An Analysis of The Lego Group’s Innovation Activities

Executive Summary

Use key words from the assignment brief

The following report will investigate the extent to which Starbucks Corporation is an innovative firm. This will be done by identifying their core innovation activity, determining the set of circumstances, as well as, the processes used to develop it. Ultimately representing how this activity contributes towards the overall sustainability and competitive advantage of the firm.

The opening section, 1.0, will introduce the report, giving a brief overview of the nature of Starbucks Corporation, by defining its activities as well as communicating the core innovation activity of the firm.

Section 2.0 identifies the drivers of innovation influencing Starbucks core innovation activity. This will be shown by the technological advances, changing customer needs, intensified competition and strategic intent that play an equally important role in driving Starbucks core innovation activity, before discussing the disadvantages of these drivers.

The next part of the study distinguishes the three different degrees of innovation; incremental, breakthrough and radical and how alongside the innovation ambition matrix, can be used to categorise Starbucks core innovation activity.

Thereafter, the Pentathlon Framework is used in section 4.0 to understand how Starbucks engage in open innovation which allows the co-creation of ideas between Starbucks and their customers. This method is used to develop the core innovation activity to its implementation and highlight how each part of the model is interdependent to Starbucks sustainable competitiveness.

The final section of the report examines the AVAC model, focusing on how Starbucks generate competitive advantages through their activities, value, appropriability, and change as well as showing how each element contributes towards Starbuck's overall sustainability.

Introduction (200 words)

The LEGO Group is one of the largest toy manufacturers in the world, committed to providing children with “good quality play” as a building block to laying a foundation for future adult life (The Lego Group 2018). LEGO which was founded by Ole Kirk Christiansen in 1932 in Billund, Denmark. The companies name originates from the first two letters of two Danish words: leg godt, which loosely translates to ‘play well’ (Robertson 2013). Reasoning that no matter how hard times were, parents would want to support their children, an insight which sustained LEGO through almost a century of subsequent global recessions.

LEGO’s product portfolio started with the craft of wooden toys, moving onto the iconic studded plastic brick and is now adopting to an increasingly digital world which has reduced demand for conventional physical toys (reference). To retain competitiveness, LEGO has introduced a range of technologically advanced products such as the Mindstorm EV3 which is based on the successful mindstorm toy. Thus, allowing children to play with physical toys whilst incorporating technological abilities to meet the modern children’s needs (reference).

LEGO’s brand values; imagination, creativity, fun, learning, caring and quality are all focused on providing the consumer with the best possible experience with guaranteed quality and originality (LEGO Group 2018). To ensure consumers are provided with the best experience, LEGO introduced the Future Lab which is a department with the sole focus of providing the future of play to children worldwide in order to remain competitive in a technologically advancing world (Ringen 2015). This innovation lab is paramount to ensure the capability ceiling of LEGO is raised to allow for progressive development of technology in line/ahead of competitors (Goffin and Mitchell 2016).

Finish this section with more references and mention the core innovation activity.

System of Play:

• Lego brick
• Mini-figure

Triple number of products between 1993-98

Designers were given freedom until 2003 when Lego changed and provided their designers with minimal bricks to choose from to reduce costs and increase creativity

Innovation is looked at from 2 angles – http://blog.bearing-consulting.com/2013/02/08/the-lego-innovation-story/#

1. Understanding children – spending time with the families in various countries to get an understanding of what they want
2. Give designers scarce choices which influences creativity

Circumstances: The Innovation Landscape (600 words)

Drivers of LEGO’s Core Innovation Activity

According to Goffin and Mitchell (2016), there are five main drivers of innovation which can be seen in Figure 1.0. Four of these drivers will be assessed to explore how they contribute to LEGO’s core innovation activity.

Figure 1.0, Drivers of the need for Innovation (Adapted from Sheth and Ram 1987).

Technological Advances

Technology has become a prominent driver in most industries over the past couple of decades; the toy industry is not an exception (reference). Once LEGO’s business model was retuned in 2004 after many failed transformational innovation attempts, the company regained focus on the core products of LEGO and started making money again (reference). This proves that breakthrough innovation is not always required to maintain traction in the external environment.

