So What Did LEGO Do, Anyway?
PDMA Visions Magazine Staff
Originally published: 2012 (PDMA Visions Magazine • Issue 1, 2012 • Vol 36 • No 1)
Read time: 4 minutes
In the last edition of Visions, our LEGO hero was perched precariously on the edge of business collapse. The LEGO group, facing severe economic hardship, had turned to innovation to save the organization.
The company pursued in earnest the seven innovation truths—the courses of innovation action recommended by academics and gurus:
- Explore the full spectrum of innovation;
- Pursue open innovation;
- Seek blue oceans;
- Practice disruptive innovation;
- Hire diverse and creative people;
- Walk in their customers’ shoes; and
- Build an innovation culture throughout the organization.
LEGO did these things well. The result? It almost went bankrupt.
In a challenging and thought-provoking keynote at the PDMA’s Annual Global Conference, professor Dr. David Robertson of The Wharton School took the audience through this story. As a group of innovators, this was a moment of truth for us. Was all that we believed about new product development and innovation to be dashed by the reality of the LEGO experience? Were these truths we’ve heard and tried to promote within our professions about to be revealed as falsehoods?
After allowing the audience to sweat for a moment at this cliffhanger, Robertson revealed the problem that LEGO had unfortunately discovered the hard way. The company’s investment in innovation was entirely in the innovation engine. In essence, its turnaround strategy had created an innovation machine of great power. Although it was churning out new products at a tremendous rate and expanding into new markets with new possibilities, the machine lacked a critical component. Perhaps this is the eighth innovation truth: You need a guidance system, not just an engine.
Like a rocket car without a steering wheel, LEGO’s innovation engine had launched them down a path at high speed, without the ability to navigate the curves in the road ahead. And like such a car, the end of such a ride is destined to be disastrous.
An effective guidance system must answer three questions:
- Position: Where are you now?
- Direction: Where do you want to go?
- Controls: How will you get there?
For a business, this means having a clear understanding of project and portfolio status on a real-time basis, having a clear perspective about how the innovations are linked to the overall strategy and relative priorities and having the management systems clearly defined for effective resource allocation and decision making.
Fortunately for the LEGO Group, it discovered this problem before the impending crash-and-burn scenario could come to fruition. LEGO created an internal guidance system that could manage the powerful innovation engine that they created. To implement the system, the company had to first take its foot off of the accelerator, cutting back on new products in the pipeline and consolidating existing collections.
For establishing direction, LEGO implemented several consumer (user) and customer (retailer) input channels. Product teams were organized to align with customer communities that had grown spontaneously but without structure. Designers and marketers were given better tools for assessing product and customer profitability. And leadership defined the types of innovation the company needed. This ongoing dialog provided insight into what the LEGO brand meant and could mean in the marketplace.
To improve control, LEGO reorganized the company to better define and align roles and responsibilities, and new positions were created to ensure appropriate functional leadership. It completely revamped its development process to ensure that the company could understand where each project was and adjust if necessary. And it created new positions throughout the organization to add discipline to its already creative designers.
For determining position, LEGO began conducting executive innovation committee reviews of projects and the innovation pipeline, ensuring clear visibility of where things stood. Measurement systems for management and business unit performance were implemented, which not only provided more objective assessment of performance but also provided direction by aligning incentives with strategic objectives.
The results for LEGO have been excep-tional. Between 2007 and 2010, while competitors in the toy industry are showing flat or declining earnings and profitability, LEGO grew revenues by an average annual growth rate of 25 percent and profits by an aver-age annual growth rate of 50 percent! Such performance in a global economic downturn is no accident. The accident that could have happened—the untimely end of LEGO—was avoided by attaching an effective guidance system to the powerful innovation engine that LEGO had created.