Lego Toy Company

Lego Toy Company

Lego Toy Company is one of the best brands in the toy classification and also in the consumer products and this enabled it to acquire nicknamed the “20th century toy” (Fortune magazine 2007). The Lego Company has been trying to push its way towards success by starting Lego-based parks and other video related games. However, as things became really bad in the year 2004, it dawned that the much better chance to direct the company was only through having an excellent supply chain. The leadership of the company knew it had to tackle the emerging problems. The chain of supply presented the major immediate chance of improvement. The supply chain of Lego Group’s was almost ten years old and therefore it was not up to date. Customer service was poor and mottled plenty of products were reducing the franchise of the company’s in major markets. Quick attention to the chain of supply, the leaders decided it will not only waste their time to tackle the rest of the challenges, but it could assist set at pace a good trend of improvements that would give support to subsequent adjustments in the entire company. The supply chain of Lego had been developed for delivery to the small scale retailers that occupied the market since the company began. Though it had made a lot of positive changes towards serving the United States market, Lego was actually lagging behind world competitors in developing its chain of supply for the large stores. Lego was also lagging behind the companies that had a sophisticated chain of supply which enabled them to analyze and optimize each and every cost factor to provide on time kind of service to the newly formed retail giants. To tackle these issues, Lego Company developed a two-track kind of approach. One which is a cross functional group was developed to aim at the overall strategic chain of supply, while the other one was developed to streamline those strategies and to assist in the executing process. The only great competitor to Lego Company is consumer electronics. The competitive edge for Lego is to make sure that it stands the test of time. This is because if not checked then the traditional toys can stand to loose to electronic toys.

Competitive strategy adopted by Lego in relation to porter’s generic strategy and bowman clock.

According to porter’s generic strategy and bowman clock many of the open markets, have goods and services which can be bought from any given number of companies or business units. In this case customers have a huge ability to choose. It’s the responsibility of the various companies which are in the same market to evaluate and know their competition edge and satisfy customer’s requirements in a better way than the immediate company. When there is limited number of sole products/services in the market. In the year 1980, Michael Porter released his book titled Competitive Strategy which evaluated Techniques of Analyzing different Industries and their Competitors. He sized down competition to just three standard strategies: these included, leadership cost, differentiation of product and segmentation of the available market. The generic strategy presented the three different ways through which a business organization could give its clients or customers the products that they want and at an affordable price, or in a better way compared to others. To move to the future and to stand the test of time Lego group employed a lot from the strategies of porter and bowman. Lego initiated a strategy which was known as the shared vision. The goal was only to reconstruct the Lego group and make the brand of Lego to be a synonym for building and creating fun and also the role of play. The growth strategy which stretched up to the year 2010 constituted the significance of aiming at profit building and developing a business platform which can be sustained and therefore propagate the future of Lego group. This strategy began in 2004 and by the year 2008 Lego group plunged in its growth stage with a solid aim of attaining a physical growth of 3 to 7 percent annually.

In toy manufacturing there is a common condition faced. The pressure originates from all sides. But the main source of pressure comes from the consumers, clients and the respective competitors. To counteract these challenges Lego group equipped itself with determination to draw consumers, the fans and many retailers more close to the organisation and its products. The primary objective of ensuring good play, children development and assisting the children to face future challenges still remains the key aim of the Lego group. The company still continue improving the range of their products and this will ensure that their latest designs will be able to face the great competition which in most cases comes from great supply of electronic toys. Concerning the issue of consumers various changes have taken place in the actual product development. In this case all the emerging new products and line of production have been centralised on the classical production idea in which the Lego brick and the related themes have gained life. Consequently the Lego brick idea is being hammered to the world continuously through their website and also popular electronic games in the game centres. It clearly visible that the company is almost achieved more than 50% of its expected growth in the strategic plan of seven years.

Evaluation of Lego group internal strategic capabilities

Fashion and product trends in the industry which deals with toy production changes rapidly than ever and therefore it is very tricky to predict the preferences of toys to small children. Also there is a limitation for the traditional kind of toys of which Lego group majors on in that the suppliers must offer the products at relatively low prices. This presents another opportunity for a competitive edge in the industry. This forces the toy manufacturers to produce traditional toys at low prices and at the same time maintaining quality. As a result of that the toy manufacturers are forced by the cost factor to relocate to the labour intensive areas where there is plenty of cheap labour. The ability to relocate to other areas has helped the Lego group to support its strategic plans. At the moment the Lego Company has branches in Eastern Europe, Denmark and also Mexico. Some of the locations were chosen due to their strategic position to the Lego company major markets like in Europe. But the products that require special skills are still being produced Lego group main plant at Billund. There are some internal adjustments in Lego aimed at accommodating important skills within the group. Such skills include packing, moulding and processing know how. The Lego group has an active and well equipped research and development unit known as the concept centre which is always to bring new kind of toys in the market hence supporting fully its competitive strategy. To respond to its competitive strategy the Lego group has established a unique corporate organisation to take care of its corporate needs. In this corporate organisational structure there are various departments. For instance there is the marketing and products department which deals with sourcing for new market niche while maintaining the old market share. It is also given the mandate to do product development. This makes sure that new designs keep on hitting the market to the surprise of their competitors. There is also a community and education department which maintains direct contact with the consumers through the retail brand stores and through online sales. The same department also maintains good relationship with fans at the same time developing end-user business concepts. Lego group also had to establish an active global chain of supply which is responsible for all supply needs, Procumbent, production, shipping and also distribution logistics to retailers. This was done to do away with the former supply chain system that was not up to date and therefore it was a big barrier to penetrate the market.

