Q1: Johnson, Scholes and Whittington (2017) describe four different ways to look at strategies and strategy development within organizations. Describe which of these is/are most applicable for the case of the LEGO GROUP and motivate your answer. (max 10 point) 2
Q2: Johnson, Scholes and Whittington (2017) describe there are different levels of strategy. Describe at least two examples for two out of the three levels of strategies that are mentioned by the authors. (So minimum 4 in total, 2 per level of strategy). (max 15 points) 3
Q3: Describe what changes in the external environment have had an influence on strategy development of the LEGO GROUP throughout the years and group them accordingly by making use of (elements) of a useful framework for this type of analysis. (max 15 points) 4
Q4: Describe the strategic capabilities of the LEGO GROUP that have been vital in regaining their successful position in the global toy market in recent years and explain why these have been so vital. (max 15 points) 6
Q5: As is described in the case, since its start-up, the LEGO GROUP has used different strategies to achieve competitive advantage. Describe how strategies have changed within the company throughout the years by making use of either Porter's 3 generic competitive strategies, or by making use of the ‘Strategy Clock' model of Faulkner and Bowman. (max 15 points) 8
Q6: Use scenario planning techniques to consider the various environmental influences which may affect the LEGO GROUP in the future. (Max 15 points) 10
Q7: Using theory from the Johnson, Scholes and Whittington (2017) book, reflect upon the blockages and leverages (aids) for change that have played a role in the process of strategic change that the LEGO GROUP went through since 1998. (max 15 points) 12
Resources and capabilities 15
The VRIO Framework of LEGO 15
Strategic clock explanation 15
Content of tables
Table 1: LEGO strategic lenses 2
Table 2: LEGO generic strategies 1932-2009 9
Table 3: LEGO key drivers 10
Table 4: LEGO scenario analysis 10
Q1: Johnson, Scholes and Whittington (2017) describe four different ways to look at strategies and strategy development within organizations. Describe which of these is/are most applicable for the case of the LEGO GROUP and motivate your answer. (max 10 point)
(Johnson, Scholes and Whittington, 2017) are explaining that the strategy lenses are a different way of looking at strategic issues to generate so many different insights. Therefore, different perspectives will help to criticise approaches and will help to develop new ideas or solutions. The strategy lenses are about asking better questions, generating new options, building stronger evidence and being more aware of different points of view. Strategic issues and developments can be viewed critically by the four lenses; strategy as design, strategy as experience, strategy as variety and strategy as discourse.
A short explanation of the four lenses:
First, the design lens looks to strategy development as a logical process of evaluation and analysis. Secondly, the experience lens looks at strategy development for taken-for-granted-assumptions and the way of doing things. Thirdly, the variety lens views strategy as creating new ideas from a variety of employees and stakeholders. At last, the discourse lens focuses attention on the ways managers use language to frame strategic problems communicate strategic decisions. Therefore, this lens is important for understanding and changing strategy and for managerial power and identity (Johnson, Scholes and Whittington, 2017).
Strategy as Design:
- Innovation plays an important role at the LEGO group
- Innovation can ensure further growth
- Process of distribution Strategy as experience
- LEGO has advantages of their well-involved key employees
- LEGO is hardly influenced by their managers and their knowledge
- The interests of the customer should be understood
Strategy as variety
- Innovation and change
- Involving stakeholders and customers
- Updated concepts through movies such as Harry Potter.
- New ideas bubble up through creativity Strategy as discourse
- A proper framework should be used to indicate the customer satisfaction and expectation. This will avoid barriers in attracting new target groups.
Table 1: LEGO strategic lenses
Motivation and answer:
My answer is that LEGO is adopts the strategic lens where strategy will be variety because the variety lens emphasis innovation and change. A major part of LEGO sales takes part by the stakeholders such as big retailers and major retail customers and due to their own problems, the stakeholders were putting significant pressure on the company. Therefore, LEGO put a lot of effort into getting closer to retailers for understanding their sales to consumers. Also, the variety lens views strategy as creating new ideas through involvement of stakeholders and because LEGO has enthusiastic users all over the world the principle is timeless, but the concept must be updated all the time. The main reason of LEGO is to innovate and invite users to participate in the product development, so that new ideas will bubble up. Thus, new concepts and products based on LEGO bricks will keep the LEGO group alive and growing.
