Problems Case Study Sample
The LEGO group was created way back in 1916 by Ole Kirk Kristiansen. He was a carpenter when he built the company. Ole Kirk brought a wooden workshop in the rural Danish Village where he began building houses and furniture for the village farmers. Ole Kirks added wooden toys to his production in the year 1932. He formed LEGO form Danish words “Leg Godt” which meant play well. In the same year, his son, Godtfred began working in the business. In the year 1947, LEGO was the first in Demark to purchase a plastic injection molding machine. The portfolio of the Company grew up to 200 plastic and wooden toys. The Company included the automatic binding brick. It is the forerunner of the modern LEGO brick (Aharoni, 2014). In 1954, there was a complaint that was raised from a customer that the toys were lacking a systematic organization. The complaint made Godtfred change the design of the bricks that the company produced to match the current form. In the year 1963, Godtfred introduced ten principles of good play. The principles defined LEGO product characteristics that led to the company producing LEGO bricks in 218 different shapes.
There has been a strong culture of creativity at the Company that favored the steady introduction of new products. There were also new themes that were based on the brick system. There was an increase in the audience when the company came up with DUPLO bricks for children that were under age five. In the year 1992, LEGO was the top ten global toy manufacturers. Late 2004, under the management of Jorgen Vig Knudstorp as the CEO of the Company, the Company faced a lot of challenges that led it to the brink of financial collapse.
Knudstorp had to make hard decisions that were meant to save the Company from being taken by the Giant Company in the toy manufacturing industry (Dinwoodie et al., 2014) after realizing a loss of DKK 1,800 million in 2004, the CEO had to come up with the strategies for the company to restore its financial position. The strategies focused on the available trends in the toy industry. The paper is going to give an analysis of the problem that was faced by the Company under the management of Knudstorp. The paper also discusses the strategic management theories that were to help the CEO to make decisions that would have helped LEGO from being bankrupted.
In the 1990s, LEGO group’s management was caught by surprise by the shifts that were encountered in the toy market. In the first case, the birth rates in the core markets of LEGO group reduced. It led to the decline of household spending on toys resulting to the decrease of total profits in the industry by 50%. There were also some changes, for instance; children had less time for unstructured play, and they looked for instant gratification as well as fashionable and electronic products. There were poor financial results in the group as the sales declined by 26% and play material sales by 29%. Despite the changes in the market trends, LEGO focused on its traditional toy market that led to its profitability decline. LEGO relied on its traditional methods of toy production hence ineffective to embrace diversity.
Jorgen Knudstorp was appointed when the Company was in the Brink of collapsing. The CEO and his management team were new, thus, saving the company to its form was not an easy task. Fixing the problems facing the Company will take time. Therefore, he asked the LEGO family to believe that after some time all will be well (Goetsch & Davis, 2014). Jorgen requested for a long term delivery. Jorgen started applying different approaches to management to solve the problems that the Company faced. At first, Jorgen thought of outsourcing manufacturing to a third party. He claimed that since the Company lost its manufacturing edge and supply chain management, it was easy to look for a professional manufacturer who can be able to operate the factories better. Due to the competition of other Companies, for instance, Hasbro, who was outsourcing things, it would be better to outsource. As a result of the competition in the market, the CEO started to look at the Company’s approach to consumers and retailers, product line, and the Company’s process of innovation and planning. Jorgen was faced pressure from financial institutions for him to pay the outstanding debts. It was a big challenge to him, but he found a solution to solve the problem at hand. He proposed the selling of items to generate cash that will cater for the debts.
In the case of LEGO group, it was very essential for the new CEO to look into the trends that are available in the market. Then help him to device strategies that can anticipate market conditions. For this case, there are some problems that were faced by LEGO in conducting its business. The problems are discussed below and their possible solutions.
Stiff competition: LEGO faced a lot of rivalry from different companies that were engaged in the toy production. For instance, from the case, Mattel and Hasbro companies were the rivals to LEGO Company. Mattel featured toy brands like Fisher-price, hot wheels, Barbie, and American Girl dolls. On the same point, LEGO group face a challenge from other companies in the market since they had substitute products that were appealing to the customers. LEGO group was unable to overcome this challenge since it concentrated on traditional toy products. The technologies that LEGO used was outdated hence poor products. The company lacked innovative ideas that would have helped them come up with products that were appealing to the customers. Since there was a changing trend in the toy market, LEGO was not aware of the change and it continued producing traditional toy products which did not meet the customers’ changing tastes and preferences.
On the other hand, LEGO was faced with lack of discipline, of accountability, and costing system that the New CEO was unable to figure out. It was hard for him to understand how net production prices were determined or which products were profitable. It was a challenge to LEGO since a lot of funds were mismanaged which led to the company making losses.
In mismanagement of funds issue, the group changes the management where Knudstorp came and started an analysis to figure out the production prices and to determine the profitable products. It took him six months to get the proportion of demand delivered without delay from stock on hand. The appointment of Jorgen Knudstorp was the turning point of the company, as he started streamlining things in the company.
There must be structural changes in LEGO’s operations. It can do this by establishing its manufacturing units in the countries that have got low labor costs. By this practice, the Company will reduce the production costs. Innovative ideas should be encouraged in order to come up with diverse toy products that will be appealing to the customers in the market. For instance, there should be an inclusion of electronic features in the products that will increase the demand for the toy products in the market hence a wider market. By doing this, there will be an increase in LEGO’s sales in the market. Also, these changes will lead to LEGO securing a competitive advantage in the market.
Despite the challenges that LEGO faces in the toy market, the management can come up with different strategies that can help them to overcome the challenges. The changing pattern trend in the market should be observed to ensure that the company produces toy products that are up to the tastes and preferences of the customers. For LEGO to secure a competitive advantage in the market, it has to produce toy products that meet the needs of the customers. Therefore, through creative innovation, there will be good ideas that will lead to the production of toy products that will satisfy the customer demands. Alternatively, diversification in the Company’s products is a good strategy to that will lead to the success of the Company in the market.
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