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Rebuilding the business with “creative play”

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Lego almost died. Under pressure from an avalanche of digital games, the classic toy brand responded by seeking to imitate its challengers, losing sight of what made it special.

In 1947 Ole Kirk Christiansen bought the first plastic-injection moulding machine in Denmark to start manufacturing plastic toy bricks. Within 4 years he had patented the stud-like bricks that locked together as systems.

For the next 56 years, Lego seemed the perfect company. An iconic brand, the business was still run by the family, grandson Kjeld Kirk now the CEO. However in 1993, sales slowed dramatically, blamed on everything from low-priced Chinese imitations to kid’s new love of computer games.  Lego responded with wave after wave of innovation. Jumbo sized for toddlers, pocket sized for girls. Computerised “Technics” range for the most inventive, and video games for the lazy. But kids were growing up faster.

Licensing of Star Wars and Harry Potter ranges tapped into trends, but were short-lived. It sought out new spaces – fanatical about finding uncontested “blue oceans” rather than more competitive “red oceans” – and encouraged diverse creativity. Clothing and jewellery, theme parks and education added to the brand’s extensions.

Yet in 2003 Lego almost went bankrupt. The unbridled innovation had lost a sense of direction, trying to be too many things to too many people, forgetting what it was really about – “playing well” as the brands origins in the Danish phrase “leg godt” translate.

The family ceded control to a professional CEO, Jorgen Vig Knudstorp, who brought tighter focus to the portfolio, and added discipline to the creativity. He sold the theme parks, moved out of the head office, and outsourced production to Czech Republic and Mexico.

However Knudstorp still believed in innovation, it just needed discipline. It wasn’t about blazing a trail into every market, but focusing on the best opportunities for profitable growth.  Investment focused on the ideas which fitted best with the core brand, and delivered a long-term return. By 2006, the world’s third largest toy maker started growing again, with profit growth double revenue growth, always a healthy sign.

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