Sample Leadership Case Studies Paper on Innovation at the LEGO Group: Case Analysis

Innovation at the LEGO Group: Case Analysis

Introduction

Innovation refers to the process of thinking, translating, and developing an idea into a good, quality, and viable service or product creating value. Innovation should therefore ensure the qualities and values are high prompting consumers to pay for either the product or service. As a result, innovation ought to satisfy consumers’ needs at an economic cost by deliberately applying information, imagination, and initiative in order to derive diverse great values from processes, ideas, products, and resources. The historical synopsis of LEGO prior to Knudstorp’s 2004 appointment can be described as problematic due to challenging leadership styles and skills applied to steer the company to a new path.

Jorgen Vig Knudstorp was formerly a leader at McKinsey engaged in consulting. He joined the LEGO family owned group of company in 2001 as an outsider before he was named as the new chief executive officer in 2004. Studies reveal that, Knudstorp discovered LEGO was applying leadership approaches that were neither oriented towards growth nor opening of new ideas due to lack of enthusiasm and insufficient financial footing. Thus, LEGO was recording increasing debts, reduced cash flow, and a decline in sales. Knudstorp therefore had to ensure LEGO a tight fiscal control and top to bottom managerial changes are implemented to ensure the company survives and thrives (Tim, 2013).

More so, LEGO was suffering from lack of credibility hence, addressing issues allied to reputational was vital. This prompted Knudstorp to be an approached leader by ensuring he is able to talk to staffs working within the factory including engineers and marketers. He believed this would open a channel of communication encouraging employees to communicate ideas and opinions freely on how to turn around the LEGO factory towards successful growth. Thus, the historical synopsis at LEGO factory was influenced by either lack of or application of insufficient leadership skills, strategies, and approaches ensuring growth, development, and expansion successfully (Rob & David, 2008).

According toKnudstorp, leadership at LEGO was destroyed when the factory was unable to provide consumers with what they wanted at manageable costs. The leaders at LEGO factory prior to Knudstorp were therefore unable to identify consumers’ needs, wants, and desire in order to ensure they meet them satisfactorily. The leaders were also unable to manage the factory’s financial assets to ensure LEGO is able to manage production costs effectively. More so, leaders failed to hand over the creative direction to the loyal consumers who had been core fans of the factory’s branded products. Ultimately, the leadership at LEGO was destroyed when the factory failed to identify with the costs and measures of production required to manufacture a specific number of bricks per sets. The leadership also failed to identify with the amount of costs required to manufacture sets including LEGO micro-motor and fiber-optic kits for distribution meeting consumer needs and demands (Keith, Samakh & Peter, 2007).

There are various things undertaken by leadership at LEGO factory that can be described as wrong. Foremost, a large number of LEGO designers were retired hindering them to create sets that could replace those manufactured in 1970s, 1980s, and 1990s with innovative and top grade products. Thus, the best designers especially from Europe were retired prematurely in large numbers. The leaders also decided to increase production from six thousand to twelve thousand parts. This led to logistical and storage nightmares and challenges respectively. As a result, leaders decided to expand the factory’s infrastructures. This however did not translate to gains as the sales neither increased nor the profit margins expand. As a result, diverse changes were needed at LEGO in order to ensure the redundancies experienced are slashed and leadership approaches reorganized and analyzed. This would ensure the factory continues with its operations and functions within manufacturing limits while guarantying business growth and development (Keith, Samakh & Peter, 2007).

The first change needed at LEGO involved revolutionizing the leadership approach. As a result, Knudstorp had to gain the factory’s freedom to live and apply strategies aimed at ensuring management teams optimize the corporation’s value. This involved readdressing the reasons for LEGO’s existence which involves offering core products that are uniquely designed in order to assist children in developing quality learning systematic and creative problem solving skills. The second change involves ensuring LEGO engages in competition without necessarily being biggest but rather the best. As a result, ensuring LEGO implements a strategy of niche differentiation and excellence coupled with a looser structure and relaxed managerial style was deemed vital. Currently, LEGO is striving to achieve organic growth in order to build sales volume by identifying and seizing market opportunities at calculated risks (Andrew, 2009).

