Know your business

Rohan Brown

I recently read a book, Brick by Brick, which is the story of the Lego company. I would find it hard to believe that there is someone reading this that does not know of Lego. But many would not realise how close the company came to being no longer.

Lego as a company started back in 1932, but within the first few years went through much hardship with the loss of their factory to fire and suffering the Great Depression. Originally starting as wooden toy company, in the post-World War 2 era Lego moved into plastics and the traditional 2×4 Lego brick came about. Even to this day the company is family owned, currently by the founders Grandson.

One of the main things that set Lego on a future path of growth was the founder’s Vision and Mission which set a clear guidance for the business going forward, with a number of set guideline to work to, such as what the products should be like and aimed target market. This worked well for Lego right through to the mid to late 1990’s. The company had spectacular growth even though the founder was long gone, his son and then Grandson had taken the company and continually grown it.

Times were changing during the 1990’s as growth and more importantly profit declined with children preferences changing to computer games and other play items. This reached a crisis in 1998 when the company incurred its first loss. Unfortunately coinciding with this was the need to bring in outside CEO’s and others to run the company. This was in many ways the start of the darkest days at Lego.

The new management were not of the original family and therefore did not feel bound to the guiding rules. They had been bought in to grow sales, which they did very well. Unfortunately sales does not always lead to profit. The management started investing, researching and developing Lego branded concepts and items which were far from traditional Lego. New strategies were employed via a new Seven Truths of Innovation. Conceptually this was good for the business and had much merit, however Lego lost what it was about and in the early 2000’s was at a point of no return and this was at a time of Lego being acknowledged at the toy of the century. The company and its owners were near collapse; to the point discussion had already been taken about selling off parts of the business. In the companies darkest of days some 70 years after starting drastic action had to be taken.

A new team head by Jorgen Vig Knudstorp, a young analyst was brought in for a strategic review. Jorgen had been very upfront and during a review of the issues at Lego told it as it was. After having presented his report was feeling he would probably lose his job at Lego due to his honest and direct criticism of the company. His main thing was the Lego had lost its way and focus of what Lego was. Due to this review the CEO was removed and later Jorgen appointed as CEO together with the head of a major ex-investment banker started a strategic turnaround.

In summary Lego had to get back to their heart which was the ‘brick’, together with clear vision again and also with management who were interested in watching the dollars significant change occurred. It was a case of take what was working and enhance it and axe anything not profitable. Get back to listening to the customers, but also don’t try and be everything to everyone.

This worked and since the company going back to their roots and with good management and accounting saw the company once again rise to be one of the most valuable toy manufacturers in the world.

If you love Lego or are interested in getting more of an insight into how this business operated and implemented change I highly recommend reading ‘Brick by Brick’ by David C Robertson.