Lego Case Study Pdf

MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 Contents: 1. Company Overview 2. External Analysis 2.1 Identifying the Industry 2.2 Analysis of the General Environment 2.3 Analysis of the Industry Environment 3. Internal Analysis 3.1 Analysis of Resources and Capabilities 3.2 Core Competency Analysis 4. Pulling it together 4.1 SWOT Analysis 4.2 Analysis of Current Strategies 4.3 Articulation of key issues/problems 4.4 Recommendations 1 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 1. Company Overview: The LEGO ® Group is a family business that started in 1932. Originally producing wooden toys in Denmark, the company moved on to create the plastic LEGO brick which Forbes called the “Toy of the Century” (, 2014). Although the company has faced financial difficulties in the past they are currently ranked the second largest toy manufacturer in the world (Sicoli, 2014). The core of their product has not changed over the years but their product portfolio has grown to include video games, apparel and theme parks. The LEGO Group is committed to developing the imagination of children through the supply of high quality products. 2. External Analysis: 2.1 Identifying the Industry: The toy industry has grown at a steady pace of 4% per year, with wholesale revenues reaching $83.3 billion in 2010. These figures highlight the stability and attractiveness of the industry, however, demand can fluctuate due to fad toys and between categories of the toy industry. Categories within the toy industry include, but are not limited to dolls, outdoor and sports toys and youth electronics, with each category growing at its own rate. There are three key trends affecting the viability of the toy industry, they are; fad toys are rising and product life cycles are declining, children have less unscheduled play time and the demand for toys is switching toward electronics. These trends are increasing rivalry between companies. A key downfall of the toy industry is that it is a highly seasonal business with most sales occurring in the second half of the year around Christmas. The toy industry is also very susceptible to the general economic situation as toys are not considered to be a primary need item and therefore are usually foregone during difficult times. Overall the toy industry has both positive and negative features. 2.2 Analysis of the General Environment: The PEST framework will be applied to identify macroeconomic factors such as political (also including legal), economic, socio-cultural and technological. Global factors will also be considered. Economic: The middle class has grown in size and will continue to do so over the next 20 years throughout the world (, 2014). In particular this growth will occur within the Asia-Pacific region, with twothirds of the global middle class living here by 2030 (, 2014). This growth will result in 2 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 increased living standards and income. This will increase the spending power of a significant proportion of the population thus increasing the market for toy manufacturers. Socio-Cultural: Several trends are likely to affect the future growth of the toy industry. The first is the rise in environmental awareness. Consumers are becoming more conscious about the consequences of manufacturing and this is reflected in their consumption patterns. The National Geographic Society and Globescan Inc. conducted a survey that measures green consumer behaviour and found that it had increased in over half the countries surveyed including China (Kan, 2010). Many companies within the industry are beginning to alter processes/products to be more environmentally friendly. The second trend is that children have less unscheduled play time due to more planned activities (sport, music). This poses a serious problem for the toy industry. In conjunction with this trend is the fact that fad toys such as Furbies and the Magic 8 Ball (Manning-Schaffel, 2011) are rising while product life cycles are declining, this has occurred due to the nature of the target market. Children are indecisive and impulsive, the success of the companies within the industry are in the hands of individuals “who can’t decide which shoe to put on which foot.” (Page 2) The final trend is the digital movement. The new generation of children are more digitally connected than ever before with over 70% of children by the age of 8 owning a video game device (Gutnick et al., 2011). This increase in digital media fascination has opened up countless opportunities within the toy industry and resulted in the production of complementary goods such as video games and online games. Due to children outgrowing their toys faster, their childhood is becoming shorter and their adolescence longer, potentially decreasing the size of the target market. Political/Legal: There are two key issues for companies within the toy industry in terms of political and legal factors. The first is regulations regarding toy safety. Most countries have a toy safety department in place that sets standards in relation to the production and marketing of toys. In addition to this there are international standards for toys that companies must follow in order to ensure toys are designed safely and that the materials used are safe (, 2014). Companies must adhere to the guidelines provided otherwise they can face product recall harming their image. 