Recommendation of Lego’s competitive advantage

The competitive advantage of Lego group can only be sustainable if they focus on the corporate affairs and implement the competitive strategy they have adopted up to the end. The seven year strategy developed in 2004 is making the company dominate the market hence improving its sales. For instance Lego Company in the year 2008 had satisfactory results which were past the expectation of that year. The sales increased by 18.7 percent.

On the other hand the market of traditional kind of toys is still difficult. Its major drawback is the lack of steady growth and strict competition in the retail level. The high competition leads to increased and unnecessary pressure on the prices and profit margins. Also the children are becoming more interested by the electronic kind of toys. For example, game consoles and personal computer kind of games. This also includes consumer electronics like mobile phones and digital players (Kotter & Schlesinger 1992).

Lego initiated a strategy which was known as the shared vision. The goal was only to reconstruct the Lego group and make the brand of Lego to be a synonym for building and creating fun and also the role of play. The growth strategy which stretched up to the year 2010 constituted the significance of aiming at profit building and developing a business platform which can be sustained and therefore propagate the future of Lego group. This strategy began in 2004 and by the year 2008 Lego group plunged in its growth stage with a solid aim of attaining a physical growth of 3 to 7 percent annually.

In toy manufacturing there is a common condition faced. The pressure originates from all sides. But the main source of pressure comes from the consumers, clients and the respective competitors. To counteract these challenges Lego group equipped itself with determination to draw consumers, the fans and many retailers more close to the organisation and its products. The primary objective of ensuring good play, children development and assisting the children to face future challenges still remains the key aim of the Lego group. The company still continue improving the range of their products and this will ensure that their latest designs will be able to face the great competition which in most cases comes from great supply of electronic toys. Concerning the issue of consumers various changes have taken place in the actual product development. In this case all the emerging new products and line of production have been centralised on the classical production idea in which the Lego brick and the related themes have gained life. Consequently the Lego brick idea is being hammered to the world continuously through their website and also popular electronic games in the game centres. It clearly visible that the company is almost achieved more than 50% of its expected growth in the strategic plan of seven years.

Lego’s development strategy in relation to Ansoff matrix

Ansoff matrix for growth is a tool which assists businesses units to make decisions on their respective markets and strategy. Ansoff’s kind of product and market growth related matrix suggest that an organization or business unit moves to grow will depend on its strategy to market new or some existing goods and services. It also includes the type of the market since the market can be new or an existing one (Jan 2002). The Lego group development strategy aimed at the following issues;

• Penetrating the market – in this case the Lego group was seeking to attained growth with the already existing traditional toy products in the existing market share with a sole goal of increasing the market share In Europe and even beyond..
• Development of market–the Lego group decided to seek growth by introducing its already existing toy designs to new markets to new markets especially to Denmark and Mexico.
• Development of products – the Lego Company aimed at developing new toys to market in their existing market niche.
• Diversification – the Lego group decided to grow its business by doing complete diversification into new business opportunities by development of new products so as to venture in a new market share.

Each of the above competitive strategy for Lego group will be discussed in relation to ansoff matrix.

The strategy of penetrating the market is not that risky. This is because of its ability to leverage the firm’s already existing kind of resources and their capabilities. In a competitive and growing market when the company manages to maintain the market segment then its growth comes without much struggle. There are always existing opportunities of increasing the share of the market when the immediate competitors especially in the same field reach their capacity limits. Consequently, penetrating the market has got its own limitation and the moment the market reaches its saturation point there is a need for another strategy for the firm to survive (Byars1991).

Market development alternatives include the struggle for new market share or geographical relocations which the Lego group followed. To develop new markets opportunities for the products or services can be a nice strategy when the firm’s key capabilities are concerned more to the individual service or product than to their years of operation in a given market share. Since the Lego group had decided to expand into a completely new market niche, then a strategy of developing the market was likely to be more risky compared to market penetrating strategy.

