Question 1: How LEGO has strategically developed over the past 10 years

Company’s Background:

LEGO is a toy company established in the year 1932 in Billund, Denmark. The company
was an iconic name in the toy business, specifically known for its plastic building “brick”.
LEGO’s main objectives is to offer quality toys and learning experience for children by
fostering creativity and imagination through the system of play (Jensen, 2015). LEGO’s
revenue at the end of financial year in 2016 has been increased by 6% in DKK to DKK 37.9
billion as compared to DKK 35.8 billion in 2015. The revenue growth was driven by the
performance of its core themed products including LEGO City, LEGO Ninjago, LEGO Friends,
LEGO Technic and LEGO Creator (LEGO, 2016). LEGO currently has a total of 16,836
employees in 2016 as compared to 13,974 in 2015. LEGO strives to focus on continuous
innovation efforts to engage and inspire children with the most exciting play experiences, by
strengthening its efforts around developing digital engagement and to connect with its target
audience through a wide range of digital platforms (LEGO, 2016).

Strategic Development of LEGO

Corporate entrepreneurship is defined as “the process where by an individual or a group

of individuals, in association with an existing organization, creates a new organization or
instigate renewal or innovation within that organization” by Sharma and Chrisman (1999). In
a business era where companies are faced with immense competitive pressure to sustain growth,
corporate entrepreneurship is practiced widely by most of the companies to stay ahead of the
curve. Corporate entrepreneurship essentially encompassed two specific domains, which is
corporate venturing and strategic entrepreneurship. In the case of LEGO, it has perfectly
demonstrated both aspects through its strategic development over the years, from success to
the brink of bankruptcy 2003, and then retaining growth and championed through as one of the
biggest toymakers in the world in recent years.

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Corporate Venturing

Corporate venturing is the means of adding new businesses to the corporation through
three implementation modes – internal corporate venturing, cooperative corporate venturing
and external corporate venturing (Kuratko and Covin, 2015). After a sales slump in 1993,
LEGO realized the need to navigate its business to overcome the threat of the rising competition
of video games, and that the rise of Chinese companies which manufactures similar items at a
fraction of the cost (Knowledge@Wharton, 2012). LEGO then responded to the threat by
tripling its offerings of new toys, from 109 in 1994 to 347 in 1998. This resulted in a surge in
production costs as the complexity rose in factories, and LEGO eventually ran out of shelf
spaces in toy stores and profits dropped, producing LEGO’s first loss in 1998.

To fix the problem, LEGO started to adopt internal corporate venturing, where new
businesses are created and owned by the firm (Kuratko and Covin, 2015). LEGO started
pursuing market-wrenching disruptive innovations and revolutionized play experience by
venturing into businesses away from its core product (the brick). Some of the businesses
included the LEGO-branded electronics, amusement parks (LEGO Land), interactive video
games, jewelry and education centers, which deviated the business from its core industry (toys)
(Knowledge@Wharton, 2012). Besides, LEGO also explored cooperative corporate venturing
by producing a line of toys through alliances with the Harry Potter franchise and Star Wars
movies. The result of its attempt on an overdiversified portfolio leading to expansive losses in
its toy lines, popular theme parks that has drained cash, and the volatility of the demand based
on the two movies almost bankrupted LEGO by the year 2003 (Robertson, 2015).

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Strategic Entrepreneurship

In 2004, Jorgen Knudstorp, then CEO and currently the executive chairman of LEGO
was brought in to turn the company around from its continuous worsening performances. Under
Knudstorp’s leadership, LEGO ventured into strategic entrepreneurship, where critical changes
were made from the firm’s past strategies, products, markets, organization structures, processes
and business models whilst retaining innovation in a controlled manner to rebuild the company
(Kuratko and Covin, 2015). To redefine LEGO’s relationship with the market and industry
since its confusing phase of overdiversification, Knudstorp began by approaching strategic
renewal to halt sales decline and increase revenue from its core business by reducing debts and
focused on cash flow. LEGO then sold a 70% stake in its successful Legoland theme parks for
$460 million to the Blackstone Group, moved management to a nearby factory by closing
firm’s Danish headquarters building and outsourced majority of its plastic brick production to
cheaper facilities in Mexico and Czech Republic (Knowlege@Wharton, 2012). Knudstorp
eventually shifted LEGO’s focus back to its classic lines such as LEGO City and Space, and
aimed to continuously develop new toy lines by innovating around its core product – “the brick
itself”.

