IM Final Report LEGO

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The aim of this report is to understand the process of innovation management at LEGO Group in different streams. The author has carried out details research into journals to procure the relevant information for this assignment. The author will be analyzing the innovation management and lastly make the appropriate recommendations for the LEGO group to improve their Innovation Management further.

In this report, the author analyse innovation strategy and management of LEGO and how its responds historically to threats and opportunities, the sources of innovation used at LEGO Group, the processes for innovation ideations, as well as how the organisational structure at LEGO Group have supported or inhibited innovation at the LEGO Group Company and lastly make the appropriate recommendations for LEGO to likely improve their innovation management further.

The author has noted, with support from various literatures, that innovation and how it is managed are key factors in ensuring a company‟s continual success. Companies with new products tend to capture a larger market share as compared with companies with old products. As innovation streams and how they are managed need not be status quo, the author supports the initiative at the LEGO Group to constantly explore new possibilities for them to succeed in this competitive world. Innovation management played a key role in the successes achieved at LEGO Group through her initiation of the “shared vision strategy” as an incremental strategy for growth is core to the success that stabilize the LEGO Group to be the most profitable toy company to capture totally new markets and are currently employing sustaining innovations to increase their market share and profitability.

In analysing the innovation initiatives as employed by the LEGO Group, the author discovered that the approaches to and management of innovation are significant and different from one organisations to another. The LEGO Group


extensively conduct Research & Development (R&D) projects simultaneously and are protective about their innovative ideas. Her dedicated R&D team was able to inculcate a creative culture within its organisation in addition to its appointment of Jørgen Vig Knudstorp as president and CEO of the LEGO Group in October 2004. His strategic process for innovative ideation has made significant encouragement and growth. This accounts for a higher share of innovations due to its better capability to exploit its innovative capacity for more innovative ideas and thus produce a higher share of innovations.


Company Background and History

The LEGO Group was founded in 1932 by Ole Kirk Christiansen from a small carpenter‟s workshop to a modern global toy manufacturer with products sold to more than 130 countries. The LEGO Group started with craft of wooden toys in the founder‟s carpenter workshop in Billund, Denmark. LEGO was a shortened form of the Danish phrase, “leg godt” (play good). Ole Kirk Christiansen built a business based on offering high quality products that encouraged creative play. He designed his toys to captivate the imagination of the local children; through building, they were supposed to develop a sense of pride in accomplishment and learn while playing. In 1947, convinced that he had found the ideal new material for his growing company, Christiansen bought his first plastic injection-molding machine. The eventual result was LEGO‟s iconic product, the plastic brick with eight studs, which the company patented in 1958. It became the focus of a tight-knit community of devoted enthusiasts, with their own newsletters, competitions and even conventions. It was in the bid for legacy – for quality, creative play, community and experimentation – that Christiansen passed on to his sons, who continued to own and run the company. Tremendous achievements have been registered since LEGO Group was founded in 1932, but to mention a few significant landmarks. In 1988, the firs Lego World Cup building contest was held. The Lego Group‟s Educational Products Department was renamed Lego Dakta in


this year. MIT‟s Dr. Seymour Papert from the Laboratory of Computer Learning was named “Lego Professor of Learning Research”.


“Only the best is good enough”

Mission Statement

“To nurture the child in each of us”

“Children are our role models. They are curious, creative, and imaginative”

The Product

The name Lego which is “leg” and “godt” in Danish, meaning “play good” came out in 1934. This name is used for any products of this company until date with core product – Lego bricks. Motivated by the appearance of plastics in Denmark, Lego purchased the plastic injection molding machine in 1947. At that time the British Company Kiddicraft released the products name “Kiddicraft Self-Locking Building Bricks” which is the plastic interlocking bricks. Then Christian designed the similar products named “Automatic Building Bricks” in 1949. The product name was later changed to “Lego Bricks” in 1953. However, the product did not catch the interest of customers who were familiar with metal and wooden toys and later positioned herself to develop innovative products which promote creativity and fun-packed play for all stages of her process development.


