the seglar group case study essay

Lego bricks continue to hold exceptional meaning to numerous young adults who have played with the bricks in their teenage years. I, for one, count among those adults as I was an avid enthusiast of Lego products myself: whenever there were new Seglar products produced, I used to nag my parents to get them for me and promised to be a ‘good boy’. Therefore it emerged quite all-natural to me that I wanted to look into the Lego group ” the image of my childhood nostalgia ” as a total case study statement for my own Strategy for Creative Technology Business class.

Proven in 1932, the Profano group was the world’s leading toy maker that was embodiment of dream and imagination to children. Father and mother too, motivated by Lego’s brand graphic as ‘fostering mental creation and imagination for youngsters’, patronized many in spite of Lego’s relatively high prices.

By turn of the millennium, yet , the changes inside the toy market coupled with expiration on their certificate, Lego experienced huge questioned, reflected inside their net loss in 308 , 000, 000 Euros in the early 2000s.

Even so, Lego’s exemplarily strategic administration practices below its CEO, Knudstorp brought the company to brilliance and as of 2014, Lego thrives once again because the world’s most competitive plaything company. As a result as is the truth, this article shall look at Lego organizations ‘from souple to rags to riches’ story using a special give attention to the ideal management process.

Founded in 1932 by simply Ole Kirk Christiansen, the LEGO Group made wood toys inside the craftsman shop in Billund, Denmark. SEGLAR was an abbreviated form of the Danish appearance, “leg godt (play well). Over the subsequent 15 years, Christiansen’s organization focused about offering superb items that recognized innovative enjoy. He made up his toys and games to enamor the imaginative ability with the nearby children; through building, they a new feeling of pride in achievement and discovered while playing. In the idea that he had discovered the perfect new material for his developing firm, Christiansenpurchased his first plastic-type infusion decoration machine in 1947. The fateful end result was LEGO’s famous item, the plastic-type material block with eight studs, which the corporation soon sent applications for patent in 1958. After, the Seglar company emphatically advertised many with their pamphlets, competitions and newsletters.

It absolutely was this legacy ” pertaining to quality, original play, group and testing ” that Christiansen passed on to his children, whom proceeded to say and run the organization. Pertaining to the following 20 years, the PROFANO Group developed gradually and consistently, coming to more or less you billion Danish kroner in revenue 78. LEGO’s exceptional ‘play experience’ appealed to customers as it was focused around free-structure perform: Children created universes that belongs to them picking; they didn’t have to read prolonged manual or perhaps guidelines. Within the next ten years the organization broadened worldwide size, increasing sales to DKK 5 billion dollars in 1988. Via 2000 the business started acquired additional development again mainly because it started advertising licensed goods based on mental property such as the Star Battles movies.

Depending on these info and info it was not at all hard to produce a SWOT analysis that can be illustrated inside the chart below.

Strength

Weakness

High brand image

Loyal buyers

Unique license

Market knowledge

Solid distribution networks

Relative financial liberty

Costly product

Narrow item portfolio

Low occurrence in Asia

Chances

Hazards

Monetary growth in core industry

Increasing global middle section class

Further purchase of market share

Continued operation collaboration

Blue ocean in Asia

Skewed geographical syndication

Low switching price

Difference in toy market

Film industry dependency

Copycats

In the year 2003 the dangers innate in this creation strategy have got to be frighteningly genuine. The LEGO Legend Wars and LEGO Harry Potter devices, while marketed well once those videos were introduced, meant that LEGO were determined by those The show biz industry movies. In 2003 there was clearly absence of a successful film just like Star Battles no Harry Potter film thus LEGO’s sales dropped. Added to this was your US buck that started declining from its 2002 making LEGO items more expensive to US clients. LEGOLAND theme parks were making losses as well, and the expenses of manufacturing much more than 12, 500 different stones stayed substantial. In 2003 and 2005 the organization found its finest misfortunes at any time, with its shortfall recording above 300 mil Kroners. As the inconveniences acquired obvious and the top administration started seeking out results and in addition they understood the fact that toy organization was changing significantly in no less than several ways which was taking cost on LEGO’s future First and foremost, electronic game titles, hand-held devices, sites and even cellphones were diminishing the eye for traditional toys.

