In Denmark, the company LEGO started in 1916 with the focus on housing and farming furniture. When the first wooden building blocks were created in 1932, LEGO sought its niche, which was the first time the business saw an interest in making children’s toys. The play line was more improved and eventually the wooden blocks for plastic parts were slowly withdrawn. Through designing numerous product ranges and engaging in the creation and manufacturing cycle for specific age groups, LEGO developed the brand.
During the era 1993 to 1998, though, LEGO and the rest of the toy industry suffered sluggish production. Originally, a declining youth population was responsible for the decrease in key population sizes, a decrease in play spending, and the increase in toy products driven by technology. (Shellshear, 2016). This time warned LEGO and the organization began to diversify to accelerate production. Even though LEGO did not experience the development it needed for its toy industry to become a major actor, this can be accredited externally and internally for several major problems of the LEGO infrastructure.
However, in this report, I will discuss many things. Firstly, discussing the reason behind LEGO’s bankruptcy in the early 2000s, focusing on both external and internal, and analyzing the strategy they took to abolish bankruptcy. Secondly, Define the steps LEGO must take to maintain its competitive advantage in the future, and describing lessons learned from LEGO’s past that should guide it in the direction of their future. Finally, a critical evaluation of the organic and inorganic approaches adopted by LEGO and discussed which of the two methods has resulted in sustainable growth.
2.1. The reason that makes LEGO to faced bankruptcy (focusing on external and internal factors).
LEGO, the popular Danish construction toys group, reports strong profits in the financial year 2013. Its profits fell by 10% to 3.4 billion euros. The pre-tax income came to €1.1 billion. In eight years, sales had increased, succeeding Hasbro and being, after Mattel, the world’s second-largest toy maker. Yet LEGO was thought to have lost focus 10 years ago and drifted among businesses rather than its core one. The business has just crashed. In 2003, its net revenues fell by 26% total and certain distributors had a rise of 40% in production. The pre-tax loss on sales of EUR 188 m, which declined by €268 m relative to 2002, it was also recorded among other unsatisfactory financial figures. At the moment, LEGO was advised that ‘We are on a burning market and we lose a lot of money in negative cash flows, which may force us to abandon the business’ (Ashcroft, 2013).
However, he has no background in the toy business, although he was an expert. LEGO was managed centrally by the new boss from France, claiming that LEGO’s home town was too local. LEGO continued to develop and diversify on a great number of levels with its new leadership and moved away from its core, which culminated in its decline. In producing a Saturday morning cartoon named ‘Galidor,’ LEGO switched from its heart to becoming a fashion company to create the clothes and jewelry advertised LEGO items.
Of many reasons LEGO was faced with bankruptcy at the beginning of the 2000s. The main external factors that contributed to the rapid revenue drop were the rising rise of electronic gaming and video games, which fuelled the imagination of many young people around the world. As there were too many replacements for the simple brick items, remaining on the markets and drawing exposure to customers for their current goods became difficult for them. The poor quality imitation bricks have infected consumers in China. Furthermore, Due to LEGO’s personal computer revolution in the 1990s, the popularity of children including video consoles and computer games has started to wan. The main internal reasons contributing to bankruptcy is that they replaced the CEO, turned someone who did not have a lot of experience of the industry into an overly young CEO, who at the moment could not be a successful leader. They have also changed their key skills and focused on spending in other various projects that were negative for the company. A confused management plan and a lack of strong leadership to help restore the firm to bankruptcy led the company. It began too fast and far from its core, which contributes to mistakes, to creativity and diversification into too many fields. The creators of the business thought of innovative products without affecting the commodity quality or manufacturing costs. In high-cost nations, including Denmark, Germany, and the United States, the manufacturing facilities of LEGO were located. In fact, in the company’s main franchise regions, weak client support and spot-on product quality were both issues.
