ITN: Professor Robertson, Lego was nearly broken up some years ago, but now it is back – stronger and more successful than ever. What do you think is the power of the brand Lego?
David Robertson: Well, Lego and its management learned that innovation requires not just giving your employees the space to be creative but also the direction and the focus to deliver something to a specific customer set in a specific time frame that is going to be profitable for the company. And Lego learned that you can't innovate in every direction –¬ your brand won't let you do that.
ITN: So, this crucial knowledge saved Lego?
David Robertson: Yes, and something else was important. When they came back on the track of success, they talked with their customers about the question „Who are we and what should we focus on basically?” It was the customers who redefined the brand for Lego. They said: „You are not about being cool, being darker, edgier or hip, you are about a kind of playful construction experience with physical bricks. That is who you are“. Thus, the customers and the brand really helped Lego to find its focus and direction. Everything went from there.
ITN: ITN: You wrote a book about the Lego success story. Could you give us some impressions of the roller coaster ride the company experienced?
About David Robertson:
Professor David Robertson is the author of the book about the Lego success story „Brick by brick”. The German edition of the book was published in 2014. From 2002 through 2010, Robertson was the LEGO Professor of Innovation and Technology Management at Switzerland’s Institute for Management Development (IMD). Robertson has consulted and led educational programs for a wide range of companies, including EMC, Credit Suisse, HSBC, Georg Fischer, Braskem, Banco Santander, Skanska, Swisscom, Russell Investments, Novozymes, GMAC, Grundfos, BT, Microsoft, Heineken, Philip Morris, Globe Telecom, Tieto Enator, and AXA.
David Robertson: Sure. They hit a period in the mid-90s when sales were flat. This was a real break, because up to that time – between 1978 and 1993 – Lego doubled in size every five year for 15 years. They grew at an annual growth rate of 14%. But the decline in sales was not surprising if you think what happened in the mid-90s: Kids were leaving traditional toys for video games and other digital toys such as Nintendo and PlayStation. On top of that, all the Lego patents had expired.
ITN: How did Lego react?
David Robertson: By putting out one toy after another. It tripled the number of new toys that it introduced into the market between 1993 and 1998. They went from a little over hundred toys per year to almost 350 toys per year between 1994 and 1998. And you can imagine what happened to costs: You triple the number of toys but you don’t change sales very much, so profits fell and Lego had a large-scale layoff in 1998.
ITN: What happened then?
David Robertson: They started innovating and brought the turnaround expert Paul Ploughman in. He started right at the beginning of 1999. They put out Lego Star wars, they opened up new theme parks in Germany, England, the U.S. and elsewhere, and also came up with all kind of different toys.
ITN: ITN: Too much money spent on to much innovation.
David Robertson: I think they got themselves into many different types of trouble. Take the Lego explore toys which were electronic toys for toddlers. They were undoubtedly pretty good toys, but actually they were not “legoy”. There was no construction involved. They were just electronic toys that play music and tell stories. The buyers from toy stores said: “This is not a Lego toy, we don’t want it”. And confused parents asked: “Now, what is this?”
ITN: A huge disappointment on all sides.
David Robertson: Yes. Another problem was that they got themselves into businesses they did not understand. I would argue that the toy that almost killed the company was Lego Star Wars, just because it was so successful. There were movies in 1999 and 2002. The sales of the toys were spurred tremendously in years in which there was a movie, but not in the years without one, as it was the case in 2000 and 2001. The same occurred with Harry Potter. In 2003 and 2004, when the sales of those two big toys Lego Star Wars and Lego Harry Potter fell off a cliff, Lego was left with a portfolio of unprofitable toys that almost catapulted Lego out of business.
ITN: Which of the products was most crucial for the turnaround?
David Robertson: I see the product line Bionicle as the critical toy for Lego because it taught the company about the power of story. They are lots of ways to get the kids involved with a story. You can have a cartoon show on TV, you can have books, comic books, stories on the web, inserts in the toy and games. And Kids really like competition, it also attracts them to the toy. Just look at the successful toy Ninjago. I talk about it in the later chapters of my book. This product line includes competition between spinners, a cartoon show and a video game, where you can roam around the world of Ninjago. This all gets kids really involved with the story, and then of course, they want to buy the toy.
