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1. Problem Definition......................................................................................................................2 2. Structure.......................................................................................................................................2 3. Limitations and source criticism.................................................................................................2 4. Introduction..................................................................................................................................2 5. The Internal Situation of LEGO..................................................................................................4 5.1. Economics.............................................................................................................................4 5.2 Organization..........................................................................................................................5 5.2.1 Types of structures.........................................................................................................5 5.2.1.1 Functional................................................................................................................5 5.2.1.2 Divisional................................................................................................................5 5.2.1.2.1 Product.............................................................................................................5 5.2.1.2.2 Market..............................................................................................................6 5.2.1.2.3 Geographic.......................................................................................................6 5.2.1.3 Matrix......................................................................................................................6 5.2.1.4 Conclusion...............................................................................................................6 5.2.2 Organization in LEGO...................................................................................................7 5.3 Marketing...............................................................................................................................7 5.3.1 Value chain analysis.......................................................................................................7 5.3.1.1 Support Activities....................................................................................................7 5.3.1.1.1 Firm infrastructure...........................................................................................7 5.3.1.1.2 Human Resource Management........................................................................8 5.3.1.1.3 Technology Development................................................................................8 5.3.1.1.4 Procurement.....................................................................................................8 5.3.1.2 Primary Activities...................................................................................................8 5.3.1.2.1 Inbound Logistics.............................................................................................8 5.3.1.2.2 Operations........................................................................................................9 5.3.1.2.3 Outbound Logistic............................................................................................9 5.3.1.2.4 Marketing.........................................................................................................9 5.3.1.2.5 Service..............................................................................................................9 5.3.1.3 Margin.....................................................................................................................9 5.3.1.4 Core competences.................................................................................................10 5.3.2 SWOT-analyses............................................................................................................10 5.3.2.1 Conclusion.............................................................................................................11 5.3.3 Market strategy.............................................................................................................11 5.3.3.1 Market Share.........................................................................................................11 5.3.3.2 Market Growth......................................................................................................12 5.3.3.3 Generic Strategy....................................................................................................12 6. Conclusion.................................................................................................................................12 7. List of literature.........................................................................................................................14 8. Appendixes................................................................................................................................15 8.1 Appendix 1...........................................................................................................................15 8.2 Appendix 2 LEGO Corporate Management....................................................................16 8.3 Appendix 3 - Aided and unaided brand awareness among mothers 0-14..........................17 8.4 Appendix 4 Growth Share Matrix.................................................................................18 8.5 Appendix 5 Ansoffs Growth Matrix...............................................................................19 8.6 Appendix 6 - The new LEGO Group..................................................................................20
8.7 Appendix 7 The development in the number of employees ...........................................22 8.8 Appendix 8 Generic Strategies.........................................................................................23
1. Problem Definition
In this project we have been given LEGO as an assignment. After finding some information, we have chosen the following as our problem formulation. How is the internal situation of LEGO?
2. Structure
To analyze the internal situation of LEGO, we will be focusing on the following areas. Economics models showing the financial highlights of the company Organization graphs illustrating the organizational structure of the company Supply Chain Management Focus on LEGOs Value Chain Marketing and Sales Graphs showing the development in LEGOs sales and value of being a big brand. Furthermore we will show various models which give a clearer picture of LEGOs strategy.
4. Introduction
LEGO Toy of the century In 1932, the LEGO Group was founded by a Danish carpenter, Ole Kirk Kristiansen. The company has remained within the family ever since, going from son to son, and is now owned by the grandson of the founder, Kjeld Kirk Kristiansen.
From being a small workshop, making wooden toys, stepladders and ironing boards, the company has developed into a modern, global enterprise, producing the plastic bricks we know today. These plastic bricks are still as popular as ever and LEGO is among the leading manufacturers for toys in terms of revenue. With themes ranging from Star Wars to Harry Potter, the bricks are sold in hundreds of different countries. LEGO has been chosen as the Toy of the century twice and is seen as having made a major contribution to children over the past 100 years. The name LEGO consists of the two Danish words leg godt which means play well. Future Direction The company suffered a couple of rough years as they lost focus on their core competence, which are toys. They had seeked to expand the brand to theme parks, clothing and computer games. All of those turned out to be short-lived licenses. Then The Shared Vision strategy was made. They managed to recover, by rebuilding the company brick by brick, getting rid of anything that was not the core business, such as sub-brands (LEGO City, LEGO Pirates, and LEGO Castle). Now the focus for the next couple of years is to build a strong and profitable enterprise. LEGO came up with a model that should help them turn the company around. 1 They realized that in order to make the old family business a success again they had to start by stabilizing the companys economy. That resulted in having to let a lot of employees go. They also had to go back to core competences of the company and when they have done that LEGO will grow again. These are the headlines of the Shared vision. The vision has many different factors, but the idea is that the core of business remains the same. They have outlined three major components of an importance, which include value offered to consumers and sales channels, refocusing on value offered to consumers and increasing operation excellence. In this report we will try to follow up on how the Shared Vision is doing and see if the LEGO Company has been able to put the bricks together the right way.
