Heraclitus said that “The only constant is change.” This oxymoron clearly defines what the human race has known throughout its existence. Kingdoms, races, species have come and gone, Earth has come to the brink of destruction and been revived. Nothing has remained as it was created since the dawn of time.
Taking the analogy of the world and comparing it to a company, the concept of change works similarly. Companies who learn how to surf the waves of change grow and evolve, others who falter have shutters closed down on them.
One such company that managed to survive and reform itself at the brink of time is a privately owned Denmark based company that manufactures plastic construction toys- Lego. It is a very well-known company around the globe, with all age groups buying its products.
The LEGO Group now has around 18,000 employees, ranging in roles from production sites to sales, IT, finance, marketing, operations etc. They have taken a people-centric, academic, as well as an empathetic approach to unify the vast and varying pool of talent and solve issues.
“Energizing everybody every day” is the motto that keeps LEGO talent agile when facing the future. The employees are encouraged to be curious, focused, and brave, this helps them be inspired and mobilize the company’s culture, challenge the status quo and innovate with purpose. All the teams in the LEGO group has a Leadership Playground builder assigned to them who is in charge of seeing teams regularly and having fun while discussing real examples from the business, raising sensitive issues in a safe environment, and engagingly approaching their daily activities.
It manufactures plastic bricks that interlock in various combinations to form buildings, forts and
other such architectural items. Ole Kirk Christiansen, named his company LEGO, in 1934, after the Danish phrase meaning “play well.” The company grew to a global range catering to the needs of various populations. Its theme parks were constructed and movies inspired by its mini-figures were made. But all that changed in 2003 when sales went down by 30% and the company found itself in debt of 800 million dollars. Reports found that there had been no significant input in the portfolio for about ten years.
Consultants vouched for diversification (like barbie, Mattel. Hotwheels etc), and hence Lego moved on to making jewellery, theme parks, video games, clothes etc. despite no expertise in the field and ended up making huge losses. The then CEO realised the gravity of the situation and brought it to the notice of his colleagues.
What exactly went wrong in 2003? When LEGO was faced with increasing competition from a
globalizing economy, video game entrants and mass adoption of the internet, they implemented
various poorly prescribed innovation strategies.
Hiring a team of leading young European designers with no toy-making expertise was one of the ill-thought-out and ill implemented strategies. This led to an escalation in the number of bricks, from 6,000 to over 12,000 bricks. And further became a nightmare for logistics, storage, and infrastructure expansion, considering that there was no corresponding gain in sales.
Some of the products, e.g., Galidor, that they manufactured cost more to produce than the price at which they were sold. Decisions like these that were ill implemented and not thoroughly thought out led the company to the brink of bankruptcy.
Kjeld Kirk Kristiansen, the grandson of the founder, had been the CEO for 25 years when he stepped aside in October 2004 for Jørgen Vig Knudstorp, who was a onetime management consultant and had joined the company in 2001 as a director of strategic development.
Things started to look a little hopeful for LEGO under the new leadership of Knudstorp, who came up with various strategies to get it back on track. He spent his first weeks as CEO working closely with Kristiansen and the other members of the board and the leadership team to figure out and list down the source of the company’s problems.
After thoroughly studying the problems, one of the first strategies that they implemented was going back to the basics and streamlining their product line. The leadership team reduced the number of different LEGO bricks produced, eliminating those that were costly to source and standardizing their design. The company also decided to sell off non-core, underperforming business lines. By doing this they shifted their focus on core competencies and shut down operations of businesses that did not bring in profits. By doing this they were able to increase the team’s ability to react more quickly to consumer trends. LEGO introduces new products every year but is now more mindful of the costs of the innovation.
The next step was to facilitate innovation but within reason. Through field research and design thinking, the company creates unique ways to tap into the needs of its customer A team (Future Lab) was brought together and tasked with generating interesting concepts for the company, even though many of them never end up getting launched. After the initial idea generation phase, the company ensured that costs of innovation were made clear to designers. They devised rules regarding the creation of new colours, shapes and ordering of new materials.
This made sure that no boundaries were placed on idea generation that creativity was constant but strict guidelines limited the chances of creating loss leading toys. When the engineers of LEGO had one-off relationships with suppliers, they ordered specified
products from various vendors and left tremendous, costly waste in the system. To eliminate that, LEGO decided to work with a narrower set of suppliers to stabilize pricing. It also cut loose smaller retailers and focused on larger ones to cut down on costs. The company also worked closely with large retailers on demand forecasting, inventory management and product customization.
By doing this they cut loose ends, saved a ton of time and money on paperwork and created financial advantages from the scale that improved margins and put pricing pressure on the competition.
LEGO also built its manufacturing facilities closer to the core markets thereby facilitating LEGO to get products to shelves faster and respond quickly to last-minute demands. To implement changes most efficiently a diverse group of senior executives and managers were brought together and asked to take a two-track approach. The leadership team
was in charge of developing the strategy, while the larger group of planners and representatives from sales, logistics, IT, and manufacturing coordinated change at the operational level. The leadership set up a war room where the operational team gathered every day to work out important decisions and assign clear responsibility. LEGO throughout the years has been a close-knit family-owned business and the leadership team knew that they had to make sure that they had the absolute loyalty of the workforce, for the initiatives to stand any chance of success. Therefore the team allotted time to consensus building and took up the strategy of complete transparency. The team discussed the realities of the situation with the total workforce early in the process and consulted with them throughout in putting together plans. Even though this slowed down the process, when the teams finally reached a consensus, the decision stuck as the workforce had been involved throughout.
The decisions now being made were holistic and considered various aspects. For example, the largest Lego Group customers were also invited to participate in product development. This not only would make the big clients happy, but the forecasting and replenishment technology would give the company marketers access to a greater level of insight into buyer behaviour. The Lego Group also let these large retailers help make assortment decisions, and improved the relationship further by providing some SKUs on an exclusive basis. LEGO did not stop there when it came to interacting with their customers, they formed a team that travels around the world, talking to kids and their families and participating in their daily lives. This includes observing how kids play on their own and with friends, how siblings interact. They call this ‘camping with consumers’, this provides them with valuable insights that then inspire creation.
This goes to show that a great Captain can always save a ship from sinking. Jørgen Vig Knudstorp is an authentic leader with transformation abilities; he spoke to employees to understand what it meant to them to work for Lego. He did in lesser time what other leaders would not have been able to manage.
This seemed like an extreme move initially but then the dedication of the company to deliver the
best service possible was overwhelmingly clear. LEGO as a company impressed me because changes on such a deep level tend to uproot the values and morals at times, but LEGO stuck to its employee-friendly manner. It treated employees like equals and not merely a resource that can
be used and let go of when tough tides hit. They have policies like Annual play days and play weeks, where employees and partners get together to have fun. They have family-friendly workplaces, extended parental leaves and host summer camps for the children of the employees. Not just limited to that their policy contains special benefits for pregnant women and temporary labour families to provide them with housing and clean water and monetary benefits, paternal
Amid all these managerial and financial changes it never forgot its customers either.
They made sure that customers had a chance to contribute to the company. To this day LEGO
conducts an observational study with children and teachers and contributes to the research
literature with valuable insights. All of this is so impressive because it never let go of the feeling of family in a family run business. And major companies of the world look up to LEGO and take ideas to implement change management in the best possible way.
About the author:
Himanshi Toprani –
HR Intern at Peakpals
MA Industrial and Organizational Psychology
She is a final year Masters in Industrial Psychology at Mithibai College,Mumbai. She is ambitious about Recruitment and Training and holds certifications in Talent Management and individual Motivation and has a passion for learning new languages and musical instruments.