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Universidad Tecnolgica de El Salvador

Ada Beatriz Hernndez Hernndez

The Lego Group is a family owned
company based in Billund, Denmark, and
best known for the manufacture
of Lego brand toys.
The company was founded in 1932 by Ole
Kirk Christiansen. The word Lego is derived
from the Danish words "leg godt", meaning
"play well." The word "lego" also means "I
gather together" in Latin, and "I connect" or "I tie" in Italian.

In 2003, LEGO was according to the
Knudstorp review on a burning platform,
losing money with negative cash flow and a
real risk of debt default which could lead to a
break up of the company. The company had
reported losses of $228 million on sales of just
over $1 billion in 2003 and a loss of $207
million on sales of $1.1 billion in 2004.
In 2013, the company achieved $4.5 billion of
revenues and profits of $1.5 billion. LEGO
had replaced Hasbro to become the largest toy
company in the world second only toMattel.
Return on sales had increased to 33% and
sales per employee had doubled.

Introduced back to basics, focused on the Lego brick legacy. Focus on the brick
and the system, developing core products for a clearly defined group of
customers. Avoided the lure of too many adjacencies. Were the main strategies
that the LEGO Group did to survive and regain the position in the global market.

Universidad Tecnolgica de El Salvador
Ada Beatriz Hernndez Hernndez
1. 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

LEGO Group involved long-term direction decisions about what sort of
company it should be, and created a clear vision for the future direction of the
company would take plenty of time.
In terms of the scope of the organizations activities, LEGO introduced back
to basics, focusing on the Lego brick legacy. A focus on the brick and the
system, developing core products for a clearly defined group of customers.
Avoiding the lure of too many adjacencies.
To created advantage over the competition LEGO restored competitive
advantage by focusing on retail customers, in particular their profitability.
Understanding the importance of STAMP the impact of Stock Turn and
(Margin Performance), gross margins achieved in store.
About organizations resources and competences LEGO reduced the level
of risk by right sizing the activities, cost base and assets to a lower overhead
base, reducing the breakeven level for a given level of turnover.
LEGO addressed changes in the business environment when set a clear
direction for LEGO and fundamentally changed the way the company did
business with major retailers.
The value and expectations of stakeholders was reflect in Defined gross and
net margin targets defined as the major challenge within product development
including a premium price strategy and a 13.5% return on sales target.

2. What features of the external environment have influenced strategy
development at the LEGO Group?

Consumer and retailers:
Management was out of touch with major customers. Stock Turn And Margin
Performance within retail distribution had been of little focus to the product
development teams. Retailers were overstocked with products which offered
diminishing margins as clearance offers ensued.
Focus on the end user had ignored the means of access and distribution.

New players like Tyco Toys and Mega Bloks had developed new products. New
products including software, games, PlayStation, Xbox and the like had
convinced senior management the move would be digital. The LEGO brick was
going to die!

Universidad Tecnolgica de El Salvador
Ada Beatriz Hernndez Hernndez
3. What resources and competences of the LEGO Group have enabled
them to regain their successful position in the global toy market?

The company loses the focus on key LEGO kit construction products. So, to
regain their successful position in the global toy market they had to be a return
to the LEGO brick. Back to the brick as a building system.

In competences, LEGO focus on core products and values. Clear leadership
with a command structure focused on profitability. A premium pricing strategy
and a high return on sales target. The LEGO legacy and a value for money
proposition for end users and the retail customers.
Close to the customer became a Knudstorp mantra. Using focus groups for kids
and the adult fans of Lego in the process, new product ideas were tested during
the product development process.

And in resources, LEGO delivered to stores the right kits in the right volumes at
the right time, creating a balanced portfolio on the shelf.

4. What were the alternative strategies facing the LEGO Group in
2004? Why do you think the LEGO Group followed the course that
they did?

i. Back to the simple thing, the LEGO brick.
ii. Then would follow quality and develop operational expertise on a world
iii. Optimally producing.
iv. Rationalise the product offer - cut 30% of the product offer.
v. Attack the cost base
vi. Slow the LEGO stores programme
vii. Shed the theme parks
viii. Jettison the computer sales business.
ix. Relaunch DUPLO
x. Introduce financial targets - Line profitability , Consumer Product
Profitability 13.5%, the ROS benchmark. FMC - targets for full
manufacturing cost.
xi. Close to the customer - putting the retailers first
xii. Understand the end user - focus groups, mind storming.
xiii. Better segmentation, DUPLO, LEGO and FRIENDS for the young

LEGO group follow all of this steps in order to change the direction to cut costs,
sell businesses, restore competitiveness, generate cash and ignore the dash for
growth in the immediate future.

Universidad Tecnolgica de El Salvador
Ada Beatriz Hernndez Hernndez
5. Looking at the LEGO Group today how would you approach
strategy development to ensure a successful development of the
company in the future?

Lego Group has rationalized and streamlined its product development,
sourcing, manufacturing, and distribution, it can pour its resources into what it
does best: making wonderful toys.

To ensure a successful development of the company in the future, the LEGO
Group has to maintain a good position in the global market. Looking for low cost
countries to the bricks manufacturing, making strategic alliances to different
entertainment industry like Disney to have the licenses of new characters.
The company never has to lose the core of the company and the passion.