The Lego Group is a family-owned Danish toy making company which has its headquarters in Billund, Denmark. It has slightly over 12000 employees worldwide. In terms of sales, the Lego Group is among the top five toy manufactures in the world. The company’s main focus is the Lego bricks. However, it has a portfolio of over 25 products which it sells in over 130 countries around the world. The Lego Group was founded in 1932 it initially made only wooden Lego bricks, over the years, however, it abandoned wood over plastic after the company’s founder discovered that plastic was more ideal for making toys. From 1949, the company has continued to perfect its Lego bricks; Lego bricks are still very much at the heart of the whole Lego game and building ecosystem. Although little alterations on, design and shape of the bricks have been made over the years, modern bricks are still compatible with bricks from as early as 1958. The Lego Group was for a very long time a very successful company but its success was greatly threatened in the 1990s and early 2000s following the entry of video and computer games into the market (Andersen, Kragh & Lettl, 2013). Most children abandoned traditional toys for video and computer games this threatened most toy makers including Lego. The company has, however, weathered the storms and made a turnaround and the company is back to growth. However, this growth cannot be sustained without continuous assessment and improvement of management strategies. This paper examines Lego Group’s strategy, organizational structure, the pros and cons of its organizational structure, the types of risks the company faces, the internal and external factors that face the company, and how managerial economics can impact the decisions of this company.
Several years ago the Lego Group nearly went bankrupt. Every one of its innovation attempts from, its theme parks, and its attempts at appealing more to girls with Clikits failed miserably to yield the expected results or to bring about the much-needed growth. The company, however, brought in a new leadership and, therefore, new strategies which managed to turn the company around. Since that time the Lego Group has focused on two important aspects namely growth and innovation. Lego Group’s growth strategy has been to expand and grow its market share in its traditional markets in Europe as well as the United States and to expand to new markets in Asia and in Eastern Europe. Contrary to popular belief, Lego products are not nearly as popular in the United States as in places like say Germany. As a matter of fact, the United States market consumes only a third of what the German market consumes. There is, therefore, a lot of potential for growth in the United States market still. Similarly, Lego Group’s strategy is to grow into new markets like Eastern Europe and Asia. Its other strategy is also to increase and grow direct-to-consumer services, Lego-owned shops, online games, and other online activities, for example, online-based games for children (Antorini, Muniz, &Askildsen, 2012).
Additionally, the other strategy has been to invest more in innovation. Lego Group has put a lot of emphasis on creating new innovative products. The company has also put in place a system where it comes up with new innovative concepts every three years, one such concept is board games for families. The other strategy has been to work more with schools and kindergartens and to expand its concept of LEGO education. Furthermore, the company has put a lot of focus on increasing its digital footprint by expanding its digital business in response to the fact that children are increasingly abandoning physical games for digital or internet games.
The Lego Group’s organizational structure is generally flat with 21 horizontal layers and 4 vertical layers. It, therefore, has a great number of horizontal differentiation and low vertical differentiation. However, in 2016, Lego Group made some changes to its organizational structure. This was in a bid to grow the Lego brand’s traditional plastic brick making business into other frontiers and other segments like digital games. The company restructured its management and created a new unit whose focus was strictly on the Lego brand, the unit was called the Lego Brand Group. Additionally, it asked its long-serving Chief executive Jørgen Vig Knudstorp to step down and head the new Lego Brand Group as well as take Lego Group’s board Chairmanship position. It is important to note that Jørgen Vig Knudstorp was the first nonfamily member to be the Chief Executive of the company. He is also credited with turning the company around from its near collapse in 2004. The company filled his position for first the time as well with a non-Danish Chief executive called Bali Padda. Mr. Padda had been the Group’s longtime Chief Operating Officer. The new unit was created to help the company better handle the company’s expansion into new markets and the attendant effects. The Lego Brand Group was, therefore, established to explore and address the new opportunities and challenges that came with expanding into new frontiers (Antorini, Muniz, &Askildsen, 2012). Though the company’s traditional business of toy blocks had faired quite well against an increasing number of digital devices it was crucial that the company made appropriate structural adjustments to better respond to this phenomenon it was important that the company stayed ahead of the curve. The adjustments would enable Lego Group to exploit other channels to engage children. Besides, the company had grown too large it was becoming increasingly difficult for one executive to adequately handle all the tasks. The new structures would, therefore, help lighten the workload of the Group’s Chief executive (Andersen, Kragh & Lettl, 2013).
Flat organizational structures generally have few layers of management and broader spans of authority. The few chains of command in a flat organizational structures means that communication is not only much quicker but also more effective. This organizational structure also has the advantage of reducing cases of disagreements among workers since even junior staff or rather people who actually do the work are more involved in decision making. There is, however, the disadvantage especially in cases where an organization is as big as Lego that workers can end up reporting to more than boss which may cause confusion (Antorini, Muniz, &Askildsen, 2012).
