Table of Context1. Problem
Definition......................................................................................................................2
2.
Structure.......................................................................................................................................2
3. Limitations and source
criticism.................................................................................................2
4.
Introduction..................................................................................................................................2
5. The Internal Situation of
LEGO..................................................................................................4
5.1.
Economics.............................................................................................................................4
5.2
Organization..........................................................................................................................5
5.2.1 Types of
structures.........................................................................................................5
5.2.1.1
Functional................................................................................................................5
5.2.1.2
Divisional................................................................................................................5
5.2.1.2.1
Product.............................................................................................................5
5.2.1.2.2
Market..............................................................................................................6
5.2.1.2.3
Geographic.......................................................................................................6
5.2.1.3
Matrix......................................................................................................................6
5.2.1.4
Conclusion...............................................................................................................6
5.2.2 Organization in
LEGO...................................................................................................7
5.3
Marketing...............................................................................................................................7
5.3.1 Value chain
analysis.......................................................................................................7
5.3.1.1 Support
Activities....................................................................................................7
5.3.1.1.1 Firm
infrastructure...........................................................................................7
5.3.1.1.2 Human Resource
Management........................................................................8
5.3.1.1.3 Technology
Development................................................................................8
5.3.1.1.4
Procurement.....................................................................................................8
5.3.1.2 Primary
Activities...................................................................................................8
5.3.1.2.1 Inbound
Logistics.............................................................................................8
5.3.1.2.2
Operations........................................................................................................9
5.3.1.2.3 Outbound
Logistic............................................................................................9
5.3.1.2.4
Marketing.........................................................................................................9
5.3.1.2.5
Service..............................................................................................................9
5.3.1.3
Margin.....................................................................................................................9
5.3.1.4 Core
competences.................................................................................................10
5.3.2
SWOT-analyses............................................................................................................11
5.3.2.1
Conclusion.............................................................................................................11
5.3.3 Market
strategy.............................................................................................................12
5.3.3.1 Market
Share.........................................................................................................12
5.3.3.2 Market
Growth......................................................................................................12
5.3.3.3 Generic
Strategy....................................................................................................12
6.
Conclusion.................................................................................................................................13
7. List of
literature.........................................................................................................................15
8.
Appendixes................................................................................................................................16
8.1 Appendix
1...........................................................................................................................16
8.2 Appendix 2 LEGO Corporate
Management....................................................................17
8.3 Appendix 3 - Aided and unaided brand awareness among mothers
0-14..........................18 8.4 Appendix 4 Growth Share
Matrix.................................................................................19
8.5 Appendix 5 Ansoffs Growth
Matrix...............................................................................20
8.6 Appendix 6 - The new LEGO
Group..................................................................................21
8.7 Appendix 7 The development in the number of employees
...........................................23 8.8 Appendix 8
Generic
Strategies.........................................................................................24
1. Problem DefinitionIn this project we have been given LEGO as
an assignment. After finding some information, we have chosen the
following as our problem formulation. How is the internal situation
of LEGO?
2. StructureTo analyze the internal situation of LEGO, we will
be focusing on the following areas. Economics models showing the
financial highlights of the company Organization graphs
illustrating the organizational structure of the company Supply
Chain Management Focus on LEGOs Value Chain Marketing and Sales
Graphs showing the development in LEGOs sales and value of being a
big brand. Furthermore we will show various models which give a
clearer picture of LEGOs strategy.
3. Limitations and source criticismIn general we are focusing
the analysis on LEGOs internal situation in Denmark, but to give a
better view of LEGOs financial situation we have chosen to look at
LEGOs economy globally. LEGO introduced a new vision starting from
2004, so we are focusing the economic analyze on the period after
2004. The other parts of the analysis are focusing on LEGO from the
early state until now.
4. IntroductionLEGO Toy of the century
In 1932, the LEGO Group was founded by a Danish carpenter, Ole
Kirk Khristiansen. The company has remained within the family ever
since, going from son to son, and is now owned by the grandson of
the founder, Kjeld Kirk Kristiansen. From being a small workshop,
making wooden toys, stepladders and ironing boards, the company has
developed into a modern, global enterprise, producing the plastic
bricks we know today. These plastic bricks are still as popular as
ever and LEGO is among the leading manufacturers for toys in terms
of revenue. With themes ranging from Star Wars to Harry Potter, the
bricks are sold in hundreds of different countries. LEGO has been
chosen as the Toy of the century twice and is seen as having made a
major contribution to children over the past 100 years. The name
LEGO consists of the two Danish words leg godt which means play
well. Future Direction The company suffered a couple of rough years
as they lost focus on their core competence, which are toys. They
had seeked to expand the brand to theme parks, clothing and
computer games. All of those turned out to be short-lived licenses.
