On Purpose: Lego’s Return to Their “WHY”

In 2003 Lego’s sales had fallen off a cliff, dropping 35% in the United States and 29% worldwide, culminating a year later in the biggest loss in the company’s history – $280 million.

In 2004, Lego was in pieces, with predatory private-equity firms circling like sharks to snap up the ailing, family-owned business – if, that is, the American giant Mattel didn’t gobble it up first.

With massive debts almost equivalent to its annual sales, the near-bankrupt firm seemed destined to end up like those unloved playthings in Toy Story: battered, broken and at the mercy of a ruthless, unappreciative new owner. Yet against the odds, Lego managed to put itself back together.

Former CEO and now Executive Chairman of The Lego Group, Jorgen Vig Knudstorp acknowledged that the toy company had “lost its way in terms of understanding its own self-identity.”  He led Lego’s efforts to go back to the basics, starting with the “fundamental question; why do we exist?” and moving to “only doing the things where we have a unique advantage.”

To restore its position in the industry, Lego embarked on a significant turnaround program, which included defining their purpose and divesting or discontinuing products that were not in sync with its purpose.  For example, it sold four theme parks and its video-game business.

To fulfill its purpose of “developing children’s creativity through play and learning,”

Lego:

  • Designs compelling sets of blocks that can be assembled in a myriad of ways,
  • Fosters online and in-person communities of enthusiasts of all ages,
  • Provides “Ambassador Network” a communication and support platform for adult fans,
  • Supports “Lego Ideas” website that lets users submit new ideas for new Lego sets and
  • Showcases galleries featuring users’ creations.

 

Over the past 20 years the number of known Lego user groups has grown from 11 to 328, with active members totaling in the hundreds of thousands.  These users have uploaded photos, drawings and instructions for more than 450,00 of their own Lego creations.  This vast library of ideas is available free to anyone.

Bottom Line:  By focusing on its core purpose and investing in an infrastructure that enlists and supports hundreds of thousands Lego enthusiasts around the world, Lego went from a $ 280 million annual loss in 2004 to a $ 1.3 billion annual profit in 2017.  In 2012, Lego became the world’s most valuable toy company with a value of $14.6 billion.

Sources: 

When Lego Lost its Head – and How This Toy Story Got its Happy Ending” by James Delingpole

Why Are We Here?”  by Sally Blount and Paul Leinwand, Harvard Business Review, Nov – Dec 2019