Back to the brick: Lego’s lessons in innovation

by | Jul 28, 2012

Lego has long been treasured by households. It seems Lego is the overriding name for small, plastic building blocks adored by families worldwide, just like the Xerox, Kleenex and Popsicle brands dominate their respective markets.

However, it hasn’t always been smooth sailing for the Danish company. In fact, it is only now back on the road to recovery after a hungry pursuit of innovation nearly saw it come crashing down.

Ole Kirk Christiansen started making wooden toys in Denmark during the Depression in the 1930s. His building blocks had evolved to include the circular studs on the top by 1949 and half of the business’s output came in plastic by 1951. Later on in the 50s, Lego developed a more durable plastic polymer and trademarked its building block style.

Lego’s profits grew slowly but surely until 1978 when the popularity of its plastic building blocks skyrocketed. The 80s proved to be the golden age for Lego, but sales hit a slump in 1993. Cheaper copycat products began to emerge from China, and the widespread introduction of video game consoles saw children look elsewhere during playtime.

These difficulties saw Lego embark on an innovation spree that began in 2000. It aligned itself with the Star Wars and Harry Potter franchises, but these products only sold when their cinematic counterparts were the flavour of the month and the latest instalments were in theatres. Other Lego product lines failed to capture the public’s imagination, or only sold in tiny, niche markets.

By 2003, the kitty was nearly empty and Lego was almost out of money. It lost $300 million that year, and estimates for the following year’s losses were $400 million.

Professor of operations and information management, David Robertson, said Lego had no clear direction and was not asking the important questions that would help the company achieve financially sustainable growth.

“If you are going to accelerate innovation, you need to know which way you are going,” Robertson said.

To help whip Lego back to its former glory, Lego CEO Christiansen stepped aside and allowed management consultant Jorgen Vig Knudstorp take over the reins. Eventually becoming the new CEO, the consultant sold a 70 per cent stake in the Legoland theme parks, worth $460 million to help fuel its next stage of growth. The company’s headquarters were moved into a nearby factory and production was outsourced to the Czech Republic and Mexico.

A more structured framework was put in place for innovation. Employees from all levels of Lego’s sales and HQ teams were welcome to give suggestions about new paths for growth, but their ideas had to fit in with Lego’s family-friendly brand image.

Under new management, the tide is now turning in Lego’s favour. By keeping on top of its innovative tendencies, over the past three years Lego’s sales have increased 24 per cent each year and profits have grown to 41 per cent. The company now has about 10,000 employees and is the world’s third largest manufacturer of play materials. Lego products can be found in more than 130 countries.

Lego’s fortunes were recently the subject of a Time Magazine report which you can find here.

Jeffrey Tobias

About Jeffrey Tobias

Dr Tobias is an accomplished innovation consultant and entrepreneurship strategist, drawing expertise from the academic, entrepreneurial and corporate worlds. Jeffrey’s commercial and business experience is particularly focussed on lean startup, design thinking and leadership. Prior to The Strategy Group, Jeffrey was Cisco’s Global Lead for Innovation in the Internet Business Solutions Group helping Fortune Global 500 companies improve customer experience and grow revenue by transforming how they do business.
Jeffrey is a professor of innovation and entrepreneurship teaching MBA students at the Australian Graduate School of Business at the University of New South Wales. An active angel investor, Jeffrey is on the board of various well-known startups.

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Managing Director, The Strategy Group

Dr Tobias is an accomplished innovation consultant and entrepreneurship strategist, drawing expertise from the academic, entrepreneurial and corporate worlds. Jeffrey’s commercial and business experience is particularly focussed on lean startup, design thinking and leadership. Prior to The Strategy Group, Jeffrey was Cisco’s Global Lead for Innovation in the Internet Business Solutions Group helping Fortune Global 500 companies improve customer experience and grow revenue by transforming how they do business.
Jeffrey is a professor of innovation and entrepreneurship teaching MBA students at the Australian Graduate School of Business at the University of New South Wales. An active angel investor, Jeffrey is on the board of various well known startups. Jeffrey’s corporate background includes leading global innovation strategy at Cisco, working with large corporates such as Adobe, Westpac, Telstra, Woolworths, and Perpetual.

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