Lego’s Business Strategy and Management

The current business environment is constantly changing due to the increasing globalization and advancement in technology. The changes results in intense competition in the business market putting pressure on organization to always work towards enhancing their competitiveness. Formulation and implementation of effective strategies is a sure way of assisting the company accomplishes an enhanced competitive advantage to remain in business. An understanding of the internal and external environments of the business is a major prerequisite in the formulation of such strategies. The environment of a company affects its operations including the supply chain, marketing and sales operations making it an important factor to be considered in the formulation of strategies. SWOT analysis is a tool used in the analysis of the internal environment of the company. To understand the happenings in the organization’s external environment, tools such as PESTLE and Porter’s five forces model are used. Focusing on SWOT the tool is used to identify the strengths and the weaknesses of the company, as well as the threats and opportunities of the company (Bhasin, 2017). On the other hand PESTLE tool is adopted in the analysis of the macro-environment of the company. It focuses on understanding the political, economic, social, technological, environmental, and legal environment that is likely to affect the operation and success of the company (CIPD, 2013). Porter’s five forces model is employed to understand the forces that influence competition in the specific industry of the company (Porter, 2008). The three tools are used in the analysis of the internal and external environments of LEGO Group Company.

Lego Company enjoys a strong brand name and reputation in the manufacture and supply of learning and creative toys across the world. The company products are sold in more than 140 nations. The creative and unique concept employed by the company in the manufacture of the toys is a strong growth factor. Also, the integration of information technology in its operations has resulted in the release of quality and safe toys (Bhasin, 2017). Lego Company adheres strictly to the set global quality and safety standards, an approach that has ensured it reports zero product recalls.

Despite the strengths identified, Lego Company has some weak spots. The organization charges a premium price for its toys making it only affordable for individuals in the high-end and upper classes in the society. The company has also failed to keep up with the changing trends in the consumer needs, leading to some of its products being faced out (Peltz, 2017). The negative effects associated with its products such as the video games that are believed to derail the brain development of children have not only affected the reputation of the company negatively, but has also adversely affects its financial performance. Lego has maintained an increase in its sales volume for some time now, however, in 2017; the company reported a significant drop in its sale volume, owing to its weakness in meeting the varying and changing needs of the customers.

The threat of intense competition from other players in the industry has also resulted in the lower sales reported by the company in the last two years. Lego Company faces stiff competition from smartphones and other digital technology platforms that supports kids’ games. The threat from counterfeits products offered at lower prices has also had negative impacts on the sales volume of the company.

Regardless of the threats and weaknesses that have contributed to the reduction in the company’s revenue in the recent past, Lego can still use its strengths to explore the various opportunities present in the market for its further growth. The company has an opportunity of expanding its global presence to several other nations. Lego brand has immensely remained popular thus a suitable strength that can be employed by the company to access other markets across the globe (Reed, 2018). The company also has an opportunity of emphasizing parental focus on its creative toys. The approach will enhance the preferences for their products that will mostly support skill and brain development of the child (Peltz, 2017). Lego also has an opportunity of engaging in the manufacture of activity driven learning toys that are highly acceptable in schools. Since Lego’s strong brand name and reputation has remained immensely popular, the company can exploit the identified opportunities to overcome its weaknesses and manage the threats, to consequently report a higher level of performance.

PESTLE Analysis

Political Factors

European Union regulation for toy manufacturers is one of the political factors that influence the operations of Lego Company. The “Toy Safety Directives” are regulations set by the EU to regulate the activities of the manufacturers and to ensure that all toy companies comply with the recommended safety standards (Beh, n.d). The political environment of the nations where Lego operates also influences its operations. The company’s host nation is Denmark, nevertheless, a significant volume of its sales are obtained from Western part of Europe and North America. The political climate in these regions is overly stable limiting the exposure of the company to political instability. As the company plans to expand its operations in other parts of the world, it is likely to face some political pressures. In addition, the company is distributing its products to other nations, thus there operations are likely to be influenced by the political decisions in those regions.

Economic Factors

Economic parameters such as global financial crisis, hedging currencies, debt crisis amongst other financial decisions are likely to impact on the operations of Lego. Changes in these economic parameters have adverse implications on the on the sales of the company, its revenue and overall business performance. The financial crisis witnessed in 2009 caused a significant drop in the market performance that impacted negatively on the performance of the company. Lego however managed to pull through and report an increase in its performance in the year 2010 (Beh, n.d). Lego receives revenue inflows in different currencies, as such; the organization is faced with the risk of currency hedging. Conversion of the different currencies to home country currency is likely to affect negatively the profitability of Lego. Other economic risks such s debt crisis also impact negatively in the profitability of the company. As such, exposure to a high debt as evident in its Southern Europe market contributed to the lower amount of revenue reported form the region in the recent past.

Social Factors

The preference for toy products is continually changing. The needs and wants of the previous kids are vastly different from the current children. The latter group focuses more on technology-based technology or digital platforms to access different kinds of toys or games. Lego faces significant challenges to keep up with the changing needs and the rejection of the traditional toys by most children (Reed, 2018). However, the company has embarked on the production of toys that are not only for recreational purposes but also encourage learning, to empower the children.

