Lego Story

Lead:

The story of Lego tells us a series of problems of the Lego company.  This history tells us how to solve each puzzle and define a new path every time to become successful.  Every business person has a lot to learn from this Lego story. It is a must-read.   

Matter:

Doesn’t it seem impossible to imagine that companies like Google, Nasa, Coca Cola, Unilever and Toyota use toys at the time of recruitment or while solving a problem?  Some companies use these toys to define company objectives, problem-solving, increase communication within the company and encourage creativity. Cambridge University deployed a search campaign to appoint a professor to study how the toy can be used in various ways.  This professor was going to run the research department from a donation of 61 Lakh dollars. This is the 87-year-old company called Lego from Denmark ruling the world of toy-bricks.  

The export of Denmark depends mainly on Lego bricks.  The Lego company manufactures 36000 pieces per minute.  

Bilund was a small company when the Lego company started.  Ole Kirk Christiansen was an enthusiastic but straightforward carpenter staying there.  He started his furniture shop on the lower floor of his house in 1916. This shop produced ladders and iron tables.  In 1924 the shop caught fire due to the carelessness of his son.

The house and the shop were destroyed in the fire.  Any other person would have cursed the divine for this loss; however, Ole found an opportunity in this to build a bigger shop.  This shop started running successfully, in 1929, the American Stock Market crashed, and the entire world saw an economic downturn.  Christiansen’s wife died in 1932. Ole found it difficult to even earn for his living, and he dismissed many employees.  

He decided to make small wooden objects instead of producing big objects.  He chose the option of toys at a reasonable price. He did not compromise on quality while making these toys.  Models of cars and animals made of wood became popular in the nation. The bestseller was a wooden duck, which used to open the mouth when dragged by a thin rope.  

Germany captured Denmark in 1942 during the second world war.  Ole’s factory burnt once again in a fire during this time. Till then he had got used to such problems.  So, after the second world war, he decided to choose plastic over wood for the production of toys.

Till then, plastic injection moulding machines were available in the market, but there was a restriction on the commercial use of these machines in Denmark till 1947.  Permission was granted to Ole in 1947 to sell toys produced from these machines. Ole took the inspiration of Lego bricks from the interlocking bricks produced by a British company.  Ole and his son Godfred made improvements in the British design, and Lego started selling plastic bricks in 1949. The company started selling automatic binding blocks until 1949. This toy was quite similar to the current Lego bricks.  The popularity of Lego increased a lot in the next few years.       

Ole died in 1952.  Godfred was the Director by that time.  After five years, Lego once again suffered a horrible fire.  All the wood in the factory got burnt. So, he started using plastic.  Lego produced many products after that; however, Lego brick was always an essential part of it.  Lego sale was increasing by 14% every year in the 15 years from 1978 to 1993. Five thousand employees were working for Lego worldwide.   

But it seemed that the fairy tale of Lego was going to end soon.  The capacity of Lego to increase the sale of products was ending. Lego made five new products per year between 1994 to 1998 considering the need for new products to be brought in the market.  The work of employees increased, production increased, but the sale did not increase. The products of Lego. e.g. the Scala dolls (similar to Barbie), Cybermaster robotic kit could not get any response in the market.       

As a result of this, Lego faced a loss of 4.8 Crore dollars in 1998.  This was the first loss in the history of the company. More than 100 employees lost their jobs.  The reason for this was the ignorance of Lego of the changing market conditions. The middle-class children playing Lego bricks and creating things from them were now caught in the furious competition of performance.  There was no room in their life for spending time to make creative things from Lego bricks. The new trend of this fast world was to get quick acclaim by doing something fantastic. Since children’s parents had lost interest in praising their children for making buildings slowly from Lego bricks, children were naturally not inclined to get engaged in this activity.  There was also a competition in the market to continuously bring new products for children. The economy was not going to grow by selling the same Lego bricks year after year.       

Till then Ole’s grandson Jalde had started looking after the company.  Jalde brought Paul Plowman in the company in October 1998. He was known as a ‘Turnaround CEO’.  The media called him a miracle man since he had pulled the Danish electronics company ‘Bang and Olufsen’ from its bad patch.  Jalde kept his position as Chief and handed over all power to Paul.    

Paul implemented the seven principles of management to bring about innovation in the company.  e.g. employing various creative people in the company, using Blue Ocean Strategy, nurturing disruptive innovation, accepting innovation from people outside the company, using innovation on all levels in the company.  Paul did not succeed in everything, but Paul, Jalde and other officers employed from time to time have maintained the position of Lego in the market with the help of these seven principles.  

When Paul joined the company, there was nobody in the company, who could think differently and creatively.  Most of the employees were men, many of them were senior people. They were not in a hurry, and their mindset had become stereotyped after working in the same company for 20 years.  They believed that whatever they produced in the company would sell in the market. 

To implement the first principle of various types of talent, Lego took over the company Zoe.  Lego studied educational toys based on the technology of Zoe. This gave the officers in Lego an idea of what is going on in Silicon Valley.  Lego also started searching for talent outside Denmark. They appointed local designers in various places like Tokyo, Barcelona, Munich, Los Angeles etc.

