Turnaround Leadership: Rebuilding the LEGO Group

Formed in 1932, Lego has grown up in a time of extensive change on a global and individual level. Within two years of its creation the company had half a dozen employees and, just a year later, manufactured its first purchasable toy: the Lego Duck. By 1946 they were the first in Denmark to acquire plastic-injection molding machines for their production of toys. It is from this moment on that the company built a name for itself, launching the famous Lego Brick in 1949.

The plastic toy was initially received with skepticism in the toy industry. However, after some development, the brick was a credible and patented toy by 1959. This growth in popularity made way for the success of the sixties, which introduced Lego wheels and the first Lego trains. These progressions in their products created a boom in both sales and popularity. However, the twenty-first century’s advances caught the Lego Group off guard, leaving the company with a huge deficit in 2003.

The reduction in sales was due to a number of factors, both inside and outside the corporation. Firstly, the inner workings of the corporation were deteriorating somewhat in terms of product design and manufacturing. Secondly, the technological changes outside the company had had an impact on the sales of toys across the board, but Lego’s attempt to counteract their own declining sales rates had backfired. The company pumped more money, and focus, into their Legolands, as well as their new, overly-complicated and unfamiliar Lego toys. Neither created the desired result in sales or popularity. Thirdly, there was a lack of understanding of what customers wanted from their products and, therefore, what was being produced was not in demand.

This decline was so extensive that owner Kjeld Kirk Kristiansen (the founder’s grandson) hired Jørden Vig Knudstorp as Chief Executive Officer of the Lego Group. Having previously trained as a consultant at McKinsey, a management advisory in Paris, Knudstorp had only been a part of the Lego family for three years, and was the first CEO of the corporation from outside the founding family. Clearly, drastic measures were essential to the survival of the corporation. Knudstorp himself commented that the state of the toy manufacturer was deteriorating when he stepped into the role, claiming that “[if] the company had not been owned by a wealthy private family, it would have been technically insolvent”. [3]

Build it Better

Knudstorp analyzed all areas of the corporation and came to the conclusion that some of the main deficiencies with the operation and turnaround of Lego were in the supply chain:

• Product development had become complex beyond financial sustainability and the costs of the materials were outrunning the funds available. In other words, the company was creating more than they could afford.
• Sourcing was also managed in a disorganized and unpractical way. An excessive list of suppliers resulted in a waste of products due to large orders of minimally used materials.
• Manufacturing happened in a very haphazard manner, which made long-term planning difficult and forced them into deals that were last-minute and therefore less financially efficient.
• Distribution of the product was not well thought out, to the degree that the stock received by retailers was often disproportionate to their sales, effectively reducing their sales or causing an overspending on unnecessary shipping.

Once Knudstorp had identified these problems, he set out to tackle them with a ‘two-track’ approach: a team of executives, thinking up strategic methods to tackle the supply chain, alongside a team of leaders and representatives from all departments, who implemented the changes.

It was made a priority for the managers to set clear targets and monitor the progress of these targets vigilantly. Furthermore, once the team had debated an issue and come to a conclusion on how to progress with it, they would not deviate from this decision unless it became unworkable in practice. Though the corporation was under vast amounts of pressure to implement these changes in time for the Christmas rush, the executive team maintained a high level of attention to detail, allowing the group to make a full recovery, rather than just implementing quick fixes here and there.

The Community of a Lego House

Alongside these developments in the supply chain, Knudstorp had concluded that the company culture had deteriorated and needed new organization and energy. Knudstorp’s understanding of the cultural deficiencies meant that he focused on three key areas:

1. free communication with employees and management
2. the product and what it brought to the world
3. a future-motivated vision

Knudstorp attempted to create cultural changes where everyone felt able to contribute and add to the process of growth. In an interview in Harvard Business Review, Knudstorp explained the significance of a Danish expression that translates to ‘managing at eye level’. [4] He adopted this approach to communicating with his staff in an open and approachable way, while continuing to be aware of the changes that could be made to better the corporation. This allowed them to feed back to him, but also allowed him to understand the processes behind the business and the value that each separate entity brought to the Lego customer experience.

In order to get back to the central idea of Lego, Knudstorp changed the management structure of the group by approaching the team as a whole to understand what the product meant to each of them. The purpose behind this research not only being the understanding of the product, but the understanding of the team as a whole.

Knudstorp brought the company back to the purpose behind the group’s existence - the core product of the Lego toys, and what they wanted to provide through those toys. It was established that the use of Lego orientated around its ability to help children learn ‘systematic and creative problem solving’ in an enjoyable and interactive way. [5] Knudstorp also established a focus on quality over quantity, so that the heart of the group, and therefore the products, was displayed in the unique and first-rate toys produced by Lego manufacturers.

Once Knudstorp had the culture and community of the company growing in a more effective and supportive manner, the task of envisioning the future of the company and Lego’s presence in the modern age came next. Knudstorp dedicated time to evaluating the different ways a future could be built and, like a Lego creation, he concluded that there were many processes and methods to this construction. Knudstorp identified a need to change the leadership approach, as the group had become significantly focused on risks rather than opportunities. The idea of organic growth and positive future outlook is a key example of Knudstorp’s turnaround leadership, most significantly in his approach to rebuild the company in a way that was both natural to the company and sustainable.

Thinking Outside the Lego Brick Box

A key development of the company’s turnaround was the interaction between the Lego Group and their customers. Since 2005, the company has interacted with customers more during the process of product development, with Knudstorp himself meeting adult Lego fans. These communications proved fruitful to the company’s understanding of what their customers wanted, and further, what audience their products appealed to. From this, Lego started encouraging their fans and customers to be proactive in their communication with the company, effectively breaking down barriers between customers and the creators.

One example of a customer’s involvement in developing Lego products can be seen through the Lego Architecture line, which was initiated by Chicago architect Adam Reed Tucker, who had been building models of iconic buildings out of the toy bricks. Tucker approached the Lego Group and enquired whether the company would be interested in a line that dedicated itself to creating famous buildings and monuments - essentially suggesting a Lego creation aimed more at adults than children. This expansion of the target audience not only opened up a product range whose prices were tailored to wage-earning customers, but also extended the horizons of the Lego Group, to be not only a toy manufacturer, but a manufacturer of miniature building materials, usable for both functional and recreational purposes.

Where They Are Now

After just over a year of Knudstorp’s management, the Lego group made its first profit since 2002, of €61 Million. [6] This success continued into the next few years, where it increased its profits by a massive 240%. [7] If that wasn’t enough, the company grew quickly into the 21st century. By 2014 the corporation had tripled their 2007 profits, largely due to the success of The Lego Movie. [8] Knudstorp’s open and quality-focused approach to Lego’s reconstruction allowed him not only to fix the foundational flaws of the Lego company, but also to build something creative and efficient enough to withstand the changing culture of the 21st century.

“The way I manage my team is like an orchestra conductor. There’s a bunch of virtuosos and high-performing individuals in the orchestra. I will never tell them how to play the violin. But I will tell them if they’re not playing the same score as the rest of the orchestra.” Jørgen Vig Knudstorp [9]