However, continual innovation is required in the competitive toy market as traditional toys become less sought after than more advanced toys such as video games (reference). Thus, the Future Lab is used to identify these changes in consumer behaviour and provide creative solutions. For example; LEGO augmented reality allows the user to virtually play with various characters from the LEGO portfolio (Sawy et al. 2016). Technological advances has driven this innovative change in the LEGO company from physical to virtual toys however, the Future Lab also focuses on traditional toys as they are much cheaper and more practical for consumers therefore still in demand (reference).

• Significance of technological discontinuity
• Unpredictable
• Threaten to render exiting capabilities useless
• Range of features, configurations, standards
• Competence-destroying (destroys previous incremental patterns of innovation)
• They implemented many of the common innovation tools in the time leading up to the crash: they had a huge focus on disruptive innovation and searching for blue oceans, the formed diverse creative teams, and they tried several different versions of open innovation.
• Nearly all of the products that resulted from these efforts failed – and that is what led to the collapse.
• Then, as LEGO successfully launched the Architecture Series, and LEGO Games, and a whole series of wildly successful new products, they used the same set of tools to create these breakthroughs.

Changing Customers and Needs

Teece (2010) states that innovations should be driven by the changing needs of customers. LEGO has displayed its ability to change and add to its product portfolio by not only catering to the needs of children, but also to a growing adult customer base (reference). This change in customers is a result of LEGO being viewed as a highly useful tool to increase creativity both on a personal and business scale (reference). Through understanding customer needs, LEGO is able to aim its products and services at the relevant target market therefore increasing customer satisfaction (Chen and Poppvich 2003).

Intensified Competition

In order to flourish, businesses need to innovate (Makhmoor and Rajesh 2017). In a highly competitive market, this is said to be more difficult for an organisation, however, Porter (1998) considers that the direction and pace of innovation is driven by competition. This increase in competition may have been a driver for LEGO creating the Future Lab in an effort of creating unique products which are much harder to replicate than the LEGO brick which is no longer trademark protected which led to a rise in competitors duplicating their brick (reference).

Strategic Intent

Strategic intentions of LEGO have led to products and services being tailored to best suit the target market, evident through the reduction of LEGO’s product portfolio since 2004. This reduction was initiated by new CEO, Jorgen Vig Knudstorp, who was appointed in 2004 and identified LEGO’s decline as ‘over innovation’ due to increased competition and technological advances (reference).

Disadvantages of Drivers of Innovation

The five drivers in this model limit the scope in which innovation can be measured due to important drivers being missed out such as environmental (Taalbi 2017). This could be seen as an important driver for LEGO due to their involvement with children and vast quantities of plastic (oil derivative). The model also has a narrow focus on just one driver rather than multiple drivers with contribution.

Categorization of Core Innovation Activity (600 words)

Degrees of Innovation

LEGO’s innovations will be categorised into three main degrees; incremental, breakthrough and radical (Goffin and Mitchell 2016).

Degree of Innovation

Explanation

Investment (%)

Incremental Innovation

(Core)

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Toys for Girls (Ref)

Licensing Agreements (reference)

LEGO Ideas (Minecraft etc)

60%

Breakthrough Innovation

(Adjacent)

LEGO Mindstorms EV3 (LEGO Group 2018)

LEGO Architecture

20%

Radical Innovation

(Transformational)

Augmented Reality App (Sawy et al. 2016)

20%

Table 1.0, Degrees of Product Innovation (Adapted from Goffin and Mitchell 2016).

Incremental Innovation

The incremental strategy of LEGO has been central to operations since the company was founded, following a structure much the same as Mintzberg (1989) model of Design, Failure corrected by adjustments and leading to success. These incremental innovations build on company knowledge and present capabilities to improve existing products, services and processes (Bessant 2008). LEGO’s future Lab incorporates open innovation to

• 1998 – Mindstorms
• 2004 – 4 MUP’s helped develop the new toy
• Ninjago – 2011 – ask kids what they like/don’t like
• 1999 – star wars Lego was first brought out and it was a big hit.
• Lego went back in the box after 2003 and started making money again
• Lego hits – Stars wars, harry potter, Bionicle
• Galidor – big failure – Had a tv show and game etc. People saw this toy as not a Lego toy, so it didn’t do well

Lego looking to target the adult market using crowdfunding for its new idea (Lego Forma). This is the latest in 2018.

