Lego's Transformation: Case Study Analysis of Business Strategies

This case study analysis examines the challenges faced by Lego from 2003-2004, when the company experienced significant financial losses and organizational restructuring. The report details the issues related to market changes, complex organizational structures, and communication breakdowns within the company. It highlights Lego's strategic turnaround, including diversification into new business areas, such as video games and theme parks, and the implementation of innovative marketing strategies. The analysis emphasizes the role of corporate entrepreneurship and the importance of customer engagement in Lego's recovery. The study also provides recommendations for streamlining management layers, improving internal communication, and strengthening the relationship between the company and its customers. These suggestions aim to enhance decision-making, improve product development, and increase overall profitability and market competitiveness for Lego.

Running head: CASE STUDY ANALYSIS OF LEGO
CASE STUDY ANALYSIS OF LEGO
Name of the Student
Name of the University
Author Note

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Executive Summary
This report is related to the discussion and analysis of the Lego case study. The case study is
about the problems that were faced by the company in the years 2003 to 2004. The ways by
which the company was again able to regain the position in the market is also discussed in the
report. The issues that are still being faced by the organization related to different layers of
management and the internal communication is discussed in detail. The major
recommendations by which the company can solve the issues are also analysed in the report.
The report is concluded by saying that the recommended changes can help the company in
increasing their sales and customer base.

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Table of Contents
Introduction....................................................................................................................3
Opportunity of Lego.......................................................................................................3
Issues and challenges faced by the company.................................................................4
Market analysis and intervention...................................................................................5
Recommendation of the business plan...........................................................................7
Conclusion......................................................................................................................9
References....................................................................................................................10

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Introduction
The report is based on the analysis of the case study of Lego and the problems that
was faced by the company from the year 2003. Lego had recorded huge losses in the year
2003 and the debts of the company became as high as $800 million. The revenue of the
company had decreased by 5% and there was more than 1400 job cuts in the organization.
The company had never experienced losses from the year 1932 to 1998 and the losses were
faced for the first time in 2003. The consultants of the company had suggested diversification
so that Lego can improve its status (Behrens and Patzelt 2016).
The major business areas that were advised to Lego by the consultants were, Barbie,
Fisher-Price, Hot Wheels and Lego clothes. Lego had built a video games company and the
largest installation of the organization was related to Silicon Graphics supercomputers in
Europe. In the year 2015, Lego Group was able to overtake Ferrari and they became the most
powerful company in the world. The profits of the organization had increased from the year
2008 to 2010 and they were able to beat Apple as well. The turnaround of Lego was one of
the greatest incident in the history (Theguardian.com 2018).
Opportunity of Lego
Lego had hired consultants for the increase in their profits from the year 2003 and
they started increasing their business opportunities. The new business areas where Lego
started investing were toys, jewellery, clothes. The company also opened theme parks and
started their own video games company as well. The profits of the organization started
increasing from the year 2008 and they were able to overtake many other large organizations.
The case of Lego had gained a lot of attention and a movie was also made based on this
subject which was named as “The Lego Movie” which came out in the year 2014 (Bierwerth
et al. 2015). The revival of the company was a big incident in the industry and the ways that

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were taken by the consultants of the company had proven to be profitable. The saviour of
Lego was Vig Knudstorp who was hired as a consultant in the year 2001 and was then
promoted to the position of the boss after three years.
Lego was strategically rebuilt by Vig Knudstorp and this was the way of rescuing the
company from the major breakdown that is was going through. The major strategies that were
undertaken by him in this phase was the slashing down of inventory, interaction with the
customers and using the internet related facilities to increase the fan following of Lego. The
organization had the capability of to engage with the customers and further make the
company successful. Lego had started improving its operations in the year 2011 so that they
can be able to increase their customer base which only consisted of boys at that time
(Bloodgood et al. 2015). They were successful in their venture with the help of the various
different types of products that were manufacturing.
Issues and challenges faced by the company
Lego had to face its worst performance in financial terms in the years 2003 and 2004.
The job cuts of the company had also grown during this phase which was an effect of the
financial collapse in the company. The decline of Lego was mainly due to the challenges that
were faced by the company in the process of staying relevant in the market. The situation in
the market had changed from what it was many years ago. The companies were able to
manufacture products that were appropriate for the market according to them. However, in
the current scenario the products required to be relevant for the market and customers as the
customers had an upper hand in this case (Chen et al. 2014). The relevance of the company in
the market can only be maintained in this manner.
The major changes that have occurred in the global business environment has led to
the increase in the importance of prompt communication of the company with the customers.

