Lego Case Study free essay sample

1. How did the information systems and the organization design changes implemented by Knudstorp align with the changes in business strategy? Knudstorp changed the business strategy by reforming the production, supply chain and various other departments. This mandated that the supporting Information Systems be changed. Also, the company’s expansion into newer technological domains such as virtual interaction games and video games forced the company to use advanced technologies for their Information Systems. Lego implemented an enterprise architecture using software package SAP, which enabled them to modularize and standardize the information systems architecture. Two most important modules for Lego are Supply Chain management and Product Life Cycle Management. So, the new SAP implementation of these modules perfectly aligned with the changed business strategy. Knudstorp also made a drastic change in the organizational structure of the company. Lego switched its employee pay structure, offering incentives for appropriate product innovation and sales. This aligns with the business strategy of expanding business through innovation and creativity. We will write a custom essay sample on Lego Case Study or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 2. Which of the generic strategies does Lego appear to be using based on this case? Provide support for your choice. There are three kinds of strategies Lego used, they are 1. Business Strategy 2. Organizational Stategy 3. Information Systems Strategy. Lego’s new Business Strategy of embracing the newer technologies and expansion into newer domains is evident in its involvement in Hollywood and entering into video games and virtual-interaction games markets. Also the new strategy is to change the target customers of the Lego products. In order to align with the Business Strategy Lego also made drastic changes to its organizational structure. It made changes to employee pay structure in a way to improve innovation and creativity. Another most important change is made to the production process. The development time has been reduced almost 50%. These changes improved the production of the products and the company started to grow again. This growth forced the company to change its Information Systems strategy. In order to cater needs of each modules of their business Lego implemented modularized Enterprise architecture collaborating with IT giants such as IBM and SAP. 3. Are the changes implemented by Knudstorp an indication of hypercompetition? Defend your position. The changes implemented by Knudstorp indicate a hypercompetition. Lego’s changes in business strategy, organizational strategy and IS strategy are very drastic. The speed with which it embraced the current market trends and current technologies 4. What advice would you give Knudstorp to keep Lego competitive, growing, and relevant? Lego Case Study free essay sample 1. There are three different key characteristics which are fundamental for Strategic Management. The first key characteristic is the understanding of the strategic position of an organization, followed by the strategic choices for the future and turning strategy into action. Beginning with strategic position the LEGO group faced different objectives which influenced the development of strategy. The level of technology and preferences concerning materials changed over the time and the company was able to found a niche market for LEGO movies and created new innovations like plastic bricks. Also like in all markets the internationalization has affected the strategy of the company. They entered new markets, opened markets in South America, the US and Asia and negotiated with retailers over there. Apart from opportunities, threats which were the oil crisis, financial crisis, competitors and the development of customers need, LEGO needed to react and change or chose different strategies. While the oil and financial crisis occurred, LEGO invested money in new equipment, entered new markets and launched new products. We will write a custom essay sample on Lego Case Study or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page For that reason they were able to overcome these difficulties at that time. Moreover they changed their traditional strategy which included their wooden toys to an innovative strategy with plastic bricks and electronic features to adapt themselves to the ‘new’ age. Also the competitors were a reason for them to develop their strategy. To stay competitive LEGO for example hired the young innovative CEO JØrgen Vig Knudstorp and sold the LEGO theme park to Merlin Entertainments Group to be able to focus on their core product. Within their strategic management the company was always willing to take risk which is until now one of their strength. Moreover the popularity of their company and the popularity of movies like Star Wars helped them to create new products and to develop their strategy in a more modern way through conquering partly the movie industry. On the other hand they had weaknesses concerning the often changing management strategy. First they went from the centralized management to decentralized management where a number of senior and long serving managers left. This also led to difficulties in financial control. Moreover when they changed their traditional wooden toys to the now famous plastic bricks and other features they did not know at that point if this new way will be accepted by the customers. The last point under strategic position is the purpose and the culture. During the development of strategy  the main purpose was to entertain children but most of all to stay profitable and to keep production and main operations in Denmark. The second key characteristic is the strategic choices. In the begging their key business was toys for children whereby after a time they created LEGO theme parks. After recognizing that it is the better strategy to focus on their main business they sold it to an entertainment group. To stay competitive it was also necessary to go international, entered new markets, form alliances (e.g. Warner Bros) and launch new products to keep their growth rate up. The strategy to steadily develop innovations and not to stay with the traditional products is still part of their company. The third key characteristic of strategic management is to put strategy into action. The LEGO Group always reacted quickly concerning environmental changes. One example is that at the time the customer demanded products which fit into the ‘new’ age they invented small electronic engines and other technical features. 