3 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 The second issue is intellectual property and patents. Due to the decrease in product life cycles many companies are beginning to develop new products, however, due to the limited protection of intellectual property and expiration of patents within the industry many of these new products are quickly being imitated by competitors. Technological: With technological advancements on the rise there is the potential for companies within the industry to build their product portfolios and modernise. Companies can take advantage of increased internet availability and speed and the use of smart phones as more than just a cellular device. The advances in technology will force companies to be even more innovative then they are now, not only in what they produce but how they produce it in order to lower costs and remain competitive. Global: With the increase in globalisation toy companies are faced with new opportunities. Companies can now enter into new markets through strategies such as exporting which allows them to increase their market share, customer base and potential revenue. Many companies are also taking advantage of globalisation by outsourcing their manufacturing activities to countries where labour is inexpensive such as China. This is allowing companies to produce their goods cheaper and as result increase their competiveness. One key issue with globalisation is the cultural differences between countries. Toy companies need to be wary when moving into a new country that the product is suitable to the country’s values, attitudes and beliefs. 2.3 Analysis of the Industry Environment: Porter’s five forces model will be used to analyse the industry environment. The five forces are; buyer power, supplier power, threat of new entrants, substitute products and the intensity of rivalry among competitors. A result based conclusion will be made on the attractiveness of the industry. Buyer Power: The key buyers within the toy industry are the retailers such as Target, Toys R’ Us and Walmart. The majority of toy sales are through retail stores rather than the company selling directly to the consumer. The retail buyers are considered to be powerful as they purchase primarily in large quantities and have direct access to the target market. They also face low switching costs as they have the ability to buy toys from competitors, however, depending on the uniqueness of the product this may not be possible. Retailers have the ability to sell the company’s products how they wish and 4 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 act as the main distribution channel which puts them in a favourable position. However, retailers do not have the ability to integrate backwards due to the machinery required and the know-how that toy manufacturers have, which decreases their power. This along with the fact that most toy manufacturers have their own stores and online shops reduces their power. In terms of consumers they dictate whether or not a toy will be successful. The end consumer’s attitudes alter the company’s production which gives them extensive power. Tied in with this is that buyers have limited switching costs due to the countless toy products in the market. Conclusion: Buyer power of both retailers and consumers is moderate Supplier Power: Many of the companies within the toy industry are outsourcing the production of their products to the Asia-Pacific region in order to reduce costs. There are several potential suppliers and as the needs of the toy industry are quite similar the dependence on suppliers is quite low. It is fair to say that the switching costs would also be quite low for the majority of products, those products that are more unique however may of course have higher costs attached. It is extremely unlikely that suppliers will vertically integrate forward and due to the high volume of production demanded by toy manufactures suppliers power is limited. An important supplier in the toy industry is the film industry who offers licenses for movie and book characters such as Star Wars and Harry Potter. The dependence on the film industry is incredibly high and competitive which gives them strong bargaining power. Conclusion: Bargaining power of suppliers is low except for the film industry which is high Threat of New Entrants: The threat of new entrants is quite high which is evident amongst the assortment of fad toys introduced in the past. Furthermore many of the larger retailers are beginning to backwards integrate and introduce their own toys such as Target. However, there are some entry barriers that would prohibit new entrants. The first is economies of scale. Major competitors within the toy industry have been around for years and are now benefiting from economies of scale and expertise. These major competitors have also developed a name for themselves and a high degree of brand loyalty, for example Mattel with their toy- Barbie. There are also high capital requirements that many new entrants couldn’t cope with. Conclusion: The threat of new entrants is moderate 5 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 Substitute Products: The main threat of substitution is as a result of the rise in digital media. Children have shorter attention spans and want instant gratification which is causing them to discard traditional toys and move towards technology based toys and games. Substitute products is not just limited to toys and games but to all other activities that fulfil the same function, that is entertaining a child, for example watching TV. Switching costs are likely to be higher when moving from traditional toys to video games, but due to changing wants and needs this is unlikely to have a major impact. Conclusion: The threat of substitute products is