The concept to the start of Cycle 4 was focused on brand coherence across regional markets and business areas outside of play materials (e.g., five geographical regions and business areas, such as Interactive, Lifestyle, and Parks). During the crisis at LEGO (October 2004), The CEO and Top management felt that, although the specific ways of communicating and marketing the LEGO brand could be adapted to different regional markets, it


was the clear vision of the CEO and other top management to create global relevance and attraction through continually referencing the LEGO core values of “playful learning, active fun, self-expression, endless ideas, and stakeholder trust.”

Figure 1: The incremental Strategy (Mintzberg, 1987)

The motivation to the application of this concept was the pace at which applying the incremental strategy at the beginning could help LEGO Group to create new ideas. The Incremental strategy is the core and successful strategy that help Lego to be the most profitable toy company. Although it was also faced with significant challenges later on, many scholars proved that this strategy is the best choice for those with limited information in strength and weakness. These issues happen at the time the company has just started. And the Lego Company applied it perfectly.

2.1 Innovative Strategy: “Shared Vision Strategy”

Following the series of challenges facing the LEGO Group as at 2004 in need to innovate and birth new strategy that will serve as “an action plan for survival” titled a strategy called “shared vision.” The plan had three (3) phases:


Figure 2: Phases in the “Shared Vision” Strategy

1. The first Phase - “Stabilize for survival” was positioned to be carried out in 2004 and 2005 which is aimed at reducing cost, eliminating debt and returning the company to profitability.

2. The second Phase - “Profit from the core” scheduled to be carried out in 2006 and 2007, aimed to improve the profitability and growth of the company by revitalizing the core product line and transforming the business process/platform. These they mentioned could be achieved through outsourcing of manufacturing and strengthening of the IT Platform.

3. The third Phase – “Achieving Vision” scheduled for 2008 and 2009, to be focused on developing innovative new play experience that will profitably grow the company financially.

Era Specific Plans Effects

Stabilize for survival (2004 – 2005)

• Cut off 50% workplace.

• Outsource 80% products to low cost countries.

• Sold 70% share of the four LEGOLANDs. • Produced only 6500 components. • Decreased cost 35%. • Debt free. • Solid cash position.


Profit from the core (2006-2007)

• Core Competencies: brick, building system, brand, LEGO community.

• Refine the LEGO Development Process (Innovation Matrix).

• New approach to connect with outside inventors and complementary product producers.

• User involvement.

• Simplify the programming language for the Mindstroms product line

• Earned profit. • LEGO City and

Bionicle is revitalized. Achieving Vision (2008 – 2009) • LEGO Factory.

• LEGO universe game.

• Attracted more users.

Table 1: The effect of the “shared vision” strategy

Challenges At The Lego Group

- Limited cash:- the company was at the verge of bankruptcy

- Increasing price pressure:- The toy industry was evolving in ways that did not favor the LEGO Group.

- Competition was on the increase and No clear idea of what is happening and what can be done.

- Powerful retailers, high fixed costs and in particular, the shift away from traditional play and the consolidation of retail-outlet power.

These challenges did not only spur LEGO to become more innovative, but was a source of strategy for innovation among the LEGO Group. The successes achieved were significant to the business strategy which the management imbibes after the crisis in 2004.



“By restructuring the company, redefining the innovation process, connecting with outside development partners, and putting in place a number of mechanisms to coordinate innovation efforts, the company had reversed its slide,” (Robertson et al, 2008).

All these tasks were the bedrock of LEGO‟s recovery putting them back in the game, a result of the evolution of their business model.

3.1 Internal Sources - Structural Changes:

The firm made two drastic changes internally to promote and improve rate of innovation;

 LEGO designers whose performances were not measured by profitability were given targets to meet. Groups were formed among designers, creating a competitive environment that helped foster innovation among the designer‟s and the firm as a whole.

 Secondly, the company went a step further to restructure what it calls its Concept Lab, a laboratory functioning solely for innovative purposes. The firm‟s aim was for the lab to develop radical innovative products that emphasized the LEGO trade mark. According to Robertson et al 2008, “They challenged the Lab to develop new experiences that were „obviously LEGO, but never seen before‟.” In addition to this, LEGO opened new concept labs in their major markets which include; US, Germany, Spain and Japan.

The concept lab was also charged with handling the LEGO Development Process (1995), a process with four major stages which involve; idea exploration for toys, development, prototyping and implementation. This concept turned out very successful reducing product implementation time from three years to one and an increase in products that made it to the market.


