In 1932 The LEGO Group was founded by Ole Kirk Kristiansen in Billund, Denmark. Kristiansen looked to create high quality wooden toys after his previous carpentry company closed from the global financial crisis. Ole, along with his son Gottfreid (12 years old at the time) came up with the brand name of LEGO from the Dutch phrase, “leg godt” which translates to “play well”. Curiously enough, Lego means, “I put together” in Latin, which directly influenced the future of this toyshop (Astrum People, 2016). After many trials and tribulations, including two factory fires, LEGO developed from an all-wood toy maker to the plastic brick toy maker that is known today. In 1958 LEGO successfully patented their “modern brick design” which was designed to be a system of toys that relied on the creativity of children, rather than offering finished toys straight from the store. The company has since grown to be the world’s most powerful brand surpassing Ferrari in 2015 (www.brandfinance.com, 2015). For a lengthier history of the organization and how it became the company it is today, look to the animated video provided below.
Organizational Culture and Structure
The LEGO Group’s mission is to “inspire and develop the builders of tomorrow.”. This mission statement paired with the vision statement of “inventing the future of play”, clearly depicts the nature of LEGO, which is to support the creativity of children and to find new an innovative ways of play for children to experience. The LEGO Group encourages a relaxed, creativity-centric, organizational culture. The firm takes what the core concept of its toys are, and expands that philosophy to its workers, the idea that there are multiple solutions to one problem, and that it is up to the employee to find their own solution. Rather than relying on rulebooks, that distinctly layout what is expected from the employees, The LEGO Group appreciates the overall impact an individual can bring to the organization (www.lego.com, 2016). These thoughts are expanded on in the video provided by LEGO below.
The LEGO Group is internationally present with headquarters in Billund, Denmark and main offices in: Enfield, USA, London, UK, Shangai, China, and Singapore. The LEGO Group has over 100 LEGO Stores across the world. Locations include Austria, Belgium, Canada, Denmark, France, Germany, Sweden, United Kingdom, and the United States of America. In addition to this, there are seven LEGOLAND theme parks located in California, Dubai, Florida, Denmark, Germany, Malaysia, and England.
The firm has a flat structure with high horizontal differentiation (21 divisional subunits) and low vertical hierarchy (four layers). Looking at the chart included in Appendix A, one can see how the company is compiled. Top management includes Jorgen Vig Knudstrop (CEO), John Goodwin (CFO), Bali Padda (COO), Julia Goldin (CMO), and Loren Shuster (CCO). Each top manager oversees a collection of divisional units that pertain to their respective specialty. All of these layers are headed by a board of directors that consists of seven people: Niels Jacobsen, Kjeld Kirk Kristiansen, Soren Thorup Sorensen, Thomas Kirk Kristiansen, Eva Berneke, Kare Schultz, and Jan Nielsen (www.lego.com, 2016).
The LEGO Group follows an organic structure, which is showcased by its relaxed culture and overall flat configuration of the organization. The choice to “flatten” the organization was made in order to combat and adapt to the company’s modern obstacles. The LEGO Group CEO Jorgen Vig Knudstrop states:
“We reduce the number of organizational layers and thus flatten the organization; this allows us to achieve both a broader and a deeper perspective on the realities of our business, while making it simpler and faster to make decisions – all of which are key to increasing our adaptability.” (Trangbaek, 2011)
This decision also allows the firm to deal with issues globally. The inclusion of subunits designated to geographic locations, and entire product teams allows LEGO to both stay focused through specialization and be more adaptable when looking at the big picture.
Industry and Competitors
The LEGO Group is located within the construction toy industry. Until 1988, the firm had little competition due to their patented plastic bricks. In 1988, the patent for the bricks expired bringing in new completion to the market. Top competitors now include: Hasbro, Mattel, Spin Master, MEGA Brands (Schmidt, 2015). MEGA Brands in particular, offers an interesting form of competition as they seek to utilize the popularity of LEGO’s bricks while simultaneously offering their product at a lower price. This same tactic is being used from competition located within the video game industry. Minecraft for example, uses a similar idea (construction with bricks), but executes in a different medium and at a lower cost. This truth leads into the overall problem facing the company, competition.
Problem: Competition in the Digital Age
Since the expiration of the LEGO’s patented bricks in 1988, there has been a rapid increase in the amount of competition that the firm faces. This is apparent through competitors adopting similar products, often times competing in the form of lower prices. Although this competition is fierce, it is fairly predictable and the power of LEGO’s brand has seemed to maintain their dominance within that particular market. The same cannot be said about the video game industry. More and more children play through electronic means, which takes away the attention from the traditional bricks. A blog on cayenneapps.com breaks down how competition could be stiff, “A large LEGO Classic Creativity Box costs about $65, and allows children to build a medium-sized multicolor house. Using the same $65 we can buy 3 licenses to Minecraft … which allows players to build entire cities.” (blog.cayenneapps.com, 2016). This reality is an increasing threat to LEGO, especially as time passes. It may not always be possible for LEGO to rely on the power of its brand in the years to come as possibly more enticing digital forms of play are introduced to the market.
Recommendation #1 Increase Brand Relations with Minecraft
Although there are many other digital entertainment products that could potentially steal consumers away from LEGO, there is none bigger than the video game franchise, Minecraft. This video game takes the simple building mechanics of LEGO and expands upon that idea within the digital realm. As of June 30, 2015, 70 million copies of the game had been sold (Sarkar, 2015). The LEGO Group currently has a licensing deal with Mojang, the company that created Minecraft, selling brick sets that resemble the building blocks that are used in the game. Rather than trying to compete with the company head-on, it would be beneficial for The LEGO Group to increase their brand relations with Mojang in an attempt to share and merge customer bases for each company further.
