How Lego Reinvented Itself

Summary

LEGO, a household name since the 1930s, has seen its ups and downs. From a small Danish carpenter's workshop to a global toy giant, LEGO faced financial struggles in the early 2000s due to overexpansion. It turned things around by refocusing on its core business, streamlining its supply chain, and embracing digital innovation. With a mission to inspire creativity in children, LEGO continues to innovate, adapting to digital play trends and maintaining its status as one of the world's largest toy manufacturers.

Takeaways

• 🏭 LEGO is a globally recognized toy brand with a history dating back to the 1930s, starting as a carpenter's workshop in Denmark.
• 🔗 The name LEGO is derived from the Danish words 'LEg GOdt', meaning 'play well', and also translates to 'I put together' in Latin.
• 🔥 LEGO faced financial struggles in the early 2000s due to overinvestment in various ventures.
• 🛠️ After a factory fire in 1942, LEGO invested heavily in a new facility and machinery, leading to the production of plastic toys.
• 🌟 The 'LEGO system of play' was launched in the 1950s, marking the beginning of the company's international expansion.
• 📈 In the 1990s, LEGO introduced LEGO kidswear and faced its first deficit in 1998, leading to restructuring and job losses.
• 🔄 A significant turnaround strategy was initiated in 2004 under new CEO Jørgen Vig Knudstorp, focusing on streamlining operations.
• 🌐 The sale of LEGOLAND parks to Merlin Entertainments in 2005 allowed LEGO to concentrate on its core toy business.
• 💡 LEGO's mission is to 'inspire and develop the builders of tomorrow', which is central to their company culture and operations.
• 📈 LEGO's success is attributed to a strong focus on innovation, with 25-30% of annual sales coming from new products.
• 🌐 Digitalization has been key for LEGO, creating opportunities to connect the physical and digital play experiences.

Q & A

What was the original main focus of Ole Kirk Kristiansen's business before shifting to toys?

Before shifting to toys, Ole Kirk Kristiansen's business was focused on making wooden toys and other household items.

What does the name 'LEGO' derive from and what does it mean?

The name 'LEGO' derives from the Danish words 'LEg GOdt', which means 'play well'. It was later realized that 'Lego' in Latin means 'I put together'.

What significant event led to the creation of LEGO's first factory?

A fire that burned down their workshop in 1942 led Ole to build a new factory designed for assembly line production.

How did LEGO's first plastic toys come to be, and what was their name?

Inspired by the Kiddicraft brick, Ole and his team modified the design and in 1949 LEGO produced its first plastic toys called the Automatic Binding Bricks.

What was the 'LEGO system of play' launched in 1955?

The 'LEGO system of play' launched in 1955 was a significant development in LEGO bricks, marking the beginning of the company's first real export.

Who established the LEGO constitution and what were its main characteristics?

Godtfred Kirk Christiansen established the LEGO constitution in 1963, which outlined 10 characteristics to guide product development and communication, emphasizing play potential, gender neutrality, age inclusivity, and creativity.

What was the impact of the 1990s on LEGO's business strategy?

The 1990s saw LEGO introducing LEGO kidswear, reporting their first deficit in 1998, and undergoing restructuring that led to job losses. It was a period of significant change and challenge.

How did LEGO respond to the financial crisis in 2003, and what was the outcome?

In response to the financial crisis in 2003, LEGO appointed Jørgen Vig Knudstorp as CEO, sold the LEGOLAND parks to Merlin Entertainments, and refocused on its core business of toys, which eventually led to a return to profitability.

What is the core mission of the LEGO Group, and how does it influence the company's operations?

The core mission of the LEGO Group is 'to inspire and develop the builders of tomorrow'. This mission drives the company's dedication to innovation, product development, and maintaining a strong company culture.

How does LEGO approach marketing and innovation to stay competitive?

LEGO approaches marketing and innovation by using a sprint methodology for rapid prototyping of ideas, focusing on new product launches for a significant portion of their sales, and understanding the importance of novelty in the toy market.

What is the significance of digitalization for LEGO, and how has it adapted to the changing nature of play?

Digitalization has allowed LEGO to connect the physical and digital worlds of play, adapting to changing lifestyles and competition. Initiatives like the LEGO LIFE online community and products like LEGO BOOST demonstrate this adaptation.

