MUSM3924 Creating Strategy

Lego Mindstorms Case Study

Ng, Karen Mei Ling / S3244044 KK Phoon /S3173768 CK Tan /S3216695

Contents
1. Introduction 2. External Environment Analysis 3. Industry Analysis 4. Company Analysis 5. SWOT Analysis 6. Recommendations 7. Conclusion

1. Introduction
Programmable Brick (P-Brick). Brick + RCX-control unit + Sensors. Dynamic + interactive. Selling Price: USD$ 200~219!

1. Introduction
The issue.

2. External Environment Analysis

Political
Denmark is the European Union (EU) since 1993 Increased acceptance of Globalization
(BIS 2010)

Economic
Asian Financial Crisis (1997 1999) (IMF 1999) Denmark is not part of European Economic and Monetary Union (EMU) (DelMkd n.d.) .

Social
Increasing worldwide technology savvy-ness (Suite101 2006) Parents increasing concerned over school education quality CCC consumers is 20% of US households (Oliver, Roos & Victor 2000).
(Oliver, Roos & Victor 2000).

Technology
Y2K Scare (Grosvenor n.d.). Drastic increase in Personal Computer ownership & Internet usage
(Oliver, Roos & Victor 2000)

3. Industry Analysis
Competitive Force # 1 Potential Entrants
Factors Measured Traditional Toy Industry Low (Due involvement of common technology) Programmable Toy Industry High (Due to the high level of technology and patent involved) Tight --> Aside the existence of the safety regulations, no known regulations are in place to control the sprout of new entrants (legal/illegal, particularly small operators). --> The fast paced development in technology might facilitate the new entrants in the programmable toy industry. Average Degree of Threat brought by this force (Overarching Toy Industry) = 8 / 10 9 /10 Degree of threat 6 /10 Conclusion made on the competitive force

Cost of Entrance Toy safety regulations in many countries (ICTI 2005)

Tight

Economies of scale
- gained from access to more consumers and markets encourage the creation of more new entrants

Yes

Yes

High
Refer Appendices 1.0 & 2.0

3. Industry Analysis
Competitive Force # 2 Buyers Power
Factors Measured Number of options easily available to buyers Traditional Toy Industry Many Low (no obligations holding buyers back) Programmable Toy Industry Few Low (no obligations holding buyers back) Low (few options leaving consumers less choice but to continue purchase) Mainly focused at developed countries, thus the consumer base is small. 6 /10 Conclusion made on the competitive force

Cost of switching products on buyers

High (many options inclusive of imitations) Elasticity to price Worldwide dispersed, thus base is large 8 /10

Programmable toy industry is still not fully tapped. However due to the fast past development of technology and creation of new entrants, buyers when quickly have more power. Average Degree of Threat brought by this force (Overarching Toy Industry) = 7 / 10

Dispersal and size of consumer base Degree of threat

Medium -> High

Refer Appendices 1.0 & 2.0

3. Industry Analysis
Competitive Force # 3 Suppliers Power
Factors Measured Number of available suppliers Cost of switching suppliers Degree of Material differentiation in the industry Traditional Toy Industry Many Low Low (=> common parts) Programmable Toy Industry Few High High (=> parts might be unique) Due to the non commonality of programmable toys parts and technology, there are still few suppliers who could support this industry. Average Degree of Threat brought by this force (Overarching Toy Industry) = 6 / 10 4 /10 Degree of threat
(Pisani n.d.)