On the other hand a strategy for developing product can be necessary if only the organization capabilities are concerned with its actual customers/clients rather than the actual product itself. In such a situation, it is able to leverage the strengths by building up a completely new product which is targeted to the already existing customers. Similarly act of developing a new market, developing a new product comprise a lot of risk than just trying to grow the market opportunity and share (Byars 1991).

Diversification in this category is the most volatile ground to trade on. This is because it needs both developing the product and at the same time developing the market. In most cases this may go beyond the key capability of the business unit. Generally, this segment of the ansoff matrix is referred to as “suicide cell” by many managers. In the case of Lego group being aware of this fact product diversification was handled with a lot of care.

Table 1 Ansoff Matrix

Lego’s future development

For Lego group to develop in future the following two recommendations might be incorporated in their competitive strategy. This includes; one, diversification as a strategy to develop unique toy product; Lego Company should diversify their products and this enable the group to pull a great number of clients or customers from various cultures and different walks of life. While undertaking diversification the issue of quality should be in mind for the Lego group to enter into the market with a lot of ease. Such diversification should include also other related methods of acquiring revenue especially in gaming and entertainment sites full of unique toys and robots. By being involved in more than one industry, this will give Lego benefit of drawing from one part of its business if another part becomes less lucrative. Gaming and entertainment (as well as toy products) serve different customers’ needs. While this diversity does not automatically insure success, it does help the hotel to balance out its profits across  various areas of the business. The other recommendation is the strategy for growth involves connecting with external public social networking services, such as Face book, MySpace, LinkedIn, and Friendster. This can be valuable sales, marketing, and support tools. The services consist of large connections of people who have organized themselves in groups and social networks. The people develop connections so as to connect with others in the same network to form a large social community. These people also connect in these networks and cultural communities to enjoy things like common products and cultural practices. People establish direct and feasible connections to other people. The social network enables people to connect with other network users of which there is no direct connection. People develop their own rules and regulations to engage themselves in specific types of connections in their social community networks. The competitive strategy relies on entering the market quickly to surprise other potential competitors. This will be achieved by placing the Lego group branches in strategic locations where the likelihood of consuming toys is extremely high like Europe and some parts of Africa. Expansion of numbers of branches and supply chain stores through franchising will ensure that first mover advantage is optimized within the near future operations. The social network is engaged to a guaranteed quality market planning system ensuring good quality management. This can be considered in the marketing planning.

The Lego group external environment includes both opportunities and threats. The opportunities of Lego group and company are, niche-specific opportunities through monopolizing niche market by building strong brand/service awareness and leading in the traditional toy industry through being vigilant with other well established business units offering the same products like consumer electronics opportunities; low restriction to time and seasons of operation implies that there can be diversity of toys during different seasons of the year and access to a very diverse targets of customer preferences; capitalize on diversity of toy products and consumer groups to promote and expand market through seasonal requirements and established Lego outlets all over the world; international expansion to other parts of the country, which has a strong culture for traditional toys.

In Lego group the threatening situations might consist of; government regulations in relation to toy industry which may mean permits secured have minimum life period in different countries, change in such service industry is slow, vulnerability to imitation of products due to competition will be reduced through rapid development of new toy products and brand, diversification through promotions and well planned advertising, Seasonal demand in the toy industry implies inconsistent returns which can be minimized. This can be minimized through diversifying brand and through delivery of quality toy products.

Lego’s macro aspects (PEST analysis):

PEST analysis takes into account all other external factors that may affect strategic planning of Lego group. This may include: (1) Politics and Legislation, political instability in the countries of operation can affect the competitive edge and growth opportunities of Lego group company. Also government legislation on taxation, environmental controls subsidies and quotas regulations, consumer legislations and regulations can affect both market development and product development in the traditional toy industry; (2) Economy and Business Environment which includes, industry growth potentials, the various investment levels, strategies and positions, costs of raw materials and supply chain streams, divestments or capacity shifts at the supply base, energy availability and utility cost, transportation, logistics factors, consumer spending,(3) Society, Demographics shifts and changes, wealth distribution, social mobility, institutions, education, schooling, lifestyle trends, use of time, attitudes to work, leisure, relationships, family, fashion, focus and development of interests and (4) Technology and innovation rates, development times, technology investments, adoption speed and product life cycles of products, cost reductions (deflation), return on investments, technology incentives, government investment, cross technological networking and developments all may affect the growth strategy of Lego group..

Lego’s micro aspects (porters 5 forces)

The porters 5 forces deals with micro aspects of a business and are as shown below

The presence of product which is outside the business level of the usual boundaries of a product hikes the customer’s likelihood of switching to other alternatives: these include the customer propensity to a substitute, price difference of the available substitutes, customer switching costs, expected level of  item/good differentiation and the different types of substitutes available.