How Lego Aligned Information Systems with Business Strategies

Since Lego creates products based on movies and other characters, it’s a good way to stay relevant and evolve with the popular items on the market.

As I mentioned before, my interest has expanded beyond web design and development. Therefore, I will be sharing more essays and articles on broader topics covering data science, product management, information systems, business, and other related fields. I bought the book Managing and using information systems: a strategic approach by Keri E. Pearlson and Carol S. Saunders and I will be doing some of the case studies. I will start with the Lego one.

Before Jorgen Vig Knudstorp became CEO of Lego, the company was losing one million dollars a day. But, after five years of Knudstorp, the sales were strong and continued to be strong with 28 billion kroner in 2014. Knudstorp implemented a new strategy that encouraged the reuse of Lego components across toys which resulted in saving thousands of euros per new building block. The new strategy added theme-based Legos, movies, video games, targeted girls with their toy lines and embraced the community. In order to support those changes, the company implemented a lego-type approach to management by modularizing and standardizing the architecture of their Information Systems. The following questions and answers provide more information on how Lego aligned the IS Strategy, Organizational Strategy to the Business Strategy in order to achieve their goals.

How the Information Systems and the Organization Design Changes Aligned with Business Strategies

The new CEO wanted to implement a strategy of niche differentiation (O’Connell, 2014) which resulted in revenue growth from 16 billion Danish kroner in 2010 to almost double in 2014.

In order to reach the goal of the company, Knudstorp contacted retailers, reduced costs, and made changes to the supply chain. In addition, he implemented a more relaxed top-down management style in order to empower management that allows managers to make decisions without having to go to the top of the company structure (O’Connell, 2014). This flat management structure allows him to reach farther into the operating business without having to invest too much time in it (BCG, 2017). Also, he made changes in the pay structure with incentives for product innovation and sales. This resulted in a 50% drop in development time which is a high improvement considering that one of the issues that got Lego in trouble was the long development times and missed deadlines.

The continuing growth affected the information systems and the IS needed to be aligned to the business strategy. Thus, Lego implemented services and systems from SAP and IBM. Lego uses the SAP Business Suite, SAP ERP Human Capital Management, and other SAP applications to run on IBM infrastructure (VMware, n.d.). Also, they added new applications for operation support, product life cycle management, and data management. These investments of €45 million are estimated to produce business benefits of €150 million (VMware, n.d.).

Generic Strategies Lego Appears to be Using

The two generic strategies that Lego appears to be using are differentiation and focus.

In differentiation, the company offers products that are unique in the market. In this case, Legos are very unique and different from other types of toys. In fact, when you see blocks, you think of the Lego brand because they are the de facto standards for building blocks. Furthermore, in the article “Lego CEO Jørgen Vig Knudstorp on leading through survival and growth”, Khudstorp mentions that they wanted to implement a strategy of niche differentiation and excellence in the company (O’Connell, 2014).

For focus, the definition of differentiation focus is that “it seeks to distinguish its products or services within the segment”. In contrast to Mattel and Hasbro that have multiple brands under their umbrella and put the effort into different target audiences in the toy market, Lego concentrates only on the building blocks segment. Lego uses different themes like Star Wars and Indiana Jones. However, they are just legos at the end of the day instead of different toys for different purposes.

Indication of Hypercompetition

Hypercompetition is defined as an extreme environment where competitive advantages in the markets or industries are in constant attack and those companies need new strategies continuously in order to cope with those attacks (Kessler, 2013).

At first, I was thinking that as Lego is the de facto standard and the most famous toy for building blocks, there is no such thing as hypercompetition in the market because they are practically alone. However, Lego uses one of the hypercompetitive concepts mentioned in the book which is creative destruction. As Apple did with iPhone and iPad by creating products that compete with previously established Apple products, Lego started cannibalizing its own products from different angles. For example, they started creating theme products based on popular movies, created video games and movies based on Lego characters, targeted adults, and embraced the communities that have Lego as a form of creating art. Also, they create new lines targeting girls because before, Lego was considered a toy for boys. Thus, Lego cannibalizes itself before other companies decided to create products that compete directly with their blocks. For example, Lego creates toys and video games theme-based for DC and Marvel (Thielman, 2013) which are competitors instead of creating a partnership with just one and losing the other to a competitor.