Then The Shared Vision strategy was made. They managed to recover,
by rebuilding the company brick by brick, getting rid of anything
that was not the core business, such as sub-brands (LEGO City, LEGO
Pirates, and LEGO Castle). Now the focus for the next couple of
years is to build a strong and profitable enterprise. LEGO came up
with a model that should help them turn the company around. 1 They
realized that in order to make the old family business a success
again they had to start by stabilizing the companys economy. That
resulted in having to let a lot of employees go. They also had to
go back to core competences of the company and when they have done
that LEGO will grow again. These are the headlines of the Shared
vision. The vision has many different factors, but the idea is that
the core of business remains the same. They have outlined three
major components of an importance, which include value offered to
consumers and sales channels, refocusing on value offered to
consumers and increasing operation excellence. In this report we
will try to follow up on how the Shared Vision is doing and see if
the LEGO Company has been able to put the bricks together the right
way.
1
See Appendix 6
5. The Internal Situation of LEGO5.1. EconomicsIn 2003 LEGO
decided on a new vision for the company. After years of downfall
LEGO decided that things had to chance and they created the plan
Shared Vision. A seven-year plan that should help the old toy
company turns around. This plan have had an positive impact on the
entire company and in LEGOs latest annual report the numbers show
the effect on the economy. We have chosen to analyze on LEGOs
financial situation by taking a closer look at their income
statement and balance sheet. By analyzing on the financial ratios
we can see have the company is doing on some key areas.2 As we can
see in the table LEGO has had an upwards going tendency in several
important financial ratios since their seven-year plan was put in
to action back in 2004. We can see here that the operating margin
also called return on sales has gone from being -14,5 % to 22 %.
That means that LEGO now actually earn money for each dollar sold.
There is a bigger difference between the sales compared to the
costs. We can also see that the return on equity has gone up quite
a bit. LEGO is now giving the investors/owners more in return for
their investments. The numbers also show that they were especially
good at this in 2006. In the end that can improve LEGOs abilities
to find new investors. The ratios also show that both the gross
margin and the net profit margin are doing much better. LEGO is
earning more money. The excess of sales compared to the total costs
of goods sold has risen from 57,9 % to 66,8 %. Finally you can see
that the development in the return in assets is very good, which
means that the company is getting a better net income from each
dollar they invest in themselves. If you compare these numbers with
the financial ratios from another toy company like Mattel you can
also see that LEGO is doing quite good compared to one of the
biggest competitors3. These numbers are an average for a five-year
period but they clearly show that it is LEGO not just the toy
market in general that is doing especially well. LEGO are having
better numbers in both the ROE, the ROA and the Gross Profit Margin
which indicates that LEGO as a company is earning more money for
each dollar sold and it is able to give more back to its owners at
the moment. All in all these financial ratios along with the
financial statements and comparison with another toy company are a
clear sign that LEGO has been successful with implementing there
economic strategy back in 2004.2 3
For financial ratios look appendix 1 For financial ratios for
Mattel look appendix 1
5.2 OrganizationBefore discussing the differences in
organizational structure, its necessary to understand the meaning
and purpose of organizational structure. Organizational structure
formally determines the hierarchy within an organization. In other
words; who reports to whom? Some companies attend to refer this as
the organizational chart.
5.2.1 Types of structuresTypes of organizational structure
include: functional structure, divisional structure, and matrix
structure. Divisional structure is further broken down into three
sub-types: product structure, market structure, and geographic
structure. Every company has some sort of organizational structure,
and for larger companies it is in many ways a must for them to
have. This is for showing both in- and outside the company, who has
which kind of responsibility.
5.2.1.1 FunctionalFunctional structures are perhaps the most
common organizational model used by companies. A company organized
with a functional structure groups people together into functional
departments, including purchasing, accounts, production, sales and
marketing. Normally each of these departments would have a
functional head that may be called manager or director depending on
whether the function is represented at board level. The department
leader is in charge of the main activities or functions that need
to be performed within the organization, and the organization is
vertically integrated from the bottom to top of the
organization.