Q2: Johnson, Scholes and Whittington (2017) describe there are different levels of strategy. Describe at least two examples for two out of the three levels of strategies that are mentioned by the authors. (So minimum 4 in total, 2 per level of strategy). (max 15 points)
(Johnson, Scholes and Whittington, 2017) mention that strategy can exist at three main levels:
Level 1: Corporate-level strategy; is concerned with the overall scope of an organization and how value is added to the constituent (<part of a whole) business of the organizational whole.
Level 2: Business-level strategy; is about how the individual business should compete in their markets (often called competitive strategy).
Level 3: Functional (Operational) strategies; are concerned with how the components of an organizations deliver effectively the corporate- and business-level strategies in terms of resources, processes and people.
Examples of Level 1: Corporate-level strategy
Example 1: “SUCCESS HAD BEEN BUILT ON A COMBINATION OF EFFECTIVE LEADERSHIP, INNOVATIVE PRODUCTS AND INTERNATIONAL GROWTH”.
Hereby the author mention that the focus lies on new businesses all over the world and to have a unique product which create a variety of (new) products through innovation. Also, the corporate level strategy includes the geographical scope, diversity of products and concerned the overall scope of the company.
Example 2: “INSTEAD HE DECIDED TO SUPPORT THE COMPANY WITH A LOAN, SIMPLIFIED THE CORPORATE STRUCTURE AND HE AGREED TO SELL THE LEGOLAND PARKS AFTER REALISING THAT THIS BUSINESS WAS SIGNIFICANTLY DIFFERENT FROM THE REST.”.
The author meant with the selling of LEGOLAND to Merlin Entertainment, that LEGO brings new competencies to improve this specific product line and created a different product/service. Moreover, with the selling of LEGOLAND they created a cohesive brand. The overall scope of the company can be found within the LEGO bricks where the company started with.
Examples of Level 2: Business-level strategy
Example 3: “NEW COMPETITORS SUCH AS SONY, NINTENDO, ACTIVISION AND VISUAL ARTS WERE ENTERING THE SCENE WITH INCREASINGLY MORE ADVANCED ELECTRONIC GAMES.”
According to (Johnson, Scholes and Whittington, 2017) this example shows an issue through competitor moves by the development and innovation of more advanced games. This shows how LEGO competes in the market and concerns innovation and a response to competitors moves.
Example 4:” AS A STARTING POINT THE LEGO BRAND HELD A STRONG POSITION IN ITS MARKETS. BUT IT ALSO FACED STRONG COMPETITION FROM THE TRADITIONAL AND MUCH BIGGER TOY MANUFACTURERS MATTEL AND HASBRO.”
According to (Johnson, Scholes and Whittington, 2017) the issue of strong competition of the scale of Mattel and Hasbro can also bring problems to LEGO. This means that products always need innovation to create larger market share in advance to stay ahead the manufacturers Mattel and Hasbro.
Q3: Describe what changes in the external environment have had an influence on strategy development of the LEGO GROUP throughout the years and group them accordingly by making use of (elements) of a useful framework for this type of analysis. (max 15 points)
For this question the PESTEL-framework will be used because the PESTEL-framework categorises the macro-environmental influences into six main types: political, economic, social, technological, environmental and legal. The PESTEL analysis of the macro-environment might reveal threats and opportunities presented by technological change or shifts in market demographics (Johnson, Scholes and Whittington, 2017).
LEGO has entered new markets in the US, South America and Asia. The political risk of entering and associate with whole countries will result in very low costs. However, LEGO has an outsourcing-agreement with Flextronics this will result that only 20 per cent of the LEGO products will be manufactured in Billund, Denmark and the rest at cheaper locations such as Western-Europe or Asia. Developing economies levy high import taxes and have an influence on the labour rights.