ITN: Let us talk about the names behind the success. Was CEO Jørgen Vig Knudstorp the savior of Lego?
David Robertson: He would not say that. He was really a young guy when he took over the position as the Lego CEO. One thing that Knudstorp is very good at is his emotional intelligence. He was very lucky to collaborate closely with the CFO Jesper Ovesen who was very tough. Thus, they acted as the good policeman and the bad policeman, the nice one and the nasty one. Ovesen would come in and be brutal about what was happening with the numbers. He would say: “You are not making money, explain to us why you shouldn't be fired”. They would compare him to a character of the film Matrix: The theme of the movie is that the world is not real and that behind it this world it is all just numbers. And it was also true with Ovesen. He saw a number behind every person. Knudstorp was the opposite: Behind every number, he saw a person. But he still understood the need to fire a thousand people in 2003. But as I have heard, he went to every single meeting where somebody was fired. He just wanted to be there in such a tough situation for the employee.
ITN: Thus, less people meant more success?
David Robertson: Not just less people, but less pieces! Lego had a lot of different colours and shapes in their inventory and they cut it in half. And by doing so, they really forced their people to do more with less. And here is a small but important financial excursion: Lego needs to make about a million Danish krones per element. The element is a shape and color combination like a red brick which differs from the yellow brick. And whenever in history Lego has made less than a Million krones per element it started losing money very quickly and very badly. When they started to make more than one million per element, they started to make profit very fast.
ITN: You had intensive talks with the management of Lego. Is there a certain leadership style that brought the company back on the track of success?
David Robertson: I call that “in the box management”. The teams sign up and say: “We are going to make a toy around this Ninja theme mostly for boys, 6- to 9-year-olds, and this is going to come out this month, and it is going to have a cartoon show, and it is going to cost this much, and it is going to return this much in terms of revenues.” The only way out of that box is to innovate your way out, the team has to come up really with great stories and great games and great marketing. In the case of Ninjago they did. The next toy, the Legends of Chima, wasn’t that good. And basically kids said: We don’t like the Legends of Chima, we want Ninjago back.
ITN: Let’s focus on the products and the development from the beginning to the market. It starts with the designers, I guess?
David Robertson: Yes and no. In a way it starts with the children. And that is one of the big differences. During 2001 and 2002 designers had developed these ideas for toys. What happens now instead is that the designers come up just with the ideas for the stories. Then they show them to groups of children and see how they react. And the children look at the picture – a rich kind of drawing – and they start telling their own stories about what is happening in the picture. They get excited about those stories. Then Lego knows that this is a good direction for a toy to come from. And Lego has this wonderful expression, that there are only two groups of honest people in the world: kids and drunks. Kids will never lie to you about whether a toy is good or not.
ITN: Is there anything that companies may learn from the Lego success story?
David Robertson: Tremendous amounts. I think as regards the management of innovation, Lego is different from many other companies. The way you motivate your people, the way you structure your processes and the techniques that you use are directly transferable to other companies.
ITN: What do you expect from Lego for the next years?
David Robertson: What is interesting about Lego is that often in the business press we talk about incremental innovation, adding some features to the current product, making it slightly better and to make our current customers happy. And then we are talking about this revolutionary disruptive big innovation. Now, what is interesting about the Lego story in this regard: Whenever they tried a big revolutionary innovation in the last ten years, they have failed. It's been an expensive disaster. I devote a chapter to their attempt to make an online game called Lego universe, which was a very big expensive disaster. But nevertheless, they will keep trying, as they need to. I’m sure, in the next one or two years they will try to redefine the future of play. We will surely see some new attempts. And we will definitely see Lego to continue towards vehicles that tell stories, be it video games or movies, and then selling toys that go along with that because that’s where they make money.
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