See Appendix 6
For financial ratios look appendix 1 For financial ratios for Mattel look appendix 1
5.2 Organization
Before discussing the differences in organizational structure, its necessary to understand the meaning and purpose of organizational structure. Organizational structure formally determines the hierarchy within an organization. In other words; who reports to whom? Some companies attend to refer this as the organizational chart.
5.2.1.1 Functional
Functional structures are perhaps the most common organizational model used by companies. A company organized with a functional structure groups people together into functional departments, including purchasing, accounts, production, sales and marketing. Normally each of these departments would have a functional head that may be called manager or director depending on whether the function is represented at board level. The department leader is in charge of the main activities or functions that need to be performed within the organization, and the organization is vertically integrated from the bottom to top of the organization.
5.2.1.2 Divisional
The divisional structure is broken down into three areas: product, market, and geographic. 5.2.1.2.1 Product
Product structure groups employees together based upon specific products produced by the company. An example of this would be a company that produces three distinct products, "product a", "product b", and "product c". This company would have a separate division for each product.
5.2.1.2.2 Market Market structure groups employees together based upon specific markets in which the company sells.
5.2.1.2.3 Geographic Geographic structure groups employees together based upon specific geographic location. This is often used by large companies that operate in many areas.
5.2.1.3 Matrix
Matrix structure groups employees by both function and product. This structure can combine the best of both separate structures. An example would be a company that produces two products, "product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department. Matrix structure is the most complex of the different organizational structures.
5.2.1.4 Conclusion
Finding the organizational structure that works best for a particular company is very important. Using the wrong structure can result in poor communication, poor product development, poor customer service, and a myriad of other business problems. Any of these things can be detrimental to a company and could result in lost revenue or even complete failure of the company.
5.3 Marketing
We have chosen to do the value chain analysis and the SWOT analysis to give a better picture about how the company is doing, regarding sales and management and supply chain. This will also show the companys strengths and weaknesses. Furthermore we have chosen to do a growth-share matrix to define LEGOs market share, and Ansoffs Growth Matrix to see how they act on the markets.
See Appendix 2
The LEGOLAND Brand was established in 1967. They changed their products in 1978 to mini figures with movable arms and legs.
5.3.1.1.2 Human Resource Management The LEGO Company has 150 designers of 15 different nationalities. Most of the designers have been trained at design or art schools in various parts of the world. The experience of designers from so many different cultures gives LEGO the opportunity to make products suitable for a larger market. The LEGO Company provides trainee programs for young people. By hiring young people they keep the young spirit in the company which helps to bring modern products on the market. The first personnel manager hired to create better communication with employees.
5.3.1.1.3 Technology Development The LEGO Company started out with producing wooden bricks with decorations. Later on they started to produce plastic and wooden cars, which offered new products to customers. Furthermore LEGO was the first in Denmark to buy a plastic injection-moulding machine in 1947. They start to use automatic machines and computers in the production which leads to lower costs and fewer mistakes.
5.3.1.1.4 Procurement The LEGO Company was the first in Denmark to buy a plastic injection-moulding machine, and later on, in 1956 they got their first own truck.
5.3.1.2.3 Outbound Logistic The LEGO Group centralizes its European distribution center (EDC) in Prague, Czech Republic, which supplies LEGO products to Europe, Asia, Africa and South America.
5.3.1.2.4 Marketing The first film about LEGO was shot in 1951 which was a good advertisement for the LEGO, since they gained more customers. The LEGO Company exhibits their new products at a toy fair in Germany, this helps gaining new consumers, because people can see the toys before buying it. They established a product development department, market analysis department, and a photography department, which gives satisfaction for the customer necessities. Theres something for everyone! This motto shows their marketing strategy and its effect on the customers. The biggest marketing factor for LEGO is the brand itself. This is shown by the high awareness 5 of the LEGO name.
5.3.1.2.5 Service LEGO provides a guarantee which covers all products for all their customers. The Lego group has its own costumer service website which informs customers about the company.
5.3.1.3 Margin
Revenue Net profit for the year
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2008 9,526
2007 8,027
See appendix 3
1,352 -Profit for the year The group profit for the year amounted to DKK 1,352 million against DKK 1,028 million in 2007 -Increasing sales
1,028
The LEGO Group saw an 18.7% increase in revenue from DKK 8,027 million in 2007 to DKK 9,526 million in 2008
5.3.2 SWOT-analyses
STRENGHTS People development Market growth Effective marketing Lego.com Increasing economy Strong brand Toys with educational effect on children Film of heroes (star wars, spider man) The world's children spend 5 billion hours a year playing with LEGO bricks. Approx. 400 billion LEGO elements have been manufactured since 1949. WEAKNESSES Higher prices Narrow target group
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OPPORTUNITIES Global compact Toy of the century Creative building Inventing new products Technological development LEGOLAND Parks
THREATS Technological development of competitors Existing and new competitors Not green enough Lack of new product sales Decreasing economy Coping problem of the LEGO product from other country.
