Lego’s Supply Chain: Case Studies Examples
Nowadays every company is trying to bring some new or upgrade the current innovation strategies in order to compete in the market (Birkinshaw, & Goddard, 2009). For the successful implication of the innovative strategies effectively, it is essential for the company to build the innovation management (Birkinshaw, 2010). Management innovation is the implication of the management techniques, process and practices which are new and could help the organization in accomplishing the organizational goals (Birkinshaw, Hamel, & Mol, 2008). In this essay report, the case study of the Lego Group is being discussed to analyze how the company implements its management innovation in the company and how it redefines its organizational boundaries.
Background of the Company:
Lego is a Denmark-based toy manufacturing company which was founded by the Kirk Kristiansen in 1932. A headquarter of Lego is located in the Billund, Denmark. The Lego group is making the toys for children in order to enhance and developed the children’s creativity. Currently, Lego is now providing toys and learning material for children in 130 countries and above (Lego, 2015a). Moreover, Lego not only expand its business worldwide but it has also expanded its product line. Lego has now provided a park namely LEGOLAND for the children and parents (Lego, 2015b). Lego has known as the most known innovative toy making company around the globe.
Summary of the case study:
Lego is a well known and privately owned toy manufacturing company. The Lego toys are being used worldwide. However, when the Lego group changed its marketplace and came out with the new and effective technologies, it starts facing challenges. In 1990s, the concept of digital gaming was rising which make the Lego think that whether the kids in the future will be buying the toys or not. When the company started investing in the technologies, it has no clear idea about what the usage because the company was lacking in the expertise who can handle the technologies. Additionally, company invested too much in buying the licensed products which resulted in the unstable turnover of the company. This happened because the company became dependent on the release of the movies such as Harry Porter.
However, these all crisis and challenges force the company to take some serious actions and find the solutions for it. These all issues require the innovation management within the company. Hence, the head of the new management team Jorgen Vig Knudstorp, took some effective steps regarding the innovation within the company. With the aim of bringing innovation into the company, Lego put much emphasis on the supply chain and building the most strong relationship with its end consumers. Moreover, it captures the new opportunities by implementing the digitalization.
The Innovations management helped Lego in achieving the success regarding the innovations. The first step which Lego took for the innovation management is that it optimizes the cost base. The Lego optimizes its cost base by relocating the production in the low-cost areas. Furthermore, Lego implements the strategy of customer involvement in the processes of the product development. Lego also reduced the extent of complexity in product designing so that product developers can come up with the new innovative ideas.
Lego Group’s innovation management team took the strategic steps in its supply chain in order to remove the obstacle which company was facing in accomplishing the goals. For the effective supply chain, the innovation management team decided to relocate the Lego’s production in the areas which incurred low costs. The Executive Vice President of the Lego Group Iqbal “Bali” Padda was in charge for doing the look after of global supply chain division. Out of 1200 manufacturing jobs, he was responsible for shifting almost 900 manufacturing tasks from Denmark to Czech Republic and Mexico with the purpose of saving 1 billion annual productions cost. Moreover, the jobs from Korea, USA and Switzerland were also moved to low-cost areas. In addition to this the European Distribution centers of Europe were centralized in Eastern Europe. This leads in cost saving and increased efficiency in the European market for Lego group. Lego group also outsourced its production activities from Flextrons, which increased the more efficiency in the production.
Lego group has managed the innovation in a way that it transformed its traditional way and involved the customers in their product developmental process. The traditional way of customizing make the Lego group realizes that the customer involvement was making the company to based only 1% on the customer. The customers were coming with the innovative ideas which were requiring the product developers in generating the tolerance and humility. The management team makes the customer involvement in a way that it should be managed the customer involvement that only children should be the core users. Moreover, the involvement of the customers should be aligned with the provided guidelines in order to avoid violation.
Lego Group observed the fact that the customer involvement has helped the company in decision-making and product development with the help of their feedback. So now Lego group is inviting the customers in their online brand communities through which users can participate in the Lego’s business model. Apart from this, Lego group also build a strong relationship with its retailers. Lego’s two major retailers namely Wal-Mart and Toys “R” Us, are invited twice a year in order to get a clearer idea about their new product launch. The retailers give the ideas that what factors should be added while making the product. After getting the idea, Lego then informed its retailers that their ideas are being included in their product.