The Environment became more hostile in the 1970s and 1980s because of the oil crisis. LEGO group dealt with these challenges successfully through the innovation of new products, technic and new play themes. The financial crisis/oil crisis was in 2008 and 2009 and was escalating on a global scale. Therefore, the board decided that LEGO group could take more risks. New equipment has been ordered and the production was increased. This decision was very successful because in 2008 and 2009 LEGO has the biggest growth rate since 1981. Therefore, the LEGO brick will be continued in the foundation of LEGO group. Moreover, the LEGO group obtained licenses, which allowed the LEGO group to expand internationally.
The presence of LEGO in some markets is not huge yet. Therefore, the goal of LEGO group is to increase the market share by attracting new audiences to the products of LEGO. A target on the social area is that their new concept LEGO games involve the whole family and not only boys. All these factors positively and negatively affected the growth of LEGO Group.
The basic LEGO bricks have now figures and technical features because the gained popularity. The bricks have for example small electronic engines and extended playing opportunities. Technology and new product development are important for LEGO.
In 1949 LEGO started to make the plastic bricks however it was a new material and the public was preferring more traditional wooden toys and was refusing to accept the plastic bricks. The LEGO group introduced the “Sustainable Growth” programme in 2003. This included a new distribution strategy one a sustainable basis. Therefore, LEGO created their own dedicated shops in the US. However, 2003 turned out into weak sales of 25 per cent of last year.
There was set up an outsourcing agreement with Flextronics. The agreement was that only 20 per cent of the productions will be manufactured in Denmark. This agreement has led to many layoffs in Denmark. (Johnson, Scholes and Whittington, 2017) called this the development market economies because these economies tend to gain a strong role for the state and because of their long-term agreement with Flextronics.
Q4: Describe the strategic capabilities of the LEGO GROUP that have been vital in regaining their successful position in the global toy market in recent years and explain why these have been so vital. (max 15 points)
(Johnson, Scholes and Whittington, 2017) mention that strategic capabilities will contribute to the long-term survival or can lead to a competitive advantage for the LEGO group. There are two components in strategic capabilities: resources and competences. Resources are the assets have or call upon and competences are the ways those assets are used or deployed effectively.
The distinctive competencies of the LEGO are innovation, product development and technological changing. These core competencies make LEGO products more attractive. Therefore, LEGO products can differentiate from their competitors and make it difficult to imitate. The process which includes technological changes improves the productivity and reduce the production costs. Moreover, it achieves lower costs than potential rivals and competitors. This means that LEGO maintained and their relationship with their customers for a better understanding and create a higher standard of customer services within the company. The focus lies on the retail and product distribution. These distinctive competencies have been developed by the resources and competences of the LEGO group.
LEGO group has valuable intangible resources such as product development, innovation, creativity, knowledge from customers and employees. Therefore, they make use of an enormous supply chain. However, LEGO also have various tangible resources including raw materials, the LEGO world movie, LEGOLAND and LEGODUPLO and has enormous profits through those creative products.
The Value chain is a tool to understand the strategic capabilities of, in this case the LEGO group, and helps to analyse the product value, identifies the cost position and future decisions as a strategy. Therefore, the primary activities of LEGO are operations, marketing, sales and service. The support activities of LEGO include technology development and the companies' infrastructure. This case of LEGO consists out of six activities: inbound logistics, operations, outbound logistics, marketing and sales, technology development and the companies' infrastructure.
In Inbound logistics LEGO improved the production process and created new materials such as plastic instead of wood, which competitors could not imitate. The plastic bricks made it possible to build more stable and bigger constructions. This led to that customers became enthusiastic and the product was popular.
In operations key employees and their personal experience and this became very successful in the product development and innovations. LEGO is a well-known brand and attractive internationally.
In outbound logistics the LEGO group decided to outsource production to reduce costs and in 2008 LEGO group has changed its supply chain. These steps improved the competition of the company and increased the market share.
In marketing and sales, the LEGO group has developed new understanding of their roots. They foresee on a 10-year basis an average growth of 7 per cent a year. This also means that their needed significant investments in equipment, people, product development and marketing. This is a very important factor for LEGO to expand and to consolidate their global position.
In technology the LEGO group challenges successfully by introducing new innovative products and new play themes. The innovation of new products and diverse products led to enthusiastic customers and led sales growth and an extension of the market share.
The companies' infrastructure has changed during the years because LEGO divested a part of LEGOLAND to reduce their financial losses. Kjelds family have increased their shares and the business is now running separately from the LEGO group and the financial situation have become positive.
