Transcription

Academic AssistLEGO Group Case Study

Academic AssistTable of Contents1. Identifying, analysing and assessing the Features of External Environment InfluencingStrategy Development of LEGO Group. 41.1PESTEL Analysis. 41.1.1Political Factors . 41.1.2Economic Factors . 41.1.3 Socio-cultural Factors . 41.1.4 Technological Factors. 51.1.5 Environmental Factors . 51.2 Porter’s Five Forces Analysis . 51.2.1 Threat of Entry . 51.2.2 Bargaining Power of Suppliers. 51.2.3 Bargaining Power of Buyers . 51.2.4 Threat of Substitutes . 61.2.5 Competitive Rivalry. 61.3 Strategic Groups. 62. Resources and Competencies of LEGO Group . 72.1 Redundant and Dynamic Capabilities . 72.2 Threshold and Distinctive. 82.3 VRIO Analysis . 92.4 SWOT Analysis of LEGO Group . 102.5 Value Chain Analysis of LEGO Group. 112.5.1 Primary Activities. 113. Alternative Strategies Available for LEGO Group in 2004 . 123.1 Organization, Management and Expectations . 123.2 Focussed on Core business and Improvement of Capital Structure. 133.3 Focus Shifted to Distribution . 133.4 Focus on Supply chain and Cost . 133.5 Innovation and End-Users . 133.6 Playing in ‘New Media or Digital’ Age . 144. Extent to which LEGO is Strategy-Oriented Organization . 144.1 Key Strategic Decisions Faced by LEGO Currently. 144.2 Strategy Definition and Strategic Drift. 15

Academic Assist4.3 Mission and Vision of LEGO . 164.4. Deliberate and Emergent Strategy. 164.5 Strategy Lenses and Strategy Horizons . 164.6 Corporate and Business Strategy. 174.7 TOWS Analysis. 174.8 Scenario Planning. 18Bibliography . 20

Academic Assist1. Identifying, analysing and assessing the Features ofExternal Environment Influencing Strategy Development ofLEGO Group1.1PESTEL AnalysisIn order to understand the organization in better manner the factors which will impact itexternally are mentioned below:1.1.1Political FactorsLEGO being international organization gets affected by the political situations in thecountries wherever it has its presence. They are already present in Denmark and planning tobuild a factory in China too, which will be ready for production by 2017 (Ritzau, 2013).Since to be distributing its products in more than 130 nations therefore the local politicaldecisions of these nations will also impact it (LEGO: About Us, 2013). Some nations like UShave regulations for promoting safer toys for kids, while some countries are against thebiased advertising and marketing of LEGO toys as just for boys which are gender biased(Miller and Gray, 2012). Corporate taxes in Denmark are supposed to be reduced by 1%every year till 2016, so that the new tax to be 22% (Matzen, 2013). Developing economieslevy high import taxes.1.1.2Economic FactorsLatest projection given by International Monetary Fund states that the general worldeconomy will see a growth in2013 in both developed as well as developing economies. Thiswill create more public wealth and increased spending by public on toys and games thusboosting LEGO sales (International Monetary Fund, 2013). However the EURO area themajor market for LEGO are still under debt crisis which can have negative impact on LEGOsales .There is higher growth in the emerging economies middle-class as predicted byOECD that the middle-class will increase from 1.8 billion in 2009 to 3.2 billion in 2020(Pezzini, 2012).1.1.3 Socio-cultural FactorsLower fertility rates across the nations due to more involvement of women in the labourmarkets, increased standard of living and education has resulted in delayed pregnancies ,which in turn increases the spending power of families one educational toys (Riising, 2013).

Academic Assist1.1.4 Technological FactorsTechnology and new product development are of significant importance for LEGO.Moreover the threat is from high access to Internet across the world, and smart mobiletechnology which is very much popular in Smartphones and used by kids. The new 3Dprinting technology used by LEGO can be easily imitated by its competitors (The Economist,2012).1.1.5 Environmental FactorsLEGO has always emphasised on corporate social responsibility and has implemented severalCSR initiatives to be ranked with the topmost companies regarding renewable energy andwork safety (Progress Report, 2012). LEGO products being made of plastic it has immensepressure to make environment friendly toys.1.2 Porter’s Five Forces AnalysisBy using Five Forces Framework the competitive Forces in the market would be understoodand the origins of the profitability in industry can be found. This framework will also help inanticipating and handling competition in future.1.2.1 Threat of EntrySince new toys are continuously entering the market with biog brand like Wal-Mart andTarget etc., therefore the threat of entry is higher. But LEGO being very famous internationalbrand it is tough for new entrants to imitate it in short-term.1.2.2 Bargaining Power of SuppliersThe primary suppliers of LEGO are the Chinese subcontractors and there are huge numbersof these Chinese suppliers which supply to various other industries too. Therefore thedependence level of LEGO is low. Moreover LEGO has most of its production in-house,supply needs are not highly differentiated and potential suppliers are easily available thus theswitching cost for suppliers is low as well.1.2.3 Bargaining Power of BuyersSince the products offered by LEGO are unique and cannot be exchanged by the retailerswith similar products and the buyers therefore cannot backward integrate the production ofLEGO toys. Due to differentiated products LEGO enjoys good market position amongst the

