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The Lego Group: Iconic bricks find the better model

In the year 2000, 68 years after the iconic brick company inception, The Lego Group made a net loss of DKK831m ($155m), its first major loss in all its history the company having never posted a negative result until the late nineties, and a result referred to in the annual report that year as unsatisfactory. It would take the group nearly ten years to remedy that evaluation, and to turn that loss into the substantial return it made in 2011, where, exceeding expectations, the group recorded a net return of DKK4,160m ($776m).

This article will track the causes of this turnaround in financial health, and this will include but not extend to analyses of the substantial changes made by the board to the group supply chain, product range, stock keeping units, marketing strategy and general business model. The conclusions derived will reflect on the large amounts of goodwill and intangibles which went unaccounted for during the intervening years of 2000 to 2011, and will make clear, contrary to popular sentiment, that the group never faced the existential crisis other similarly old children toys faced when confronted with technological change, but in fact all along held the unique selling proposition (USP) necessary to successful business and only lacked for another necessity, that of good business practice.

LEGO is a privately held company, engaged in providing toys and teaching materials for children in over 130 countries. The company also offers preschool products and games. It operates in Europe, the US, Australia and Asia. The company is headquartered in Billund, Denmark, and employs around 9,374 people.

Factoring in for leadership change: the negative financial facts which precipitated a change in leadership, something which meant the end of family control and some of the operational issues faced by the new board.

A bloated supply chain and logistics: the largest problem faced by the group was the one most focused upon when the new board started their reforms. This included the exorcism of a culture inimical to good business, and in place engendering a new culture of efficiency and openness to change.

A bloated supply chain and cash flow: the company made changes specifically to the amount of suppliers used and contracted with, and, through the sale of non-essential assets, and the discontinuing of unpopular lines, the company improved its cash-flow position significantly.

Pursuing a strategy of a market-orientated product range was a possibility following the creation of an enabling set of finances. The company can also be deemed as having utilized a strong form of identity branding.

A new focus on an old product and a return to profit: it is argued here that by focusing on what the company did best, where its strengths lie, and where it is often unaccounted for, intangible value was, the Lego Group managed to improve its margins to a notable size.

Conclusions: that the company was failing to jointly satisfy the conditions of successful financial business, but that one condition was always satisfied, that of the ownership of a Unique Selling Proposition, and the protection of that proposition or brand.

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