Lego Group Turnaround: Innovation and Change Management

Change as an Organizational Force

Stability means life. People, businesses, and organizations usually attribute change to a type of death — where the old way is gone and the new way takes over. Although some may view change as good, change is inevitable. Change may be unplanned or planned and is often a response to forces and pressure. Many types of organizational change exist, from transitional to developmental and even transformational change. In order to implement change within an organization, those willing to undertake such tasks must be visionary and implement sound strategies. Such strategies enable growth and change even when employees may struggle to accept or resist it.

Forces for change often emerge from several key areas, such as customer focus, technology, and globalization. If there is a demand for change or a recent trend, this may supply the seeds to alter things within an organization. A good example is the Lego Group. Lego had to undergo significant changes because of the decreasing demand for traditional toys. Electronic game demand grew while traditional toy sales dwindled. The retail sector began consolidating into major stores, leading to outsourcing to Asia, which created downward pressure on pricing. Adding to this, Lego's patents began expiring.

The toy company then took action and, through several sophisticated steps, altered its innovation system to achieve more effective results. Some key changes included selling off company assets, reducing headcount, and outsourcing production. These steps reduced costs for Lego and limited the number of people and resources within the company. Sometimes downsizing enables growth or sustainability within an organization, and in this case, many considered these steps genuinely innovative.

The Twelve Dimensions of Business Innovation

CEOs often view innovation as a means of leading an organization to corporate success. But what exactly is business innovation? Business innovation refers to the creation of substantial new value for consumers and the organization by creatively altering one or more dimensions of a business system. To consider business innovation, one must imagine new value — not merely new things. Furthermore, innovation comes in many forms and is systemic in nature.

There are twelve dimensions of business innovation. The first is platforms — areas used to promote and implement change. The second is offerings. The third is solutions, as organizations often pursue innovation because of a problem that needs to be solved. The fourth is customers, and the fifth is customer service. Since innovation is fundamentally about increasing value, the sixth dimension is value capture.

The seventh dimension is organization, and the eighth involves the processes within the organization. These processes are normally altered in some way to incorporate an organization's much-needed change. The ninth dimension is supply chain, followed by presence and networking. Much as Lego began outsourcing production, this shift led to a different supply chain structure. The final and twelfth dimension is brand. Organizations leverage their brand into new areas to drive further growth.

Companies and organizations must adapt to change because markets often become unstable. Powerful forces compel organizations to alter their strategies — whether in response to new economic realities or, more dramatically, to disruptive change. Disruptive change such as lawsuits or shifts in law may force a company to rapidly overhaul its business model or product. However, certain constants remain, such as the social responsibility of a business. Any successful business puts its customers first.

Lego's Crisis and the Knudstorp Turnaround

Jorgen Vig Knudstorp, a Danish economist and the man widely credited with saving Lego, explained early in 2003 how the company would climb out of the hole it had dug for itself. Lego's troubles began in 2000, when the company experienced a loss of DKK 831 million and had little to no growth the following year. In concrete terms, Lego lost approximately $100 million on revenues of $1.2 billion. Along with declining revenue, Lego had lost its strategic focus. The company had taken on wasteful initiatives — such as wristwatches and other lifestyle products — while neglecting the quality and development of its core business.

When Knudstorp took over, he determined that change needed to happen sooner rather than later. As noted in the case literature, "Knudstorp felt the company had lost its way and had no clear idea of who it was nor what products it should offer. It was clear to everyone that changes were needed" (Jick & Peiperl, 2003, p. 4).

References

Jick, T., & Peiperl, M. (2003). Managing change: Cases and concepts. McGraw-Hill/Irwin.