Harvard Case - Lego in the Age of Digitization (A)
"Lego in the Age of Digitization (A)" Harvard business case study is written by Carlos Cordon, David Shapiro, Lasse Snejbjerg, Michael Stenderup, Aliya Azimova. It deals with the challenges in the field of Strategy. The case study is 20 page(s) long and it was first published on : Sep 5, 2017
At Fern Fort University, we recommend Lego adopt a digital transformation strategy focused on leveraging technology to enhance its core competencies, expand its customer base, and create new revenue streams. This strategy will involve a multi-faceted approach encompassing innovation, strategic alliances, digital marketing, product development, and new business models while maintaining its core values of creativity, playfulness, and learning.
2. Background
Lego, a global toy giant, faced a significant challenge in the age of digitization. While maintaining its iconic brick-based products, Lego needed to adapt to changing consumer preferences and the rise of digital entertainment. The case study highlights the company's efforts to navigate this transition, including investments in digital platforms, apps, and partnerships with technology companies.
The main protagonists are Jorgen Vig Knudstorp, CEO of Lego, and the company's leadership team, who are tasked with navigating the company's future in a rapidly evolving digital landscape.
3. Analysis of the Case Study
The case study presents a compelling scenario where Lego needs to adapt to the changing dynamics of the toy industry. We can analyze the situation using several frameworks:
a) Porter's Five Forces:
- Threat of New Entrants: High, due to the low barriers to entry in the toy industry, particularly with the rise of digital platforms and independent toymakers.
- Bargaining Power of Buyers: Moderate, as consumers have a wide range of choices, but Lego's brand loyalty provides some protection.
- Bargaining Power of Suppliers: Low, as Lego has a strong supply chain and can negotiate favorable terms with suppliers.
- Threat of Substitute Products: High, due to the increasing popularity of digital games, apps, and other forms of entertainment.
- Competitive Rivalry: High, with established players like Mattel and Hasbro, and emerging competitors in the digital space.
b) Ansoff Matrix:
Lego can explore various growth strategies:
- Market Penetration: Increase market share in existing markets by leveraging digital marketing and expanding distribution channels.
- Market Development: Enter new markets, particularly emerging markets with high growth potential, by adapting products and marketing strategies.
- Product Development: Create new products and experiences leveraging digital technology, such as augmented reality (AR) and virtual reality (VR) applications.
- Diversification: Explore new industries and business models, potentially through acquisitions or partnerships, to expand beyond traditional toys.
c) BCG Matrix:
Lego's product portfolio can be analyzed using the BCG Matrix:
- Stars: Products with high market share and growth potential, such as Lego's flagship lines like Star Wars and City.
- Cash Cows: Products with high market share but low growth potential, potentially requiring strategic adjustments to maintain profitability.
- Question Marks: Products with low market share but high growth potential, requiring investment to determine their long-term viability.
- Dogs: Products with low market share and low growth potential, potentially requiring divestment or strategic repositioning.
4. Recommendations
Lego should adopt a multi-pronged strategy to navigate the digital landscape:
a) Digital Transformation:
- Invest in technology and analytics: Develop a robust IT infrastructure to support digital initiatives, including data analytics, AI, and machine learning, to gain insights into customer behavior and optimize operations.
- Embrace digital marketing: Leverage social media, online advertising, and content marketing to reach new audiences and build brand awareness.
- Develop digital products and experiences: Create engaging digital games, apps, and interactive experiences that complement and enhance the physical Lego experience.
- Explore new business models: Consider subscription services, online marketplaces, and digital content licensing to generate new revenue streams.
b) Strategic Alliances:
- Partner with technology companies: Collaborate with tech giants like Google, Amazon, and Apple to leverage their platforms, expertise, and reach.
- Form strategic alliances with other brands: Partner with entertainment companies, media outlets, and educational institutions to create cross-promotional opportunities and expand reach.
c) Product Development:
- Focus on innovation: Continuously develop new products and experiences that cater to evolving consumer preferences, incorporating digital elements and engaging storytelling.
- Leverage AI and machine learning: Utilize these technologies to personalize product recommendations, optimize product design, and enhance the overall customer experience.
- Develop a robust product development process: Implement agile methodologies and rapid prototyping to quickly iterate and adapt to changing market demands.
d) Brand Management:
- Reinforce core values: Maintain Lego's core values of creativity, playfulness, and learning while embracing digital innovation.