Leadership Style, Skills, and Strategies

Describing CEO Knudstorp’s predominant leadership style, skills, and strategies involves analyzing the changes he has implemented at LEGO factory. His first leadership approach involved stripping down distractions at the LEGO factory. Thus, his main leadership skill involved applying an eye-to-eye managerial approach. This has enabled Knudstorp to analyze the whole production costs required at the factory annually in order to increase the profit margin. Knudstorp has also restructured the supply chain by ensuring the factory engages in outsourcing since 2006 mainly from Czech and Mexico. This leadership approach and strategy enabled LEGO to move back to Billund Denmark in 2008. As a result, the factory has achieved trusts from global consumers while creating amazing collaborations with other LEGO branches and companies hence, increasing the net profit margins to at least twenty five million US dollars (Andrew, 2009).

Knudstorp was appointed as the chief executive officer at LEGO when the factory was facing production, marketing, and financial challenges and pressures. Thus, he has had to address the pressures since the first day. The main leadership skill he relied on was engaging in outsourcing that led to some controversies coupled with the Legoland dispute. This however did not deter him as he ensured his Danish background to gain trust from Christiansen Family Members in managing LEGO at large. He has also applied the leadership expertise learnt from McKinsey allied to strategic business abilities. He has ensured his professional leadership skills are complimented by personal qualities (Andrew, 2009).

Foremost, he ensures he maintains self control in order to avoid relying on his emotions in managing situations as it can be distractive, challenging, and unproductive. Knudstorp is also hard working which has ensured he tightens the factory’s vision in order to provide the best core quality products. Knudstorp also has the will to learn on the job as he is always searching for new knowledge to ensure LEGO factory continues to grow and expand. Lastly, he has always ensured he learns from his mistakes. He asserted that, his entrepreneurial skills coupled with a string leadership style has ensured he focuses on the factory while being patience and determined to provide consumers with the best steering clear of hard paths that can adversely influence his efforts in the future. Knudstorp has therefore paid special focus on various areas within the LEGO factory as discussed below (Andrew, 2009).

Marketing

Knudstorp conducted an interview with Harvard Business Review, he asserted that he believes a business venture survives, grows, and expands if it turns its staffs into powerful marketing stories. He affirmed that, marketing involves understanding the context in order to differentiate people and users. At LEGO factory, Knudstorp has identified with how his staffs lead their day to day lives. Conversely, he has sought to understand how consumers use the products or toys produced at LEGO factory. Consequently, he has merged the differences based on diverse knowledge gaps and usage scenarios to market positive personal stories confirming LEGO factory manufactures high quality toys that are useful to the targeted consumers as they ensure children develop learning skills and abilities (Glenn & Nejad, 2009).

Production

Knudstorp confirmed through an interview with the Focus Magazine that, when he joined LEGO it had lost its soul adversely affecting its production abilities. As a result, he had to examine the factors that can boost production. This led him to discover that, production involves a series of processes undertaken by people with diverse skills, attributes, ideas, creativities, and imaginations. As a result, he had to understand the staffs’ essential skills in order to teach them how to embrace executive functioning to enhance production. He also had to manage producers’ and their resources through spatial awareness in order to help them in learning systematic, technological, structural, and scientific senses of production. Knudstorp also embraced diversity influenced by globalization ensuring the factory develops a culture of engaging in production of high quality products satisfactorily meeting consumers’ needs, demands, wants, and desires effectively and efficiently (Glenn & Nejad, 2009).

Managerial competence

Knudstorp’s managerial competence has been based on his personal view that, LEGO factory comprises of employees who are his family. He therefore strives to ensure he relates and treats them fairly and equally as his biological family members as they ought to enjoy equal human rights and freedoms in order to remain motivated, encouraged, and focused in their daily responsibilities. He asserted that, he spends most of his life at the factory. Thus, he has discovered maintaining a relationship with the employees will ease his managerial roles. Consequently, employees will support his managerial endeavors by ensuring they achieve the factory’s goals, objectives, and vision effectively and efficiently. As a result, Knudstorp encourages them to minimize wastage of resources and time while remunerating and rewarding them fairly to ensure they are motivated (Glenn & Nejad, 2009).

Other factors underlying LEGO’S strategic success and failures

According to Glenn and NeJad, Knudstorp exercises strategic leadership enhancing long term viability within the LEGO factory through articulation of a clear vision. Thus, LEGO’s strategic successes and failures can be attributed  the factory employing leaders either able or unable to influence the employees to make daily decisions leading the firm to long term growth and success while maintaining financial health. Knudstorp has enabled and empowered staffs to make and implement decisions with minimal control and monitoring providing them with time to focus on achieving greater capacities. This has changed the business environment at the factory as he allow low risk rational decisions at LEGO allied to the factory’s vision, mission, and objectives. He also maintains high satisfactory levels with regards to short term financial stability in order to accomplish relatively day to day operations and functions effectively and efficiently.