high Intensity of Rivalry: There are a few major competitors within the toy industry (Hasbro, Mattel, LEGO) and some smaller ones. The low switching costs within the industry and the ease of substitution increases rivalry. Concentration is also a key factor, with the major companies fighting over film licenses the competitive nature increases. Finally, although the toy industry itself is growing there are certain categories within it that are doing better than others (e.g. building sets vs. vehicles, page18). This is likely to increase rivalry as companies try to move into these categories and dominate them. Conclusion: Intensity of rivalry is high Overall the results of the analysis indicate that the toy industry is unattractive. The rivalry among competitors is extremely high along with the threat of substitute products. Consumers are able to switch between products with ease due to their impulsive natures and low costs. Threat of new entrants is a constant problem due to the lack of intellectual property protection and the attention span of the target market who demand new and innovative products. Nevertheless, the low bargaining power of suppliers and buyers can be seen as an attractive feature. However, the slow growth and constantly changing attitudes of the target market highlight an unattractive industry. 3. Internal Analysis 3.1 Analysis of Resources and Capabilities: Resources: Resources (tangible and intangible) are inputs into a firm’s production process. Tangible resources can be easily observed and measured whilst intangible resources are unique ways of performing routines that have developed over time (Hanson et al., 2014). Intangible resources are usually much more valuable for a firm as they are harder for competitors to copy. LEGO Group resources are presented in Appendix 1. 6 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 Tangible resources include financial, physical, organisational and technological. In terms of organisational they have developed strict systems and procedures that allow them to operate at their most efficient, e.g. systems to identify full manufacturing costs. This is significant for the company as their competitors are cutting costs by outsourcing their production, whereas LEGO cannot do this so they must find ways to reduce their costs in order to stay competitive. Physical resources are the most significant for three main reasons. The first is that they produce their own products which means they must ensure they can maintain their production facilities and equipment. The second reason is that a percentage of their sales come from their physical resources such as their retail stores and LEGOLAND. The last reason is that their product in itself is a physical resource and is significant to the company as it is their basis for revenue and all future innovation. The last category is technological, this includes the license branding that LEGO Group is a part of. This is extremely significant as their Star Wars line accounted for 35% of total revenue (Page 6). Intangible resources include human, innovation and reputational. In terms of reputational LEGO Group have built a strong brand name for themselves due to the high quality products they produce. Their product design creativity and uniqueness has aided in building a solid reputation as customers can relate the products to the company’s values of imagination and creativity. The company has worked to build strong relationships with both suppliers by developing tailored value propositions e.g. Walmart and price leadership, and customers by engaging them in the design process through extensive market research and building a personal connection e.g. ‘LEGO Ambassadors.’ This is significant as no other toy company engages customers on such a personal level. This relationship helps increase brand loyalty whilst improving the products produced by the company as they directly meet the target market’s needs. In terms of innovation LEGO Group focuses on a strong culture of creativity, this is evident through them stretching their product line and moving into new, untapped markets. This is noteworthy as it’s allowed LEGO Group to gain a foothold in markets across the world and stretch their ‘target market’ by offering new products such as DUPLO. The last category is human. LEGO Group emphasise collaboration between departments, good working relationships and trust between staff. It is this organisational culture that has developed LEGO into an efficient and creative company. This is significant as the relationships between staff and their extensive knowledge and skills that allow LEGO to produce such creative products cannot be easily imitated. Capabilities: Capabilities are what a firm can do. It is when resources (tangible and intangible) have been integrated and leveraged to allow the company to achieve a specific task (Hanson et al., 2014). 