2. There are several external environmental aspects which influenced the strategic development of the LEGO Group. The first external feature is the oil crisis which has affected the world economy negatively. Instead of choosing a cost cutting strategy they counteracted with the introduction of new innovative products like LEGO Technic, play themes like LEGO Castle and LEGO Cowboys. Furthermore they conquered new markets in South America, the US and Asia. With this they were able to grow international wide and overcome the oil crisis. The competition is another feature of the external environment which has influenced their strategy. Bigger companies entered the sector with advanced electronic games. Thus they needed to reconsider their traditional strategy which included their traditional brick. Even if they introduced a ‘Fitness’ programme to cut costs and restructure, the company just shortly made profit. External features like the rapid change of the environment, difficulties in financial control and logistics and longer lead times needed for running in new activities such as the new LEGOLAND parks were responsible for their fluctuating profit. Moreover the customers are an essential external feature. The customer needs changed from traditional to innovative which is reflected in the success of bigger companies with electronic games. It turned out that younger customers expect  more of their toys then before and that the using time of traditional bricks decreased. For that reason LEGO came up with play themes which connected LEGO and movies to extend the life span of LEGO bricks – LEGO Star Wars was introduced. To satisfy the customers within the ‘new media’ age they created a new digital strategy where they developed an online multiplayer (LEGO Universe). Also the internal action of renaming LEGO DUPLO into LEGO EXPLORER affected the external factor customer who did not approve this change and that is why sales decreased. In addition retailers started with too high inventory and needed to wait for it to sell before they were able to buy new LEGO supplies. So the company needed to reconsider their logistic strategy. Besides this, the number of competitors in the US increased which weakened the exchange rate of the US$ against the Danish Krone which led to a decrease in sales. In this case the external factor retailers also played a role. Due to their own problems they put more pressure on LEGO to create new products but since high stock levels blocked the launch of innovations retailers demanded discounts in return to buy more of their new products. A main problem was here the external factor of (seasonal) buying behavior since the customers especially demanded LEGO products around Christmas. To avoid this, the company now is eager to get closer to retailers in order to understand their sales to end customers. Also to compete in the price war between the competitors and LEGO they had to minimize their cost to offer a more favorable price. So the company cut the number of suppliers. The last feature of external environment which influenced the strategy of LEGO – like the oil crisis – was the financial crisis in 2009. Here the management decided to take the risk to increase the production to prepare for 2009 onwards and to order new equipment. This decision proved to be right and since then they show steady progress. To summarize, it can be said that many features of the external environment influence strategic management and that it is necessary for a company’s success to scan the environment, define critical success factors and react correspondingly. 3. The generic term which includes resources and competences is ‘Strategic capability’ where you identify the unique resources and core competences which give you an advantage over competitors and what makes your company ‘special’ comparing to others. Beginning with the resources of LEGO you can  name several resources such as their brand name which is well known under consumer of toys for children. The raw materials knowledge and the focus on high quality standards helped the company to regain their successful position because instead of outsourcing their production facilities which are also a resource they decided to leave their production in Denmark. Another resource which helped LEGO was their later management organization and leadership of family members. The most important resource of the LEGO Group which enabled them to regain their successful position in the global toy market is their product creativity. Concerning the last point of resources there is to mention LEGO’s most valuable competence, their innovations. During their whole development they always solved difficult times through launching innovations which gave them a comparative advantage over the competitors. Moreover the LEGO Group uses their brand name to create alliances with movie makers, publishing companies, game makers and other companies in different markets. Moreover they successfully keep on capturing different markets to internationalize but still setting value to stay a family business and keep their core business. 4. In 2004, Kjeld decided to be more involved in strategy and to take more responsibility. At this point the COO left the company. Additionally they changed the famous name LEGO DUPLO to LEGO EXPLORER and expected to expand their small children’s segment. Instead of the expected expanding segment, customers did not welcome this change and sales decreased. Another problem was that retailers had to high inventories so that they needed to sell those products before buying the new products of LEGO. There would have been different alternatives for the company. The thinking of getting family support back and representing the family business status of the company was a smart choice. But instead of now staying with their traditional product name and make use of their recognition value they wanted to rename it to attract a bigger spectrum of customers which went into the opposite direction. Another strategy concerning the retailers would have been to first wait for the reaction of the customer in terms of the new name. Or in advance the LEGO group could have conducted a market research to figure out if a new name is profitable. But they probably expected a higher demand and therefore wanted to stock the retailer’s inventory accordingly. 5. The LEGO Group should maintain their strategy concerning to innovativeness and adaption since the internal and external environment keeps on changing. Now it is advisable to secure a solid management and not to make many changes within the management structure. This will help to give the employees more security and confidence, as well as the customers. Moreover LEGO already realized that there is a ‘new’ age of customers who prefer more visual and electronic products then the so called old fashioned toys. For that reason they should keep making alliances with movie and game producer. In addition to that new technical devices like smart phones and tablets offer a new opportunity to keep up with the customer needs and with the time. Here the company could create a game App to gain even more popularity and to show that the LEGO group is an innovative company with traditional roots. Another suggestion is to try to conquer new markets maybe within Europe but keep their roots in Denmark. But also the idea to enter into the parlor game market with a LEGO board game is a way to stay innovative. With this idea as well as with LEGO movies also older target groups can be reached. All in all if LEGO Group stays innovative, keep on entering new markets to ensure their growth rate, focus on customer needs and focus on their main business which is to entertain children they will be successful in the future.