The advice I would Give to Knudstorp to Keep Lego Competitive, Growing, and Relevant.

In order to be competitive, growing, and staying relevant, Lego should keep what they are doing right now. Since Lego creates products based on movies and other characters, it’s a good way to stay relevant and evolve with the popular items on the market. In addition, they produce movies, tv shows, and video games based on their own items like Ninjago: Masters of Spinjitzu and Lego City which are very popular and serve as a free advertisement for their own line of toys. Even programs and videos distributed on Youtube are considered an important channel by Knudstorp (BCG, 2017). They have the market covered from almost every side by cannibalizing their own toys. Also, the only way to keep up with expanding the new lines of toys is to staying aligning the organizational and information system strategies to the business strategy. Evidence of this alignment and its results can be seen in the article “LEGO Builds a Broader Product Line with SAP PLM” which explains that Lego is able to expand its line of toys from between 200 and 250 to 300 by applying SAP Product Lifecycle Management (Hannon, 2012).

Observations

I found some contradictory information about the strategy implemented by Knudstorp mentioned in the book about creating movie theme toys. For example, an article from The Telegraph in 2003, mentions the sales of Star Wars and Harry Potter legos did not meet the expectations for the year (Murray-West, 2003). Therefore, movie theme legos were created before the new CEO was hired by Lego in 2004 and his strategy did not include creating movie-based toys but continuing with the production.

References

  • Pearlson, K. E., & Saunders, C. S. (2013). Managing and using information systems: a
    strategic approach. John Wiley & Sons.
  • O’Connell, A. (2014, August 1). Lego CEO Jørgen Vig Knudstorp on leading
    through survival and growth. Retrieved from https://hbr.org/2009/01/lego-ceo-jorgen-vig-knudstorp-on-leading-through-survival-and-growth.
  • VMware. LEGO creates model business success with SAP and IBM. (n.d.). Retrieved
    January 11, 2022, from
    https://www.vmware.com/content/dam/digitalmarketing/vmware/en/pdf/casestudy/partners/sap/sap-vmware-lego-case-study-en.pdf
  • Ninjago: Masters of Spinjitzu. (2019, October 12). Retrieved from
    https://en.wikipedia.org/wiki/Ninjago:_Masters_of_Spinjitzu.
  • Lego City. (2019, August 20). Retrieved from https://en.wikipedia.org/wiki/Lego_City.
  • Kessler, E. H. (2013). Encyclopedia of management theory. Los Angeles: Sage.
  • Hannon, D. (2012, April 1). LEGO Builds a Broader Product Line with SAP PLM.
    Retrieved January 11, 2022, from https://sapinsider.wispubs.com/Assets/Case-Studies/2012/April/LEGO-Builds-A-Broader-Product-Line-With-SAP-PLM.
  • Murray-West, R. (2003, December 30). Lego wobbles as Star Wars and Harry Potter
    sales tumble. Retrieved January 11, 2022, from https://www.telegraph.co.uk/finance/2872600/Lego-wobbles-as-Star-Wars-and-Harry-Potter-sales-tumble.html.
  • BCG. At LEGO, Growth and Culture Are Not Kid Stuff: An Interview with Jørgen Vig
    Knudstorp. (2017, February 9). Retrieved from
    https://www.bcg.com/publications/2017/people-organization-jorgen-vig-knudstorp-lego-growth-culture-not-kid-stuff.aspx.
  • Thielman, S. (2013, April 16). How Lego Became the Most Valuable Toy Company in
    the World. Retrieved January 11, 2022, from https://www.adweek.com/brand-marketing/how-lego-became-most-valuable-toy-company-world-148578/.