Lego General Environment - Case Study Example

LEGO Table of Contents Introduction 3 Background 4 General Environment: 5 Operating Environment: 6 Internal Environment: 6 Strategic rationale and implications: 7 SWOT Analysis for Lego Group: 7 Strength: 7 Weakness: 8 Opportunities: 8 Threats: 8 Reference 10 Introduction Lego the world’s third largest company in making toys and toy materials is a privately held company based in small village named Billund in Denmark. Started by Ole Kirk Kristiansen, a carpenter in 1932 to manufacture wooden toys, the Lego Group is primarily engaged in making construction toys. The company moved from making wooden toys to plastic toys only in 1947. In 1960 the company decided to stop the production of wooden toys due to a fire in its store and since then the company has been working with a single product which is Lego Brick made of plastic. The product of Lego Group has undergone many changes since then but the foundation still remains the brightly colored Lego Bricks. The Lego bricks are interlocking plastic tubes or blocks which when assembled, form objects such as buildings, vehicles, robots etc. The company is in the business of making toys for the past eighty years now and is currently the third largest manufacturer of playing materials (Lego, 2012). Since its inception the company has done extensive product innovations and currently caters to children in more than 130 countries around the world with well penetrated products. During the 1980’s and also in the mid 1990’s the company made extensive brand extensions in lifestyle products, accessories, software etc. while maintaining focus on its main product, the toys and at the same time foraying into other segments of the market or expanding into new business territories. The company has also designed toys on popular themes from movies like Star Wars, Harry Potter and others. The company has also built theme parks for children by the name LEGOLAND in several countries. Background Though Lego has been continuously innovating products, the theme of the company remains the Lego brick. The objective of the company is to enhance its image in the minds of the consumers and sell more products. The market of Lego Bricks is limited and yet they produce infinite variety of the Lego Bricks which makes an appeal with the children. The company’s value statement “only the best is good enough” dates back to 1933 and reflects that the company relies on quality for creating satisfying experiences stimulating creativity fun and learning at the same time. Lego has embraced innovation and manufactured different types of toys for children. The goals and objectives of the group are: i. To focus on value orientation for its customers ii. The company believes in ‘sustainable play’ which ensures that the company produces durable products with focus on quality and by doing so tries to create a positive impact on learning iii. Lego wants to become not just the largest but also the best manufacturer of toys. They make sure to attain the highest standards of quality and safety. One shining example of the company’s commitment to safety is that in the last seven years it has received only two product recalls. Lego group has been witnessing substantial growth despite the ever increasing competition. The reason behind this success of the company has been its commitment towards environment in general and the quality and durability of its products in particular. Lego bricks are passed on from one generation to another which adds to their durability and reliability, and is proof of the fact that the company ensures that the products meet the safety standards as well. These facts speak a lot about the company’s adherence to its motto. General Environment: The toy industry is an industry that requires huge investments and it is one of the reasons that contribute to its instability. Production, development as well as distribution costs are very high in this industry and there are only some items every season that go on to become bestsellers (Pecora, 2002, p. 46-47). The structure of the toy industry has undergone a drastic change. From technological advancements to fashion changes to the ever changing needs of the children; the toy industry has adapted to all the changes to meet the needs of the new age customers. It has turned into a new age industry where competition and the ever changing demographics have taken over the fun factor. The general environment in the toy industry has changed a lot during the last decade and it can be attributed to: 1. Faster growth of children: These days children are growing and becoming mature very fast due to excessive reliance on television, computer games etc. As a result of this phenomenon the play patterns of children have changed as they like to spend more time with screen based technology. 2. Change in fashion: With the progress of science toys have evolved a lot and children prefer to have those toys which are in fashion. In such a situation one or two products can be the game changer for a company as toys come in and go out of fashion rapidly. 