Lessons from Lego

The boom years

Danish carpenter Ole Kirk Christiansen started Lego during the 1930s, but it wasn’t until the 1970s that the popularity of Lego sets surged, with the introduction of the minifigure - Lego’s smiley little characters - alongside popular sets based on themes like space and castles. 

Profits doubled every five years during the 1980s, as the company expanded its range of themed building sets, grew its markets and modernised production.
 

Heading for bankruptcy

The 1990s heralded a slowdown for Lego, amid tough competition from other toy-making rivals and video games. 

In response, the company went on an aggressive expansion and innovation drive, diversifying into clothing, theme parks, video games and more. 
 
But this backfired. It became clear that the company had spread itself too thin, falling into a trap of innovation that lost sight of the basics.

How Lego came back from the brink

This brings the story back to 2003, and Knudstorp’s burning platform. Losing money fast, Lego was on the brink of bankruptcy.

But rather than succumbing to a lack of cash and brutal market forces, it came back bigger and stronger than ever.
 
A number of key steps, over several years, made this possible. These included:

• New leadership: The promotion of Knudstorp, a former McKinsey consultant, to CEO. He became the first Lego leader from outside the founding family.
• More disciplined innovation: Under Knudstorp, Lego stopped chasing entirely new markets and focused on existing ones where they could win.
• A refocus on its core: The company sold side businesses, such as its Legoland parks, to raise cash and refocus on what it did best.
• Fewer parts: Product lines which did not feature the traditional brick piece type were cut, and the number of parts was reduced from 13,000 to 6,500.
• More customer engagement: It began engaging with its fan base, getting both kids and adults (a group it had largely previously ignored) to come up with ideas for products.
• The right digital experiences: It recognised that customers wanted digital experiences that complemented its core offering, rather than replaced them. This led to hugely successful partnerships, such as with Star Wars.    

A new audience: It sought to broaden its appeal to girls with the launch of Lego Friends, where “mini dolls” replace the standard minifigures.

The ultimate result of this methodical back-to-basics process was a turnaround that is considered one of the greatest corporate comebacks. 

Lego, which is still owned by the founding Kirk Christiansen family, went from near collapse to becoming widely recognised as the world’s most successful toy maker.