3.2 External Sources - Customer Led Innovation:

The rule of business that says “Customer is King” applies in the case of LEGO; one of the major turning points for the firm was to involve customers in product design and development, a total shift from the traditional closed innovative culture. This led to an open innovative platform where the consent of customers helped enhance product quality and usability (M. Schultz, 2003). LEGO sought out a couple of ways to reach out to customers and get their feedback on new product which include;

 Organizing fan events and fairs for customers to get a feel of such products.

 The involvement of families in the process innovation.

 Surveys and researches carried out in LEGO retail stores and among adults that use LEGO products.

 The firm also employed the help of some die hard and creative LEGO fans called the “fab four” for their reviews and inputs on new product before their introduction into the market.

 LEGO Company owns quite a comprehensive in-house R&D. It has one of the biggest and most technology driven research institute (MIT) as partners for creative innovation.

This open innovation culture saw a big improvement in company‟s sales and the generation of new successful ideas like the LEGO factory and LEGO universe.



In LEGO, there are four main innovation processes with two sub categories namely;

 Business; sales channel and business model  Product; product offering and platform

 Communication; messaging and interaction

 Processes; core processes and enabling processes. Innovation stage Gate at LEGO Group

Figure 3: The new LEGO Development Process (Cooper, 2000).

The effectiveness of new LEGO Development Process of innovation was significant to the shortening of the development time from 36 to 12 and constructively increases the number of finishing products with new ideas (1 or 2 to 8 or 9) and increased happiness of designers involved in the process life cycle.

4.1 Process of Innovation Initiatives at LEGO Group

The following is a table geared towards producing innovative ideas, for both Radical and incremental innovation method used in selecting ideas and the


initiatives from the CEO and corporate management team resulting to her competitive advantage over its competitors in the market:

Scope LEGO Company

Innovation Progress Incremental Innovation

The company promoted its values from the beginning. LEGO‟s first value Statement “only the best is good enough” dates from 1933 and reflects the company‟s commitment to quality.

Sustaining Innovation: “Shared Vision”

2004 – The company went through incremental innovation during this period she innovate ideas that led to LEGO Group regaining her market share position internationally.

Where to get innovative ideas?

The application of the Innovation Matrix to ensure different types of innovative ideas were

coordinated and appropriately staffed.

The new LEGO Development Process had four major gates: P0,P1,P2,P3

To prepare for each gate the team went through three phases: Exploring emphasized the need for outside input to ensure that customer and partner feedback was collected and incorporated into the design. Developing required the development of prototypes for testing. As the process moved from P0 to P3 these prototypes became more realistic, starting from rough sketches and moving to realistic models. In the later stages of the process the models would include packaging designs as well. Validating required the team to test the prototypes


5.0 ORGANISATION STRUCTURE FOR INNOVATION MANAGEMENT The table below shows the LEGO Group demonstrated learning towards innovation performance and explains how LEGO Group has supported or inhibited innovation management. The same table also reveals the issues and challenges faced at the LEGO Group:

Components of Innovative Organization LEGO Company Position of the company

World‟s 5th largest manufacturer of toys in 1999 Global toy manufacturer in producing plastic bricks

Size of Innovating Firms

The LEGO Company has sold 320 billion LEGO® bricks, the equivalent of 52 bricks per capita worldwide.

Market Size For export market to Europe, East Asia and Australia.

Objective of Innovation Both product and process innovation. Shared vision,

leadership & the will to innovate

Strong top management commitment and clearly articulated shared purpose of innovative/creative culture in the LEGO company.

Appropriate Structure Encourage organizational design that enables creativity, learning and interaction among various business teams.



Emphasis of communication is central to the business heads and open community.

High Involvement in Innovation

Encourage participation from the related business units only and the customer community.


Components of Innovative Organization

LEGO Company

Creative Climate & supported by motivated system

Encourage creativity within R&D and related business units as well as the loyal customer community.

R&D Capability Own quite comprehensive R&D. Good networks built around its associated group and customer community. e.g MIT‟s Dr. Seymour Papert from the Laboratory of Computer Learning was named “Lego Professor of Learning Research”.

How the ideas are put into practice?

