The Lego Story

Transformation is the management challenge of the 21st Century.

The Lego Story

This is precisely what happened at Lego, the privately held Danish toy company that has delighted innovative and imaginative children for generations.

By the time Jorgen Vig Knudstorp took the reins as chief executive in 2004, Lego was bleeding more than $300 million annually. An attempt to reverse the slide by introducing a complementary children’s clothing line failed. The company was facing the unthinkable prospect of selling the family-owned business to a larger conglomerate. Rather than running away from the challenges, Knudstorp and Lego decided to embrace the new world order and change their business model.

For years, Lego enjoyed a licensee relationship with Lucas Films for adapting the wildly popular Star Wars characters and models to the Lego universe. Knudstorp expanded licensee relationships with other children’s brands, including SpongeBob SquarePants, Indiana Jones, Speed Racer and Batman. When Mindstorm hacked Lego’s robotics products and released better versions, the company resisted suing and endorsed the superior product—this led to more sales for both companies. And Lego embraced the digital revolution by selling its toys online and developing video games with the look and feel of its plastic blocks.

Knudstorp explained:

“Yes, we're creating a new business model. Lego grew out of a carpenter's store. Plastic revolutionized toys in the 20th century. Digital breakthroughs will do the same for the 21st century. We won't stop manufacturing plastic bricks. By 2015, about 20 percent of our total business will come from digital products. Today, two of the 10 bestselling video games include our Lego-branded Star Wars games. Connectivity has had a major effect on how today's children live. Some 6-year-olds have cell phones. Teenagers like to use their cell phones to send text messages to each other. Eventually wireless broadband will be everywhere. A computer will replace the television. For all of these reasons, the Lego Group needs to be in the digital space.”

Additionally, Lego adopted new management and manufacturing processes. It has trimmed its work force from 10,000 to 6,000 today, and will slim its employee rolls by another 3,000 by 2010. It’s outsourcing more of its manufacturing to third-party partners and has optimized its supply chain to ensure raw materials are reaching factories at the right time and in the right quantities. Lego’s journey has resulted in returning the company to profitability, securing its future and ensuring its family ownership for years to come. (“Transforming One Lego at a Time,” Inside BTM, March 2008)

Lego is undergoing transformation. Transformation is the single idea that unifies governance, investment and agility. It is a mindset, a strategy and a set of tactics. It is a continuous, enterprisewide process that keeps the organization tuned to opportunities and threats in its environment.