Q5: As is described in the case, since its start-up, the LEGO GROUP has used different strategies to achieve competitive advantage. Describe how strategies have changed within the company throughout the years by making use of either Porter's 3 generic competitive strategies, or by making use of the ‘Strategy Clock' model of Faulkner and Bowman. (max 15 points)
For this question I will make use of Porter's three generic competitive strategies. Porter's distinctions between costs, differentiation and scope define a set of ‘generic' strategies: in other words, basic types of strategy that hold across many kinds of business situations.
Most toy companies are producing their products in China which results to very low costs. However, the LEGO group had most of its productions in high cost countries. Therefore, the management was cutting costs by reviewing and reducing the number of suppliers. The cost reductions were significant and resulted in a positive way of 1 billion DKK in savings. Moreover, the LEGO group try to reduce their production costs by setting-up an outsourcing agreement with Flextronics. This means that only 20 per cent of the products were manufactured in Denmark and the rest at cheaper locations. This means that important costs drivers such as input costs, economies of scale and product/process design will be used effectively.
The LEGO group has enthusiastic users all over the world because the principle is timeless. However, the concept needs to be updated all the time and reflected by the classic play themes and due to movies, such as Harry Potter. The product needs to be unique and have unique features. Also, with a differentiation strategy it is important to build customer relationships and increasing responsiveness that is what LEGO does by building the LEGOLAND theme park, making a LEGO movie and making videogames.
The goal of the LEGO group is to increase the market share by attracting new audiences and new target groups. This, strategy is what LEGO group wants to use in the future because LEGO wants to create new product lines not only for boys but for the whole family. Also, LEGO started with making video games and does attract also adults. Because of they will differentiate their products to meet expectations of the new target group. This includes that LEGO will start with focusing on the key factor distinct segment needs. Moreover, they will focus on their core business which includes the focus on distribution, focus on costs and supply chain, focus on innovation and end users.
To conclude, there has been many changes in strategies but the strategy they will handle now (in 2009) will be the focus strategy. Because LEGO changed their strategies over years. I will give a short overview of the three generic strategies mentioned in the years:
Year Generic strategy Reason
1932 (2) differentiation strategy Founded with focus on stepladders, ironing boards, stools and wooden tools.
1934 (3b) differentiation focus Because of changing their name into LEGO from the Danish word LEgOdt (play well)
1949 (3b) differentiation focus Making use of new materials and start of producing LEGO bricks
1958 (2) differentiation strategy Because of the supplemented figures and technical features of the LEGO bricks with extended playing opportunities
1968 (1) cost leadership Growth on international scale and an increasing in employees
1970-1980 (2) differentiation strategy The oil crisis started so they were introducing new innovative products
1990 (2) differentiation strategy Effective leadership, innovative products, international growth and becomes unique and iconic
1995 (3b) differentiation focus Because of new competitors such as SONY and Nintendo because of more advanced electronic games.
1999 (3a) cost focus LEGO had its first deficit, layoffs in employees
2000 (3a) cost focus Sales declined and set-up of LEGOLAND
2003 (1) cost leadership Opening of LEGOLAND, rapidly changing environment, new activities take longer
2004 (2) differentiation strategy Because of new products such of LEGO DUPLO however sales went down again
2009 Focus strategy (costs and differentiation) Focus on costs, distribution, innovation, supply chain and end users
Table 2: LEGO generic strategies 1932-2009
Q6: Use scenario planning techniques to consider the various environmental influences which may affect the LEGO GROUP in the future. (Max 15 points)
(Johnson, Scholes and Whittington, 2017)explaining that scenario planning is an essential tool which is used for innovation and it is also related top strategy as it is a hedge against crisis management. Scenario planning offers possible views of how the environment might develop in the future on long term basis. Mostly five basic steps will be used with scenario planning. These steps will be adapted to the LEGO case.
Step 1: Defining scenario scope
The scope of LEGO is to increase the market share by raising the awareness and attracting new audiences to their products. They will achieve this scope within a horizon of 10 years and with a growth from 4,8 per cent to 7 per cent a year in the future.
