Strategy Analysis Of LEGO

(Source: Sherrow 2015)

Strengths- LEGO Company manufactures toys with educational features that facilitate key skill development of children. The company advertises its toys on TVC’s that gives huge advertising to target consumers and have a strong product portfolio. To sustain its competitive position LEGO Company has manufactured advanced video games and has diversified into TV, movies and other merchandise (Andersen et al. 2013).

Weaknesses- Several weaknesses mostly associated with its innovative approach in technology and manufacturing can contribute to its business failure in comparison to its competitors. The company lacks knowledge regarding its core business area, is deficient in marketing and has limited expertise in technology. Moreover, LEGO Company experiences a steady loss of market share in the area of online games and faces fierce competition from toys of several renowned brands (Anger et al. 2013).

SWOT Analysis of LEGO Company

Opportunities- Certain kinds of materials and factors such as like films and movies can play a vital role in advancing LEGO toys. For instance, the company has the opportunity to manufacture toys based on international famous movies like Star War, the Avengers, Spiderman and to name a few. The main markets of the company’s business operation are in Europe and USA, though the company has an opportunity to expand its business in some in prospective markets such as Asia, United Arab Emirates and Africa focusing on low cost production (Anton 2015).

Threats- Modern technologies are increasing and are developing rapidly these days. In this scenario, most children are getting involved in computer games having colorful and imaginative sights despite of playing with traditional toys like LEGO bricks. Increasing substitutes of advanced technologies in toy industries seem to affect the profitable business of LEGO Company (Bischoff 2016).

PESTLE analysis facilitates in evaluating the business environment in which a company operates its business and helps in tracking the level of competition and business risks affecting a company’s business (Black et al. 2016).

Figure 2: PEST Analysis of LEGO Company

(Source: Black et al. 2016)

Political- In LEGO Company’s business environment there exits certain political factors that can have a considerable effect on LEGO Company’s business. The nation has strong trade relations with several nations worldwide however; the nation occasionally experiences some political conflicts with its close nations regarding land ownership. Considering such factors, LEGO Company benefits from decreasing exposures to political instability but will have increased regulatory legislation on toys (Buglione et al. 2013). Toy safety directives rules have necessitated LEGO Company to pay close attention to the security of children’s products and the raw materials from which the products are manufactured.

Economic- Some economic variables those affect LEGO Company’s business environment circumstances are its exceptionally high per capita Gross Development Product (GDP). Few nations in which it operates has low unemployment rate and is responsible for highest amount of foreign direct investment within the region. LEGO Company has managed to survive from the impacts of global financial crisis and has gained increased profitability (Bull et al. 2016). However, there is increased exposed risk from currency by hedging currencies that might harm its profitability if it converts its income into domestic currency.

                                                                                  Figure 3: LEGO Bricks Piece Price Over Years

(Source: Chang and Taylor 2016)

Social- Most of the people using LEGO Company’s products have a comfortable lifestyle and globalization is resulting in mix of several cultures within countries. Religion serves as a vital factor few nations that affect the society. Increased demand for electronic games has decreased sales of the company (Chang and Taylor 2016). Considering such factors, LEGO Company will require entering into the digital screen for grabbing consumer attention. The company is striving to launch new online games and expensive toys considering high spending power of citizens of most of the nations in which it operates its business. As children are spending a huge time on internet, the company has developed its online site in a way so that consumers can gain detailed or newest information about their products even there is a shortage of LEGO outlets few nations.

PESTLE Analysis

Technological- Young populations these days are observed to be tech-savvy that requires companies operating business in this nation to advance their technology. Amount of wealth available in the nation facilitates it to acquire new equipment for leveraging technology. LEGO Company now has shifted to a new distribution network that consists of a web shop where consumers can buy their products directly from online stores (Cordon et al. 2016). For improving its revenue growth LEGO Company is forced to enhance its innovativeness in product development and shift from manufacturing traditional toys to producing electronic and online games. 