Breakthrough Innovation

• Lego Games – moved from toy shelf to game shelf too
• Lego friends – very profitable
• International Networks for technology creation – 19. Journals on Models
• Radical Innovation
• From Wood to plastic
• From plastic to technology components (Sensors etc)

Processes Supporting the Core Innovation Activity (600 words)

The Pentathlon Framework

Figure 2.0 is a representation of the model which will be discussed in relation to LEGO’s innovation processes. The framework is used by companies as a tool to respond to challenges by generating, selecting and implementing innovative ideas (Oke 2007).

Figure 2.0, The Innovation Pentathlon Framework (Adapted from Goffin and Mitchell 2016).

Ideas Generation

To allow idea generation to flow, ideas must be collected from both internal and external sources (sowrey 1990). External idea generation has become more accepted in recent years due to companies recognising the fundamental benefits and insights into consumer behaviour (reference). This is known as open innovation which allows consumers to put forward ideas and ultimately be part of the development process of both new products and incremental changes (parjanen, Hennala and Uotila 2011). LEGO’s Future Lab applies this method through a website called LEGO ideas which is a crowdsourcing platform used to gain consumer knowledge and influence innovative new ideas from outside the company (Liu, Zhao and Sun 2018). Other users can vote on this platform and if the LEGO set reaches 10,000 votes, the set will be put into production within reason (reference).

Through open innovation, LEGO is able to tailor their sets to the current consumer trends which should in turn increase profitability (Schenker-wicki and Inauen 2012). This method of innovation does come with drawbacks, such as the sheer volume of requests and time required to manage the large volumes of submissions. This may waste valuable resources and rely too heavily on consumer feedback therefore take the ingenuity away from the designers or vise versa (reference).

Ideas Selection

Once ideas have been selected, it is vital that an effective selection process is used to select and develop the best ideas further (Goffin and Mitchell 2016).

Ideas Implementation

Innovation Strategy

People, Culture and The Organisation

Limitations of the Pentathlon Framework

Contribution (600 words)

Allows the company to remain competitive in a changing environment

AVAC framework – Lecture 4, slide 25

Conclusion (100 words)

References

1. THE LEGO GROUP, 2018. The Lego Group. [online]. Available at: https://www.lego.com/en-gb/aboutus/lego-group [Accessed 4 Dec. 2018].
2. ROBERTSON, D., 2013. Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry.
3. Lipkowitz, D. (2012). The LEGO book. Dorling Kindersley.
4. THE LEGO GROUP, 2018. The LEGO Brand. [online]. Available at: https://www.lego.com/en-gb/aboutus/lego-group/the_lego_brand [Accessed 4 Dec. 2018].
5. RINGEN, J., 2015. How Lego Became the Apple of Toys. Fast Company, (192).
6. GOFFIN, K. and MITCHELL, R., 2016. Innovation management: effective strategy and implementation. 3rd ed. Basingstoke, Hampshire: Palgrave Macmillan.
7. SHETH, J.N. and RAM, R. 1987. Bringing innovation to market: how to break corporate and customer barriers. New York: Wiley.
8. SAWY, O.A., KRAEMMERGAARD, P., AMSINCK, H. and VINTHER, A.L., 2016. How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership. MIS Quarterly Executive, 15(2).
9. CHEN, I. and POPOVICH, K. 2003. Understanding customer relationship management (CRM). Business Process Management Journal, 9(5), pp.672-688.
10. MAKHMOOR, B. and RAJESH, V. 2017. Why Business Model Innovation Is the New Competitive Advantage. IUP Journal of Business Strategy, 14(1), pp.7-17.
11. OKE, A. 2007. Innovation types and innovation management practices in service companies. International Journal of Operations & Production Management, 27(6), pp.564-587.