7 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 The first capability is design process. LEGO has the ability to develop new and innovative products that fit in with the LEGO identity and the other LEGO products. This is a direct result of the unique innovation process that has been designed by the LEGO Group. The process is made up of four separate teams of employees, with each team in charge of a different form of innovation (Appendix 2). Having such a robust product development process allows continuous research and development to occur without overlap. Each team is focused on one issue e.g. the concept lab is responsible for developing new physical play concepts. The company has been able to leverage the skills and knowledge of its staff to produce a continuous flow of innovations. The second capability is their efficient operations. LEGO Group has managed to leverage their facilities and equipment to ensure a well-organised production process. Although LEGO Group originally tried to outsource its manufacturing operations it realised that this was a capability and they wanted to ensure it was done to their standards. Along with this the company boasts cutting edge molding technology and production processes (Appendix 3). Due to keeping manufacturing inhouse and the well organised production process LEGO Group have been able to develop strong retail relations as the products are high in quality and inventory is always available. These relations are extremely important within the toy industry as it is so competitive, and it can help to put your product in the eyes of the consumer, for example LEGO Group has increased their retail shelf space. The efficient operations have had one definitive benefit; brick commonality has reduced complexity. The third capability for LEGO Group is their marketing. Traditional marketing such as television commercials only play a small role for the company, they are moving towards social media and networks. LEGO Group wants children of all ages to create something of their own and to take ownership of the brand (zeitgeistminds, 2011). In order to do this LEGO Group are involving the consumers in their market research on a new level. LEGO Group meets with its consumers and allows them to visit the company and offer their ideas. The networks LEGO Group have formed such as ‘LEGO Ambassadors’ provides them with direct contact to their target market, something that is extremely unique within the toy industry. Through social media and the LEGO Group website the company has been able to leverage their networks to see the products through the eyes of the consumer rather than the eyes of the company which has given them an imitable perspective. The final capability is brand management. The organisation encourages a culture of creativity, collaboration and trust. LEGO Group discourages departments working in silos by holding interdepartment meetings. This has enabled the company to develop and stick to a clear brand meaning 8 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 and mission. All employees are aware of what the company stands for and their role within it. Being a family business has further ensured this as the culture of the company has not changed since it started, this has been important in building consumer loyalty and ownership. The company also hires selectively to ensure that all new employees fit into the culture and have the same vision and values. 3.2 Core Competency Analysis: The VRIO is applied to understand how resources and capabilities lead to a core competency and thus a competitive advantage. The VRIO framework considers how rare, valuable, imitable and substitutable a capability is. If a capability answers yes to all four factors it is considered a core competence (Appendix 4). LEGO Group has two core competencies. Brand management is valuable because LEGO Group is known all around the world for their high quality and creative products. It allows them to launch new products within the LEGO theme and expect worldwide acceptance, and has allowed them to enter new markets because it is a universal idea. The brand encourages imagination, leaning and fun which appeals to children of all ages. It is therefore rare because no other company competes on the same level and manages to maintain a consistent name and theme to their products. It cannot be easily imitated as the brand name has been built over many years and the company has learnt how to be innovative within brand identity. It is also difficult to imitate due to causal ambiguity. The brand management is built partly due to customers and their relationship with the brand, this is hard for competitors to pinpoint, understand and copy. Lastly there is no strategic equivalent for having strong brand management. The design process is extremely valuable to the company as it allows them to develop toys that are new to the world. This means that they can easily take advantage of opportunities within the external environment by adopting new products to meet changing demand. The company are also able to design sets that may have fewer pieces and can therefore be sold for cheaper in order to neutralise threats such as an economic downturn. This design process is rare as other company’s within the industry do not have the same 4 team process, nor do they have staff with the same creative knowledge and skills. It cannot be easily imitated again because the process has been developed over many years learning from past mistakes and successes. Although the process itself is quite transparent it is the relationships between the workers and the creative culture of the organisation that will make it hard and costly for competitors to imitate. Finally there is no substitute of similar value or quality. 