2.2. Strategic initiatives used by LEGO to eliminate bankruptcy.
The first strategy the company took was to appoint Jgrgen Vig Knudstorp as CEO. Knudstorp declared LEGO ‘to back to the brick’ and to concentrate on its main products. Owing to its strategic reorientation, LEGO has split many properties like its theme parks. It has also drastically healed its portfolio, from some 13,000 to 7,000, by almost zero percent. In tandem with LEGO again focusing on its core strengths, Knudstorp was always cautious to combine development, use existing information to boost company output in the near term with innovation to explore new knowledge to increase potential results. Furthermore, LEGO has grown its revenues by improving interoperability between specific LEGO items with certain sets in order to foster consumer ingenuity and imagination, in general with their well-known goods. In order to foster creativity, LEGO has put its adult supporters into the latest product creation phase, using line-forums and other internet-based tools to get feedback from a broad supporter of goods. LEGO has taken much greater caution in its line extensions in order to encourage potential development. LEGO’s brand was freely allowed in the past to cover Star Wars, Indiana Jones, Harry Potter, the Ring Lord, Superman, the Simpsons and Iron Man.
2.3. Focus on the directions of growth by using Ansoff Matrix.
Having a deeper look at the current business is often less risky. LEGO can try to increase the market value on different distribution platforms. Even if eBay is popular primarily for online auctioning, for example, they provide professional facilities for direct producers through their portal. Improving consistency of the commodity will help the current industry penetrate. As a super online toy store, LEGO will develop itself. Growing relationships with customers may improve market share. Beyond the European and American markets, LEGO and LEGOland will grow. LEGO will now operate its own store highway toy shop. Interactive fun ride may be applied to LEGOland Park, or so.
- Penetrating the market: The LEGO group aimed to gain expansion, in this case, from the current market share of other mainstream toy brands with the primary goal of growing the market share in Europe and also beyond. Work hard to promote the growth of the traditional European and America markets with sales of the simple LEGO model line.
- Development of market: Here the business wanted to take a new girl-specific ‘new’ for the current commodity but continued to improve it. In specific Denmark and Mexico, the LEGO Company has agreed to strive for growth by bringing its current product concepts to new markets.
- Development of products: In their existing market niche, the company LEGO aimed to develop new market toys. LEGO is focused even more closely on the lines formed to join up with film franchises including Harry Potter, Star Wars, Indi,ana Jones and Caribbean Pirates.
- Diversification: In developing new goods to take on a larger market segment, the LEGO Group has decided to expand its brand in completely diversifying towards emerging industry markets. LEGO has stumbled at least twice, despite innovation always being at high risk. First of all, the organization had a expensive transfer to theme park. And in 2011, the hyped online LEGO Universe cooperative title was quickly folded. Nevertheless, elsewhere in LEGO the Nintendo DS, Mac and console versions have flourished.
2.4. Analyse the current directions and suggest future growth directions with proper justification:
The following two recommendations could be included in LEGO group’s competitive strategy in future.
Four, diversification as a technique for the production of a specific toy product; LEGO Company should diversify its products and thereby make it easier for the Brand to draw a wide variety of buyers from various cultures or industries. The quality issue should be considered for the LEGO group to enter the market with great ease while undertaking diversification. Other related methods of gaming and entertainment websites, particularly full of unique toys and robots, are expected to be part of this diversification. It would protect LEGO by benefiting from one aspect of its market while another part is less competitive from becoming interested with more than one sector. Gaming and entertainment (and toy products) meet the needs of various customers. Although this variety does not guarantee profitability immediately, it lets the hotel align its income in many industry sectors. The other recommendation is a development plan that involves interacting with social networks including Facebook, MySpace, LinkedIn, and Friendster. It may be helpful resources for advertising, promotion, and assistance. The programs consist of broad numbers of individuals that are grouped into social networks and communities. People create links to shape a larger social circle, in order to communicate with people in the same network. These people relate to issues such as traditional goods and cultural traditions in specific cultural networks and groups. People create clear, practical relationships with others. Social network helps people to communicate with network members who are not directly related. Individuals create their own laws and regulations to engage their social networks in various forms of interactions.