Customer, Retailer and outsourcing:
While implementing the process of innovation Lego learned that as the time passes it is essential for the companies to bring technological changes. However, the company should implement the technology but taking the proper decisions else it will reduce the profitability of the company (Haberberg, and Rieple, 2008). Moreover, they also learned that the customer involvement is essential for the success of the product. At the time of turnaround, Lego put more emphasis on the digitalization through which company gets succeeded in gaining its market share again. During the outsourced, Lego was facing some challenges. When the outsourcing plan was announced in June 2006, employees were informed which result in that around 75% employees lost the job till 2010. Later, Lego did an open communication with the employees in which it was found that the employees were frustrated with the outsourced plan. While communicating, Lego found that it was meeting the challenges related to the effectiveness, IT, and documentation.
As the company brings new technological changes in the product development but it got failed. The reason behind this was that the company has no proper management system for the innovation. When the Lego makes an innovative management team it got succeeded in the implication of the innovative strategy. The profitability of the company get high, and the company also found the new opportunities related to innovation through it successfully get back its market share.
2) a) Risks in External Stakeholders
External stakeholders also pose threats and risks to the organization (Kotler, and Keller, 2009). Lego made a community-based program which involves the product development expertise and other people. The other people might be the users or employees. By involving the external stakeholders which are customers in the co-creation, also involved some risks. First Lego has to build that much strong relationship that the customer could trust them. Moreover, when the customers involved in the product development, it could create a frustration among the product developer.
b) Cultural Changes:
Lego Group has strong cultural values which helped it taking the decisions and implication of the idea at the organizational level. The main focus of the Lego’s was on creativity, quality and fun; but from the last few year company were making the products which were less related to the Lego’s idea. Initially, the management required the engineer to build the relation with every supplier which was around 11,000. However, it became impossible for the staff to maintain the each relationship. For that, the number of suppliers should be reduced, and some new suppliers were hired to meet the competition. Moreover, staff was also getting rewards for this. While co-creation staff should also be motivate for building a trusted relationship with the users and manager is also required to pay benefits and perks to the employees.
c) Role of Top and Middle Management:
The top management and middle managers should be cooperative for the process of co-creation (David, 2007). They are required to support the employees and the users so that they could not feel ignored (Fill, 2009). Moreover, Lego should learn from the past mistake that it implements the outsourcing plan instantly, that if the top management is making any decision it should informed with the proper planning. On the other hand, middle manager should also communicate with the people who will be involving in the co-creation process and to the top management in order to reduce the uncertainty.
Initially, Lego Group was doing the traditional production of goods. However, later on they decided to adopt the digitalization in their product line. At first the concept of digitalization was new for the company, so it brings many challenges to them which also affect the profitability of the company. As the time passes, Lego Group comes up with the innovation management and implements the effective innovation management in their digitalization. Moreover, this digitalization includes the involvement of customers and other users which make the Lego brand to gain its market share again. The involvement has improved the profitability of the company which has been decreased from the last few years.
Brand Management considers all part of the organization including stakeholders as well (Kotler Armstrong, Wong, and Saunders, 2008). When Lego involved users and other people in its business model, it becomes essential for the brands management to select the right idea in order to protect the brand image.
4) Future Implications
The development of the digitalization need a proper check and balance so that the strategies and business models could not get diversify from its objective (Piercy, 2009). The implications of the digitalization increase the responsibility of the marketing department. Therefore, in the innovation management team, the marketing department will be responsible for the research that what consumers are inclined towards (Smith, and Zook, 2011). Further, the Marketing department will also include the product development depending on the consumer’s demand (Kotler, 2003). In addition to this, IT department will be playing an important role in finding the new technologies and implementing it in the production.
a) Lego Universe
The Lego Universe is a massive multiplayer online game which bring the Lego’s fan on in the platform and through which fans will be able to socialize through gaming. This gaming strategy mostly targets the young audience and Lego’s fan, hence; it will be gaining a good profitability in the future. The reason behind this is that the youngsters nowadays are more inclined towards the socializing and Lego venture universe venture is providing them opportunity to get entertained as well as to get more socialize through their gaming actions. Till now this venture is helping the company in increasing the profit, and it is estimated that in the future it will also aid the company in sustaining the market share.
Lego is a well known Denmark-based company which did various organizational experiments such as outsourcing, venture, and customer involvement and so on. By doing such experiments, they get successful in redefining its organizational boundaries. In addition to this, Lego found the new ideas trough the involvement of the stakeholder such as customers and retailers. Moreover, with the help of digitalization company became able to gain its profitability back.
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Lego. (2015a). About us. Available from http://www.lego.com/en-us/aboutus/lego-group [Accessed 16th March, 2015]
Lego. (2015b). Legoland Parks. Available from http://www.lego.com/en-us/legoland/parks [Accessed 16th March, 2015]
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