Outlines

00:00

🧩 LEGO's Journey to Success

LEGO, a globally recognized brand, has been a mainstay for children's play for over 60 years. Despite facing financial difficulties in the early 2000s, LEGO managed to turn itself around. Starting as a carpentry workshop in Denmark during the 1930s, the company evolved into a toy manufacturer. The LEGO name, derived from the Danish words 'LEg GOdt', meaning 'play well', was adopted in 1934. After a fire in 1942, the company invested in an injection molding machine, leading to the creation of the Automatic Binding Bricks in 1949. The 'LEGO system of play' was launched in the 1950s, marking the beginning of international sales. The company's mission, established in 1963, focused on unlimited play potential and quality. However, by the 1990s, LEGO faced financial challenges, leading to restructuring and job losses. A strategic plan in 2004 aimed to revitalize the company, which included selling LEGOLAND parks and refocusing on core toy business. The company's mission to inspire creativity and development in children has been central to its operations, with a strong company culture and a commitment to innovation.

05:03

🌟 LEGO's Mission and Digital Transformation

LEGO's mission to inspire and develop future builders is deeply ingrained in its company culture. As a private company, LEGO has maintained its mission through various economic climates. The company has adopted agile methodologies, such as the sprint methodology from Google Ventures, to foster cross-departmental collaboration and rapid prototyping. LEGO's marketing strategy focuses on aligning with new product launches and fostering a flexible, less hierarchical decision-making process. Understanding children's desires is key to LEGO's success, with 25-30% of annual sales coming from new products. The company embraces digitalization to connect the physical and digital worlds of play, as evidenced by the LEGO LIFE online community and products like LEGO BOOST, which allows children to program their creations. Despite competition and changing lifestyles, LEGO remains committed to innovation, ensuring its relevance in a technologically-driven world.

Keywords

💡LEGO

LEGO is a renowned global brand known for its interlocking plastic bricks that can be assembled in various ways to create models. The brand has been a significant part of children's playtime for over 60 years. In the video, LEGO's history, reinvention, and its status as a toy industry leader are discussed, highlighting its evolution from a small carpentry workshop to a global enterprise.

💡Brand Value

Brand value refers to the financial worth of a brand if it were to be sold. It encompasses factors such as brand name, reputation, customer loyalty, and more. In the script, LEGO's brand value is mentioned as nearly $7.6 billion, indicating its strong market presence and consumer recognition.

💡Reinvention

Reinvention in the context of the video refers to the process of transformation or renewal. LEGO had to reinvent itself after facing financial difficulties in the early 2000s by restructuring its business model and refocusing on its core competencies, which is exemplified by the sale of LEGOLAND parks and a strategic plan to streamline operations.

💡Injection Molding

Injection molding is a manufacturing process used to produce parts by injecting molten material into a mold. LEGO's adoption of injection molding in 1947 was pivotal as it allowed the company to produce their iconic plastic bricks, which are a core element of their product line, as mentioned in the script.

💡LEGO System of Play

The LEGO System of Play refers to the company's philosophy of creating toys that encourage creativity and learning through play. Launched in the 1950s, it marked the beginning of LEGO's export efforts, emphasizing the interconnectivity and expandability of LEGO products to foster imaginative play.

💡LEGO Constitution

The LEGO Constitution, established by Godtfred Kirk Christiansen in 1963, is a set of guidelines that dictate the company's product development and communication strategies. These 10 characteristics, such as unlimited play potential and quality in every detail, are deeply ingrained in LEGO's culture and operations, ensuring consistency and innovation.

💡Deficit

A deficit in a business context refers to a financial loss where expenses exceed revenues. The video discusses LEGO's financial struggles in the late 1990s and early 2000s, reporting deficits that led to significant restructuring and strategic changes to turn the company around.

💡Digitalization

Digitalization is the process of converting information into a digital format. LEGO has embraced digitalization to connect the physical world of their bricks with digital experiences, such as the LEGO LIFE online community and LEGO BOOST, which allows children to program their creations, reflecting the changing nature of play in a digital age.

💡Innovation

Innovation in the context of LEGO refers to the company's continuous drive to create new and improved products. The video emphasizes that LEGO relies on novelty to stay competitive, with 25-30% of annual sales coming from new products, showcasing their commitment to inspire and develop the builders of tomorrow.

💡Sprint Methodology

The Sprint Methodology, developed by Google Ventures, is a process used by LEGO to accelerate product development and decision-making. It involves cross-departmental collaboration over a short, intensive period to prototype ideas quickly, as mentioned in the script, which helps LEGO maintain agility and responsiveness to market needs.

💡Mission-Driven Company

A mission-driven company is one that operates with a clear, overarching purpose. LEGO's mission to 'inspire and develop the builders of tomorrow' is central to its culture and decision-making, as highlighted in the script. This mission guides the company's strategic direction and ensures that all efforts align with its core values.

Highlights

LEGO is recognized as the toy industry's most valuable brand with a brand value of nearly $7.6 billion.

LEGO faced financial struggles in the early 2000s due to heavy investments in various ventures.

