How LEGO Almost Died and Came Back to Life

In 1998, LEGO went from being one of the most innovative organizations to one that became a sinking ship heading towards destruction (Robertson, 2013). With 48 million dollars of debt, the company turns to innovation for success only to find failure (Robertson, 2013). Today, LEGO is a global enterprise and the traditional LEGO brick remains to be its foundation, but this required the leaders of LEGO to steal from the organization’s past to interpret the future (Anonymous, 2020; InnoTown Conference, 2016; Robertson, 2013). On the verge of liquidation and bankruptcy, LEGO has impressively returned as an even stronger global industrial leader.

What Happened & Why It Was Seen as Failure

LEGO was growing by fourteen percent every year for fifteen years when their sales plateaued and was found fighting for relevance in the mid 90’s (InnoTown Conference, 2016; Robertson, 2013). Technology was on the rise, and LEGO was confronted with a competitive digital world that kids were swarming towards (Robertson, 2013). Additionally, toys similar to the LEGO brick were being produced and sold at a lower cost. In response to the changing landscape, the number of LEGO toys tripled, and an ambitious growth strategy was mobilized to encourage the growth the organization had been experiencing (InnoTown Conference, 2016; Robertson, 2013).

A turnaround expert named Poul Plougmann was brought into LEGO and he initiated the seven truths of innovation, which ultimately almost killed LEGO (InnoTown Conference, 2016; Robertson, 2013). As dozens of new products were being introduced, they gained little traction because Plougmann neglected to push for profitable innovation (InnoTown Conference, 2016; Robertson, 2013). The cost of production of the new designs shot upwards while LEGO’s cash flow declined (Anonymous, 2012; InnoTown Conference, 2016). At the same time, the US dollar was beginning to depreciate (Robertson, 2013). LEGO did not have an effective system to monitor and track their profit, which led to a lack of initiative when their plans took a wrong turn (Robertson, 2013). By the end of this, it was forecasted for LEGO to decline 800 million dollars in total sales (Robertson, 2013).

This was seen as a failure because LEGO found themselves in an enormous pile of debt while losing their consumer base and their position of leadership in the toy industry (InnoTown Conference, 2016; Robertson, 2013). LEGO’s plan to innovate pushed them into debt instead and the organizational leaders were struggling to recover from their downfall (Robertson, 2013). While they were able to identify a changing market, LEGO failed to successfully innovate in response.

Main Reasons Why the Change Initiative Failed

By the end of 2003, LEGO’s sales had plummeted while running negative cash flow (Robertson, 2013). One reason why LEGO’s change initiative failed is their drift away from the original mission and vision of the organization. The new product designs were becoming less like the traditional LEGO brick, and the complexity of the products increased as the organization innovated, which ultimately increased the cost of production (InnoTown Conference, 2016; Robertson, 2013). As LEGO innovated, the core direction and values of the organization faded away. While the mission to capture new consumers failed, the loyal LEGO consumers were also unhappy with the organization’s direction and new product designs (Robertson, 2013). Additionally, LEGO blindly followed the seven truths of innovation, and Plougmann failed to analyze the context of the organization rather than following general principles of innovation (Robertson, 2013). Plougmann wanted to narrow the niche of LEGO, but lost sight of the DNA that set LEGO apart (Robertson, 2013).

Another reason why LEGO’s change initiative failed is their lack of accountability and effective systems to track their profits (Robertson, 2013). LEGO did not trace the products that they did or did not make money from (Robertson, 2013). As they innovated and continued to design new products, LEGO did not know the product profitability and ended up spending much more than they were making back (Robertson, 2013). This was a flaw in the LEGO management and their inability to have policies in place to ensure a significant profit. The organization was pursuing every conceivable consumer, but did not consider profitability (Robertson, 2013).

LEGO had been overconfident about their competitive position and this became a reason for failure in their change initiative (Robertson, 2013). Suffering from a lack of realism, LEGO dreamed, created and developed new products without taking a look at the hard truths. The reality was that the profitability of the new LEGO products was putting the organization in debt, but because LEGO was overly confident, they missed the significance of this truth and ended up digging themselves into a hole of debt (Robertson, 2013).

The Change Catalyst

LEGO was pushed in a financial corner, but it is truly inspiring how they managed to catalyze change and turn the organization around for success. LEGO built a framework to guide their innovative efforts and it started from refocusing the core values of LEGO (Robertson, 2013). To catalyze change, LEGO reinvented their company culture (Robertson, 2013). They stopped changing and began reinventing what already existed (Anonymous, 2020). LEGO achieved results when the product designers began to reinvent and build within the traditional LEGO brick, as leaders empowered them to reimagine what was possible (Robertson, 2013). Accountability for results and profit were built into the organizational culture, in order to better grasp where the profitability was and where efforts should be directed (Robertson, 2013). By building an accountability system, LEGO leaders were able to ensure the core values and mission of the company (Robertson, 2013). This resulted in developers focusing more on costs, profitability and creativity (Robertson, 2013). People increasingly valued excellence and productivity. Most importantly, every innovation had to be proven consistent with the mission, vision, and values of LEGO (Anonymous, 2012).

Reinventing the LEGO culture also fostered a sense of shared purpose, which gave everyone in the organization a new cultural identity and prepared the organization for the future (Robertson, 2013). More than that, LEGO included children into the decision-making process and shared the product development process with their customer (InnoTown Conference, 2016; Robertson, 2013). By including LEGO fans into the innovation process and keeping customers in constant contact, the organization became customer-driven and understood how to create profitable products (Robertson, 2013). Fostering a deeper relationship with consumers and collaborating more with enterprises allowed LEGO to move forward as an organization (Robertson, 2013).

LEGO is a global leader of innovation who refuses to compromise innovation nor tradition (Anonymous, 2020). Having endured many challenges, the organization has become resilient and continues to thrive today as the traditional LEGO brick is reinvented to remain culturally relevant (Anonymous, 2020). The importance of developing and retaining a strong organizational culture has been illustrated through the story of LEGO, and the failure LEGO faced inspires leaders today to stay true to who the organization is and the values that drive every decision made by the organization.

References

Anonymous. (2012, July 18). Innovation Almost Bankrupted LEGO — Until It Rebuilt with a Better Blueprint. Knowledge @ Wharton. https://knowledge.wharton.upenn.edu/article/innovation-almost-bankrupted-lego-until-it-rebuilt-with-a-better-blueprint/

Anonymous. (2020, March 30). The LEGO Group. LEGO.com. https://www.lego.com/en-us/aboutus/lego-group

Anonymous. (2020, March 30). Timeline 2000-2010. LEGO.com. https://www.lego.com/en-us/aboutus/lego-group/the_lego_history/2000

InnoTown Conference. (2016, August 29). David Robertson - BRICK BY BRICK: HOW LEGO REWROTE THE RULES OF INNOVATION [Video]. YouTube. https://www.youtube.com/watch?reload=9&v=-kNOvgCWMDI

Robertson, D.C. (2013). Brick by brick: How LEGO rewrote the rules of innovation and conquered the global toy industry. Crown Publishing.