The experience of its CEO and management team and up-to-date knowledge of the industry strategic analysis are factors in deciding the best ways to implement innovation to remain ahead of its competition.

How they think they are lacking in terms of innovation?

After the appointment of the CEO, Jørgen Vig Knudstorp. It has good R&D and management teams which will ensure it is ahead in innovation in the industry.

How they prioritised ideas?

No priority is given. All R&D projects are conducted simultaneously. Any other ideas (such as packaging) are studied at the same time. How they protect the

ideas from competitors?

The R&D is segmentalised whereby each team is handling separate parts of the overall R&D. The output from each team are coordinated and complemented at management level.


Components of Innovative Organization

LEGO Company

How they gain

competitiveness from competitor?

LEGO Group was flexible to changes by combining market adaptation with innovation.

How to counter advantage that

competition is having?

The LEGO Company responded to these through expansion into life-style products, opened theme parks (in the U.S., UK, and Germany), and collaborated with other leading global brands (e.g., Lucas Films, Disney, Microsoft, and Warner Brothers) to develop new product concepts.

Benchmark the level of innovation with others

The company is highly innovative compared with its competitors. For example, LEGO‟s Bionicle range is an enormously successful experiment in innovative branding and revitalised the image of the traditional construction toy company bringing it firmly into the 21st century.

How they develop innovative culture?

The company encourages creativity at all levels.

Table 3: Components of Innovative Organisation Structure

5.1 Analysis of Innovation Management at LEGO Group Company

The charts below provide a framework which enables an assessment of the innovation management undertaken by the LEGO Group Company, to review a wide-range of factors affecting innovation successes and shortcomings, a way of focusing on sub-systems with particular problems, and a guide to


continuous improvement of innovation management (Tidd et al. 2005, pp. 565-569):

Innovation Management for LEGO Group Company

Figure 4: Innovation audit using five dimensions analysis

Effective innovation management is being seen as a challenge of connecting to and working within one‟s organisation context – from R&D, product development, supply chain and its networks of strategic alliances, suppliers or customers which bring the innovation values across its market (Tidd et al. 2005, p. 71).

The challenge of effective innovation management is not simply one of putting resources into the system; it is how those resources are integrated and used within the organisation. Effective management of innovation streams requires a number of organizational routines, including clear strategic direction, effective communication and learning, linkages, processes and the organisation’s innovative culture (Tidd et al. 2005, p. 92).



 LEGO top managements play a key role in sponsoring and shaping innovation within their respective organisation structure;

 LEGO have clear corporate branding strategies with its firm-specific knowledge – the capacity to exploit its competitive innovative success as supported by its internal structures and processes that exploit the innovative capacity through integration across technological fields, business functions and product division – to cope with its demanding markets globally (Tidd et al. 2005, p. 108);  The LEGO corporate management team have a high sense of

„innovation leadership‟ (Tidd et al. 2005, p. 121) to being the market leader in their respective industrial sector.

To summarize, LEGO has a higher share of innovations due to its better capability to exploit its innovative capacity and better organisational infrastructure and access to partners and resources which are supportive of and conducive for its innovation activities.



Nevertheless, the author envisages that despite the significant growth of the Lego group she could further improve her innovation stream and its management by establishing external linkages with international organisations as well as other supply chain management systems to explore other disruptive opportunities for the future and increase overall business performance via process innovation. These the author recommends can be further supported via creating an innovative culture, build linkages with government bodies and local universities, expand its R&D capabilities and, develop training and innovative incentive programs.

LEGO is doing pretty well in the area of innovation management, probably due to the internal linkage to corporate leadership. The author think that it may benefit more if it is able to establish linkages with external organisations, such as the following leading e-commerce and social networking websites for example: eBay, Amazon, facebook to promote and diversifies her market and could seek cooperation on working on expanding their product line at the upstream level, which could be providing fries and expertise to other manufacturers, and/or venture into downstream activities such as end product that is marketable to end consumer directly as follows:

1) To explore other disruptive opportunities for the future

Due to the increasing competition in the global market of toy industries, LEGO may need to consider venturing into other areas of the industry by exploring other potential disruptive innovation. The global competition, change in fashion trends, and the change in lifestyle of consumers have gradually reduce the margin that LEGO had enjoyed in the past and is currently enjoying. LEGO should at least think in what strategic ideas the company need to venture into in the next 5 to 10 years.


