The Lego group is a Danish toy manufacturing company based out of Billund, a small town in Denmark. The company is best known for its plastic interlocking bricks that are used to build different structures. In the first half of 2015, Lego has become the most valuable toy company by revenue in the world with $2.1 billion in sales surpassing Mattel which amounted to $1.9 billion.
The company has a steady growth since then and its revenue has grown significantly in the last decade. In 2018, Lego recorded $5.48 billion in sales and is the most valuable toy company in the world. The success that Lego enjoys today has come with a few hurdles along the way. The company has faced severe losses during the years 1990 – 2004.
It was on the verge of bankruptcy in 2004 after which the company had to make changes in their strategy to make a turnaround. The aim of this report is to conduct a macroenvironmental analysis on the Lego group and identify the different strategies employed within the organisation to achieve above average returns. This also discusses the
Purpose: The objective of this report is to identify the strategic challenges that LEGO group faced or might face in the near future and to perform a macroenvironmental analysis to summarise and recommend different levels of strategies and the implementation process to overcome the challenges and have sustainable growth and development.
The Lego group was founded in 1932 by a carpenter Ole Kirk Kristiansen, that was unable to find enough work. The company to this date remains a private and family-owned company based in the small town of Billund, Denmark. Kirkbi A/S the investment company of the Kristiansen family owns 75% of the stake and the rest is owned by the Lego foundation.
The name LEGO is derived from the Danish words ‘leg godt’ which translates to ‘play well’. Today, Lego is the most valuable toy company and the Lego brick has been selected as the toy of the century earlier this millennium. This was not always the case for Lego, the company faced huge challenges that incurring a loss of 308 million euros in the early 2000s. The company was on the verge of bankruptcy and had to reinvent themselves to be at the position they are today. Today Lego group has 17,385 employees and boasts a net profit of $1.2 billion euros.
External Analysis of a company plays a crucial role in the development and the profitability of the company. It helps the organisation to identify the external threats and opportunities and gives the organisation a chance to overcome the obstacles and make the most out of the opportunities.
The PESTEL analysis helps to identify the macroenvironmental factors that influence on the strategy and the development process of an organisation. PESTEL is an acronym of the factors like Political, Economic, Socio-Cultural, Technological, Environmental and Legal factors.
These factors comprise the analysis of a great fundamental value to the company (Eren, 2002). Also referred to as Macroenvironmental analysis, was first conceived by Francis Aguilar as ETPS (Environmental, Technological, Political, and social). This was then later reorganised several times to form the current form PESTEL (Richardson, 2006).
Lego group has always identified themselves as politically neutral company that refrains from involving in any political event, program or political affiliation. This principle of absolving from political affiliation has not always worked for the company in their best interests.
The Danish company faced high levels of criticism when they rejected to supply their products to a Chinese artist Ai Weiwei, who wanted to use the Lego bricks in an exhibition to display speech and ‘political’ art. This decision was perceived as an act of ignorance and discrimination.
Although the company holds their belief of political neutrality as a core value of the company, they have realised that their decision to not supply their products could also be construed as a political stand. This shows that the company must carefully tread on their actions and decisions to uphold their values in the global context.
After facing significant losses during the early 2000s, Lego had to decrease the number of suppliers and had to outsource the production to countries with low manufacturing costs. By the end of 2008, Lego outsourced 80% of the production to low cost manufacturers from Czech Republic and Mexico.
Having said that, product development was kept in house due to the high standards of product design and customer satisfaction (Pedersen, 2012). Foreign currency fluctuations also pose a major threat to the company. Increasing prices is inevitable with the trade wars and Britain’s exit from the European Union. The volatile exchange rates will not only affect the company in the short run but can also have adverse effects in the long run.
Lego encourages learning through constructive play and empowers children to make their own models with little to no supervision. In recent times, children are moving away from traditional toys and video games to technological toys and gadgets and this can prove to be a hurdle for the company (Blake Snow, 2012).
Lego has induced technology into its products and has targeted young children with its new range of products like LEGO Universe and LEGO world launched in 2012 and 2015 respectively (Alejandro, 2015). Children have become more independent and can now influence their parents’ decisions on the types of toys they want them to buy.
The spending power of young children also rose significantly in the recent years with parents giving pocket money to children (Jens Bonke, 2013). Lego has now added children to its marketing list as children have the spending power in the recent times (Lego group, 2012).
In recent times, the globalisation of the world and the internet have become crucial parts of everyone’s life, this enabled Lego to foresee an opportunity that can be of assistance in the revenue growth. Lego utilised the opportunities and ventured in to online platforms to sell their products which increased their reach and provided access to new markets.
The technological advancements have always forced the toy industry to innovate as 60% of annual sales are for the products that are newly released. In the age where traditional toy companies like ‘Toys R Us’ are finding it difficult to sustain in the market, Lego has reinvented itself using exceptional marketing skills to ensure they are on top of every technological aspect.
Lego in 1958 filed the patent for the plastic interlocking bricks. There have been many instances where Lego has faced serious criticism for continuing to produce their products using plastic. With the growing emphasis on using sustainable materials in the production process, Lego has also invested in research to move away from the historically used plastic bricks to plastic that is bio-degradable and made from sugarcane extract.
The company pledges to be move to the plant-based polythene completely for its products as well as packaging by 2030. Lego has also become the first toy company to the United Nations Global Compact.
Lego has sold billions of its bricks in the past 86 years which shows that the company is reliant on its patent for the interlocking Lego brick. The company has faced several imitators that copy the design of their products and can produce and sell these products for a cheaper price.
The imitability of the products always puts the company at risk. Environmental laws are also becoming stringent with usage of plastic and promoting sustainable methods of production. Lego’s entire product line involves plastic and hence this can cause serious troubles if the company does not shift to eco-friendlier product range.
Pedersen, T. (2012) LEGO-redefining boundaries. Published in: Foss, N. Petersen J,T. Pyndt, J. and Schulz, M.: Innovating and Organization Management, Cambridge:Cambridge Press