Statement for scenario planning process: “We want to better understand how the market nowadays will impact the new audiences over the next 10 years. Specifically, we wish to understand whether new audiences will simply increase the total market share from nowadays vision.”
Step 2: identify key drivers
For this step the key drivers for change will be defined. All these drivers will come out of the PESTEL analysis from question 3.
External drivers Internal drivers
- Economic growth
- Customer spending
- Technological innovation
- Oil crisis
- Crossing borders
- Season - Customer satisfaction
- Customer involvement
- Employee involvement
- Supply chain
Table 3: LEGO key drivers
Step 3: developing scenario stories
These scenario stories are created to cover environmental changes in the future and will also indicate the key drivers of change.
Control Boundaries with wounds
“crossing borders with regulations” Managers world
“managers influencing products”
Developing Home sweet best
“staying at the old known” Innovatopia
“Ruled by technology”
Table 4: LEGO scenario analysis
1.Boundaries with wounds. Nowadays it is very easy to cooperate in Europe and there are laws and regulations about crossing borders. However, in the future it will change because the government will control. This will made it more difficult to expand internationally.
2.Home sweet best. Staying at the old known doesn't stimulate innovations and the production of new products. Therefore, they will stay at the old product and the target group will always be the same and no new audiences will be attracted.
3.Managers world. Everything goes about the laws and regulations of the managers of LEGO. Therefore, it will be difficult to adapt new decisions and creativity will be under high pressure.
4.Innovatopia is a utopian scenario where problems will be solved by new technologies such as the VR-glasses and digital building with LEGO blocks. Innovation to attract new audiences will be the focus with probably loss of focus.
Step 4: identifying impacts
The effects of the global economic oil crisis where not uniform. LEGO adjusted their priorities and expectations because this was unforeseen and adapted innovation. Even, the interest of the target groups changed over the years because nowadays children are more involved with games because of the virtual elements than the wooden bricks LEGO started with. Moreover, the political risks will increase in manufacturing products in their own countries because of high taxes. The production within China because of the low costs can also cause for competitive failures due to high costs in their own country.
Step 5: monitoring process
The scenarios would allow LEGO to quickly identify changes in the underlying assumptions of where their strategies are built on. If a scenario will change LEGO can easily change course into another scenario and is therefore protected and aware of the changing environment.
Q7: Using theory from the Johnson, Scholes and Whittington (2017) book, reflect upon the blockages and leverages (aids) for change that have played a role in the process of strategic change that the LEGO GROUP went through since 1998. (max 15 points)
To answer this question I will make use of the forcefield analysis explained in (Johnson, Scholes and Whittington, 2017) where a forcefield analysis can be used to identify aspects of LEGO that might aid change, blockages and what needs to be developed to aid change.
Answer on key questions:
What aspects of the current situation would block change and how can these blocks be overcome?
Current blocks are the outsourcing agreement with Flextronics because of their contract to manufacture only 20 per cent in Denmark. Also, the current competitors of Nintendo and Sony with their Visual Arts. Moreover, the concepts always need to be updated with keeping in mind the influence of new movies such as Harry Potter. The restriction is that such a concept needs to be worked out fast otherwise the trend of the movie can be gone already and even competitors can choose for this strategy by inventing new video games. The need of sustainable products can also restrict the manufacturing of the plastic bricks. All these blocks can be overcome by making use of the right strategies and even by setting up scenarios with the focus on for example review the distribution channel, review the pricing strategy, focus on organizational activities and reduce labour costs.
What aspects of the current situation might aid change in the desired direction, and how might these be reinforced?
Most toy companies are producing their products in China which results to very low costs. However, the LEGO group had most of its productions in high cost countries. The pushing factor is to compete with the local competitors LEGO must redefine their strategy often and maybe create new lines of distributions. The customer pressure also pushes the development and innovation of new products. The customer pressure also indicates on what target group the focus of LEGO needs to be on. Moreover, the goal of LEGO is to involve customers and employees to create new products and this will also move LEGO forwards in the development of global expanding. Additionally, it is important to consider the environmental development of the market because of laws and regulations, competition, distribution channel. These aid change can be reinforced through focus by eliminating non-profitable products, establish competitive bidding for suppliers, creating a vision and create short term wins.
