Turnaround Story: The LEGO Group

The LEGO Group is a family-owned company based in Billund, Denmark. The company was founded in 1932 by Ole Kirk Christiansen. In 2003, The LEGO Group faced a budget deficit of 935 million DKK (220 million USD at then current exchange rates), causing Poul Plougmann to be replaced by Kjeld Kirk Kristiansen as CEO. In 2004, on reporting an even larger deficit, Kristiansen also stepped down, handing the reins over to Jorgen Vig Knudstorp. Jorgen continues as the head of The LEGO Group today. What had happened? Like many cases there are many root issues, but perhaps the best way to summarize the situation is the word “change.” Change in the retail landscape, change in competitor’s costs, changes in the kinds of toys kids seemed to want. In their 2004 Annual Report, the executives wrote:

In recent years the toy industry – and in consequence the LEGO Group – has witnessed crucial changes in business terms and market conditions. There has been consolidation in the retail sector, and major grocery chains have expanded at the expense of traditional toy stores. General economic pressure on consumer demand combined with a squeeze on the toy market specifically driven by consumer electronics caused a decline in sales of traditional toys. In addition, the majority of competitors are sourcing their products in low-cost countries such as China. The overall effect of these factors has been intense price competition with pressure on profit margins – in a declining market.

The story of The LEGO Group is one of blending new technologies, most notably social networks and an online experience, with old-fashioned return to the LEGO® brick, albeit animated with new applications such as themed sets (such as Star Wars)  and electro-mechanical add-ons (such as seen in its successful LEGO ® MINDSTORM ®  line).

As can be seen above, the turnaround of The LEGO Group has, thus far, been a remarkable success. What did they do?

As noted above, changes in top leadership were made. Second, there were the usual rounds of cost-cutting and layoffs. Third, they decided to sell its LEGOLAND Parks, which it decided were not part of its core business going forward. They were sold to the Merlin Entertainments, a subsidiary of the Blackstone Group.

Fourth, a perhaps most importantly, they recommitted themselves to a focus on their core consumer base and to embrace ways to tap into their customer’s passion for LEGO®. An example of the latent power of the LEGO customer base was the way in which people began to use and modify the LEGO MINDSTORM ® product. Rather than ignore or contain it, the company leveraged this grassroots activity into reinvigorating its entire product line. Their customers had ideas that no one in the marketing and product development departments had ever thought of. Eventually, the LEGO MINDSTORM product became an integral part of the FIRST Robotics events (http://www.usfirst.org/).

The turnaround of The LEGO Group was fueled by building and harnessing the passion of its customers. Adult LEGO enthusiasts formed LEGO user groups, calling themselves “AFOLs” or Adult Fans of LEGO. The LEGO Group carefully cultivates these fans who, in many cases, provide free advice and innovations to the company. There are now more than 70 groups with 70,000 registered members. There are also 70 volunteers who act as global LEGO Ambassadors representing 70 countries. Some have converted their hobby into part-time and full-time careers. 13 are now LEGO Certified Professionals who act as trusted business partners, promoting the LEGO brand and organizing activities. The Canadian Certified Professional is Robin Sather and his firm is called Brickville (http://www.brickville.ca/).

The LEGO® Club is designed for 6 to 12 year-olds and has 4 million members. Through the LEGO Club, members can show each other pictures of their favourite building work and draw inspiration for future play. The LEGO Group also gives children and adults the opportunity to build their own virtual models on the computer– and then have the bricks for the physical LEGO® model sent by post using the Design byME website (see my previous post LEGO Design By Me).

The Group has also launched a consulting division, LEGO Serious Play, that works with organizations to improve team communications, collaboration, and creativity (http://www.seriousplay.com/).

Every turnaround is different. But a successful turnaround involves more than cutting costs. There must be a future worth striving for that is more than just returning to black ink. The passion of consumers and employees is a powerful force. In my view, the LEGO Group story is a great example of focus and of building and leveraging the engagement of its customers, treating them as fans and ambassadors, and realizing the fruits of that connection in terms of profits. In the process, I think the LEGO Group really returned to its original roots and has positioned itself to smartly use the social networking tools of today to further build its brand and customer connection and relationship.