The general environment is composed of six dimension that influences industry and the firms within it. These are economic, sociocultural, global, technological, politicallegal and demographic. As firms cannot directly control the general environment’s segments by breaking down the analysis into four parts: scanning, monitoring, forecasting, the LEGO group would then be able to identify its opportunities and threats in the general environment that would affect their firm (Hanson et al 2014).
lOMoARcPSD|10803158 The Industry The LEGO group is a manufacturer of play materials which is based in Billund, Denmark An Organization that is dedicated to the development of children’s creativity through playing and learning Analysis of General Environment The general environment is composed of six dimension that influences industry and the firms within it These are economic, socio-cultural, global, technological, political/legal and demographic As firms cannot directly control the general environment’s segments by breaking down the analysis into four parts: scanning, monitoring, forecasting, the LEGO group would then be able to identify its opportunities and threats in the general environment that would affect their firm (Hanson et al 2014) Demographic: the demographic segment is concerned with the population’s size, age groups, geographic distribution, ethnic mix and income distribution usually analysed as a global basis as the potential effects may be across countries’ borders and the LEGO group compete in global markets (Hanson et al 2014) However, in the LEGO group case the industry need to expand their range of products to accommodate the different age groups and different markets Markets include Eastern Europe, Asia, America and Western Europe LEGO’s product focused on its target audience of (children under age 18), however there are large consumer base in the 30-and-over age range Socio-cultural: is concerned with a society’s attitudes and cultural values (Hanson et al 2014) One such trends are the change of demand that shifted towards technology, either in a toy itself or in the form of toys coming with access codes to online worlds However the birth rates in LEGO’s core markets – Western Europe and North America – declined, as did household spending on toys Total profit pool in the industry has “decreased by 50%” between 1993 and 2003 Another trend that has affected LEGO’s sales is that many parts of the world, children had more after-school activities and less unscheduled time to play than in the past Technological: technological changes affect many parts of societies These effects occur primarily through new products, process and materials (Hanson et al 2014) The changes in technological trends in today’s general environment include an increase in internet lOMoARcPSD|10803158 accessibility, which have encouraged more online shopping, crowdsourcing and better ability of B2C communication The internet has become a remarkable capability to provide information easily, quickly and effectively to an ever-increasing percentage of the world’s population (Hanson et al 2014) Hence having an effect on the declining product line for toy industries Global: includes relevant new global markets, existing markets that are changing, important international political events and critical cultural and institutional characteristics of global markets (Hanson et al 2014) The stable growth and expansion, driven by LEGO’s growing pipeline have allowed the distribution of toys into Europe with “millions of young Eastern Europeans eager to get their hands on Western products.” Economic: refers to the nature and direction in which a firm competes or may compete (Hanson et al 2014) toymakers manufacture in Asia where by labor was inexpensive and subcontractors stood ready top purchase goods on their behalf Outsourcing labours to China Analysis of Industry Environment Compared with the general environment, the industry environment has a more direct effect on the firm’s strategic competiveness and ability to earn above-average returns (Hanson et al 2014) the profit potential is a function of five forces which are: the threats posed by new entrants, buyer power, supplier power, substitute products and intensity of rivalry among competitors Substitute Products: the toy industry is faced with high competition The impact of new product introductions was muted by rapid imitation and limited protection of intellectual property This is resulted in low switching cost, making it easy for consumer to switch products An example of this would be substituting from LEGO toys to MP3, iPods and video games Buyer Power: The bargaining powers of customers and retailers such as Toys R Us, Targer and Wal-Mart are high as they want to buy product at the lowest possible price (Hanson et al) and there’s little switching cost especially the high retail competition that had heaten up in recent years lOMoARcPSD|10803158 Supplier Power: the bargaining power of suppliers is low within the toy industry itself This is due to widespread and improved technology of plastic-injection moulding machine and colouring has become very easily obtainable Threat of New Entrants: They toy industry has already been made up off many established companies such as Mattel and Hasbro, hence making the new entrants medium There are many alternatives to the toy industry hence the threat of new entrants would be low Competitive Rivalry: competition within the industry is very high as thousands of toymakers served the world market, but increasingly led the industry Companies such as Mattel with Fischer-Price, Barbie, Hot Wheels and Hasbro with housed brands such as Transformers, Monopoly, Play school Based on the analysis of the five forces we can conclude that the industry LEGO is in is unattractive in terms of profit potential This is because the industry has buyers have a strong bargaining position as well as strong competitive threats from product substitutes And intense rivalry among competitors These industry characteristics make it difficult for firms to achieve strategic competitiveness and being able to return an attractive return (Hanson et al 2014) As an attractive industry would have high entry barriers, suppliers and buyers with very little bargaining power and, very little competitive threats from product substitutes and moderate rivalry intensity Internal Analysis Analysing the firm’s internal organisation requires that evaluators examine the firm’s entire portfolio of resources and capabilities Resources are the source of capabilities, which leads to development of core competencies (Hanson et al 2014) Intangible resources Intangible resources are assets that are rooted