- Strengthen brand identity: Leverage digital platforms to engage with customers, build community, and foster brand loyalty.
- Develop a consistent brand experience: Ensure a seamless and engaging experience across all touchpoints, from physical products to digital platforms.
e) International Expansion:
- Target emerging markets: Explore opportunities in high-growth markets like China and India, adapting products and marketing strategies to local cultures and preferences.
- Leverage global partnerships: Collaborate with local distributors and retailers to establish a strong presence in new markets.
5. Basis of Recommendations
These recommendations are based on a comprehensive understanding of Lego's core competencies, external market dynamics, and the competitive landscape.
1. Core Competencies and Consistency with Mission: The recommendations align with Lego's core competencies in product design, manufacturing, and brand building, while embracing digital innovation to enhance its value proposition and stay relevant in the digital age.
2. External Customers and Internal Clients: The recommendations address the needs of both external customers, by providing engaging digital experiences and expanding product offerings, and internal clients, by empowering employees with new tools and technologies.
3. Competitors: The recommendations aim to differentiate Lego from its competitors by leveraging its unique brand identity, innovative product development, and strategic partnerships.
4. Attractiveness ' Quantitative Measures: While quantifying the impact of these recommendations is challenging, the potential for increased revenue, market share, and brand value is significant.
5. Assumptions: The recommendations rely on the assumption that Lego can successfully navigate the challenges of digital transformation, including the need to invest in technology, adapt to changing consumer preferences, and maintain its core values.
6. Conclusion
Lego needs to embrace digital transformation to remain a leader in the toy industry. By leveraging technology, fostering innovation, and adapting its business models, Lego can create a sustainable future, expand its customer base, and continue to inspire generations with the power of play.
7. Discussion
Alternative strategies include:
- Focusing solely on physical products: This approach risks losing market share to competitors who embrace digital innovation.
- Acquiring digital companies: This strategy could be costly and risky, and may not align with Lego's core values.
Key risks associated with the recommendations include:
- Technological obsolescence: The rapid pace of technological change requires continuous investment and adaptation.
- Data security and privacy: Protecting customer data is crucial in the digital age.
- Maintaining brand identity: Balancing innovation with brand consistency is essential.
8. Next Steps
Lego should implement the following steps to execute its digital transformation strategy:
- Develop a comprehensive digital strategy: Define clear goals, objectives, and key performance indicators (KPIs) for digital initiatives.
- Allocate resources and budget: Prioritize investments in technology, talent, and marketing to support digital transformation.
- Develop a roadmap for implementation: Establish a timeline for key milestones and initiatives.
- Monitor progress and adapt: Regularly assess progress against KPIs and make adjustments as needed.
By taking these steps, Lego can successfully navigate the digital landscape and secure its position as a leading global toy company.
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Case Description
The "LEGO IN THE AGE OF DIGITIZATION" case is in two parts. Part A provides an opportunity to follow the developments of the LEGO Group in the digital gaming arena. It focuses on the "failure" of LEGO Universe, the LEGO Group's first Massive Multiplayer Online Game (MMOG), versus the success of Minecraft, launched by the start-up Mojang. The LEGO Group followed the traditional waterfall process of sequential phases: design, development, testing and commercialization. The company experienced the issues of partnering with a development studio located in Colorado, far away from the Lego Group's HQ. That caused problems in aligning on the image, branding and safety of the game versus the LEGO Group's values and selling proposition. After years of development, LEGO Universe was finally launched in 2010, but failed to meet the Group's ambition for it to become a second core business. By the end of 2011, a decision had to be made on whether to continue LEGO Universe or to close it. In contrast, Minecraft followed a very different development pattern that could be described as agile, where early users did testing and provided ideas for further development. In addition, the start-up followed a more usual digital pricing scheme of initial low price and add-on purchases. The success of Minecraft is even more in contrast to LEGO Universe because both development projects started around the same time, building on a very similar gaming concept and user experience, but with very different means and development approaches. Part B is an epilogue to Part A. It describes the LEGO Group's decision to close the LEGO Universe game, its learnings on how to embark on digital together with partners, the need to internally develop a unit to manage these partnerships and the conclusion to adopt a "hybrid" approach between waterfall and agile development.
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