5.2.1.2 DivisionalThe divisional structure is broken down into
three areas: product, market, and geographic.
5.2.1.2.1 Product
Product structure groups employees together based upon specific
products produced by the company. An example of this would be a
company that produces three distinct products, "product a",
"product b", and "product c". This company would have a separate
division for each product.
5.2.1.2.2 Market Market structure groups employees together
based upon specific markets in which the company sells.
5.2.1.2.3 Geographic Geographic structure groups employees
together based upon specific geographic location. This is often
used by large companies that operate in many areas.
5.2.1.3 MatrixMatrix structure groups employees by both function
and product. This structure can combine the best of both separate
structures. An example would be a company that produces two
products, "product a" and "product b". Using the matrix structure,
this company would organize functions within the company as
follows: "product a" sales department, "product a" customer service
department, "product a" accounting, "product b" sales department,
"product b" customer service department, "product b" accounting
department. Matrix structure is the most complex of the different
organizational structures.
5.2.1.4 ConclusionFinding the organizational structure that
works best for a particular company is very important. Using the
wrong structure can result in poor communication, poor product
development, poor customer service, and a myriad of other business
problems. Any of these things can be detrimental to a company and
could result in lost revenue or even complete failure of the
company.
5.2.2 Organization in LEGOIf you look at LEGOs corporate
management4, they use the functional structure, which gives a very
clear picture of who are the highest in the hierarchy. If you look
further down in hierarchy, then the organization structure changes
to divisional structure, with the 5 heads of each department under
the Chief Executive Officer, are in the top of their respectively
division. LEGO uses two types of divisional structure, since they
have a different organization for each country, they use
geographical structure, and furthermore they have in these
countries a different staff for different products, meaning they
also use product structure.
5.3 MarketingWe have chosen to do the value chain analysis and
the SWOT analysis to give a better picture about how the company is
doing, regarding sales and management and supply chain. This will
also show the companys strengths and weaknesses. Furthermore we
have chosen to do a growth-share matrix to define LEGOs market
share, and Ansoffs Growth Matrix to see how they act on the
markets.
5.3.1 Value chain analysis5.3.1.1 Support Activities5.3.1.1.1
Firm infrastructure The LEGO Group was founded by Ole Kirk
Christiansen in 1932, now is owned by the founders grandchild Kjeld
Kirk Christiansen. The LEGO group was the first in Denmark to buy a
plastic injection-moulding machine, to produce quality toys. The
name LEGO is printed inside all bricks to assure the security of
the products. When the first real export of LEGO begins new markets
are explored. In 1956 the first foreign sales company is
established in Germany. New markets are being explored, LEGO
France, British LEGO Ltd., LEGO Belgium and LEGO Sweden. They
decided that English should become the official corporate language
which improves the internal and external communication of the
company.4
See Appendix 2
The LEGOLAND Brand is established in 1967. They changed their
products in 1978 to mini figures with movable arms and legs.
5.3.1.1.2 Human Resource Management The LEGO Company has 150
designers of 15 different nationalities. Most of the designers have
been trained at design or art schools in various parts of the
world. The experience of designers from so many different cultures
gives LEGO the opportunity to make products suitable for a larger
market. The LEGO Company provides trainee programs for young
people. By hiring young people they keep the young spirit in the
company which helps to bring modern products on the market. The
first personnel manager hired to create better communication with
employees.
5.3.1.1.3 Technology Development The LEGO group developed its
technology by producing wooden bricks with decorations. The LEGO
group started to produce plastic and wooden cars offering new
products to customers. The LEGO group is the first in Denmark to
buy a plastic injection-moulding machine in 1947. They start to use
automatic machines and computers in the production which leads to
lower costs and fewer mistakes.
5.3.1.1.4 Procurement The LEGO group is the first in Denmark to
buy a plastic injection-moulding machine. The LEGO group buys its
own first truck in 1956.
5.3.1.2 Primary Activities5.3.1.2.1 Inbound Logistics
The company has a development laboratory for plastic materials
and a test laboratory in Denmark. The company produces its own raw
materials. The company's laboratories continuously test plastics,
fact which leads to high quality production.