Specific elements of CEO Knudstorp’s strategic plan (Glenn & Nejad, 2009).

Strategic Innovations

There are various key challenges faced by LEGO in 2003. Foremost, a drop in sales by thirty percent was experienced. This led the group executives to affirm that LEGO was destroying at least USD 337,000 on a daily basis fueling its poor financial performance. The factory’s innovation capabilities failed to grow developing challenges in maintenance of supply chains as they were deemed obsolete for a period of at least ten years. This led the leadership team to fail in identify and seize immediate opportunities that would have improved the factory’s financial position. Lastly, the factory was facing a problem allied to poor customer service and spotty availability of its products which were eroding the firm’s franchise in the key toy markets. In order to address these challenges, the leadership approach applied by Knudstorp had to refashion every aspect of LEGO’s supply chains (Wan, Egon & Morten, 2015).

As a result, Knudstorp had to first diagnose the problem allied to supply chains which were misaligned. For example, he discovered LEGO experienced underperformances for several years before it realized the supply chains were the main sources of the financial difficulties faced by the company. Knudstorp believes this was due to the factory growing out of its core strengths, capacity for innovation and commitment to quality. During the first few days of his tenure as the chief executive officer, Knudstorp had to work closely with Christiansen and other board members including the leadership team to discover the problems being faced by the company. Knudstorp discovered the factory’s focus on electronic competition was the main issue. As a result, he had to examine the factory’s supply chains holistically by analyzing product development, manufacturing, sourcing, and distribution. As a result, the following specific strategic plans and initiatives were undertaken at LEGO by Knudstorp (Wan, Egon & Morten, 2015).

Foremost, he examined product development to discover the factory’s pride did not lie in the manufacture of new, innovative and creative products as it strived to achieve corporate pride. Thus, the efforts to achieve and sustain corporate pride were not delivering in growth of profits. The designers also failed in maintaining a high factory culture allied to craftsmanship by disregarding costs of innovation. The designers would dream new toys without factoring the material and production costs. Thus, creativity at LEGO factory was carefree and unsustainable due to current global market pressures (Wan, Egon & Morten, 2015).

Knudstorp also discovered LEGO did not have a business strategy involving introduction of new products on an annual basis. This is because the supply chains would not handle the increasing backlog. LEGO’s suppliers were often outsourced. They increased gradually throughout the years as product developers concentrated in seeking new materials. Thus, they focused on acquiring materials from their favorite suppliers as LEGO lacked procurement compliance procedures ensuring engineers form ad hic relations with suppliers. The manufacturing teams placed orders haphazardly while constantly and frequently changing them. This prevented factory operations and functions to piece together to form a reliable picture of LEGO’s demands, supply capabilities, and inventory levels. The distribution policies were not defined in the factory as LEGO would spend disproportionate amounts of time and efforts serving small scale retailers and customers within local centers which drove costs of fulfillment high. The multiple-tier inventory system was therefore not positioned correctly to ensure the right products passed through the appropriate distribution center in order to avoid missed sales and high inventory levels (Wan, Egon & Morten, 2015).

After Knudstorp ensured the challenges discussed above are addressed and resolved, the following initiatives and outcomes were achieved. Foremost, a diverse group of senior managers and executives was formed to take a two track approach of developing business strategies with a larger group of planners and representatives allied to sales, logistics, manufacturing, and Information Technology to achieve operational level changes. A team was also formed to draw up a list tracking backlogged items. This ensured delivery glitches are determined and inventory levels resolved. Executives were also required to pay real attention to details by setting clear priorities in order to limit the scopes of individual projects while closely monitoring progress. This ensured cross-functional planning through lengthy workshops is worked out correctly to examine aspects of the factory’s supply chain complexities. Consequently, LEGO’s productivity, planning, and control framework measures are debated, changed, and improved to resolve expected and actual resistances. Thus, LEGO capitalized on its strengths and competencies allied to presence of staffs willing to work hard in ensuring the close knit family of the LEGO family owned firm is sustained successfully. The workforce proved its dedication in preserving the loyalty of the LEGO factory even after resolving the global supply chain complexities led to loss of jobs (Wan, Egon & Morten, 2015).