LEGO also adopted organizational rejuvenation (Kuratko and Covin, 2015), as

Knudstorp created a more organized structure for innovation activities by reinforcing on
controlled innovation, and granted autonomy for employees from all levels to contribute to the
company’s strategic goals. Furthermore, Knudstorp approached open innovation by
encouraging interaction with LEGO’s fans to participate in some of its products’ development
process, which was previously considered verboten at LEGO. Knudstorp also invested in an
innovation hub – LEGO’s FutureLab aimed to inventing the future of play and to identify
growth opportunities for LEGO to sustain growth and continuously strive in the industry
(Fearne, 2015).

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LEGO’s Corporate Entrepreneurship Strategy

CE strategy is a vision-directed, organization-wide reliance on entrepreneurial behavior

that purposefully and continuously rejuvenates the organization and shapes the scope of its
operations through the recognition and exploitation of entrepreneurial opportunity.

In a CE Strategy, identifying opportunities and threats are vital for a company to sustain
and develop its businesses. The table below provides a brief analysis of LEGO’s opportunities
and threats that were leveraged to return from the brink of bankruptcy:

Opportunities
New market segments:
- Girls market (LEGO Friends)
- Adult market (LEGO Architecture)
Innovation around core competency
Open Innovation
- Acknowledging fans’ insights to
enhance product development
Staying afloat with the technological trend
Threats
Overdiversification led to destructing
results
Overly dependent on licensed LEGO lines
Inefficient innovation management led to
increased cost of production
Rise of digital devices that prompts
immediate competition with traditional toys

Based on the discussion above, it could be seen that LEGO has developed through the
different mode of corporate entrepreneurship activities, and has regained its footing through
strategic renewal and organizational rejuvenation. It is evident that over innovation may not be
the best option to counter threats, and LEGO has been able to leverage quickly on the
opportunities and act on the threats identified despite almost falling into bankruptcy, and
managed to flourish under Knudstorp’s strategic leadership.

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Question 2

Dimensions of Entrepreneurial Orientation

Entrepreneurial orientation refers to a firm’s strategic orientation, capturing specific

entrepreneurial aspects of decision-making styles, methods and practices (Lumpkin and Dess,
1996). The concept consists of 3 main components: innovativeness, proactiveness and risk
taking. These concepts help to characterize and distinguishes key entrepreneurial processes. In
this part of the question, LEGO’s level of innovativeness and proactiveness will be discussed
alongside supporting evidence of its innovation management.

Innovativeness

Innovativeness is defined as “the propensity for a firm to innovate or develop new ideas
(or) to adopt innovation” (Garcia and Calantone, 2002). LEGO has long been known for its
mastery on producing different ranges of innovative products, these successes owes to LEGO’s
ability to master an innovative approach which delivers low risk and high rewards to the
company by offering a family of complementary innovation around its core product – LEGO’s
bricks. LEGO’s complementary innovation will be discussed in the paragraphs below.

To support continuous innovation, LEGO implemented a structure to strategically

coordinate innovation activities, led by a cross-functional team: The LEGO FutureLab. The
management team overlook at the whole product-life cycle process, by considering products,
pricing plans community building, business processes and channels to market (Robertson and
Hjuler, 2009). One of the key mission for FutureLab is to research on how children around the
world plays to better understand its targeted consumers. One key example in 2011 saw LEGO
acted on its research where it learnt that girls typically uses their sets for role play as contrast
to boys who prefers a strong narrative, which was reflected on its boy-focused portfolio such
as Ninjago and Legends of Chima. Hence, the company launched a play-themed line -LEGO
Friends to attract girls and enhance playing experiences (Ringen, 2015).

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 LEGO also embraces new ideas through its open innovation and crowdsourcing model.
Innovativeness is also a firm’s tendency to engage in creativity and experimentation (Rauch et
al., 2009) and the process of supporting new ideas. Knudstorp saw the opportunity of
leveraging on the ideas generated by LEGO’s highly skilled enthusiast from its adult fan-base,
thus engaged their help in the product development of LEGO Mindstorms NXT. One of the
key innovation developed was a design breakthrough by the members of Mindstorms User
Panel (MUP) allows users to build in three dimensions, which has greatly enhanced the
building process (Robertson and Breen, 2014). By harnessing the creativity, imagination and
intelligence of the crowd, this user-led innovation has enabled LEGO to attain a successful
product that not only reap profits, but also a stronger brand loyalty. The success of Mindstorms’
open innovation experiment has taken a further step by launching Lego Design by Me
(formerly known as LEGO Factory), which allows users to design their own LEGO models,
upload them to the company’s website and order them for delivery (IdeaConnection, 2011).

4P Innovation Model

LEGO’s innovative activities can also be explained based on the 4P innovation model
consisting the dimensions of process, product, position and paradigm.