Environmental- Considering the environmental factors, few nations in which it operates is found to be in the coastal areas that will ease out trade through sea. Additionally, few nations have strict rules on environment protection that necessitates using eco-friendly materials in toy manufacturing. To deal with the issue of increasing carbon emissions LEGO Company had to sign a deal with World Wildlife Fund (WWF) for reducing such harmful emissions. The company is asked to reduce emissions of its product by 10% in the nation (Coxon 2012). By improving its existing manufacturing technology and its supply chain the company can easily attain its mission reduction plan.

Legal- Sales and performance of LEGO Company has been greatly impacted over the recent years because of ample imitator and counterfeit products presence in the market those are cheaper than the company’s products. The company recently filed a complaint against a Chinese company Coko for imitating its toy designs and had to dispose all its products. Considering such situation, LEGO Company has to be highly cautious regarding copyright of its designs and making good use of copyright and patent laws of the nations in which it operates its business (Direction 2012).

Porters five forces analysis tool serves as an effective tool for realizing the level of competition in an industry and for business strategy formulation (Dobbs 2014). This analysis will help in evaluating the strength of the company’s recent competitive position and the strength of the position that the company is considering to move in. Porter’s five forces analysis of LEGO Company is conducted below:

Threat of New Entrants- This threat is high for LEGO Company, which requires the company to develop strong and large distribution network. Introduction of advanced technologies in few nations is also a barrier that presents difficulties for new competitors in this business market. LEGO Company needs to develop its technologies constantly for establishing itself as a strong competitor (Feick and Roche 2013). The existing competitors in the market have already occupied best location to situate their factories within the market. This presents a challenge for LEGO Company to compete with those existing stores at an accessible market location for gaining competitive advantages over others.

Threat of Substitutes- Threat of substitutes is high for LEGO Company as it has increased influences, which can organization to lose its consumers. Risks from substitutes are a problem for the company as several companies employ standard technology to manufacture quality services. Moreover, substitutes to toys also encompass sports, hobbies and certain extracurricular activities (Fraser et al. 2014). Moreover, parents these days prefer their children to stay more involved with extracurricular activities rather than playing with toys. Children getting more involved in these activities have become a threat for toys and games industry. High switching costs occurred because substitutes pose the company’s profitability based on its relative price to performance ratios of several products.

Porter’s 5 Forces Analysis

Level of Competition- This threat is low for LEGO Company for the reason that there exist very less rivals in global toy industry. For this reason, the company’s competitors cannot generate ample risks for it as LEGO Company has acquitted enough percentage of loyal consumers. Toy industry is oligopolistic with limited companies in few nations (Grienitz et al. 2013). Level of competition remains intense for LEGO Company and for gaining a broader market in children’s entertainment, the company started to include huge incumbents from electronic sectors. Moreover, intensity of rivalry of LEGO has helped it to determine its value generation through fierce competition that indicates high internal rivalry for the company.

Figure 4: LEGO Traditional Toys and Games Value Share Worldwide

(Source: Hadida 2013)

Power of Buyers- High bargaining power of buyers exists for LEGO Company in the global toy market because of other educational toy companies. To minimize this threat the company is striving to maintain reasonable prices for its products for sustaining first-rate relationship with its esteemed consumers (Hadida 2013). Additionally, the company is constantly attempting to develop several promotional strategies to restrict them from purchasing competitor’s products. It is observed that huge part of decision making in respect to their product prices is based on its consumer’s decisions that is considerably increasing the bargaining power of buyers. Such scenario is significantly affecting LEGO Company’s profitability in the toy industry. However, setting low prices for its toy products can enhance the company’s produce and service quality (Hadida 2013).

