2003, the LEGO Group faced a rapidly changing environment. LEGO sales are interlinked with the success of blockbuster movies through licensing partners in the movie industry. Thus, in a year with no major movie release, sales are drastically affected. During this period, exchange rate fluctuations of the Danish Krone (DKK) against the US$ increased pressure on the companies financial structure. From 2005 - 2009, pressure from major retailers for more innovation and shorter delivery times and the fact that LEGO sales are highly seasonal, put pressure on the LEGO Group to develop strategies to streamline it’s operations in order to meet customer demand, reduce costs and improve the capital structure of the company (Johnson, Whittington and Scholes, 2011).
What resources and competences of the Lego Group have enabled them to regain their successful position...
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