The product innovation introduces or improves specific products or services creating a

change in what the organization can offer. Previously, there were reports on children’s
tendencies on choking the normal LEGO bricks. To mitigate the risk, LEGO launched a
toddler-safe version - LEGO Duplo, where they developed larger brick sizes that is not as easily
detachable once assembled, and could prevent choking hazard (LEGO, 2015). This has proven
to be a successful incremental innovation as it has made improvements on a potentially
dangerous product by eliminating a possible risk.

One of LEGO’s classic process innovation was the invention of automatic binding
bricks. In the earlier years, LEGO’s founder came across the plastic brick from a supplier but
the models built by it had a frustrating tendency to fall apart. He then produced his own version
of the plastic brick which has precisely the right amount of clutch power which can build
models that are strong and easy to pull apart, which is also compatible with all the billions of
bricks that have followed (Ringen, 2015). This was a radical innovation that has changes
completely on how LEGO’s products work, thereby establishing LEGO’s unique competitive
advantage.

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 The innovation of positioning helps firms to define or redefine the positioning of
products, organizations or sectors. LEGO redefined its position as a toy company into an
amusement park company back in 1968. The inspiration came from the frequent factory visits,
therefore translated into LEGO’s scale models’ exhibition and family attraction parks (Banks,
2010). LEGO now holds partial ownership of the successful LEGOLANDs as it has sold off
majority ownership of its parks in 2005 when the company faced the risk of bankruptcy.
Nevertheless, the theme parks have been proven to be a success and are now expanding towards
Asia.

The innovation of paradigm redefine how people view a particular market which may
lead to change in certain business models. A case in point is LEGO’s innovation towards
bridging the digital and physical play experience through LEGO Ideas. LEGO Ideas provided
a platform for fans to vote on new-kit ideas submitted by amateur designers. Any ideas with
more than 10,000 votes will proceed to a review phase, and LEGO will then decide which get
made. The process has created more than 10 limited-availability kits, including a model lab
staffed by female scientists and the Big Bang Theory apartment (Ringen, 2015).

Proactiveness

Proactiveness points to a firm’s posture of anticipating and acting on future wants and
needs (Lumpkin & Dess, 1996), seizing favorable opportunities and acting aggressively against
rivals. A proactive company is said to be observant towards business trends, anticipate market
demands and favorable venture opportunities (Rauch et al., 2009).

A company is said to be proactive when it takes initiatives by anticipating and pursuing

new opportunities or participating in emerging markets. LEGO’s initial market segment was to
cater to children’s toys, later on they found a potential within the adult market. A case in point
is proven by LEGO’s first adult product - LEGO Architecture. LEGO Architecture was
developed by a member of the AFOL (Adult Fans of LEGO), an architecture who built
impressive LEGO models of iconic buildings. He made an offer to LEGO suggesting the
company might be interested in making official kits similar to its creations and eventually
developed the new line of LEGO Architecture which is largely popular and reap huge profits
as the kit can be sold at a higher price as compared to a kids’ kit. LEGO’s proactiveness on
embracing new business opportunities has allowed LEGO to succeed in a previously untapped
market.

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 Another example of LEGO being proactive towards innovation was shown in the case
of adapting towards the evolving needs of its customers. LEGO identified the need to bridge
the physical and virtual worlds to accommodate the long-term trend of rising children spending
more time on devices. Hence, LEGO developed LEGO Fusion sets that allows children to build
two-dimensional models of castles or racing cars, and then use an app to capture the model and
import it into a 3D digital world, hence achieving a digital-physical LEGO experience. Besides,
LEGO also adapt to its tech-savvy customers by partnering with Google to develop “Build with
Chrome”, which enabled users to create modes using digital bricks (Ram, 2017).

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Question 3:

LEGO’s firm-level entrepreneurship

LEGO’s incredible success over the years has showcased the amount of effort the
management had put behind to support firm-level entrepreneurship. The success of LEGO in
the industry has reflected on the importance of hiring the right people and the need to create an
effective working environment that directly drives the company to stay ahead of the curve.
Hence, fostering CE would then require entrepreneurial management as compared from the
traditional management because of the conditions of greater uncertainty and knowledge-
intensity (Kanter, 1985).

Entrepreneurial management stressed the importance of Human Resource Practices in

shaping individual employee behaviours and organisational work environments (Hayton, 2005)
to spur and maintain the firm’s internal entrepreneurial activities. It is also important to
recognise the need for effective leadership to inspire and create organisational architectures in
which entrepreneurial initiatives is attained.