Power of Suppliers- Suppliers bargaining power is average for LEGO Company in toy industry. This is because the company has based its offerings from standardized inputs such as plastics and chemicals. However, the company ensured that suppliers have high bargaining power. It has attained this through supporting its suppliers to demonstrate their importance in toy industry (Ibrahim and Perez 2014). Additionally, LEGO has made sure that that the prices suppliers demand materials depicts identical value as the products quality. This facilitates the company to make sure that it efficiently utilizes its budgets. LEGO Company has always attempted to retain suppliers bargaining power through its brands high power.

Value chain analysis of a company is based on a basic economic principal of advantage in which each art of the production process of a company is identified within which certain steps from the manufacturing process can be removed or improved. Such enhancements can help in cost savings or in gaining competitive benefits through improving production process. Value chain involves primary activities of the company such as logistic, outbound logistics, operations, marketing and sales (Jackson et al. 2013). Support activities of a company include material management, technology development, human resource management and company infrastructure. LEGO Company has implemented strategic planning to enhance efficient use of all its resources in order to maintain company’s competitive advantage (Jensen 2016). The value chain for LEGO Company is conducted under:

Inbound Logistics- LEGO Company gained sufficient knowledge to enhance its manufacturing technology and produce new materials like non-toxic plastics that business rivals cannot imitate. Such improvement in production material has of LEGO Company has increased its market share and profitability (Jensen et al. 2014). However, inferior imitations of the company’s products remain a threat to the brand for the reason that such products come with lower price that attracts a huge consumer segment. Moreover, consumers prefer to purchase inferior imitations for LEGO products. Considering these threats, the company in order to manufacture superior value for products should ensure that operations of LEGO Company sustain and protect its brand power (Kim 2015).

Operations- LEGO Company has developed a very strong product development staff that comprises 160 employees focused towards product development (Keinz et al. 2012). The company has implemented an “open innovation technique” that can support the company to gather information regarding user habits, consumer expectations of all age groups all over the world. Ideas gathered from the consumers can facilitate the company in identifying product advancement and innovations. Additionally, LEGO Company maintains fruitful relationships with all its retailers for gathering information regarding desirers of its consumers and retailers that will help in planning future product portfolio. The products manufactured by LEGO Company are turning out to be valuable and more attractive to its consumers as its offerings are developing and innovating constantly (Kim and Coxon 2016).

Out-bound Logistics- LEGO Company decided to outsource its manufacturing for cost reduction. For completing an efficient outsourcing transaction, the company advanced its supply chain. Moreover, it maintained good relationship with its suppliers for generating expectations for improving market feedback (Kourdi 2015). This helps in enhancing innovation ability, gain market information for enhancing rapid adjustments of sale for long and short run. Development of these aspects promotes the seasonal sales success, enhance competition of company and considerably increase market share and profitability.

Marketing and Sales- LEGO Company expanded its retail network in order to increase sales and increasing marketing share all over the world like other renowned companies such as Wal-Mart and Toy R U’s, online sales network and retail stores of brands (Kurkovsky 2016). Successful establishment of the company’s broad retail network contributed to high quality of its products and improved brand power. As offerings of LEGO Company attracted increased number of retailers, its bargaining power also increased significantly. This serves as the most vital factor that can facilitate business expansion of the company and its competitive international presence (Kourdi 2015). Maintaining good relationships can facilitate the company to get quick market feedback and increase flexibility of sales for both short and long duration.

Technology Development- Considering this aspect, LEGO Company’s product advancement and innovation entered into a digital circumstance like online multiplayer game. The digital world offers numerous options for young consumers if they do not prefer traditional toys. Several option and facilitative opportunities offered to children is an efficient way for keeping consumers loyal. The company manufactured diverse products in consideration to demands of all ages (Lancellotti and Tijhuis 2014). This will enable LEGO Company to satisfy the requirements of distinct consumers. Moreover, the company is involved in continuous product development and innovation in technology development to maintain attractiveness of all its products, which resulted in superior sales growth and international market share increase.