Conclusion made on the competitive force

7 /10

Medium
Refer Appendices 1.0 & 2.0

3. Industry Analysis
Competitive Force # 4 Industry Competitors
Traditional Toy Industry Many Programmable Toy Industry Few Average Degree of Threat brought by this force (Overarching Toy Industry) = 5 / 10

Factors Measured Number of existing industry competitors Projected market growth

(Oliver, Roos & Victor 2000)

Conclusion made on the competitive force

Not significant

Significant

Degree of Product differentiation in the industry Degree of threat

Low

High

7 /10

3 /10

(Oliver, Roos & Victor 2000)

Medium
Refer Appendices 1.0 & 2.0

3. Industry Analysis
Competitive Force # 5 Substitutes

Factors Measured

Traditional Toy Industry High (e.g. books, computer games, etc)

Programmable Toy Industry

Conclusion made on the competitive force

Number of substitutes in the replacement of toys

High (e.g. books, computer games, etc)

Average Degree of Threat brought by this force (Overarching Toy Industry)= 9 / 10

Cost of switching to substitutes Degree of threat

Low

Low

9 /10

9 /10

High
Refer Appendices 1.0 & 2.0

3. Industry Analysis
Traditional toy industry: Highly saturated & slow growth. Programmable toy industry: Fast growth & great potential. Overall toy industry: Attractive & profitable.

Refer Appendices 1.0 & 2.0

3. Industry Analysis
Critical Success factors: Product Safety. Innovativeness. Product value on children. Product level of attractiveness to children. Product durability. Ease of acquiring.

4. Company Analysis
Founded in 1932 and begin with single product company in Denmark. In 1999,multi-business corporation, 5th in the world & No. 1 in Europe. Private own corporate - founders Kristiansen Family Core business- traditional toy. Current Corporate strategy: Portfolio organization.

4.1 Marketing Performance

Current marketing strategy: Product differentiation and narrow market segment. Primary market: Developed Countries-US, Europe, Japan & etc.

Lego Net Sales 1996~1999 (Source: Lego Annual Report-1999)

4.1 Marketing Performance

Net Sales Comparison, 1995~1999 (Source: Compilation from Companies Annual Reports).

4.1 Marketing Performance

Steady growth business and market. Market share relatively small compare to market leaders. Compete in oligopoly market and advertising and marketing are crucial aspects. Strictly Business to business(B2B) model. Lego own strong alliances, distribution channels and active collaboration strengthen its networks.

4.2 Financial & Operation Performance

Key financial ratios analysis , 1998~1999 (Source: Compilation from Companies Annual Reports).

4.2 Financial & Operation Performance

Profitable company with higher profit margin, ROE & ROA. Well financial balance. Managing well in cash, inventory and receivables (liquidity). Operation efficiency is about industry par. But Lego seem better in its cost control, where it have better profit margin. Possible contribute from it strong supply chain and distribution channels.

4.3 Key Stakeholders

Owner: Kristiansen Family. SBU managers. Mindstroms SPU Team.

5. SWOT Analysis

6. Recommendations
Corporate Configuration
Two phases organization change

6. Recommendations
BCG Matrix Portfolio & Product Life Cycle approach. Scenario -1

6. Recommendations
Scenario -2

6. Recommendations
Key advantages could achieve: Stakeholders' conflicts on the Mindstorms business are addressed. Shorter learning curve for new market exploration. Optimized resources utilization.

6. Recommendations
Sustainable Competitive Advantage. Being first is not a sustainable advantage. Patent plastic bricks expired in 1981. Competitor KNEX selling identical product. Think about how to sustain competitive advantage. Prevent losing its market position.

6. Recommendations

Resources & Capabilities. Foundation for formulation of corporate strategy. Identify resources, evaluate competitors strength & weakness. Identify capabilities, more effective than competitors. Formulate superior values & competencies. Eliminate threat of retaliation.

6. Recommendations
Innovation & Intellectual Property Customers expectation, competition on new product development. Emerging video and PC games changing the toy market. Intellectual property and patents are protected, ROI before competition. Responsiveness Ability to respond competitive demands in a timely and adequate manner. Speed and effectiveness of response to market changes & external environments. Independent sales and marketing, financial control and other systems.

7. Conclusion
Respond all the challenges and increase the economies of scale with limited resources within short period.

Maintain the linkage and balance of both Lego core and SPU business (Mindstorms).

Thank you

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