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The simplification in the business operations of the company will lead in the increase in
communication with the customers which will further increase the profitability of the
company (Dentchev et al. 2016).
One of the major issues that have been faced by Lego is the complex structure of the
organization which has led to many layers in the management. This is the major reason
behind the delay in the decision-making process of the organization. The lack of experience
of the managers who were working at the executive levels had led to the major problems in
the organization. The costs related to the employment of the managers of different levels
were also high which had added to the losses of the company (García-Morales, Bolívar-
Ramos and Martín-Rojas 2014).
Another major issue in the company is the distance between the management and the
customers or the end users of the products. The development process of the products of the
company was also poor and relevance of the products in the market was also lacking. The
company was lacking the communication with the customers and this led to the lack of
knowledge of the company related to the needs of the customers.
Market analysis and intervention
Corporate entrepreneurship is generally related to the development of the new
opportunities and the ideas within established and large businesses. This development has led
to improvement of the profitability of the organization and enhancing the competitive
position of the business in the industry. Innovation is a major part of corporate
entrepreneurship and they bound together in a tight way. The main reason behind the
consideration of corporate entrepreneurship for the large organizations is to enable the them
to take risks, innovate their operations and the drive the leaders (Hsu et al. 2014). This
process can be considered as a way of organizational renewal in the industry. The main task

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of the modern business organization is to create an environment which can facilitate the
entrepreneurial thinking and the process can take place readily. The leaders of the company
need to be motivated so that innovation can take place in the company and the business
processes can be improved (Zahra 2015).
The organizational structure of the Lego Group was complex in nature and this had a
major impact on the profitability of the company. The system of management had excessive
number of managers which had led to the decrease in the revenues of the organization. The
distance between the management and the customers has become a major issue for the
company as they were not able to properly judge the needs and desires of the customers
(Kuratko, Hornsby and Covin 2014).
The first step that was taken by Lego to improve their sales was to diversify their
operations. The organization had made its achievement in the year 2010 by beating Apple
and gaining the name of the “Apple of toys”. The company had become much more
successful in the year 2015 and they had overtaken Ferrari. The profits of 660 million Euros
had made the organization one of the most powerful brand in the world. Lego had taken an
innovative marketing step in the year 2014 by releasing a movie named “The Lego Movie”
and the follow-up of the same movie was “The Lego Batman Movie”. These two movies
were a part of the promotional activity of Lego related to its toys division (Kuratko, Hornsby
and Hayton 2015).
Vig Knudstorp, the saviour of Lego had taken steps to establish a connection between
the management and the customers or fans of the company. He promoted various events and
functions like, Brickworld and other fan conventions of Lego. The internet had played a
major role in this aspect and they were able to connect positively with the fans of the
company. Lego was able to engage with its customers with the help of TV shows, movies and

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other promotional activities by partnering with many successful people. Lego has designed
many different types of toys based on the likes of the different age groups. The increased
communication with customers has helped Lego in delivering the appropriate products for
them (McKelvie et al. 2014).
Lego had also started many different initiatives involving the customers like, Lego
Friends, Lego Life. Lego Life was designed as social network platform for the kids who are
not eligible to use other social platforms for the purpose of sharing their views. Lego Life
was able to bridge the gap between the physical and virtual world by involving the young
kids in the process of the organization. The games that have been designed by the company
are also interactive in nature and this enables the coordination of the customers and the
management. The profitability of Lego had increased a lot after the new strategies had been
implemented in the company (Nason, McKelvie and Lumpkin 2015).
Recommendation of the business plan
The major issues that have been identified in the discussion above are related to the
complex organizational structure of Lego. The multiple layers in the structure of the
organization will mainly have a negative effect on the profitability of the organization. The
costs related to the maintenance of multiple managers in the company are one of the major
reasons behind the losses that have been suffered by the company. The decision-making
process of the company also becomes slower due to the multiple levels of management
(Ogunsiji and Ladanu 2017).
Recommendation – The complexity of the management system can be reduced by
decreasing the levels of managers of the company. The decrease in the number of levels will
speed up the decision-making process and the delivery of products to the customers will also
be more prompt.

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The system of communication within the organization is also a major problem that
affects the profitability of Lego. The problems in communication is also related to the
hierarchy of managers in the company. The various levels of managers in the company and
the slow process of communication acts as a problem and it also has to face the threat of
message distortion. Message distortion can further lead to miscommunication among the
employees which can further cause a lot serious issues in the organization (Turró, Urbano and
Peris-Ortiz 2014).
Recommendation – Lego is a large organization which has its operations in many
fields and therefore they need to pay attention towards improving the process of internal
communication. The company can make use of the internet to enhance communication within
the organization. Lego has used the internet for many purposes including communication,
hence, they can also use the power of this medium to improve their internal processes.
The relationship of customers with the management of the organization is an
important factor related to its success. Lego had faced problems in the various markets due to
the poor development of products. This situation had occurred due to the lack of
communication with the customers and lack of research as well. Although Lego had taken
many initiatives to solve this issue, they still need to go a long way in building fruitful
relations with the customers (Wadhwa, Phelps and Kotha 2016).
Recommendation – The relationship of the company with the customers can be
improved by decreasing the levels in the management system. This will speed up the process
by decreasing the distance of the customers from the management. The identification of the
needs of the customers is another important step in this process. This will help the company
in manufacturing products that suit the needs of the customers. The marketing habits and

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preferences of the customers are also important for the company so that they can build a
suitable strategy.
Conclusion
The report can be concluded with the learning that Lego had gone through huge losses
in the years 2003 to 2004. However, the company was brought back to its profitable position
by Vig Knudstorp who was the consultant appointed by Lego. He later became the CEO of
the company and continued the growth of Lego in the industry. The organization is however
still facing many internal issues related to management and communication. These issues
need to be resolved by bringing changes in the management so that the organization can
retain the profitable position in the industry. This will also enable the company to reach new
heights in the industry and increase their customer base.

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