LEGO's origin dates back to the 1930s when Ole Kirk Kristiansen started making wooden toys.

The LEGO brand name comes from the Danish words 'LEg GOdt', meaning 'play well'.

LEGO's first factory was built in 1942 after a fire destroyed their workshop.

Ole bought an injection molding machine in 1947, which led to the creation of LEGO's first plastic toys.

LEGO launched the 'LEGO system of play' in 1955, marking the beginning of their international expansion.

In 1963, LEGO established a set of guidelines known as the LEGO constitution to ensure systematic product development.

LEGO introduced LEGO kidswear in 1993, diversifying their product offerings.

LEGOLAND California opened in 1999, during a period of restructuring that led to job losses.

In 2004, LEGO developed an action plan to turn the company around after reporting a deficit.

The sale of LEGOLAND parks to Merlin Entertainments in 2005 allowed LEGO to refocus on its core toy business.

CEO Jørgen Vig Knudstorp launched a five-year strategy plan to rebuild profitability by restructuring the supply chain.

LEGO's mission is to 'inspire and develop the builders of tomorrow', driving their innovation and product development.

LEGO uses a sprint methodology for rapid prototyping and feedback on communication ideas.

Marketing plays a central role in LEGO's operations, with a focus on product portfolio and customer experience.

LEGO relies on novelty, with 25-30% of annual sales coming from new products, to stay competitive.

Digitalization has been key for LEGO to connect the physical and digital play experiences.

LEGO LIFE, an online community, has 6 million members showcasing the company's digital engagement.

LEGO BOOST, launched in 2017, allows children to program their LEGO creations, blending physical and digital play.

LEGO has evolved from a small carpenter’s workshop to one of the world's largest toy manufacturers.

LEGO's commitment to innovation has kept them relevant in a technologically-driven world.

Transcripts

LEGO is one of the most recognizable brands in the world and has been a playtime staple

for children all over the word for more than 60 years.

LEGO has been crowned the toy industry’s most valuable brand for 2017 and 2018 with

a brand value of nearly $7.6 billion and a remarkably high AAA+ brand rating.

But LEGO has not had an easy journey to the top.

In the early 2000s they were heavily invested in a variety of ventures that were pulling

them down.

So how has LEGO managed to rebuild their success?

Let’s find out on this episode of The Infographics Show: How LEGO reinvented itself.

When The Great Depression hit Denmark in the 1930s, Ole Kirk Kristiansen, a master carpenter

struggled to provide for his wife and four sons, so he turned to making wooden toys and

other household items out of his workshop in Billund, Denmark.

In 1932, Ole’s 12 year old Godtfred Kirk Kristiansen began working with him and the

two expanded their line of toys.

Ole’s first wood toys were large and simple in construction and design yet they were immaculately

finished and built with the same quality that Ole made furniture.

By 1934, toys became the main focus of the business and they began operating under the

name LEGO from the Danish words “LEg GOdt” which means “play well”.

Later, it’s realized that Lego in Latin means “I put together.”

A more perfect name could not exist for this growing company.

They now had 6-7 employees.

After a fire burned down their workshop in 1942, Ole took out several loans and built

a new 24,757 square foot (2300 square meter) building on the same grounds as the old workshop.

It was their first factory designed for assembly line production.

In 1947 A salesman visited Ole in search of new markets for their injection molding equipment.

Against the advice of those around him, Ole bought one of the machines for just over $4600

($4638USD to be exact and 30,000 DKK – Danish Kroner).

The machine cost more than twice the previous year’s profits.

The machine came with some samples showing its capabilities, one of which was the Kiddicraft

brick, a toy brick made with injection moulding.

Inspired by this toy brick, Ole and his team got to work modifying the design.

After two years of development, in 1949 LEGO produced its first plastic toys including

the Automatic Binding Bricks, a forerunner of the LEGO bricks we know and love today.

At this time LEGO had produced around 200 different plastic and wooden toys sold exclusively

in Denmark.

By the 1950s, LEGO was making so many different wooden toys that today it would be difficult

for even the LEGO Group to catalog them all.

In 1955 After further development of the LEGO bricks, the company launched the “LEGO system

of play” and the first real export of LEGO begins.

In 1963 Godtfred Kirk Christiansen who was now the sole owner and managing director of

the company drew up a set of guidelines, a LEGO constitution if you will, which would

ensure systematic product development and consistent communication for shoppers and

retailers.

The 10 Characteristics are as follows: Unlimited play potential

For girls and for boys Fun for every age

Year-round play Healthy, quiet play

Long hours of play Development, imagination, creativity

The more LEGO, the greater the value Extra sets available

Quality in every detail

These 10 characteristics permeated the company culture to such an extent that they became

the very core of development of the LEGO product and determined how things were done from then

on.