3. Theme based designs: To meet the challenges of changing fashion in the toy industry, toy manufacturers design toys based on stories or concepts. Many toy companies for example offer toys related to some concept such as themes of popular movies like ‘Toy Story’ or ‘Star Wars’ to make them interactive (Schultz & Hatch, 2003, p. 8-9). Operating Environment: Lego had established itself in toy industry in a robust manner and was witnessing steady growth in terms of profits and market share. The company has also seen tumultuous times. Lego was faced with the problem of declining profits and slump in sales during the mid and late 1990’s (Harris & McDonald, 2004, p. 223). While the main reason for this loss was the change in the playing habits of children and saturation in the toy market, other reason for this loss can be attributed to: i. Lack of balance between global coherence and local adaptation. ii. Lego was facing competition from electronic toymakers such as Nintendo and Sega whose electronic games were popular since the 1980’s. Lego was very late in entering the electronic games market. iii. The company was concentrating on its primary product line Lego bricks only. While other companies like Disney had diversified their product lines by entering into the arena of amusement parks. Lego was only focusing on its core products. Internal Environment: After having tested rough waters Lego shifted its focus to diversified products. When the company’s policy of concentrating only on the core product failed, it decided to diversify to other product lines as well. The company produced its first ever video game in 1997, called Lego Island. After this the toy maker giant also manufactured the programmable ‘Lego Mindstorms’ which could be programmed to do things that the customer decides. This was an instant hit with adults. However Lego group was slow in making this move and hence it was difficult to gain market space from companies who pioneered this technology. Lego’s strict adherence to its core values of focusing on primary products was the reason why it was late in forming licensing partnerships for promotion of their brand. However the company learnt its lesson after suffering losses and eventually entered into a partnership with Lucas films and launched the Star Wars series of Lego kits. This taught a lesson to the company that story telling holds a great deal of importance in inculcating values that kids need (Spicerville, n.d.). Thus Lego has shifted from a fragmented company to a company with strong corporate branding. This is evident from the fact that the company shifted focus towards individual business areas. Apart from this the Lego group also focused on building its value proposition in the international market by establishing new products and brands and set up a global structure. Strategic rationale and implications: In the mid 1990’s the sales of Lego were being affected due to the saturation in the market, changing preferences of children and the growing market for computer games. All this led to a fall in the sales of the company and a decline in the profits. However the company came back strong and introduced the Mindstorms range of products. More recently the company also entered into licensing agreements for building Lego kits based on the popular Star Wars series (Thompson & Martin, 2010, p. 455). Thus after suffering losses the company clearly understood that entering into adjacent business while focusing on the core product is the way out of the difficult situation. It also learnt to give importance to the changing needs of the children, like the founder Ole Kirk Kristiansen did when he adopted the plastic technology instead of wooden technology way back in the year 1947. Such open learning should go a long way in fostering innovation and creativity in the company. The Lego group needs to do competitor analysis on a regular basis which will help the company to change its strategy according to the changing needs of the market. A competitor analysis will help the company address issues which are of primary importance. SWOT Analysis for Lego Group: Strength: Lego bricks have been the most sought after products of the company throughout the last 8 decades of its existence. The core values of the company incorporated by its founders are still intact. The strategy of internationalization adopted by the company has helped it enhance its market share. LEGOLAND has helped the company scale greater heights and given a makeover to its brand image. Weakness: The company has not formulated appropriate strategies to sustain the growth it achieved during the 1980’s. Apart from products based on some themes, other products have not been able to make any impact in the minds of the consumers. The company has lacked in areas of new product development. Price of Lego products has always been on the higher side as compared to its competitors. Opportunities: The electronic games market is a good opportunity for the company as today’s children are fascinated with screen based games. The company should promote Lego bricks both as a brain developer toy and as an analytical skill enhancement tool. Lego group can outsource the production of toys to third world countries, to make them cost effective. Threats: Lego needs to do a thorough competitor analysis to negate the competition and should switch to using the latest technologies for toy making. The company has been very late in doing innovation for electronic games and amusement parks. Other competitors have successfully used innovation as a tool to gain the edge. A rise in the prices of raw materials and other macroeconomic factors like inflation, taxes, unemployment can hamper the growth prospects of the company. Reference Harris, P., & McDonald, F. (2004). European Business and Marketing. California: SAGE. Lego. (2012). The Lego Group. Retrieved on March 21, 2012 from http://aboutus.lego.com/en-US/lego-group/. Pecora, N.O. (2002). The Business of Children’s Entertainment. New York, NY: Guilford Press. Schultz, M., & Hatch, M.J. (2003). The Cycles of Corporate Branding: The Case of the Lego Company, 46(1), 8-9. Retrieved on March 21, 2012 from http://www.livingthebrand.org/upload/Lego.pdf. Spicerville. (no date). Leg Godt-(Play Well): A Case Study of the Lego Company. Retrieved on March 21, 2012 from http://spicerville.org/LegoCaseStudy.htm. Thompson, J., & Martin, F. (2010). Strategic Management: Awareness & Change. (6th Ed.). US: Cengage Learning. . Read More