Learning from LEGO

LEGO is a company that is close to my heart. As a child, I invested hours (and dollars of pocket money!) into dreaming, designing and building space-ships, castles and robots out of Lego. 

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As a 20 year old, I visited Legoland in Denmark - and got to relive my childhood on an epic scale.

And as a 31 year old with a passion for helping businesses innovate - Lego have been a stand-out company.

In 2004, LEGO was near bankruptcy. Most of its innovation efforts had been spectacular fails - including the Galidor action-hero and TV series. I can’t remember it either.

For this family-owned company - a hallmark of Denmark and an icon of childhood - to fail, would be a heart-break.

This wasn’t due to a lack of investment in innovation, either. The year 2000 marked an innovation binge for LEGO, as they invested millions of dollars into new ideas and products for their LEGO suite.

The problem - they did not have a comprehensive structure to their innovation.

In 2004 - LEGO hired Jorgen Vig Knudstorp - as a consultant - who quickly became LEGO’s CEO. He focused LEGO’s innovation efforts, grouping their work into eight areas of innovation - from business model, to channel innovation - through to new products.

Management also opened innovation to the wider employees of LEGO, and users - but put much more stringent measurements in place. In short - each innovation had to fit with Lego’s goal - “Being recognized as the best company for family products.”

The result? 10 years later, LEGO had reduced operating costs by 33%, doubled sales per employee, increased revenues by at least 10% each year and boosted gross margin to 70%. In dollar terms - they were valued at over $150B USD - on par with Facebook’s NASDAQ ranking.


Quite the turnaround!

However, in 2017 LEGO recorded its first reduced revenue and profit forecast in 13 years. Why had their profitability decreased?

Commentators have highlighted a decrease in the competitiveness of the Krona to US Dollar, a change in consumer trends and an increase in digital demands from children.

On a recent Innovation Navigation podcast, however, Wharton professor David Robertson commented on his analysis of LEGO. He concluded that the biggest threat to their culture was their growth - bringing about a culture of bureaucracy.

More interestingly, the LEGO CEO identified this threat in the middle of their growth. He saw that bureaucracy would crush their culture - but he was unable to counter this threat.

What would have helped?

Jay Peters, Managing Director of PARK innovation management consultancy - who helped Lego, comments that LEGO needed to:

  • Continue to clarify - what does innovation mean? The language was central to transformation at LEGO - and it was critical to maintain this focus on definition.
     
  • Look to measure the culture and capabilities. Providing metrics would have helped identify the threats to the innovation culture before they became critical - and intervene as required.

Although LEGO are likely on the other-side of the innovation curve to your business - these lessons are key to learn.

Clarifying your innovation focus and language is not a once-off exercise. This must be regularly maintained - and adjusted - for it to become part of the culture.

Creating metrics is essential for ongoing monitoring of an organisational culture. For LEGO - they realised the culture was disintegrating too late in the piece. This resulted in a lay-off of 1400 staff, and a reduced profit performance.

Learn from Lego’s journey - and create repeatable actions to clarify your innovation focus, and measure your innovation capabilities.