9 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 4. Pulling it together 4.1 SWOT Analysis: A SWOT analysis identifies the strengths, opportunities, weaknesses and threats for an organisation (Appendix 5). Strengths: Strengths are viewed from an internal perspective of the company and from the point of view from your customers. LEGO Group has two overarching strengths. The first is the internal activities of the company such as their strong management, unique design process and top of the range production facilities. These factors coupled with their years of experience have allowed them to develop a dominant position within the market and a universally recognised brand name associated with quality and creativity. The second strength is the product itself, the quality in which it’s produced the product portfolio and the unique system of play it offers. Weaknesses: Weaknesses are aspects of the business that place your company at a competitive disadvantage. In terms of the LEGO Group they face fierce competition within the industry and the threat of imitation products. Due to the fact that LEGO Group has chosen not to outsource their manufacturing they have higher costs of production and as a result higher priced products compared to competitors. Opportunities: Opportunities are external factors that represent possibilities for your business to grow. LEGO products already have an educational value to them but developing a closer relationship with schools could allow LEGO to develop a more education based range of products. There are emerging countries around the world such as China that could be viable for LEGO Group to move into. LEGO Group also have the opportunity to add more licensed products to its portfolio especially if they choose to diversify or focus more on the female market segment, e.g. movie license for ‘Frozen’. Threats: Threats are external factors the company is faced with that they do not have any control over. For LEGO Group this is changing demands of the target market; moving more towards electronic goods and away from physical toys. There is also a lack of intellectual property protection such as patents, which could result in an increase in imitation products that could damage revenue and reputation. Furthermore, there is increasing competition within the industry with new fad toys coming out every 10 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 year. This adds to the countless substitute products available that are usually cheaper than LEGO products. This is growing to be more of a threat due to shorter product lifecycles and the ease at which customers can switch between products. 4.2 Analysis of Current Strategies: A business level strategy is a coordinated set of actions a company uses to gain a competitive advantage (Hanson et al., 2014). A differentiation strategy as adopted by the LEGO Group aims to produce goods that customers perceive as different in a way that that they value (Hanson et al., 2014). The success of this strategy is dependent on LEGO Group’s ability to continuously innovate. LEGO Groups core values (Appendix 6) are intangible and key points of difference for the company. It is clear that the LEGO Group has a differentiation strategy based on their value-creating activities. Differentiation strategies focus on personal relationships as way to enhance the customer’s experience. This is linked directly with the community LEGO Group have created through such programs as ‘LEGO Club’ which has enabled them to build a wide customer base (another feature of the strategy) while simultaneously growing brand loyalty. The value activities such as emphasis on quality and strong capabilities in research build on the strengths of the company. LEGO Group is renowned for their high quality products, and their core competency of design has allowed them to continue to be innovative with their products and create a successful strategy. A weakness of the LEGO Group is their high manufacturing costs, but due to customers being less price sensitive and valuing the products differentiated features over price, the company is able to take advantage of this and charge a premium. LEGO Group owns their whole supply chain due to upstream and downstream integration. As a result the LEGO Group may find it easier to advance into new countries as there is less work required in forming contracts as they are their own manufacturer and retailer. LEGO Groups differentiation strategy can help address threats evident within the external environment, as their skills in market research will help them identify changing demands and adapt their products. The differentiation strategy can be considered risky. If a company is not able to provide value to the customer, through new and improved features, customers will no longer be willing to pay a premium and will switch to lower price substitutes. LEGO Group has to be wary of this along with lower-cost imitators who may damage the brand’s name and reputation, which is one of its key strengths. 11 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 4.3 Articulation of Key Issues and/or Problems: According to Jorgen Vig Knudstorp the CEO of LEGO Group there are three key problems facing the company; digitalisation, globalisation and environment (zeitgeistminds, 2011). In conjunction with these problems there are some key issues that will affect the solutions developed. Digitalisation: With the changing demands of the target market from physical toys to online gaming and electronics LEGO Group have had to reconsider their approach and their product portfolio. They have already stretched their brand to adapt by adding video and online games. However, this trend is continuing to grow and could potentially eliminate the demand for their original, construction toys. This is a potential threat for the organisation. Key issues that relate to this problem include LEGO Groups importance of sticking to the core (Page 7). Trying to modernise their offerings too much may move away from this core and potentially lose members of the LEGO community who value the original works of the LEGO Group. Globalisation: For the LEGO Group globalisation