5.3.1.2.2 Operations LEGO are testing new materials to increase
functionality. 5.3.1.2.3 Outbound Logistic The LEGO Group
centralizes its European distribution center (EDC) in Prague, Czech
Republic. Supplies LEGO products to Europe, Asia, Africa and South
America.
5.3.1.2.4 Marketing The first film about LEGO is shot in 1951
fact which is a good advertisement for customers. The LEGO Group
exhibits their new products at a toy fair in Germany, this helps
finding new consumers, because people can see the toys before
buying it. They established a product development department,
market analysis department, and a photography department, which
gives satisfaction for the customers necessities. Theres something
for everyone! This motto shows their marketing strategy and its
effect on the customers. The biggest marketing factor for LEGO is
the brand itself. This is shown by the high awareness 5 of the LEGO
name.
5.3.1.2.5 Service LEGO provides a guarantee which covers all
products for all their customers. The Lego group has its own
costumer service website which informs customers about the
company.
5.3.1.3 Margin
5
See appendix 3
Revenue Net profit for the year
2008 9,526 1,352
2007 8,027 1,028
-Profit for the year The group profit for the year amounted to
DKK 1,352 million against DKK 1,028 million in 2007 -Increasing
sales The LEGO Group saw an 18.7% increase in revenue from DKK
8,027 million in 2007 to DKK 9,526 million in 2008
5.3.1.4 Core competencesLEGO has its core competencies in the
both up-stream activities and down-stream activities in the value
chain. Lego is the 6th largest manufacturer of toys, so it has to
be strong with both up and down-stream activities.
5.3.2 SWOT-analysesSTRENGHTS People development Market growth
Effective marketing Lego.com Increasing economy Strong brand Toys
with educational effect on children Film of heroes (star wars
spider man) The world's children spend 5 billion hours a year
playing with LEGO bricks. Approx. 400 billion LEGO elements THREATS
Technological competitors Existing and new competitors Not green
enough Lack of new product sales Decreasing economy Coping problem
of the LEGO product from other country. have been manufactured
since 1949. OPPORTUNITIES Global compact Toy of the century
Creative building Inventing new products Technological development
LEGOLAND Parks WEAKNESSES Higher prices Narrow target group
development
of
5.3.2.1 ConclusionAfter analyzing the LEGO Company we came to
the conclusion that its the strongest toy manufacturer in the
world. This is proved by its strengths which mainly lie in the
company brand.
5.3.3 Market strategy5.3.3.1 Market ShareWhen using the
growth-share matrix model6, it makes it possible to define how a
company is doing on a market. In this case LEGO, are in Denmark, a
Cash Cow, since they are a major producer which controls the Danish
market. A Cash Cow is a product from a company with a high market
share in a slow-growing industry. These products typically generate
cash in excess of the amount of cash needed to maintain the
business. They are regarded as staid and boring, in a "mature"
market, and every corporation would be thrilled to own as many as
possible. They are to be "milked" continuously with as little
investment as possible, since such investment would be wasted in an
industry with low growth.
5.3.3.2 Market GrowthYou can define how companies chose to
expand themselves by using Ansoffs Growth Matrix7. Since LEGO have
chosen to re launch their old products the latest years, it can be
concluded that they use Market Penetration is the main growth
strategy, since they are launching existing products on existing
markets. Every time LEGO launch a new product on a market, they use
Product Development, since they always put new products on existing
markets.
5.3.3.3 Generic StrategyWhen using the generic strategy model,
you can define how a company produces their products, what they
target themselves etc. LEGO uses differentiation strategy since
they are having a very broad target group, and since they are
trying to differentiate themselves from their competitors.
6 7
See Appendix 4 See Appendix 5
6. ConclusionIt is clear from several major economic factors
that the shared vision implemented in 2004 has had a positive
effect on the company. Many key ratios like return on assets,
return on equities and return on sales show that the company are
very profitable and the earnings capacity is rising. This is also
showed by the development in the number of employees. 8 When LEGO
was doing poorly in the beginning of this century they chose to let
a lot of people go, but now the number of employees is once again
at the same level. This is all do to a new strong company with a
big turnover. LEGO uses like many other major companies functional
structure in the board, in for the rest of the company, they uses
divisional structure, containing geographical and product
structure, since LEGO is having a growing profit the latest years,
it can be concluded that this type of structure works for them.