deeply in the firm’s history and have accumulated over time (Hanson et al 2014) Examples of intangible resources would be the knowledge, trust between managers and employees, managerial capabilities, organisational routines, scientific capabilities, the capacity, brand name, the firm’s reputation for its good and services LEGO have a strong reputational resource LEGO’s core brand name and identity is consistent and world renowned brand across different parts of the world making it one of the firms major intangible resources LEGO Group have a “strong culture of creativity” lOMoARcPSD|10803158 who favours the steady introduction of new product and themes based on the brick system LEGO have strong Innovative resources and a strong capacity to continuously innovate where they “explore new opportunities” to “stretch their brand name” LEGO have a strong human resources in which they can “incorporate learning through direct engagement with customers” which is achieved by working with the LEGO community in LEGO shops, at LEGO-related events, or in special ad-hoc projects Tangible resources LEGO’s Technological and physical resources account for its tangible resources, are assets that can be observed and quantified (Hanson et al 2014) LEGO’s “injection-moulding machines product plastic elements in massive numbers” LEGO also has introduced family theme parks in Billund, LEGOLAND Windsor in 1996 Capabilities Capabilities are a combination of intangible and intangible resources (Hanson et al 2014) They are often based in developing, carrying and exchanging information and knowledge within the firm’s human capital which used to develop in specific functional areas (Hanson et al 2014) LEGO divide the business into two groups which are the markets and products group and community, education, and direct group The new structure allows the company to be aligned with the company’s strategy to both continue its traditional model and leverage broader community of customers and partners LEGO has the capability to develop industrial excellence and cutting-edge capabilities in material science and production technology LEGO also implemented a “Fitness Program” which included streamlining the production process, reduce organizational layers, and increase responsibility and customer focus to build a more responsive and global business system Core competencies Rare? Valuable? Costly substitutable? Yes Yes Yes Management No Yes imitate? Yes restructure Brand Image Product design Yes No Yes Yes Yes Yes and quality to Non- lOMoARcPSD|10803158 Brand image is the result of a strong brand presence and a very effective way to grab need consumer attention especially towards the children The fan base that LEGO brand have is a core competency, this core competency can lead to a competitive advantage for the firm over its rivals (Hanson et al 2014) It is valuable as it allows the firms to exploit opportunities or threats in its external environment, possess a capability that few of its competitors have or if not none in this case (Hanson et al 2014) The adult fan base that give meaningful feedback and had the technical expertise necessary to solve design issues and innovate designs are capabilities that firms cannot easily develop as it is costly to imitate (Hanson et al 2014) This is also non substitutable as the result of high intangible asset as the company have high product innovation and community which allows platform for co-creation SWOT STRENGTHS WEAKNESS - World – renowned brand - High production costs - Global marketplace - No educational products for children - High quality product designs - Over-diversified product line - Strong customer relationship - High fan base - Adaptability to different markets - Strong leadership - Discipline - Rivals such as Hasbro and Mattel - Employees and responsible workforce OPPORTUNITIES THREATS - Increasing trend of technology - Educational product lines may - Use of cheaper labour cost overseas - Licensing product lines to popular - Electronic toys brands such as Disney - Low fertility rates - Increased lose job by outsourcing wants of educational product lines for children Analysis of current strategies LEGO focussed on the engagement with fans This allows employees of LEGO to be more responsive to customer feedback, and increasing their internal and external communications lOMoARcPSD|10803158 by eliminating unnecessary hierarchical and bureaucratic processes By having a strong customer relationship especially with adult fan base comprising of teachers, students, parents, engineers and hobbyist it allows for meaningful feedback and technical expertise to solve design issues and innovation allowing for co-creation within LEGO Over diversified product lines complicated the LEGO supply chain and seriously affected the company’s profitability as some of the products were unsuccessful They countered this by streamlining the products, reduce organizational layers and increase responsibility and customer focus to build a simple, more responsive global business system The firm also have adopted technological trends as the use of the internet increased LEGO established an online shop in 1999 to sell directly to their consumer and having platforms such as LEGO Factory as an engaging platform for co-creation Since early adopters of new technology often achieve higher markets shares and earn higher returns (Hanson et al 2014), LEGO inspired learning and led the development of new products and components which contributed to the growth of the business LEGO reconnected with its consumers as they were “unnerved by the existence of fans over the age of 30” they realize that they have huge talent, knowledge and passion in the community and some were more knowledgeable than LEGO’s own employee LEGO made use of its Adult Fans of Lego as it is considered a meaningful extension of the LEGO community allowing for an engaging platform for co-creation LEGO customers were not only users of the product but also part of the LEGO company which contributed growth to the business LEGO followed on the technology evolution their consumers are able to communicate through web-based communities such as YouTube, wikis, Blogs, social media allowing them to share information and allow to collaboratively come up with innovative ideas LEGO leveraged its “customers’ involvement through seeking their opinions through web-based platforms.” Hence trying to reconnect with its consumers The LEGO Group entered the “video game industry in 1997 with “LEGO Island” a highly competitive industry which is a threat to the industry as markets have shifted towards electronics such as MP3s and video games LEGO licensed many video games such as