No person knew what lengths the business might fall, even so everyone agreed that consumer electronics would sooner or later supplant mechanised toys, making them obsolete. In addition , with children starting to work with multimedia products such laptop and cell phones as early as age eight, they were losing passion toward traditional toys. Subsequently, the nature of retail industry, in whose relationship was vital to LEGO, had been changing because they turned into very stores, for example , Wal-Mart and Carrefour had an undeniably huge aggregate volume toys at economical prices. This signified a electricity shift from manufactures to retailer: those days that manufactures could determine its rates to customers, as in the 1960s, were gone. Therefore, toy producers needed to guard shelf spots, often in the expense of getting a damage.

Thirdly, due to thenew selling environment as well as the outsourcing of assembling to Asia, the toy organization confronted the large demand to slice down their prices. Lastly, the SEGLAR Group begun to see that the less expensive, imitation products produced by other companies had been perfectly exchangeable with PROFANO components. These kinds of toys were not only less costly but also quicker, offering items on the market to the open public before LEGO could. The LEGO Groups sued individuals copycat SEGLAR producers in numerous nations, contending that the PROFANO block was an icon that ought to be secured by permanent hallmark assurance, not really short, decade long obvious security Yet , LEGO lost all of their lawsuits as it failed to convince any legal courts. As a result, with no legal safety 2003 the LEGO Group lost practically DKK one particular billion kroner ex. moms and its funds possession was perilously low. This was the greatest misfortune ever, a sign that numerous spectators thought LEGO was beyond payoff. Yet, the losses intended for 2004 almost multiplied from previous years.

Before going in to further depth on LEGO’s strategic management, a value sequence analysis could be applied to illustrate the situation SEGLAR was at. The graph on the left hand side demonstrates the interior problems PROFANO had, just like cost in supply and production line while bad use of customer base in written under services part. Furthermore the chart on the right hand side shows the solution for those trouble, including LEGO’s outsourcing technique in supply stage valuable chain. Therefore both SWOT and value chain research helps understanding LEGO circumstance and its rendering of stagey.

It was at this time that 35 year old Knudstorp, who had create a plan to free the organization, was designated chief executive and CEO. In October 2004, the corporation was into a bad scenario. Competition was getting fiercer than ever as well as the toy business was improving in ways that did not support the SEGLAR Group, as well as the organization was nearly under. Besides, to Knudstorp. the organization had zero clear concept of who it had been nor what items that ought to provide. It was very clear to everyone that alterations were essential. Knudstorp and a few different associates in 2005 figured another business plan pertaining to the organization. Their very own idea had three levels. Initially, they needed to enhance the organization’s cash flow and get rid of debts; much of this, they announced, would be achieved by auctioning away non-vital coopération, lessening operational cost and outsourcing making process.

Second, to build net revenues, they needed to increase their item offerings. Lastly, the organization required to develop naturally, to imagine better approaches for creating value. Ahead of the end of 2005, that they had finished the significant objectives of the first stage, and it absolutely was time to start off the second and third levels. With a PhD in Economics, Knudstorp experienced worked at Mckinsey & Co for 3 years, then simply joined the LEGO Group as a Approach executive in 2001. Knudstorp titled all their new plan “Shared Eye-sight.  Knudstorp described it not as another method, rather because an action cover survival that based on LEGO’s historical strong points. The agreement had 3 parts.

The main stage, ‘Stabilize for Endurance,  was to be done in 2004 and 2005, and concentrated about decreasing price, disposing of bills and reinstating profits to LEGO. The second stage, “Profit from the Core,  to get completed in 06 and 2007, meant to enhance the productivity and development of the business by revitalizing the center merchandise offerings and converting the business enterprise stage through outsourcing of assembling and extensive utilization of the THIS. The last level, “Accomplishing Perspective,  directed for 2008 and 2009, concentrated in creating inventive new play equipment that could strength LEGO’s position in the market. The LEGO Group immediately started to minimize debts and cut expenses.

