LEGO's Great Business Model Turnaround Story

Added on by Nabila Amarsy.

One of the biggest challenges large companies face is reinventing themselves and remaining successfull. Sometimes they fail to do so and their business model expires like a yogurt in the fridge. Learn how LEGO escaped near-death with their amazing business model turnaround story.  

In 1949 LEGO began manufacturing interlocking toy bricks in Billund, Denmark. This created infinite possibilities of imaginary worlds for generations of kids and LEGO grew over decades. Yet, LEGO almost faced bankruptcy ten years ago. Watch the video below to learn how LEGO pulled off a spectacular business turnaround, quadrupled its revenues in less than a decade and brought LEGO bricks back to households around the world.  Today, they occupy the top spot in the toy manufacturing business (take that Barbie! ;-).

How LEGO created more (value) with less (resources).

One could argue that LEGO turned its business model around by creating more value for customers while using less resources. They first reengineered their operations improving the backstage of their Business Model (Canvas). Then, they turned to customers and boosted value creation.

Operations focus: Streamlining activities and using the resources in the backstage of the Business Model (Canvas): 

  • LEGO first streamlined its operations and decreased the complexity of its manufacturing processes. In particular, they reduced the number of different LEGO bricks by eliminating those that were difficult and costly to source. LEGO focused on a standard design of their bricks, which made their operations more nimble and allowed them to react quickly to market trends.
  • LEGO also decided to get rid of  LEGO branded products that were tangential to their business and weren’t profitable.

LEGO expanded its business model only after establishing a robust operational base, ensuring a  profit on the sets they were selling. Then they turned to customers and designed new and improved value propositions that would create more value for their customers.

Customer focus: Creating more value with new value propositions in the frontstage of the Business Model (Canvas):

  • Lego adapted their kits to the dreams and desires of kids in the 21st century  (e.g. LEGO Mindstorms include smart bricks with both software and hardware to build customized robots).
  • LEGO expanded to new markets by designing sets for undeserved segments (e.g. LEGO friends targeting girls) and expanding to emerging countries where their growth was soaring.

Tools & Techniques

Also, LEGOs are so cool that even Scotland’s police use them.

What are your favorite business turnaround stories?

 

Source: http://www.economist.com/news/business/215...