Academic Assistbuyers therefore the bargaining power of buyers is moderate because LEGO has goodrelationship with the retailers also.1.2.4 Threat of SubstitutesSince kids have started spending more time with digital products, but still LEGO has beendefying the trend and its sales are rising. LEGO has incorporated technology in some of itsproducts, therefore although the threat of substitutes is higher for the industry but for LEGOit is comparatively lower.1.2.5 Competitive RivalryThe major competitors for Lego are Mattel, Bandai NAMCO, Takara Tomy, Hasbro, but thetwo main competitors of LEGO are Mattel and Hasbro. LEGO is way ahead them but in nearfuture they might catch its share in operating margins and beat it therefore internal rivalry ishigh for LEGO.SignImpactBraining Power of BuyerModerateModerateBargaining Power of supplierLowPositiveThreat of SubstitutesHighNegativeThreat of New EntrantsHighNegativeInternal RivalryHighNegativeTable 1: Impact and Sign of Porter’s Five Forces1.3 Strategic GroupsStrategic Group Analysis helps in identification of various groups of competitors which havesimilar strategic characters.Some of the major competitors of LEGO are Mega Bloks Inc., which is largest toymaker inCanada and exports toys in more than 100 countries. Tyco Toys another major competitor hasbeen acquired by Mattel and it ranked first in 2004. Considering product diversificationMattel produces more diversified products than LEGO.

Academic deo/gamesProduct diversificationFigure 1: Strategic Analysis of LEGO Group (Nicholls, 2004)2. Resources and Competencies of LEGO Group2.1 Redundant and Dynamic CapabilitiesDynamic Capabilities Theory helps in analysing the manner in which the organizationacquires as well as deploys its resources so as to meet the market demands in better manneras per the market environment. Therefore dynamic capability of Lego can be defined as thecapacity of the firm to purposefully create, as well as extend and modify its resource base(Helfat, 2007).The redundant Capabilities of LEGO because of which it announced a 7 year process ofrebranding starting from 2004 (Lauwaert, 2009). Thus LEGO decided to sell offLEGOLAND parks so as to get more financial support to save the company (Annual ReportLEGO Group, 2004). Other redundant assets of the firm which did not go along to the rootsof the strategy were also sold (Gerzema and Lebar, 2008).

Academic AssistThe dynamic capability of LEGO is that it has flexible backbone model as an organizationwhich is a hybrid approach offering low-cost messaging as well as support to some of itscustomers while deeper sense of collaboration and precise tailoring offers to other customers(Court, French and Knudsen, 2006) and these capabilities help it in education, logistics, newproduct development , augmentation and technical support (Tuli, Kohli and Bharadwaj,2007).2.2 Threshold and DistinctiveThe threshold and distinctive competencies of Lego which helps it in achieving competitiveadvantage are : large capacities of installed production facilities; innovation and creativity;Raw materials knowledge extensive; creativity in product designing; efficient supply chain;reputed brand name across globe; focus on high quality standards; and efficient managementorganization and leadership. It can be analysed from Table 2 shown below and these factorshelped LEGO to regain Successful Position in Toy Market.

Academic AssistStrengthsValue toCustomerDifferentiationfromcompetitionExpandable tomarketsCorecompetenciesLarge productioninstalled facilitiesBrand NameInnovationRaw MaterialsKnowledgeManagementOrganization andleadershipFocus on High QualityStandardsProduct DesignCreativityEfficient Supply ChainTable 2: Core Competencies and Strengths of LEGO2.3 VRIO AnalysisVRIO Framework helps in conducting internal analysis of Lego and finding the corecompetencies. First tangible resources would be analysed under which the financial resourcesare valuable for Lego and rare too which provides it with competitive parity and competitiveadvantage. Lego has modern plants and facilities and location is valuable as it has moved itsproduction to count tries which have cheaper production and located close to markets but thisresource is easily imitable and easily available. Lego’s trademarkoffers Lego name avaluable resource and its innovative process are rare , valuable and very costly to imitate,therefore Lego’s innovative production process offer it sustained competitive advantage.The organizational resources offer its “shared vision” and under efficient management ofJVK all the processes are organised properly and leads to sustained competitive advantage.Its intangible resources like skilled managers e.g. JVK is very costly to imitate. Lego hasalways emphasised on innovative capacities and these resources of innovation and creativity

Academic Assistis very rare and valuable. The brand name offers Lego a world-class reputation as can be seenthat it ranks 10th in the world as the strongest brands.The VRIO Framework for Lego can be seen from Table 3 shown below:Table 3: VRIO Framework Summarization for LEGOResourceValuable?Rare?Costlyto lTechnologicalYe