Firm Infrastructure- In accordance to its privately owned business approach, the LEGO Company has enhanced capital structure for decreasing its debt burden. During the years of crisis, the company has divested a part of its LEGOLAND for gaining some amount that could reduce the company’s debt burden that efficiently developed its traditional business (Madsen et al. 2013). LEGO Company’s traditional business development improved its business growth, boosted profitability and decreased huge debt burden. As the traditional business of the company rapidly grew, it increased profits of the company that further resulted in increasing security of its financial position. Through improving its traditional business, LEGO Company has been able to increase its profitability and its financial position remained strong over years. Increased financial strength increased the pace of product innovation (Marketing and Logue 2015). The company along with focusing on product designing and development has also considered innovation and product quality improvement to be its core competence.

In the recent years, LEGO Company’s major focus will be on optimization of its manufacturing processes. Internally, the company will optimize its production process through implementing contemporary technologies. The company will incorporate modular concepts within production techniques that will facilitate the company to maintain flexibility in its product variation (Martin 2012).

New technologies such as Selective Laser Sintering (SLS), advanced molding technologies and packaging machineries will be implemented in the manufacturing process of its toys. Moreover, LEGO Company will also implement DPD in all its products for boosting product variation and flexibility of processes (McCusker 2014). However, through implementing such advanced technology, the company might experience several manufacturing and engineering challenges. It might face the risk of competing with its competitors in making its production process efficient. Recent challenges that the LEGO Company might face through such strategy implementation are mentioned below:

Due to increase in customization with its new technological strategy implementation, LEGO Company might feel the pressure to decrease batch sizes and this can present challenge to its supply chain management (Muhammad 2015). Such trend can be gradually developed in the recent years and challenge the manufacturing capabilities and flexibility of its production processes.

For remaining closer to its consumers, LEGO Company will distribute its manufacturing internationally. For this reason, geographical separations of its manufacturing might make the company unable to implement a cross-organizational production process because of differences in labor costs, skilled workforce and automation capabilities (Onishi et al. 2014). Such differences can present a challenge in maintaining consistent level of quantity and quality between all its production locations.

Increased focus on optimization might have an adverse impact on LEGO Company’s agility as the manufacturing processes might be optimized to certain extent. Moreover, variations in product specifications, new product integration and quantity can increase the risks (Prahalad and Ramaswamy 2013).

In the toy industry, the impact of seasonality on demand is huge. LEGO Company can face rapid demand fluctuations and the challenges in forecasting demands of it toys that can further result in low fit percentage between anticipated and actual demand. Implementation of DPD technology might result in over-production of products those are not in demand, can increase inventory costs and result in longer lead times for products those are actually demanded and consumer satisfaction challenges (Roos et al. 2014).

Supply chain strengthening strategy will increase the competitive advantage for LEGO Company. As a major part of the company’s sales takes place through large retailers like Wall-mart and Kmart, they look for more innovative products with shorter delivery times. Considering such demands, LEGO Company will focus on getting closer to its retailers for understanding from sales to end consumer chain (Schlagwein and Bjørn-Andersen 2014). For competing strongly with other renowned toy brands, LEGO Company will plan to focus on cost cutting strategies in its manufacturing process. In cost cutting strategy, the brand must focus on introducing advanced technology in its production and procurement process. Moreover, significant number of consumers needs being reduced that will result in gradual cost reduction and increased savings.

Despite of such supply chain strategy rapidly increasing popularity of electronic games, digital toys and several software-based games can make the competition fierce for LEGO Company’s traditional toy products (Schoemaker and Krupp 2015). If this strategy does not consider understanding the new demands of consumers, then lack of profitable innovation will be clear in case of LEGO Company that might restrain it from attaining competitive benefits. However, sales of the company’s products might be increased but its bottom line could be hampered.

Figure 5: Supply Chain Visibility of Lego Company

(Source: Schoemaker et al. 2013)

Outsourcing manufacturing of some of its products in cheaper locations will result in huge operation cost reduction. In the upcoming years, it might be observed that sales of LEGO toys become more seasonal and can have short order horizons. For this reason, its supply chain needs great flexibility for which it has to manage its own international production operations more efficiently by cancelling the layoffs (Schoemaker et al. 2013).