Flat organizational structures offer more flexibility when it comes to decision making. However, since very many people report to one manager or a few managers it may cause a lot of confusion, especially with regards command structure. That being said, quicker decision-making makes happier customers. Flat organizational structures enable workers to easily make decisions without the need to consult management.
In situations where flat organizational structures work as they should, they save companies costs that result from high employee attrition. Flat organizational structures also in sense increases the company’s profit margins because of the few management layers. Ordinarily, managers are paid much more than the regular workers. Few levels of management, therefore, mean that a lot of money that would otherwise go into salaries of managers is saved. There is, however, the disadvantage that skilled workers may leave the company because few opportunities for career growth or advancement exist (Andersen, Kragh & Lettl, 2013).
Flat organizational structures are often employed in situations where a company works with highly skilled employees, that is, employees who have an input in decision making. The rationale is that when employees feel that the company’s progress is dependent on their input and decisions they work harder and more responsibly. The flip side, however, is that some of them get discouraged especially if their ideas do not go on to be adopted or if their ideas take too long to be implemented because of the consultative nature of this organizational structure (Antorini, Muniz, &Askildsen, 2012).
Pestle analysis is a means by which organizations or companies use to identify internal and external threats as well as opportunities. Pestle analysis enables companies to unearth all potential threats and opportunities. Pestle analysis concerns itself with six important factors namely political, economic, social, technological, legal and environmental factors.
In 2006, the Lego Group shut a down its only plant in the United States after over half a century of operation. The plant had become too costly to run plus the company was losing most of its market in the US because children in the US preferred video and digital games over Lego bricks. The vibrant and dynamic social culture in the US had made kids nearly completely abandon traditional toys for video and digital based games. This shift in culture which pushed Lego out of the US is very much present, and even more so now (Andersen, Kragh & Lettl, 2013).
Democracy is very vibrant in Denmark this has ensured that the environment is at all times friendly for businesses and companies like Lego. This has enabled Lego to survive quite well through all financially tumultuous times.
The strong EU anti-counterfeit laws have made it possible for Lego to get returns to its investments. These laws have also enabled the company to work closely with other branded companies to reinforce, harmonize, and implement the laws across Europe.
The presence of economic blocs such as the European Union has given Lego vast markets for their products. Similarly, the fact this bloc comprises people from diverse backgrounds and cultures has enabled the company to diversify its products as much as possible and gain invaluable management experiences.
The requirement that all companies reduce their carbon footprints and their greenhouse gases emissions has compelled Lego to review and adjust its manufacturing as well as it supply processes.
The growth of social media platforms and the internet has forced Lego to explore other ways of serving its customers. For that reason, Lego has put in place websites where customers can purchase genuine Lego products. The internet has also helped Lego to enhance its marketing strategies and reach a greater audience. Through the internet, Lego now can inform its customers when new products will premiere (Antorini, Muniz, &Askildsen, 2012).
Types of risks the company may take
Companies and businesses in the general face all kinds of risks in their daily operations. These risks come in different types and can make companies lose profits and even file for bankruptcy. Companies often face the following types of risks strategic risks, operational risks, compliance risks, reputational risks and financial risks.
Companies often put in place strategies, however, business environments are unpredictable and change all the time. Strategic risk is the risk that a business strategy may with time fail to adequately respond to changes in the business environment.
Operational risks result when some or all the operations of a company fail. Failures can be technical like power outages, and other forms of failures.
These are risks that occur when the legal or regulations environment within which a company operates suddenly changes.
These are risks that result from either increased costs of doing business or from loss of revenue. For instance, a company may lose one or more of its very important clients or markets.
All companies and business operate on the basis of good reputation. Companies that suffer a damaged reputation almost certainly lose revenue also. Additionally, employees too prefer working with companies with a good reputation.
Managers, Chief executives and other leaders of business make decisions on a daily basis. Managerial economics is a tool that managers can use to determine how limited resources such as technology, labor, money, and other resources can be allocated to competing needs in a more efficient manner. A good understanding of managerial economics helps managers to make decisions that are sounder in a systematic way. Managerial economics provides managers with quantitative tools and techniques to make business decisions (Egan, 1995, p. 51). Moreover, it enables managers to use economics concepts such as price elasticity, demand, and supply, marginal analysis to make important business decisions such as when the company should invest when the company should introduce a new product and other important decisions. Lego Group, for instance, can use the concept of price elasticity of its products to gauge its sustainability. High elasticity may mean that there other alternative products on the market which can replace Lego products if they adjust their prices. This can, therefore, help managers to formulate appropriate strategies to respond to those realities (Birch, 1986, p. 70).