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Lego Operating Efficiencies

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I chose to talk in this assignment about the company LEGO. The firm was founded at the end of the 1960s and began to experience serious difficulties in the late 90s and early 2000s. Several phenomena were detrimental to the firm at the time.

On the one hand, the company was working with more than 11,000 suppliers – more than Boeing used to make its planes! Not easy in this case to navigate in this environment. At the same time, the company was facing competition from the cost of toys produced in Asia putting greater pressure on prices. Third negative effect was the arrival of digital in children’s play behavior.

A new CEO has arrived, Jorgen Vig Knudstorp, and started with a big job of rationalizing the supply chain and its production lines. The first step was to secure the firm and ensure the survival of the company. The number of unique pieces has been logically reduced and new capital brought in.

New production methods and especially work with consumers and designers were developed with a licensing strategy (Star Wars …) based on the principle that the screen was part of the life of children who wanted logic extend the experience by playing in the real world. This in-licensing strategy was decisive for Lego, and the return to roots – the bricks – was quickly brought to fruition.

Lego’s first digital steps consisted of launching websites, multiplying thematic versions in the form of microsites and offering free interactive applications for all age groups. The only concession granted to the social Web: a YouTube platform where all the videos edited by the Danish toy manufacturer are compiled. Nevertheless, Lego will quickly revise its approach to social media. A man will be particularly key in this acculturation of the brand to the social ecosystem: Lars Silberbauer. Today director of Global Social Media for Lego, he joined the company in early 2011 as a social media strategist. For him to think about the implementation of a device much more engaged on social networks.

Just before opening the Facebook, Twitter and other spaces, Lego first led some noticeable social incursions with the launch of collaborative platforms. The first of its kind appeared in 2008 at the initiative of the Japanese partner Cuuso. His idea was to gather from local consumers suggestions for new games to be created by Lego. The suggestions were posted on a dedicated website and voted on by Internet users. As soon as the 10,000 votes mark was reached, the idea was then sent to the company’s decision makers to examine its industrial and commercial feasibility. In 2011, the concept was renamed “Lego Ideas” and rolled out around the world.

In a similar register, Lego launched a platform called ReBrick in December 2011. The idea is also to solicit collective intelligence around the brand’s products. The site therefore offers original model creators the opportunity to share their imaginations online with the community of more than one million fans worldwide.

LEGO has built manufacturing facilities near major markets, allowing LEGO to accelerate product access and respond quickly to last-minute requests. The company currently has factories in Mexico, Hungary, the Czech Republic and Denmark and is building a factory in China. Lesson learned: Use size and financial power to create physical barriers to entry for early career competitors. The LEGO business model was guided by two principles: the capacity for innovation and the commitment to quality. Paradoxically, the emphasis on innovation and quality at no cost has led to mismanagement of the operating model and a significant drop in profits for the company. As described above, LEGO’s current operating model is being put in place to create unique competitive advantages that have been essential to enable LEGO to recover its financial performance. Despite the remarkable turnaround of LEGO, a constant assessment of operating efficiencies and efficiency is needed. LEGO recently announced that it did not anticipate an increase in demand in Europe and, therefore, may not be able to respond to all orders around Christmas. Until existing plants are expanded and new plants are built, the company must focus on improving its customer demand forecasting capabilities.

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