The second principle was the Blue Ocean Strategy.  This strategy means: avoiding the product that is facing competition and creating a separate market for that product.  Keeping the toys production area intact, Lego entered the educational market. The concept of learning, after returning from school, was getting very popular in various countries.  Lego joined hands with a Korean company called Learning Tool.

Along with the training programs of this company, Lego was going to teach children various subjects like science, technology, engineering and mathematics.  For example, children were taught the concept of ratio with the help of Lego gears. Lego tried several things in this period like preparing the syllabus for a learning tool, train the teachers, producing special kits for education etc. 140 Lego education centres were up and running in Korea in one year.           

While using the third principle ‘customer-oriented approach’, Lego paid attention to the market for electronic objects.  According to a survey, children from the western world had started choosing electronic things over traditional toys. The main event in the life of Lego was preparing action figures from the series ‘Star-wars’.  Lukas Films is the company which produced Star-wars. They all used to like Lego bricks. Many products were being launched by purchasing licenses for the characters from movies and TV cartoon serials. Jalde himself was a big fan of Star-wars.  Other officers from Lego did not approve of Star-wars due to the violence in it, but Jalde signed a contract with Lukas films using his powers. Lego product sale increased by 500% due to the Lego Star-war series.        

Lego Harry Potter was also born later.  American Jack Stone with military uniform was also then produced.  Children found it easy to play these characters with each other instead of building something new with the bricks.   During this time, Lego produced Lego Beings. This kit had parts which children could assemble to create characters, e.g. body of a centipede, legs of a duck, head of an alien etc.  There were no instructions in the kit about preparing the characters. There was ample scope for children’s imagination. Parts from one kit could also fit parts from another kit. These kits did not contain Lego bricks.   

The fourth principle was a disruptive innovation.  This principle was first mentioned and elaborated in the book ‘Innovator’s dilemma’ by Cleton Christian.  Bring a low price and low demand product in the market. That product slowly captures the market. This is called disruptive innovation.  Digital photography is the best example of this. 

The birth of Lego Darwin based on this principle is interesting.  In the Winter of 1994, a Swiss person came to Lego saying he wanted to talk to Jalde.  This person Dondy had shoulder-length hair, chest-length beard, was casually dressed and carried a 4-minute video clip with him.  The video showed Lego space ships flying in the sky. The 3-D modelling in this clip was amazing. Dondy dreamt of making digital Lego bricks.  A database of bricks, wheels, rods, gears was to be made, digital figures were to be created, and they would then be used in cartoons, films, television advertisements.  This Darwin project opened the doors of computer animation to Lego. Then a team of 120 experts started working on this project. Lego had to invest a lot in Silicon Graphics Supercomputers.  But the Darwin project gave huge profits to Lego.             

Lego was doubtful about the fifth principle of accepting innovation from people outside the company.  Lego was vigilant about Intellectual property rights, and it was difficult for Lego to accept innovation from a virtual world.  Till then, Lego was under the impression that their only fans were the customers. But till 1995 there were websites like Lugnet.com and Lego fans from all over the world were connected here.  They were discussing Lego bricks. They could show the models prepared by them to each other. Lego saw these models and felt the need to rethink their design. Lego opened a separate department for this in the year 2000.            

Through this department, Lego produced models prepared by people using virtual 3-D bricks.  This model used to flash on Lego’s website, and Lego used to send this model to the one who had prepared it.  For example, Lego blacksmith shop was designed by a fan of Lego called Daniel Siskind. In 2003 Lego developed a set of it and sent it to him.  The first fan design set of 622 pieces cost 39.99 dollars. Lego later also purchased the license for it.    

Using all types of innovation in the company was the sixth principle; using this, Lego produced a Television series called – Defenders of the outer dimension.  Lego had put action figures like heroes, villains, robots from the science fiction world in this kit called Galider, and the children could join them with pins and holes.  Instead of advertising this product in between the serials, Lego told Thomas Linch to produce a television series with this name. Galider had reached video games then and had also entered the MacDonald happy meal kit of small toys.  Around this time, shops of Legoland theme parks and Lego stores were opened. 15 Lakh tourists visit Legoland in Bilund every year. Legoland is popular in places like London, California, Munich.

While implementing the seventh principle of having an innovation culture in the company, Lego has appointed many designers in the important places in the world.  Lego gives priority to those who think out-of-the-box. So, Lego with a net worth of 757 dollars is the topmost toy manufacturer in the world. Lego is engaged in many businesses like animated television series, films, educational programs teaching robotics, award-winning series of video games, thousands of books, magazines, comics, programs teaching teamwork for businesses, clothes manufacturing units.  

‘Leg Godt’ means ‘play well’ – Lego company is not a child’s play; that is what they have proven.  

Reference:

Brick by brick – David Robertson

1. Lego and philosophy: Roy T. Cook/Sondra Bacharach

Frame:

‘Turnaround CEO’ Paul implemented various strategies for the success of Lego-like hiring diverse and creative people, using the blue ocean strategy, having customer-oriented approach, using disruptive innovation, using innovation from people outside the company, using all levels of innovation in the company, implementing innovation culture in the company.  Lego’s success is based on these seven principles. Lego’s place in the world market, therefore, is untouched till now.

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