HR practices and CE

Luchsinger and Bagby (1987) stresses on the need for corporate entrepreneurial firms
to adopt decentralisation of authority, encourage participation in decision making, cooperation,
avoidance of bureaucracy and encouragement of risk taking and creativity.

To revamp the company culture and to foster entrepreneurial spirit, Knudstorp adopted
a democratic leadership style and released the reins of power after the company has returned
to profit, and flattened the organisation by expanding LEGO’s leadership team from six people
to twenty-two, allowing space to produce more leaders (Rosen, 2014). Besides, Knudstorp also
granted the senior leadership team with abundance of opportunities to display their acumen in
high stake settings, by presenting regularly in front of the Chairman or family owners (Rosen,
2014). Another example from 2004 was Knudstorp championing a marketing executive who
pushed for a back-to-basics design for a new fire engine, and return the Duplo line for toddlers,
these ideas has previously been dumped by a previous boss (Financial Times, 2015). The
application of decentralising authority had changed how LEGO used to work, as its previous
hierarchical model has formed a huge barrier to prevent LEGO from responding flexibly
towards business opportunities and market demands throughout the organisation.

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 Even though decentralisation is highly effective to promote firm-level entrepreneurship,
control should still be exerted as a mean to guide development and to prevent businesses from
growing overboard. Knudstorp managed to strike a sustainable balance between forging a
strategic vision (Rosen, 2014) and letting his team lead the execution. At LEGO, designers are
given the space and autonomy to design products that are aligned with the company’s vision.
Knudstorp managed the innovation efforts by developing an innovation matrix and guideline
for his team, where value discipline is fostered to ensure designers can innovate whilst being
accountable of cost parameters (Robertson and Breen, 2014). As a result, designers who are
forced to work within the boundaries actually became more creative (Max, 2013), and it also
helps Knudstorp to evaluate ideas from many angles to make the best decisions for LEGO.

People + Intrapreneurship

An effective corporate entrepreneurial organization would need a supportive internal

working environment, which brings the analysis to how LEGO also practices intrapreneurship
to promote firm-level entrepreneurship. Intrapreneurship is concerned with how individuals
may be encouraged to act more entrepreneurially in a large organization, as human resources
possess the essence of what leads a company to success.

As noted by Gratton (2007), intrapreneurship may be practiced by many people in an

organization, and consists of persons who alone or together with others, create “hot spots” in
organizations. Hot spot is described as the centre of the creative energy fields in an organization,
where new ideas are developed and put into practice. To ensure employees are given the
environment and resources to unleash their creativity, Knudstorp also invested in LEGO’s hots
spots – the LEGO FutureLab, to facilitate incubation activities (Zahra, 1991) where employees
are tasked to drive LEGO’s innovation agenda by inventing future play, a large part of which
is identifying growth opportunities and ensuring that LEGO stays ahead of the curve.

LEGO’s FutureLab can cultivate intrapreneurship as its relationship with LEGO is more akin
to an incubated start-up as it partners with small agile companies who accept the division as a
small business and can move equally quickly. The employees are provided with sufficient
resources allocated by LEGO –but with small budgets to facilitate cost efficiencies. The team
uses market testing to validate their new products, and manage the full product journey from

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early scouting and conception, through to production, market strategy and launch. Thus, the
employees at LEGO’s FutureLab is able to introduce radical innovation without jeopardizing
the core businesses and value propositions of the LEGO brand (Fearne, 2015).

Another factor suggested by Hornsby, Kuratko and Zahra (2002) is to encourage risk-
taking and tolerate failure. At LEGO’s FutureLab, this factor is achieved by keeping projects
small-scaled, and the division emphasized on the need to allow failure as a mean to learn and
progress. It also allowed employees to make mistakes at a relatively cheaper cost, where vast
amounts can be learned. For example, LEGO Universe, an online game was discontinued just
over a year after its launch in 2012 as they were not able to build a satisfactory revenue model.
The experiment barely damaged LEGO’s reputation whilst providing multiple key insight and
learning lessons to establish the company in the digital world (Smith, 2016).

Conclusion

In conclusion, LEGO has set a great benchmark as a company capable to achieve

success through firm-level entrepreneurship. LEGO possess the ability to create a brand known
for its continuous innovation in delivering the best experience for its key customers. Under the
strategic leadership by Knudstorp, LEGO is able to continuously develop under a controlled
manner and his emphasis on creating a positive environment for employees has led to the
success it had today. With the new management team in line, it is recommended that these
elements of the organisational culture and innovation practices are preseved in the future to
achieve a long-term profitable business.

(3238 words)

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