Organisations can sustain their competitive advantage by operating in multiple modes simultaneously – managing for short-term efficiency by emphasizing stability and control, as well as long-term innovation by taking risks and learning by doing (Tushman & O‟Reilly III 1997, p. 167).

2) To increase overall business performance via process innovation

Analysis of the market shows that, while LEGO is still a market brand, the author think it needs to keep the competitive advantage by constantly innovating, especially on process innovation to reduce the complexity of its current production process so as to increase its overall business performance and productivity.


Successful innovation correlates strongly with how a company selects and manages its innovative projects. However, how it coordinates the inputs of different functions, how it links up with its customers, etc is another issue entirely. A successful innovation management can give rise to its distinctive competitive ability by being the market leader in its respective industry (Tidd et al. 2005, p. 87).

In strategic management, exploitation activities of R&D are strongly driven by product and market strategy (Cavone, Chiesa and Manzini, 2000). The LEGO Company have displayed such characteristic by focusing their R&D activities on commercially viable projects.

The competitors of LEGO Group are likely to conduct R&D activities on a smaller scale as they seek to gain knowledge and confidence (Pannell, 1999). In this sense, LEGO have an advantage over their competitors as they have already logged in years of successful R&D activities. Nieuwenhuis (2002) mentioned about creative destruction whereby companies with new products


will out-succeed companies with old products. Nieuwenhuis (2002) also mentioned that “innovation is important for the competitiveness of enterprises” and “innovation and technology development are the main tools for surviving this dynamic process”.

In short, the LEGO Group have successfully managed her innovation streams and were able to relate her innovation streams with business performance and thus increase her market share and profitability. Nevertheless, the author will recommend that to further improve innovation management at the LEGO Group, it is obvious to understand that innovation and how it is managed is a key for a business to continuously succeed irregardless of whether it is a large company or a small single-entity enterprise. The author, have also during the course of this study discovered that a company which has a successful innovation management strategy can still improve on its innovation management as reflected in the recommendation section of this report. In conclusion, innovation and its management thereof is a necessary and ongoing process that can be changed and improved to enable a business to succeed in this competitive world.



a) Tidd, J, Bessant, J & Pavitt, K, 2005, Managing Innovation, 3rd edn, John Wiley & Sons Ltd, England.

b) Tidd,J, & Bessant, J, 2009, Managing Innovation, integrating Technology, Market and Organisational Change, 4th Edn, John Wiley & Sons Ltd, England.

c) Rob Crawford & Professor David Robertson, IMD 2008, „Innovation at the Lego Group (A) & (B) IMD-380-382, IMD-3-1978-79, A Case Study of International Institute for Management Development, Lausanne, Switzerland.

d) De Wilt, JG, Diederen, PJM, Butter, M & Tukker, A 2001, „Innovation challenges for industrial Marketing‟, Foresight, vol. 3, no. 4, pp. 341-352.

e) Nieuwenhuis, LFM 2002, „Innovation and learning in Manufacturing industries‟. Journal of European Industrial Training, vol. 26, no. 6, pp. 283-291.

f) Pannell, DJ 1999, „Economics, extension and the adoption of land conservation innovations in agriculture‟, International Journal of Social Economics, vol. 26, no. 7/8/9, pp. 999-1012.

g) Jeppe, F & Morten M, A 2005, Building Brands, „Story selling: „How LEGO told a story and sold a toy‟. Young Consumers, Quarter 2, 2005.

h) Niek D du Preez & Louis ,L , 2008, „A framework for Managing the Innovation Process‟, PICMET 2008 Proceedings, 27-31 , Stellenbosch University, South Africa.

i) Cavone, A, Chiesa, V & Manzini, R 2000, „Management styles in industrial r&d organisations‟, European Journal of Innovation Management, vol. 3, no. 2, pp. 59-71

j) Tushman, ML & O‟Reilly III, CA 1997, Winning Through Innovation: A Practical Guide to Leading Organisational Change and Renewal, Harvard Business School Press, Boston.

k) J. H. Mikkola, DK 2000, Technovation - Portfolio Management of R&D projects: Implication for innovation Management, Copenhagen Business School, Denmark.




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