The Lego Group - Subject of College Doctoral Thesis
The Lego Group, based in Denmark, and one of the world's premier toy companies, is the subject of a study by the Linda Christas College doctoral business program.
Dr. Ann Voisin, Chair of the Business Department and Provost at the College says, "For a long time, The Lego Group was the only game in town when it came to the type of building material and play experience they provide.
During the last ten years, there have been many ups and downs for the Company. Currently Lego is doing well.
However, with the loss of patent protections in Europe and Canada, some trouble with quality control relative to the Lego bricks themselves, and waining customer loyalty in both the education and bulk brick markets, we may soon see major challenges in terms of the Company's overall competitive position.
One thing is certain, the factors I've just mentioned will have the inevitable effect of driving prices down for the consumer. We think it will be difficult for The Lego Group to maintain the ten to fifteen percent profit margin they have experienced in the past, unless their corporate culture changes rather radically.
What I mean by that is, for a long time, Lego has depended primarily on passive kinds of outreach strategies to maintain market dominance, such as their Fan, Certified Professional, and Partnership programs which work in a sort of one-sided way, rewarding loyalists with handshakes and t-shirts, rather than with cash payments for value delivered.
It is going to be interesting to see whether The Lego Group can change its culture quickly enough, from exclusive "club thinking" to one more open to paying independent developers for their ideas and rewarding vendors financially for adding to Lego's market share. This kind of proactive effort seems to be congruous with the "opportunity driven" business philosophy of the relatively new Lego Group CEO, Jorgen Knudstorp; and, it is one of the reasons we can hope for sustained profitability at the Company.
As an example of the passive world in which Lego has labored, we found a company called ToysPeriod that has independently designed, engineered and marketed the world's first audiophile quality, matched loudspeakers, with cases made exclusively from Lego bricks, nearly a thousand of them per pair. The brand name is BRICKSPEAK. Had Lego designed, engineered, packaged and marketed the product, it would have cost them - we estimate - a minimum 3.5 million US dollars. And, yet, ToysPeriod has taken the risks necessary to penetrate the electronics market sector, without recognition or compensation of any kind from The Lego Group.
Both the direct consumption of Lego bricks, as well as the even more valuable symbolic advertising Lego enjoys from this product are just the kind of things that will maintain Lego in the #1 position in its market.
We asked the owner of ToysPeriod if he has ever been offered a brand buyout for BRICKSPEAK, and surprisingly, Lego management has never contacted ToysPeriod regarding the product, even though BRICKSPEAK is responsible for some of the most recent resurgence in the Lego brand's bottom line.
For our part, we are going to carry this study forward with a view to seeing whether we can assist Lego to avoid some of the mistakes IBM and General Motors, premier brands before them, made. I use these brands not because there is a direct parallel with Lego, but because their mistakes, and in IBM's case the correction of them, are so well known to the public.
It boils down to the temptation of a dominant brand to become insular, to believe that the marketplace will never change.
When that happens, corporate thinking becomes passive, that is, management plays "not to lose" rather than "playing to win." A company with that kind of culture expects the public to automatically show up at their door, much like a popular rock group would expect to be provided an audience ready to eternally purchase their CDs and buy tickets to their concerts without much further effort on their part, except for showing up at recording sessions and the obligatory waving to cheering stadium crowds.
With Jorgen Knudstorp at the helm, the passivity of the past may be, just that, a thing of the past.
That's the picture we are hoping to be able to paint once we have input from the principals at the Company.
Whether Lego remains a viable leader or begins the all-too-familiar journey toward a more modest market position, the story will unfold in the months and years to come. That's what makes business both so challenging and exciting. For investors, though, they generally prefer to avoid too much excitement on the downside."