What needs to be introduced or developed to add to the forces change?
- Change management for example shifting individuals and teams into a desired future state of new technological changes. This to create more creativity within the company.
- Be prepared timely about changes for internal and external potentialities that may force organizational adaption. This can be done by doing a scenario analysis.
- Adapt some changes in within the competition for example new products offerings, mergers and acquisitions or outsourcing agreements. Then LEGO is ready to change and adapt to retain their customer base.
- Technological changes are important to stay competitive. It can be an idea to introduce some additional technological changes.
- Legislation by creating new laws because this can change operations and decrease environmental impacts. Therefore, a more responsible and sustainable will help by developing the positive branding of LEGO.
- LEGO should carry out a needs assessment internal and external to examine their objectives and to find out what works and what is not. When doing this it can lead to new organizational objectives and what can lead to a critical success.
Johnson, Scholes and Whittington. (2017). Commentary on Part 1: the strategy lenses. In Exploring Strategy Text and Cases (pp. 190-201). Harlow: Pearson Education Limited.
Johnson, Scholes and Whittington. (2017). Exploring strategy through different strategy lenses. In Exploring Strategy Text and Cases (p. 21). Harlow: Pearson Education Limited.
Johnson, Scholes and Whittington. (2017). Forcefield analysis. In Exploring Strategy Text and Cases (pp. 476-478). Harlow: Pearson Education Limited.
Johnson, Scholes and Whittington. (2017). Levels of strategy. In Exploring Strategy Text and Cases (pp. 10-11). Harlow: Pearson Education Limited.
Johnson, Scholes and Whittington. (2017). Pestel Analysis. In Exploring Strategy Text and Cases (pp. 34-48). Harlow: Pearson Education Limited.
Johnson, Scholes and Whittington. (2017). Resources and capabilities. In Exploring Strategy Text and Cases (pp. 98-107). Harlow: Pearson Eduction Limited.
Johnson, Scholes and Whittington. (2017). Scenario analysis. In Exploring strategy Text and Cases (pp. 51-54). Harlow: Pearson Education Limited.
Resources and capabilities
Resources: What we have Capabilities/competences: what we do well
Annual report, shares, investments, supply chain Financial Manage cash flows, ability to invest
Machines, buildings, raw materials (wood, plastic), marketing, equipment Physical Flexibility, efficient production, promoting products
Electronic games, engines with extended playing opportunities, delivery times Technological Efficient production process, innovation, shorter delivery times
Organization chart, process, Organizational Decentralised management style
CEO, Vice President, employees, licensing partners, customers, senior management, agreement Human Skills, knowledge, innovating products, working together, outsourcing, use of experience
LEGO DUPLO, LEGOLAND, play themes, inspired on movies Innovation and creativity Expanding, internationally, new products, new users, new target groups
LEGO brand, LEGO movie, LEGO brick Reputation Enthusiastic users, innovation, creativity, internationally expanding
The VRIO Framework of LEGO
For analysing how successful position and their vital LEGO is, there will be used the VRIO-model because the VRIO-model is necessary for achieve sustainable competitive advantages and superior economic performance. This model will be applied on the LEGO group case.
The marketing and promotion of LEGO will bring value to customers because it creates opportunities to the development of LEGO. LEGO moved their production to countries with cheaper production costs and is therefore easily imitable. The brand name LEGO is a valuable name because it is the name customers know and therefore also rare and inimitable. The process of LEGO is rare because it is only processed by manufacturers of LEGO and Flextronics. The process type is also very costly to imitate because the costs are too high through the complex internal linkages what will bring to customer value. LEGO always innovate their products and make use of their own marketing and this will also bring us to a high organisational. Their competitive advantage is that they work internationally, and LEGO is currently the 5th biggest toy company internationally.
Strategic clock explanation
For answering this question, I will make use of the Strategy Clock of Faulkner and Bowman. The Strategy Clock is a competitive strategy concept based on assumptions in a competitive situation where similar brands are available and where customers choose a product based on its perceived money value. Moreover, based on prices to customers instead of costs to the organization. Therefore, the strategy clock can be used by managers for identifying their market segment compared by their competitors.
...(download the rest of the essay above)