Assignment: Close to Extinction
Lego has long been an industry leader in children ’ s toys with its simple yet unique building block‐style products. A Danish carpenter whose family still owns Lego today founded the privately held company in 1932. But by 2004, the company found itself close to extinction, losing $1 million a day. A new CEO was brought in, and within fi ve years sales were strong, profi ts were up, and naysayers who felt the new strategy was going to fail were proved wrong. In fact, sales, revenues and profi ts continued to be strong. Revenues grew from 16 billion Danish krone (DKK) in 2010 to over 28 billion DKK in 2014, and in the same period, profi t almost doubled from 3.7 billion DKK to 7 billion DKK.
With the advent of high‐tech forms of entertainment, such as the iPod and PlayStation, Lego found itself more antique than cutting edge in the toy world. When new CEO Jorgen Vig Knudstorp, a father and former McKinsey consultant, took over, the company was struggling with poor performance, missed deadlines, long development times, and a poor delivery record. The most popular toys frequently would be out of stock, and the company was unable to ship enough products or manage the production of its more complicated sets. Retail stores were frustrated, and that translated into reduced shelf space and ultimately to business losses.
Knudstorp changed all of that. He reached out to top retailers, cut costs, and added missing links to the supply chain. For example, prior to the new strategy, 90% of the components were used in just one design. Designers were encouraged to reuse components in their new products, which resulted in a reduction from about 13,000 different Lego components to 7,000. Because each component ’ s mold could cost up to 50,000 euros on average to create, this reduction saved signifi cant expense.
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