In 2004 it started outsourcing of most of the plastic block assembling to outside suppliers or a unique production lines in nations around the world whose labor was affordable, like Vietnam. Thus, SEGLAR fired 50 % of its workers and blue collar personnel it directly employed. 5 years ago, LEGO announced that 80 percent of production will move to nations in Eastern Europe and Mexico for cheap labor. Additionally , the LEGO Group sold a 70 percent stocks of the four Legolands to the Blackstone Group intended for $456 million. To diminish creation and putting together expenses, it started lowering the inventory of LEGO parts. Knudstorp and his group realized that reducing the amount of parts would be firmly opposed in LEGO’s Style Division and could also damage the company image. A couple of designers contended that it would ruin innovative interpretation of LEGO companies lessen the quantity of items obtainable, which could lower earnings for PROFANO Group.

But a lessening in portions would reduces costs of producing procedures, trim stocks, decreaseexpense of out of date products, lessen mold speculation expense drastically and unburden distribution network. The group tasked with the exertion accepted that a number of the segments were unnecessary and damage the organization’s revenue. For instance, the cook personality puppet had seven special faces, every one manufactured by a different section and the group thought one particular was enough. Lessening the existing number of 12, 500 parts by to half, the group guessed, would compel the designers to focus and help to make most of what they have. Before the end of 2005 the LEGO Group got through its instant crisis. Even though sales had been even as a result of discontinuation of a few items, the organization had comparatively safe funds amount. Besides, expenses had been down 35% and PROFANO had zero debt. While Phase a couple of of Shared Vision began, the organization targeted revitalizing it is product offerings and gain profit. The item lines had been re-examined to show gainful revenue.

The administration team on top of that was concerned that that they would implement the third period of the Shared Vision fresh thoughts pertaining to natural expansion that was planned to start out in 2008. One product offering that required revitalization was LEGO City. Although it was one of the oldest and top rated merchandise offerings in the organization, LEGO City products had been decreasing since 2150 and some believed the product offering ought to be removed. The profit share of this product to the company declined by 15% to 7 % in the year 2003. In 2004 LEGO Town marketing primary, Birthe Jensen, asked her group to reassess and ascertain the product whether being continued. Because of this, it was learned that they, were not differentiated enough and lacked focus to draw customers. To get up and go, Jensen and her group chose they would make more smart items, more appealing features to kids that could give quick satisfaction.

Towards the end of june 2006, with the business on a robust fiscal equilibrium, Knudstorp deemed next action plan. Sales had decreased by 35% before two years, as well as the organization was all the while conforming to the lowering of work force. The decrease in PROFANO segments was likewise being felt, inside and outside the business. Designers whined that their very own inventiveness had been diminished, and a few enthusiastic customers grumbled the moment their the majority of loved sections or numbers were not created anymore. Naturally , the group thought about how LEGO’s designers would reply toreducing volume of parts accessible to them. Therefore the administration team decided to test their very own designers to learn if the playthings were created just from your parts accessible would that significantly reduce LEGO’s product quality.

Knudstorp and his group likewise understood that they necessary to enhance improvement adequacy. It was vital to produce new plaything product as well as the up plus the next generation of famous goods such as Bionicle, Exoforce, SEGLAR City, Harry Potter Star War and various toys. In order to accelerate that development and improvement treatment the organization acquired executed a stage-entryway handle in 95, called the LEGO Creation Process (LDP), to enhance the velocity of introduction of items to sell. However , in the course of recent years, the LDP experienced degenerated into an unwieldy bureaucracy. Intended for an item to development, fancy agendas has to be rounded away, and every adviser and custom made was needed to fill out paperwork and checklist many times ahead of approval. Because indicated simply by Per Hjuler, VP of item improvement, at first that worked well, even so then it received excessively complicated.