During the 1970s, a generational change was in progress within the LEGO group.

Godtfred Kirk left the role of managing director to become chairman of the board of directors

and his son Kjeld Kirk Kristiansen took over as CEO in 1979.

Godtfred held the position of chairman of the board until April 1993.

The 1990s are when things started turning for the company.

In 1993 they introduced LEGO kidswear.

In 1998 they reported their first ever deficit however.

In 1999 LEGOLAND California opened and LEGO Group went through a restructuring that resulted

in the loss of 1,000 jobs.

In 2000-2001 they turned their deficit into a profit, but when they announced the results

of 2003, the LEGO Group reported another huge deficit.

In January 2004 owner and CEO at the time Kjeld Kirk Kristiansen headed up the building

of an action plan to turn the company around.

That same year Kjeld Kirk appointted Jørgen Vig Knudstorp as new CEO of the company, yet

the year ended with another huge deficit.

In 2005 the LEGOLAND parks were sold to Merlin Entertainments and the holding company of

the LEGO Group, KIRKBI, bought a share of Merlin Entertainments.

Today KIRKBI owns approximately one third of Merlin.

The sale of the LEGOLAND parks allowed for the company to refocus on its core business

which is of course, toys.

The LEGO Group posted a profit and the company was finally back on track.

CEO Knudstorp then launched a five-year strategy plan for the LEGO Group.

In order to rebuild profitability, LEGO had to restructure every aspect of its supply

chain.

They went to work eliminating inefficiencies, aligning its innovation capacity with the

market, and refocusing the company to compete in the new big-box world.

This was no small feat for the LEGO Group which by the time Knudstorp took the helm

as CEO in 2004, had grown to roughly 7,300 employees across two factories and three packaging

centers, turning out more than 10,000 variations of its products packaged in hundreds of different

configurations.

“From my perspective,” Knudstorp said, “the supply chain is the company’s circulation

system, you have to fix it to keep the blood flowing.”

“LEGO is a very mission-driven company.

The family is very clear about the mission to inspire and develop the builders of tomorrow,

to reach more kids, and they’re super dedicated to that” says chief marketing officer, Julia

Goldin.

“To inspire & develop the builders of tomorrow” is the company’s mission and a phrase you’ll

often hear repeated by staff at LEGO Group.

The culture at LEGO is very strong, everyone who works for the company can tell you what

their mission and vision are.

Being a private company has enabled them to remain true to their mission in good times

and bad.

At LEGO they have completely taken apart what it is to be an agency.

The company now uses a sprint methodology developed by Google Ventures, where people

from different departments clear their planners for a week to work on one task, to prototype

a communication idea.

Senior LEGO staff get to see ideas quickly and feedback happens almost instantly.

Marketing is a central part of how LEGO operates, so their success depends on it.

Chief marketing officer, Julia Goldin, and her team do the product portfolio, product

experience, communication, content, and social channels.

Their process for creating online content is to work on new content as a product launches,

rather than doing it far ahead.

They allow their people to have much more flexibility in terms of making decisions and

changes as necessary.

There is less hierarchy and fewer processes this way.

It allows them to free up their time in order to focus on what is at hand.

Finding out what children and their parents want is the secret to LEGO’s success.

Every year 25-30% of sales come from new products.

The company understands that the key to remaining competitive in the marketplace is to rely

on novelty.

If you were to ask a child what it is they want in a new toy, they don’t know until

they see it.

So LEGO’s success has come from inspiring innovation and producing novelty, that thing

you don’t know you want, until you see it.

Digitalization has been a massive opportunity for LEGO to draw a connection between the

physical and digital world.

The nature of play has evolved with the rise of digitalization and competition comes in

many forms.

Not just from products but in how kids decide to spend their time and how lifestyles have

changed.

The LEGO LIFE online community has 6 million members.

The most popular thing members do online is upload and share pictures of their LEGO creations.

A product launched in 2017 called LEGO BOOST lets kids as young as seven attach their LEGO

toy to sensors so they can be programmed to respond to movement and even talk.

LEGO has come a long way over the past nearly 80 years.

From their humble beginnings as a small carpenter’s workshop to the modern global enterprise it

is today, LEGO is one of the largest toy manufacturers in the world.

They’ve been named “Toy of the Century” twice, and the LEGO brick is still their most

important product.

Their commitment to innovation and inspiring the builders of tomorrow has allowed them

to stay relevant as the world moves in a more technologically-driven direction.

Do you think LEGO has what it takes to stay on top?

And be sure to check out our other video Spend $1 Billion Dollars In 24 Hours or LOSE IT

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