has to do with developing strategies to move into emerging markets and consolidating their market share in existing countries. Key issues adding to the problem of globalisation include the lack of intellectual property protection, the increase in competitors, the cultural differences (e.g. beliefs) and the economic differences (e.g. income) in new countries. Environment: Consumers are becoming more conscious about the effects of manufacturing on the environment and as a result are choosing more environmentally safe products. For LEGO Group this means focusing on the sustainability of their products and developing processes that will enable the company to produce the LEGO brick with fewer carbon emissions. Key issues that affect this is the fact that LEGO Group production costs are already higher than its competitors and trying to alter the process to be more environmentally friendly may further drive the costs up. The need to continually develop new products to maintain their differentiation strategy will now also be constricted due to the changing concerns of the consumer for more environmentally friendly products. 4.4 Recommendations: In order to address the problems facing the LEGO Group certain strategies have been developed. 12 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 Alternative Possibilities: LEGO Group can expand its electronic offerings. LEGO Group currently offers video games and the website. They have also recently introduced LEGO Universe which is a multiplayer online game. Further expansions could include building a mobile phone app or a computer game. Such expansions would capitalise on the trends within the target market while helping to modernise the company and increase its customer reach. It would also help to further differentiate the company from competitors as it is a unique idea. This expansion would take advantage of LEGO Group’s core competence of design process as the Community, education and direct team are responsible for online innovations. Venturing too far from the original LEGO brick may damage the company’s reputation and the lack of intellectual property protection means that ideas will be easily copied. As mentioned in the general environment analysis, the middle class is growing. To capitalise on this and address the problem of globalisation LEGO Group could move into new countries such as China and India. Such countries are expected to see strong growth in the future and therefore act as a prime source of revenue. Furthermore, LEGO Group may be able to set up their own production facilities in these countries where they can take advantage of lower priced labour which could potentially eliminate their weakness of being a premium priced product. The disadvantage of moving into new countries is that LEGO Group’s products may not be demanded or that quality may be reduced. LEGO Group can introduce new products which will achieve two goals. Firstly they maintain they can focus on specific market segments (e.g. females) and secondly they can address the issue of sustainability. New products and concepts could include a board game or girl only LEGO sets that allow them to build shops. LEGO Group need to be wary that the new products fit into the LEGO identity, that they don’t split the market too much (between males and females) and that using environmentally friendly products doesn’t drastically increase costs. 13 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 The last option is for LEGO Group to expand their educational business. This would allow LEGO Group to capitalise on their already existent relationships with schools to develop new lines specifically designed to be used by teachers in classrooms, e.g. bricks with numbers to teach children to count. This would improve the relationship with schools, enhance LEGO Groups’ value of ‘learning’ and increase their brand awareness along with revenue. However, LEGO Group has to be cautious to not confuse customers about the uses of various sets. Final Recommendations: Of the possibilities given the best strategies would be to expand their electronic offerings and their educational business. These two strategies take advantage of the core competence of the design process and utilise the same team (Community, education and direct) within the process, highlighting their compatibility. In terms of the electronic offerings this is a clear step forward for LEGO Group. It will allow them to not only take advantage of the changing demand within the market but simultaneously reduce production costs of physical bricks. Such offerings could include a mobile phone app that is linked to the website so people can play the games on the move. It is also a concept that has not yet been adopted by other companies so will act as a point of differentiation. The second electronic development is directly linked to LEGO Groups’ educational business. If the company was able to develop a computer game that focused on the LEGO bricks and mini figures that also enhanced the value of ‘learning’ it could be sold to schools and preschools. Such games could encourage children to learn to count, identify colours and learn to construct buildings. The relationships with the educational institutions themselves could be enhanced through providing competitions between schools to encourage imagination and creativity. In addition to this a LEGO School line could be developed that focused more on learning, i.e. including bricks with numbers, a 14 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 or a variety of animals/ figurines with different occupations. Ensuring that all