LEGO likewise had one more serious problem with its success charge of new application. Bringing a new item to promote took regarding 36 months. By 2003, because indicated simply by Hjuler, “one and only or perhaps two of ten new item thoughts really made this to market. Hence they had to boost the procedure rendering it faster and more successful. Notwithstanding being average, the item improvement procedure skilled an absence of accomplishment in creating and getting to market considerably new thoughts. In order to treat this problem, LEGO had produced a Concept Lab, whose part was to produce progressive items that would prove to be disruptively ground breaking. The Lab was seen as a free resource to others, and Idea Lab personnel frequently acquired included in the advancement of even more incremental item ideas.

This kind of inefficient utilization of employees, along with the trouble of actually finding out suggestions through the SEGLAR Group’s intricate development procedure, blocked powerful operation of the Concept Lab. An alternate open door pertaining to development was at the place of certification. While the corporation lost a large number of lawsuits in establishing logos, it concurred that there were still a small business opportunity in licensing the LEGO brands to outside products by partnership. These kinds of partner businesses could make catalogs, films, workstation amusements, Tshirts anddifferent things around brands, for example , Bionicle, Exoforce and LEGO Superstar War. LEGO additionally wished to investigate whether it could increase the size of its inside development team with outside innovators. But in the two cases, that required to make sure the items made were safe with the company picture of each product giving and not thieved by outsiders.

In view of it is exploration, the corporation likewise noticed that it was not really making use of it is extensive passionate customer based. For instance, SEGLAR recently manufactured an online style program known as LEGO Digital Designer, which will permitted clientele to make fresh LEGO playthings basically. So each consumer could create a brand new LEGO gadget according for their personal preferences and discover prices to create them. Additionally they also launched another support called PROFANO Factory which will let customers to buy different clients’ goods. While the logistics of the shipment and mass production of the units was still being being done, the organization found extraordinary potential and gradually started working on it.

Eventually, LEGO’s fresh strategic administration plan, ‘Shared Vision’ proven its really worth when it was proven that LEGO was clearly back on track through its income and business. As of 2008, the effects of ‘Shared Vision’ approach were in. While there remained much more to achieve, it was explicitly evident that Knudstorp program worked well to get the SEGLAR Group’s recover. By reorganization, rearrangement, reshuffling the company, redefining the development process, attaching with exterior development associates, and putting in place a number of systems to synchronize innovation attempts, the company acquired reversed their slide and claimed on its own as the world’s many profitable toy manufacturer. Product sales went up too total, and tasks to rejuvenate brands such as LEGO Town and Bionicle ended since great success and their items were always well sought out.

Moreover, the relaunch of LEGO Mindstorms co-developed with a passionate selection of outside enthusiasts far exceeded its preliminary expectation, advertising more than 150, 000 units in 3 years ago. Aside from revenue figures, the company had presented some gadgets based on PROFANO Factory styles that definitely encouraged consumer participation as well as the service was growing very well, contributing to increased brand image of LEGO. Additionally , the organization rooted more business ideas in the pipe that could result in further development, including an internet multiplayer video game to be referred to as LEGOUniverse, which in turn would act as a product sales platform due to its potential customers. Almost all was good and Lego’s dominance was undisputed.

To conclude, it seems affordable to me in conclusion that Knudstorp business strategy of ‘Shared Vision’ demonstrated highly effective in brining regarding LEGO’s rebirth and restoration. LEGO’s ‘riches to rags and to riches’ story is becoming an epic good hero’s go back to the planet’s toy market. The process of shared vision clearly demonstrates combination of cost leadership and product differentiation, two vital main goals of management which were pursued together at LEGO by Knudstorp. Many companies that rely on selling seemingly outdated products, such old gadgets or classic furniture, water fountain pens need to learn from LEGO’s exemplary achievement in checking out ‘the new’ from, the, creating worth in between. Therefore , those corporations should alternatively, we should set a duty to draw lessons from Lego’s example like a successful unit to follow.

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