the highly popular “LEGO Star Wars” into their product line which created succussed in the video games line The company also expanded into the entertainment sector such as online lOMoARcPSD|10803158 gaming and board games LEGO also successfully collaborated with Warner Brothers to produce a “LEGO-branded online video game experiences” and a “LEGO Movie” which is a computer animated comedy based on its LEGO products, mainly its characters This allows LEGO to increase its brand awareness, loyalty and increases its customer engagement Articulation of key issues and/or problems and recommendations LEGO have a globally diverse market, incorporating new technology and consumer preferences into the design of their products and having a very strong customer relationship which is through their fan base This done by exploiting the company’s own core competency in the specific product market which is used to gain a competitive advantage in the toy industry (Hanson et al 2014) In the case LEGO’s one of its weakness is the lost in competitiveness in manufacturing and supply chain management when competitors such as Hasbro started outsourcing As a result, the products are expensive and the firm’s cost increases due to labour and manufacturing cost of their own product Recommended strategy that LEGO should take would be outsourcing their manufacturing This would help LEGO reap lower wage costs across all of their production processes as well as being geographically beneficial to other major markets Toys sold in the U.S are manufactured in china by outside contractors due to the cheap labour costs China have a large population which allows for mass market sale However, such decisions cannot be taken lightly as it will risk losing thousands of jobs in Billund as production facilities This may take an effect on LEGO’s local image, however the benefits outweigh the consequences by offering more competitively price product, increasing brand loyalty and the same time boosting the local economy in emerging markets LEGO’s main business level strategy is to differentiate their products through their product quality design, building their brand loyalty They have done this by engaging thousands of fans whose passion for LEGO led to some of the company’s most creative and innovative applications, which exceeded the company’s imagination A strong brand loyalty was used to create and helped the rebirth of the LEGO corporate culture LEGO empowers its strengths of high brand loyalty and strong fan base to restructure its corporate culture and processes lOMoARcPSD|10803158 Threats that LEGO is facing is the substitute of products such as the introduction of MP3 and video-games systems and other competitors such as Mego Bloks that had entered the toy market Even as electronics was a threat LEGO uses the internet and sources creativity and uses customer feedback to produce products They this by maintaining the customer relationship with The Adult Fans of LEGO online communities with their MINDSTORMS product The user-driven platform of creation, production and sharing lead to have significant implication to reach for new innovation The use of brand loyalty, strong customer relationship, adaptability of markets led to counter acting its threats of electronic products LEGO in 1998, led an approach of product expansion and diversification added complexity and became increasingly difficult to manage “LEGO Group posted the first-ever annual loss in its history.” Previous management did not see the impact of the cost of an extra mold on its design, manufacturing, servicing of retailers, forecasting and managing its inventory This in turn would lower its production costs and would be able to offer competitively price products Costing and accountability systems should be implement Before Knudstorp restructure its supply chain management “inventory costs were exploding, we had lot of write-offs and obsolescence” components had doubled “in 2004 we discovered that it had more than doubled since 1994” LEGO’s management acknowledged “substantial investment in expanding the product portfolio and consequent cost increases had not produced desired results” this means LEGO should restructure its supply chain management by removing its unsuccessful product lines to simplify its production process and increase the discipline, accountability and costing systems in its management Another strategy the LEGO should expand into would be its educational sector by maximising their target audience range This means children from the early ages as This is due to the rising demands of parents are more focussed on “their child’s development” and products that are more “learning-focused” LEGO can implement technology into their DUPLO range and develops its toys to competitors such as Fischer-Price and Leapfrog However, this may pose a challenge to LEGO a supply chain management, and may have an effect on its brand loyalty LEGO’s strategy in expanding its education programme through LEGO build and their adult forums which would allow LEGO to incorporate their “culture of creativity” so as not to lose its customer and brand loyalty but also ensuring a successful product development for younger children lOMoARcPSD|10803158 LEGO Group would benefit from the efficiency in all their business processes Hence outsourcing their distribution should be outsourced LEGO should shift their manufacturing to central Europe and Mexico as this would allow the LEGO Group to shorten their supply chain and hence “take advantage of decreased labour costs.” With the increasing trends of technology their machines and production process should be highly automated for use in their main product lines By also streamlining their product offering this would allow lowering the cost of production by eliminating bricks that are not used efficiently As some “paints were more expensive than others and, in some cases, a new brick was created that was unnecessary; an existing brick could have been used.” This can be seen when LEGO reduced their total number of brick designs from “13,000 to 7,000” this discipline led to an “reduced overall cost of operating the melding machines by 30 percent.” LEGO is able to increase their flexibility and control in their supply chain management due to higher visibility in their manufacturing process This corporate-level strategy can help the firm diversify their operations into several product markets (Hanson et al 2013) and its commodities making it a competitively priced product which reduces imitation from competitors by employing strategies that incur switching costs to dissuade customer to switch to their competitors product, brand or services (Hanson et al 2014)