The Strengths, Competencies and Strategies of LEGO

2021-05-06 08:56:14
6 pages
1437 words
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Abstract

The purpose of the thesis is to identify the strengths, competencies, and strategies that the Danish toymaker company, LEGO, employs to sustain competitiveness in the toy and games industry through making simple traditional toy bricks. It is despite the fact that in a technology based era children have become addicted to computers, iPads and other technological gadgets from a very young age. The paper will explore various strategic analyzes to determine how LEGO sustains its competitiveness in a technology based era through avoiding substitution.

LEGO for the past few years has gained the reputation of being the strongest brand in the toy market. LEGO had a 13% sales increase and a 15% profit increase as per performance results for the year 2014. Thus, the thesis is set to determine, how LEGO has sustained competitiveness to increase its sales and profits and how it has avoided substitution.

To achieve this, several strategic leavers were analyzed. The powers of competitors were analyzed, a PESTEL analysis in the areas of social and technological parts was determined, the Porters five forces threats and substitutes were discussed, and an argument was presented about the firms value chain. Additionally, LEGO parents customers were analyzed as they make the buying decision and then the children. Lastly, the company capabilities through VRIO were argued and its Blue Ocean strategy briefly discussed.

Indeed, the key to sustaining competitiveness in the technology based era are efficient production process, using CEO management power to optimize the production processes, applying advanced technological advantage and utilizing global sale distribution and innovative and creative products. However, it was noted that the company needs to decrease their high product price due to the increasing competition from rival companies i.e. Hasbro, Mega Brands and Mattel.

Key Words: Competitive, LEGO, Hasbro, Mattel, Mega Brands, Strategic, Technology.

 

Introduction

LEGO announced its annual results for 2014 on February 25, and it was another stellar year for the Danish toymaker. Sales grew 13%, and profits grew 15%. As great as that is, thats actually a decline from their seven-year average. Since 2007, the companys sales have been growing at an average rate of 20% and profits at 37% per year (Robertson2015).

Following the paragraph above from an article posted on Robertson Innovation website and written by Robertson, one would wonder how a company could profit so much in the technology based era despite the high competitive market in the toy industry. In history, 15 years ago internet competitors first wave filled the online market and incumbents were able to respond to the incoming internet company threats. However, today internet competitors are advanced, and they are speedily scaling up and can to accommodate your customer and zero-in on your company segments of the value chain.

The technology era has led to increasing in competitiveness, due to the availability of algorithms for capabilities of processing and analyzing intelligence, accessible vast information, and growth of mobile device, which increases accessibility of computing power. The advanced technological era has led to changes in competition structure, industries performance and business conduct. Thus, one such company, LEGO, is stunningly profitable, without cutting prices. Their performance is high despite competitive toys in toy store with identical bricks. Indeed, LEGO Company has mastered strategy of innovation and the intention of the paper is to investigate and argue the strategic analysis of the company, so as to determine how it has managed to sustain its competitiveness in the technology based era.

Since 2008, the sales for LEGO Company have tripled and the profits have increased staggering about 7100%. The company sells expensive bricks, where a pound costs for over fifty dollars and it pays per pound for its ABS plastic raw material, at less than a dollar. The situation raises a series of questions about LEGO Group success. The questions include: 1) how they managed to become a strong competitor for technological gadgets; 2) why they are still valuable and considered to be one of the most reliable brands in the world of technology; 3) why do people still buy LEGO if they can get iPad or computer which contains greater amount of games and entertainments. And lastly, which strategic decisions were made to keep pace in the market and how does the LEGO Company manage to grab customers and keep such a high price.

Research Question:

Following the introduction provided, our researcher question can be structured as: How does Lego sustain their competitiveness in a technology based era, and how do they perceive the threat and avoid substitution and why are they still good at this.

Research Approach and Methodology

The paper research is based on the concept and point of view that is external and regarding prospective investors. The information used in this thesis is external information available to conduct the analysis. The research used external data collection, which is suitable as the prospective investors will have external information available to him or her to be employed. The research approach used is actors approach that as interaction with individuals (Kuada 2010). Various theories and models and frameworks have used to ensure complete and thorough competitiveness analysis of LEGO Company. The structures of the company will be analyzed regarding assets and processes within the LEGO industry to known the changes in the structures. The theories included in this methodology approach of the system include VRIO framework used with the resource-based view (RBV), to analyze the LEGO group capabilities, we used value chain framework for activities analyzing so as to get a competitive advantage. Additionally, we used the PESTEL framework to analyze LEGO macroeconomic environment of social and technological and porters five forces to analyze the external environment of the organization of threats of substitutes, rivalry and threats of new entrants. Competitors and customers analysis were employed through use of SOR model for customers to determine the psychological response and behavioral outcomes attached from a certain characteristic of the LEGO group products. The framework, theories and models provide an economic competitiveness view of the LEGO Company and the industry in the technology based era more than other frameworks by determining more accurately the internal and external environments, resources, weakness and strengths of the company. The aspects of the framework structure will have a direct impact of the LEGO Company, where they will impact the financial of the company and its future direction.

Data Collection

The data collection method will be through analyzing secondary data obtained from i.e. journal, Euromonitor and Datamonitor websites report, company website www.lego.com, books about toy technology, annual reports of LEGO group, reliable article from well-known authors. The data collection method is suitable, objective and correct due to the nature of selected sources and to ensure suitability of the methodology the thesis will take critical views at all times and employ a qualitative methodology (Creswell, 2013; Kothari and Garg 2014).

Limitations

LEGO is not a public trade company. Thus, most of its financial and strategic implication is less known. Due to the limited secondary sources and data concerning the company in the thesis will concentrate only on the scope of available strategic information. Additionally, finding a specific company to argue about LEGO competitiveness is hard due to its many subsidiaries, which offer strategic set of parameters and operate in different market, thus the paper will be analyzed worldwide. Additionally, PESTEL framework used can be biased as ii is dependence on individual analyzing the environment and all environment aspects are not covered. However, this thesis methodological approach I believe will provide sufficient analysis content and cover important aspects of competitive environment, due to the clarity and skills expressed in the start of the thesis.

LEGO Company Backgroung

In the year 1932 the LEGO toy company was founded by Ole Kirk Kristiansen (OKK) in Billund, Denmark (LEGO n.d.; LEGO 2005). The founder made wooden toys at the start and his motto was Only the best is good enough, used to this day and the company LEGO names were derived from combined letters LEG and GODT which in means in Latin I assemble (Vang-Pedersen 2013, LEGO n.d.). LEGO up to date abides by the principle and values it was first assigned to through always trying to improve and create toy products and the environment it is working. The company still thrives under Kristiansen motto The best is not good enough to create brick toys that are exemplary and innovative with the current technology.

LEGO first experimented with use of toys of plastic in 1947 after a decade of using toys made of wood and lunched its first building blocks of plastic in 1949 (Bak 2009; Van-Pedersen 2013). The plastic bricks were able to inspire imagination through children as they explored those different toys they can make with the plastic bricks. The company was later taken by Godtfred Kirk Kristiansen, son...

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