Designs or fashion of toy products are expected to change rapidly and in some occasion some of a company’s products can decrease or improve its annual turnover. The LEGO Company that will consider manufacturing new innovative toy products under the title “Obviously LEGO, never seen before” and will implement innovation strategy focused on product improvement” (Schultz and Hatch 2013). To manufacture products based on recent fashion trends among children, the company will develop new concepts every two to three years. The LEGO games ranges will develop into a family broad games range with an attitude of changeability. The brand will also expand its LEGO Education division that will work in association with schools. However, after the implementation of such strategies, difference between the physical and digital world might become blurred and less important for children. To deal with such risks, product advancement strategy will be made more efficient by LEGO Company through developing its digital business (Seyedhosseini et al. 2015).

For responding to the recent fashion trends, the toy producers are planning to design products based on a story or concept, for instance Star Wars. Moreover, numerous companies are attempting to manufacture toys based on an identical concept such as Spiderman and Harry Potter (Sherrow 2015).

                                                                         Figure 6: Increase in Number of Toy Components of Lego Bricks

(Source: Srivastava 2015)

Focusing on new media or digital innovation strategy by decreasing total dependence on global mega brand influenced toys will increase the demand and popularity of its toys among children. To remain competitive LEGO Company will follow footsteps of its business rivals by adding technology to its products. This might help in addressing the risk that the company might face in the upcoming years because a huge segment of children might turn out to be largely interested in technologically advanced toys other than traditional toys (Srivastava 2015). LEGO Company can incorporate advanced technology in its products as a method to make its classic toys more important to the evolving consumer base. Using advanced machineries in production will turn out to be successful strategy but that would need engineers to figure out how successfully the electronic components are associated with LEGO bricks (Van den Bosch and De Man 2013). Checking for failures and time spent in playing will be needed, as simply manufacturing a product that encompasses technological factors does not mean it will succeed in future years. Extra money in research and development will be required for generating technologically advanced product ranges.

LEGO Company revealed that at the time, it could generate innovative play experience to sustain its competitive position in the market without bricks and construction. With this strategy, there might be a risk that it can confuse the company’s typical toy buyers and enrage major fans of the brand. The consumers of LEGO Company can get unsatisfied and can demand for advanced version of LEGO bricks. This dissatisfaction can decrease sales of the company’s products, which might signify that LEGO Company needs further technological innovation (Wong and Arlbjorn 2012).

Considering the scenario of disappointments and failures that might arise in future, LEGO Company can implement new construction toys on action figures those are liked by most children these days. Moreover, little complementary innovations in the form of new packaging, books, comics, video games, direct-to-video movies and licensed merchandise can bring in huge success for the company (Wong 2015). In addition, such strategy can be highly effective for the reason that complementary innovations like this were not at all risky or inexpensive. Constantly creating variations in these construction toys through advanced technology can contribute to increased success of the company in the upcoming years.

Increasing variety of shapes and colors of LEGO products might present a threat to the company. Other challenges can be to make sure that demanded products are available in the stock and increased number of components required huge investments (Yurevich 2014). Moreover, piling of inventory because of LEGO Company’s forecast errors and seasonal demand variations can present a threat of increased cost in manufacturing process.

To deal with the risks LEGO Company will need to focus on decreasing the growth of is several product components. In addition, the company should outsource its production capacity to some low cost subcontractors such as Sonoco, Weldenhammer, 2B pack and Flextronics (Wong and Arlbjorn 2012).

An implementation plan serves as a strategic tool that will discuss the critical steps in starting a project and estimated time Manufacturing and engineering based strategy implementation plan for LEGO Company is prepared that will ensure timely implementation of manufacturing and engineering based strategies for business growth (Altun et al. 2013).

Table 2: Strategy Implementation Plan over Six Years