LEGO uses a lot of power to increase the success of the company;
this is shown by them training their designers, so they will do
maximum performance, furthermore they try to develop their
machinery with the newest technology. They also try their best to
be first in the field with new inventions. Since LEGO chooses to
manufacture their products themselves, they are not dependent on
suppliers, which put them in a very strong position. LEGO has been
awarded with the toy of the year award twice, which gives them a
very strong position on the market, furthermore they have with help
from their worldwide known brand, giving themselves a very
favorable position, as one of the strongest toy companies in the
world. This is also shown by their position with in the generic
strategies. They are a company with a very broad target audience
but at the same time with a lot of differentiation. There are no
competitors out there that offer children the same kind of toy that
will educate them while they are playing. At the same time the
brick is easy to produce for the company. LEGO is in Denmark, the
biggest toy seller, which can be seen on their strategy. As a very
functioning cash cow they are with their products controlling the
Danish market, and this is also visual when you look at how the
gain more market share; which is by sending in existing products on
existing markets.8
See Appendix 7
One thing LEGO also learned from the years of downfall that they
should stay focused at the toy that is their biggest seller. The
brick.
7. List of literatureBooks: Daft, Understanding the theory &
design of Organization, Thomson Learning, 2009, about organization
Reports: Annual Report 08 LEGO Group, LEGOs own report on the well
doing of the company. Company Profile, An introduction to the LEGO
Group 2009, LEGOs own presentation of the company 2009. Produced
for the LEGO Group by Corporate Communications. Homepages:
www.lego.com, LEGO, Their own homepage is used to find several
different kind of information about the company.
http://www.logisticsit.com/absolutenm/templates/article-transport.aspx?
articleid=1647&zoneid=9, Manufacturing & Logistics IT,
about the outbound logistics of LEGO
http://www.marketlineinfo.com/library/DisplayContent.aspx?R=40CF4E47-9642-433E-9D848A5DC292A225&N=4294840848,
Market Line Info, General information about LEGO
http://www.bbc.co.uk/dna/h2g2/A454673, BBC, General information
about the LEGO Company and its products.
http://www.lego.com/eng/info/, LEGO, General information about the
LEGO Company
http://finapps.forbes.com/finapps/jsp/finance/compinfo/Ratios.jsp?tkr=Mat,
Forbes, About Mattels financial ratios. www.wikipedia.com,
Wikipedia, General knowledge
http://www.nordicchamber.cz/article_files/LEGO-Nordic-chamber.ppt#23,
Nordic Chamber, About the LEGO Brand and brand awareness
8. Appendixes8.1 Appendix 1Financial ratios (in %): Gross margin
Operating margin (ROS) Net profit margin Return on equity (ROE)
Return on assets9
2008 2007 2006 2005 66.8 65 64,9 58 22 18,1 17 5,4 14,2 12,8
16,5 3 72,2 71,6 147,1 44,2 28,5 23,5 18,6 4,7
2004 57,9 -14,5 -28,6 -131 -14,5
5-Year Averages for Mattel Return on Equity 22.6% Return on
Assets 10.9% Gross Profit Margin 49.4% Net Profit Margin (Total
Operations) 9.2%
22,6 10,9 49,4 9,2
9
Return on assets is calculated by numbers from the annual
report. The other ratios are provided by LEGO themselves in the
report.
8.2 Appendix 2 LEGO Corporate Management
8.3 Appendix 3 - Aided and unaided brand awareness among mothers
0-14
100 90 80 70 60 50 40 30 20 10 0 US J Aided awareness D UK F
Unaided awareness
8.4 Appendix 4 Growth Share Matrix
8.5 Appendix 5 Ansoffs Growth Matrix
8.6 Appendix 6 - The new LEGO Group
Stabilize the Stabilize the company (get company (get control)
control) Build Build defensible defensible core of core of products
products Rebalance Rebalance financing financing structure
structure
Organic Organic growth growth
Improve core Improve core business business
Profit from the core
Achieving Vision
8.7 Appendix 7 The development in the number of employees
Employees6000 Average number of emplyees 5000 4000 3000 2000
1000 0 2004 2005 2006 Year 2007 2008 Serie1
8.8 Appendix 8 Generic Strategies
Strategy formulation - generic strategiesCompetitive
AdvantageLow cost Differentiation
Broad target
1. cost Leadership
2. Differentiation
Competitive scopeNarrow target 3A. Cost Focus 3B.
Differentiation Focus
05.10.2009
BWJ
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