5.3.2.1 Conclusion
After analyzing the LEGO Company we came to the conclusion that its the strongest toy manufacturer in the world. This is proved by its strengths which mainly lie in the company brand.
See Appendix 4
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6. Conclusion
It is clear from several major economic factors that the shared vision implemented in 2004 has had a positive effect on the company. Many key ratios like return on assets, return on equities and return on sales show that the company are very profitable and the earnings capacity is rising. This is also showed by the development in the number of employees. 9 When LEGO was doing poorly in the beginning of this century they chose to let a lot of people go, but now the number of employees is once again at the same level. This is all do to a new strong company with a big turnover. LEGO uses like many other major companies functional structure in the board, in for the rest of the company, they uses divisional structure, containing geographical and product structure, since LEGO is having a growing profit the latest years, it can be concluded that this type of structure works for them. LEGO uses a lot of power to increase the success of the company; this is shown by them training their designers, so they will do maximum performance, furthermore they try to develop
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their machinery with the newest technology. They also try their best to be first in the field with new inventions. Since LEGO chooses to manufacture their products themselves, they are not dependent on suppliers, which put them in a very strong position. LEGO has been awarded with the toy of the year award twice, which gives them a very strong position on the market, furthermore they have with help from their worldwide known brand, giving themselves a very favorable position, as one of the strongest toy companies in the world. This is also shown by their position with in the generic strategies. They are a company with a very broad target audience but at the same time with a lot of differentiation. There are no competitors out there that offer children the same kind of toy that will educate them while they are playing. At the same time the brick is easy to produce for the company. LEGO is in Denmark, the biggest toy seller, which can be seen on their strategy. As a very functioning cash cow they are with their products controlling the Danish market, and this is also visual when you look at how the gain more market share; which is by sending in existing products on existing markets. One thing LEGO also learned from the years of downfall that they should stay focused at the toy that is their biggest seller; The LEGO-brick.
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7. List of literature
Books: Daft, Understanding the theory & design of Organization, Thomson Learning, 2009, about organization Reports: Annual Report 08 LEGO Group, LEGOs own report on the well doing of the company. Company Profile, An introduction to the LEGO Group 2009, LEGOs own presentation of the company 2009. Produced for the LEGO Group by Corporate Communications. Homepages: www.lego.com, LEGO, Their own homepage is used to find several different kind of information about the company. http://www.logisticsit.com/absolutenm/templates/article-transport.aspx? articleid=1647&zoneid=9, Manufacturing & Logistics IT, about the outbound logistics of LEGO http://www.marketlineinfo.com/library/DisplayContent.aspx?R=40CF4E47-9642-433E-9D848A5DC292A225&N=4294840848, Market Line Info, General information about LEGO http://www.bbc.co.uk/dna/h2g2/A454673, BBC, General information about the LEGO Company and its products. http://www.lego.com/eng/info/, LEGO, General information about the LEGO Company http://finapps.forbes.com/finapps/jsp/finance/compinfo/Ratios.jsp?tkr=Mat, Forbes, About Mattels financial ratios. www.wikipedia.com, Wikipedia, General knowledge http://www.nordicchamber.cz/article_files/LEGO-Nordic-chamber.ppt#23, Nordic Chamber, About the LEGO Brand and brand awareness
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8. Appendixes
8.1 Appendix 1
Financial ratios (in %): Gross margin Operating margin (ROS) Net profit margin Return on equity (ROE) Return on assets
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2008 2007 2006 2005 66.8 65 64,9 58 22 18,1 17 5,4 14,2 12,8 16,5 3 72,2 71,6 147,1 44,2 28,5 23,5 18,6 4,7
5-Year Averages for Mattel Return on Equity 22.6% Return on Assets 10.9% Gross Profit Margin 49.4% Net Profit Margin (Total Operations) 9.2%
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Return on assets is calculated by numbers from the annual report. The other ratios are provided by LEGO themselves in the report.
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8.3 Appendix 3 - Aided and unaided brand awareness among mothers 0-14
Unaided awareness
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Stabilize the Stabilize the company (get company (get control) control) Build Build defensible defensible core of core of products products Rebalance Rebalance financing financing structure structure
Achieving Vision
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Employees
6000 Average number of emplyees 5000 4000 3000 2000 1000 0 2004 2005 2006 Year 2007 2008 Serie1
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Broad target
1. cost Leadership
2. Differentiation
Competitive scope
Narrow target 3A. Cost Focus 3B. Differentiation Focus
05.10.2009
BWJ
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