Case Analysis

Knudstorp’s strategic plan addressed sustainable and disruptive innovations allied to internal and external growth of LEGO over the long term. Foremost, Knudstorp’s plan involved searching the right open innovation strategy. He had to ensure whether LEGO IS READILY able to acquire technologies and knowledge or if it required co-developments with assistance from external partners. Knudstorp also had to ensure if LEGO CAN RELY on a single source of external knowledge. This would determine the costs required to ensure internal knowledge is empowered in order to be reliable crowds of wisdom. Knudstorp discovered that, inside inventors ought to be managed and rewarded by LEGO to ensure they produce innovations consistently. As a result, Knudstorp strived to ensure engaging in innovation is necessary and vital rather than useless by getting the managements’ fundamental rights. He therefore enquired from the managers’ ways to develop innovative portfolios of products with incremental changes and creativity. The managers had to rely on research conducted to identify with the concepts consumers were demanding and supporting as Knudstorp acknowledged the LEGO toys were often purchased by fathers on behalf of the sons and the games by mothers for the whole family. Thus, this was identified as the LEGO vision and identity prompting Knudstorp to identify the components required to execute and accomplish them. As a result, he had to develop new manufacturing capabilities. Consequently, Knudstorp developed the supply chains and manufacturing teams. He also had to ensure LEGO stores and online retails help in forming a community around the factory’s products. This has enabled the factory to launch new games and meet the responsibilities associated with new ideas and users’ demands (Keith, Samakh & Peter, 2007).

Specific recommendations and future action plan

In order to solve problems at LEGO, the following low risk financial recommendations ought to be implemented. Foremost, Knudstorp ought to ensure LEGO ought to create new play experiences that involve more bricks and constructions to enhance children’s learning abilities and systematic skills. The factory should also acknowledge that global competition is intense. LEGO however does not face issues allied to barriers to entry, fickle customers, and patent protection. As a result, the factory should strive to increase annual sales and profit growth margins at lows risk innovation costs supporting production of core quality toys and games. Thus, innovation should be maintained around the LEGO factory as this strategy embraces powerful radical changes. To determine if the recommendations are workable and acceptable, Knudstorp ought to ensure the following aspects are consistent (Tim, 2013).

Foremost, the recommendations ought to increase sales of LEGO games, bricks, and other merchandise associated with the factory. The recommendations should also enable LEGO to continue producing and distributing quality products without cutting the prices of the products in order to boost growth. Thus, they should ensure LEGO factory is stunningly profitable. The recommendations should also ensure the firm’s performance levels increase gradually. This will ensure LEGO is capable of competing even in very tough markets across national and international platforms. Ultimately, Knudstorp ought to accept the recommendations as they based on a low-risk but low-reward strategy (Tim, 2013).

Prognosis and conclusion

LEGO’s survival and sustainability levels are based on corporate transparency, respect for consumers’ ideas, demands, and needs, and employees’ dedication. LEGO has ensured the factory maintains a corporate culture promoting love, cohesion, excellence, dedication, and the need to identify and meet consumer needs, wants, and demands as well as desires. The culture has spread towards addressing customers’ enthusiasm which has prompted Knudstorp to learn from the past and his mistakes in improving the goals of the firm in manufacturing high quality products. Thus, LEGO factory does not take its staffs and consumers for granted. As a result, the employees are treated fairly by ensuring they work in safe and healthy conditions. They are also required to sustain a corporate culture promoting cohesion in order to ensure every employee is free and capable of seeking help from colleagues, managers, supervisors, and even the chief executive officer. Knudstorp also makes an effort of attending fan events involving staffs and customers to reaffirm that, he is striving to implement ideas and propositions aimed at positively transforming the factory, employees, and consumers. Thus, LEGO is a corporate that can be compared to interchangeable plastic bricks recognizing the power of consumers which cannot be fulfilled or achieved if the firm does not develop systems and work places staffs can adopt and provide their skills and expertise.

References

Andrew, O. (2009). LEGO CEO Jorgen Vig Knudstorp on Leading through Survival and Growth. Harvard Business Review.

Glenn, R., & Nejad, M. (2009). Strategic Leadership: Short-Term Stability and Long-term Viability. IVERY Business Journal.

Keith, O., Samakh, E., & Peter, H. (2007). Strategy + Business: Rebuilding LEGO, Brick by Brick, How a Supply Chain Transformation Helped Put the Beloved Toymaker Back Together Again. Columbia Business School.

Rob, C., & David, R. (2008). Innovation at the LEGO Group (A). International Institute for Management Development.

Tim, K. (2013). Innovation Lessons from the Rise and Fall of LEGO.  Retrieved from: http://timkastelle.org/blog/2013/10/innovation-lessons-from-the-rise-fall-and-rise-of-lego/

Wan, M., Egon, Z., & Morten, T. (2015). Jorgen Vig Knudstorp: The LEGO Group. The Focus Magazine.