The competition strategy is based on the fast entrance of certain future rivals into the business. To do so, the LEGO Community divisions are located at key positions where toys like Europe and certain areas of Africa have a very large chance of being eaten. Franchising should insure that the first mover benefit is exploited in the immediate future activities by increased numbers of markets and supply chain companies. The social network works towards a guaranteed quality framework of market policy which ensures good governance. This should be taken into consideration in the publicity campaign. Furthermore, Within the LEGO group threats could be caused by government regulations for the toys industry that could imply a minimum life span for permits secured in different countries, changes in these service industries are slow, and the risk of product imitation due to competitiveness will be reduced by the speedy development of new toy and brand products, diversification through promotions and By diversifying the brand and delivering quality toy products, this can be minimized.
However, the main competitive advantages of LEGO over its rivals are focused on and innovative core products. They use high-quality materials to improve the reliability and health of their items for children, which make them a popular toy brand for many families. Their collaborations with several big brands render them much more successful and appealing and strategic advantages for children of all ages. They sell their goods globally and thus have an immense customer presence that makes them massive profits.
2.5. A critical evaluation of the organic and inorganic approaches adopted by LEGO:
In the industry, the toys are related to major suppliers such as Mattel, Hasbro, Sony, Sony, PLAYMOBIL, BANDAI NAMCO, K’NEX, Konami, PlayFusion, Anki WowWee, DXTR Labs, and Leka. Such players have implemented different development strategies to improve their global footprint and market shares. New product releases and alliances are two of the core approaches embraced by the major players for the growth of their partnership toys.
Benedettelli (2014) said that LEGO Group (Denmark) is a major leader with a comprehensive strategic collaboration network in the connected product business. The company has also concentrated on delivering the best standard and safety kids with enjoyable and stimulating play products. LEGO specializes in reduced danger, a highly competitive approach that has helped LEGO develop more original ideas that have become a popular business tactic than the industry has ever seen. The group aims to develop organic and inorganic business growth strategies. The LEGO Group, for example, announced its favorite Star Wars collection in May 2019. The latest LEGO Star Wars BOOST Droid Commander collection provides LEGO BOOST’s whole imaginative and coding fun and the opportunity to build 3 of the most popular droids of the film franchise: R2-D2, the Gonk Droid and the Mouse Droid.
2.6. The approach that has resulted in sustainable growth:
The focus is on the success of the use of new product development and innovation as the driver of sales and profits. Culture and development are not nonsensical things in LEGO. LEGO’s growth history is organic so it could take years for that to develop. By 2003 LEGO products have been in great trouble for 80 years and captivated kids and parents. However, the LEGO group never made a purchase.
Ole Kirk Christiansen founded LEGO, a carpenter who began to produce wooden toys. It was founded in 1934 under the name LEGO. According to Mazzarella (2019), LEGO is the sixth most popular children’s product maker. The key component is colorful plastic interlocking which can be mounted to create items, such as cars, houses and so on. This is the philosophy of LEGO that ‘healthy playing’ enriches the childhood of the child – and his maturity later on. To this end, the LEGO Group has produced and commercialized a range of items, all of which are based on the same basic principle of learning by play.
Mega Bloks threatened the LEGO brick industry with items close to LEGO, but aimed at the childhood audience as a different category. The merchandise Mega Bloks is actually less costly to purchase than LEGO since Mega Bloks requires resin quality while the resin LEGO requires is far cheaper, so LEGO is more costly than Mega Blocks
Through LEGO needed to make realistic decisions on what it desired and where it decided to find itself in the toy industry across multiple ups and downs. The approach differs but the theory is taken into consideration and creative items are created to enable children improve and acquire different techniques while playing.
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