Case Analysis Lego A The Crisis

1161 Words Mar 23rd, 2015 5 Pages
1. From early 1990s to 2004, the Lego Group, a long successful toymaker with a world-renowned brand, fell into the edge of bankruptcy. Compared with the highest revenue in 1999, the revenue in 2014 decreased by 35.6% while the net profit was negative, seven times less than that in 1999, the lowest in the past ten years. Its net profit margin and ROE were also the lowest. The gross margin and inventory turnover were all lower than its competitors. The strategic moves in the two main periods “growth period that wasn’t” (1993-1998) and the “fix that wasn’t” (1999-2004) lead to its poor performance.
External Analysis
Substitutes: High. Fad toys, electronic products, videogames, online activities could easily be substitutes of Lego products.
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The management shifted its strategy from steady organic growth and profitability into focusing on growth in 1993 and then tried to restore profitability and growth through "fitness program" and series of changes during the period of 1999 to 2004. The strategic actions deviated from some of the ten principles.
The Lego Group tried to catch up the market trends during the period, but they ignored that the industry total profit pool decreased by 50% Between 1999 and 2003. It's naturally for players to reduce mass production and focus on core competency. However, the Lego Group invested significantly in expansion not only in brick-based product lines, but also beyond the brick. The expansion was not focusing on its core competency.
Instability of the management, laying more stress on general leadership experience, and "fitness program" led to inefficiency and low moral/accountability among staff.
Non-outsourcing and in-house expansion without cooperating with partners boosted expenses. Two retailing channels were too limited compared with competitors' diverse retail channels.
More complex design conflicted with automated production line. It largely increased molding cost / production cost and caused an extremely low inventory turnover, much lower than its competitors. Major customers were frustrated by stock-out and slow-moving inventory.
Currency fluctuations was also one of the main reasons for its unsatisfying performance.
Therefore, the strategic

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