The licensing agreement that The LEGO Group already has with Mojang, is a good first step, but establishing a joint venture could prove to be even more lucrative for both companies due to the fact that, “When there is a high level of complementarity between business lines, geographical positions, or skills of two companies, the firms often go the route of a strategic alliance rather than ownership through merger or acquisition.” (Daft, 2010). Both companies can thrive on their customer bases that the share similar interests of creativity and building. One possible way to strengthen the bond between both companies is to offer LEGO texture packs in the virtual world of Minecraft. These texture packs could be purchased in-game and would be an excellent way of bridging the gap between customers, allowing Mojang to focus on their specialty of digital creativity and The LEGO Group to focus on physical creativity.
Other possibilities to aid in the relationship between companies is to create a promotional campaign during the months before the release of The LEGO Movie Sequel that is set to release on May 18, 2018 (Wakeman, 2015). The LEGO Group could offer specialized LEGO sets or discounts for people who purchase Minecraft for a short period of time. This would increase the amount of attention LEGO gets from children who enjoy the video games, increasing revenues for both companies and heightening the appeal of Minecraft LEGO sets to customers.
Recommendation #2 Virtual Reality (VR)
With tech giants such as Sony, Samsung, Google, Amazon, and Microsoft developing virtual reality headsets, LEGO could also capitalize on the hype behind such technology (Murphy, 2016). Although the future of these technologies is still fairly unclear, the amount of attention that virtual reality has been gaining is massive. The LEGO Group could capitalize on this popularity by looking into developing programs that could be used with virtual reality. For example, a possible avenue of entrance into the medium could be by expanding their educational line LEGO MINDSTORMS. This educational program that can be purchased by schools to teach children from preschool to middle school about technology such as robotics, could update their curriculum, by giving students the tools necessary to develop their own rudimentary VR devices. A Scandinavian Youtuber with the username of Odd Arne Roll published a video in 2014 that instructs people how to construct a simple VR headset for $32 out of LEGO bricks and a smartphone application. This simple “Do It Yourself (DIY)” project could be translated to the classroom setting, and would get kids interested in modern technologies while simultaneously keeping the LEGO brand fresh in the heads of the children. If this curricular addition were successful, LEGO could even develop their own smartphone application to coincide with the newly created VR headset in the future.
Recommendation #3 Release “LEGO Worlds” in 2018 rather than 2016
LEGO Worlds is a video game that is being developed by Traveller’s Tales and is published by Warner Bros and Interactive Entertainment. The game is similar to the design of Minecraft in that it allows players to wander procedurally generated LEGO worlds and make their own virtual creations. LEGO Worlds is still in the stage of “early access” and can be purchased for $14.99 on STEAM (2016). Developers just released their fifth update to the game, and are using the feedback of players to help them make a better experience. This being said, the game is still not finished and a concrete release date has not been confirmed, but is being projected for 2016. The reliance on customer feedback to develop a game that will be liked by LEGO fans is an excellent start. The quality over quantity approach is what LEGO has relied on until this point and should continue to do so. Rather than rushing the process and releasing a full version of the game that is incomplete, it is suggested that LEGO continue on the path they are on, later than projected. It would be beneficial to set the release date near the aforementioned May 18, 2018 launch of the The LEGO Movie Sequel. According to Box Office Mojo, the first film grossed $257,760,692, meaning if the sequel follows suit, there is a huge opportunity to capitalize on the success of the next film. This would not only aid the popularity of the game, but the entire brand as children look to get their “LEGO fix” from multiple methods including the movie, video games, and the trademark plastic bricks.
Managerial Implications and Conclusion
The above recommendations are simple and would leave a positive impact on the company. The LEGO Group currently has a licensing agreement with Mojang already. Because of these relations, LEGO would need to approach Mojang with a value proposition, stating the long and short-term benefits that both companies would experience by furthering their business dealings. To do this they could hold multiple conferences, both virtual and in-person, with the accompaniment of each company’s legal teams. Once both companies have recognized the benefits of their joint venture, they should work on creating their own official joint venture agreement.
To start adding the virtual reality component to their educational curriculum, the LEGO MINDSTORMS team should contact Odd Arne Roll via email to see if he would be interested in being involved with adding his DIY project to the MINDSTORMS curriculum. They should hire him on as a staff member for the MINDSTORMS team or approach him for a bid to the rights of his product. This would show that LEGO is able to notice the creativity of the people who use their product and it would encourage future innovation from people across the world, something that is already encouraged in The LEGO Group’s mission statement.
The last recommendation would be the easiest to implement, as a large portion of the work is already done. As more and more people decide to purchase the early access version of LEGO Worlds, there will be an increase in the amount of attention the game gets. This, paired with the fact that the LEGO Worlds team is currently taking feedback from customers will ensure that the game will be well received upon the official release. The other critical step is to make sure that marketing teams are hired on for the game in 2018 to establish a buzz for the game paralleling the buzz the new movie will certainly have.
Due to the fact that The LEGO Group is constantly trying to maintain its position as one of the top toy companies in the world (and the top company in the construction toy category) it has adopted a “defender” mentality. In the past The LEGO Group has tried to branch out into different areas and this over-innovation has caused financial troubles, this is where the “defender” strategy was developed (Miller and Gilson, 2014). Rather than diversifying in unrelated markets, The LEGO Group can still be innovative by utilizing the power of their brand and accentuating the quality of the products that they develop. The above recommendations were designed to harness tools that are already at the disposal of The LEGO Group, while simultaneously branching their reach into the minds of new generations of consumers. The plastic brick is the bread and butter of the company; all endeavors the company takes should be in an attempt to make this simple yet impactful toy relevant in the eye of the customer, no matter the generation. By building their company one brick at a time, The LEGO Group can continue to be the beloved toy company it always has been.
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