features within the computer game/app and school lines are well established LEGO pieces will avoid it appearing as though the company is diverging from their main theme. Also, employing a patent on such products will allow intellectual property protection and reduce the threat of competition. By focusing on augmenting the market through a new line for educational facilities such as LEGO School rather than focus differentiating the market will allow the company to maintain a solid brand name and identity. Accessing schools will also provide a constant flow of demand and increase the brand name awareness throughout the world. Appendices: Appendix 1- Resources of LEGO Group Tangible Financial Organisational Physical Technological Intangible Human Innovation Reputational 80% market share Company increased return on sales(above industry average) Increased shelf space Substantial capital Meetings between departments Efficient manufacturing (below SKU level) Tied incentive system to customer satisfaction Systems to identify full manufacturing costs Brick products Large, installed production facilities Equipment and machines Retail shops LEGOLAND Accurate stock levels Reliable inventory delivery License branding- Harry Potter, Star Wars Shared ownership of LEGOLAND Collaboration between departments Good working relationships Trust between staff Extensive market research to increase knowledge of market Stretching product line e.g. board game Analysing new, untapped markets Clear vision and mission Strong culture of creativity Focused on 10 principles of play Brand name 15 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 High quality products Product design creativity Good relationships with suppliers- tailored value propositions Strong connection with customers- ‘LEGO Ambassador’ Appendix 2-Innovation Process Teams Product and marketing development (PMD) The concept lab Community, education and direct (CED) New business group Responsible for developing innovations within existing products and themes Main responsibility is to keep the core portfolio of products fresh and vibrant Responsible for developing new products and physical play concepts Focused on new to the world toys that were still obviously LEGO Responsible for digital innovations in online play experience Managed/supported products targeted at schools, consumer communities and LEGO retail chain and online store Responsible for new business models who Have lots of freedom to investigate small sales potential ideas e.g. LEGO architecture Appendix 3- Production Process Phase 1 Molding Phase Phase 2 Decoration Phase 16 MGMT3347 Phase 3 LEGO CASE STUDY Packaging Phase Appendix 4- VRIO Framework Rare? Design Process Efficient Operations Marketing Brand Management Valuable? Y N Y Y Costly to imitate? Y N Y Y Y Y N Y Appendix 5- SWOT Analysis Strengths:              COURTNEY LOGUE - 21150176 Strong brand name across the world Education value of product Unique system of play Strong product portfolio Market research is interactive with customers Years of experience within the industry Strong LEGO community High quality products Ability to adapt to environment and demands e.g. licensed brands (Harry Potter) Strong management Unique design process Top of the range production facilities and processes Own all stages of the supply chain Non-substitutable? Y Y Y Y Opportunities:       Increase relationships with schools Diversify into other segments Develop new products Move brand into other countries Add more licensed products Environmentally friendly products 17 MGMT3347 LEGO CASE STUDY Weaknesses:      Imitation of products Intense competition Limited to one ‘theme’ or ‘identity’ Higher priced products High costs of production COURTNEY LOGUE - 21150176 Threats:       Changing demands of target market- more towards electronic goods Increasing competition Lack of intellectual property protection Substitute products- that are cheaper Shorter product lifecycles Economic downturn Appendix 6- LEGO Core Values 1. Imagination 2. Creativity 3. Fun 4. Learning 5. Caring 6. Quality 18 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 References:, (2013). About Us Successful LEGO strategy delivers continued strong growth. [online] Available at: [Accessed 7 Sep. 2014]., (2014). About Us About the LEGO Group - Responsibility - Human Rights. [online] Available at: [Accessed 7 Sep. 2014]., (2014). Middle class growth in emerging markets. [online] Available at: [Accessed 4 Sep. 2014]. Gutnick, A., Robb, M., Takeuchi, L. and Kotler, J. (2011). Always connected: The new digital media habits of young children. Hanson, D., Hitt, M., Ireland, R. and Hoskisson, R. (2014). Strategic management: competitiveness and globalisation. 5th ed. Melbourne: South Melbourne, Victoria Cengage Learning. Kan, J. (2010). Environmentally Friendly Consumers Emerge | China Business Review. [online] Available at: [Accessed 4 Sep. 2014]. LEGO Group, (2012). Annual Report. Manning-Schaffel, V. (2011). 50 Toy Fads That Hooked Us. [online] Babble. Available at: [Accessed 4 Sep. 2014]. 19 MGMT3347 LEGO CASE STUDY COURTNEY LOGUE - 21150176 Sicoli, C. (2014). Fun For Profit: The World's Nine Biggest Toy Companies. [online] TheRichest. Available at: [Accessed 3 Sep. 2014]., (2014). LEGO. [online] Available at: [Accessed 3 Sep. 2014]., (2014). Industry Information. [online] Available at: [Accessed 3 Sep. 2014]. zeitgeistminds, (2011). Putting the Pieces Together - Jorgen Vig Knudstorp & Kirsty Wark at European Zeitgeist 2011. [video] Available at: v=w6cCIpRLAY0 [Accessed 8 Sep. 2014]. 20


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