Technological Factors

The increase in the use of the internet, presents the need for producers to offer their products through a web platform. Lego has to be innovative and make products that can be released through the web. The digital transformations also instill pressure on the company to come up with highly creative toys (Tsang, 2017). Moreover, the company has to embark on extensive research and development to come up with unique products to meet the changing technology needs. Lego have to put in place sufficient resources in research and development, as well as possess the desired competencies to manage the challenge of advancement in technology and its resulting effects on demand and preference for the toys.

Legal Factors

Copyright law is the major factor that influences the activities of Lego Company. The poor copyright law in most regions of its operation is a major challenge to the company. Lego is required to abide by all the copyrights laws to enable the company operate smoothly in the regions. Despite the strict copyright laws enforced in different nations Lego group has been unable to preserve its patent, giving room for other players to produce counterfeit goods (Peltz, 2017). The implications are intense competition and threats from other toy manufacturers thus negatively impacting on the overall performance of the company. Lego needs to device strategy of preserving its patent to address the issues of duplication and counterfeits.

Environmental Factors

Lego has focused on conserving the environment through different strategies. Responsible sourcing of raw materials and reduction in carbon emissions are the approaches that have been employed by Lego to conserve the environment. The company become a signatory of the United Nations Global compact and has been working towards accomplishing its goal of using 100% renewable source of energy (Reed, 2018). Lego group is required to come up with raw materials that will ensure that the desired level of environmental conservation is accomplished.

Porter’s five forces

Buyers bargaining power

The buyers in the case of Lego toys have a high bargaining power. This is due to the fact the switching cost from one company to the next is minimal. Also, the presence of many substitute products such as video games enhances the bargaining power of the buyers (Tsang, 2017). Lego thus has to focus on identifying the needs and preference of the customers and work towards accomplishing them.

Suppliers Bargaining Power

Suppliers have an average bargaining power. The toys offered by Lego are mostly made from chemicals and plastics that are readily available. However, as the company contemplate adopting environmentally friendly products the power of suppliers is likely to increase (Reed, 2018). In addition, the company’s desire to focus on electronic games, films and other digital gadgets will lead to an enhanced bargaining power of the suppliers.

Threats of substitutes

There is a significant high threat from substitutes that are equally offered at a relatively lower price. Lego generally focus on providing entertainment to children, this is a sector that is overcrowded by other players offering near similar products that can be easily substituted (Peltz, 2017). As such, the threat from substitutes is high since consumers can easily choose from other types of toys.

Threats of new entrants

The high level of investments needed for one to enter the industry has made the threats of new entrants low. Extensive research and development is also required for a manufacturer to come with creative and unique toys, making it difficult for various companies to access the market. Lego has also build a strong brand overtime thus new entrants cannot pose significant competition threat to the company.

Competition rivalry

Lego group operates in an industry that is characterized with intense competition. The many players in the sector and the emergence of near similar products at relatively lower prices have intensified the competition in the industry. Large companies from the electronic industry also compete with the Lego (Tsang, 2017). This intense competition has contributed to the reduction in the amount of revenue reported by Lego in the last two years. The company needs to device strategies that can be employed to counter the competition from other players in the industry.

 

 

 

References

Bhasin, H. (2017) SWOT analysis of Lego.  Markrting91. Available at https://www.marketing91.com/swot-analysis-lego/ (Accessed: 10/1/2019)

Peltz, J. (2017). After Lego sales drop for first time in 13 years, the firm plans to cut jobs and ‘reset the company, Los angeles time. Available at: https://www.latimes.com/business/la-fi-lego-cuts-20170905-story.html (Accessed:10/1/2019)

CIPD (2013) Factsheet: PESTLE Analysis. Available at: http://www.cipd.co.uk/hr-resources/factsheets/pestle-analysis.aspx (Accessed: 15/12/18).

Porter, M. E. (2008) The five competitive forces that shape strategy. Harvard Business Review. pp.24-40. Available at: https://cb.hbsp.harvard.edu/cbmp/pl/51500629/51500700/8bede817dfe255a5de8d59692cdd3d87 (Accessed: 10/1/19).

Reed, S. (2018) Lego Wants to Completely Remake Its Toy Bricks (Without Anyone Noticing). The New York Times. Available at: https://www.nytimes.com/2018/08/31/business/energy-environment/lego-plastic-denmark-environment-toys.html (Accessed 10/1/19)

Tsang, A. (2017) Lego Will Cut 1,400 Jobs as Profit Dips, Despite Big-Screen Heroics. The New York Times. Available at: https://www.nytimes.com/2017/09/05/business/lego-sales-toys.html (Accessed 10/1/19)

Beh, J (n.d). Lego group PEST analysis. Available at: https://www.academia.edu/14293283/Lego_Groups_PEST_analysis (Accessed 10/1/19)