Six years ago, the biggest thing Danish toy-maker Lego had constructed was a pile of debt. The family business, whose name comes from the Danish for “play well,” was doing anything but — it was innovating, but its new products were underperforming.
Lego’s founding family appointed a new CEO, former McKinseyite Jorgen Vig Knudstorp, who has brought the company back into the black with a systematic, sometimes painful change programme begun in 2004.
His turnaround strategy offers some takeaways for established brands that have found themselves straying away from their core customer:
- Put structure around innovation. It’s not just for product development anymore. Lego has demonstrated how innovation can apply across different areas of the business, with varying levels of innovation expected from each. As Harvard Business Review reports (with a cool, Lego-like chart), the company’s Concept Lab, is held to a high standard for breakthrough ideas because it’s in charge of new products and play experiences. But functional areas such as sales are expected to produce more incremental, process-driven changes that enhance productivity or improve operations. Overseeing it all is a cross-functional Executive Innovation Governance Group.
- Link pay and performance. Hardly radical, but particularly necessary at Lego, where the business was coasting on its reputation and lacked a sense of urgency. “We needed to build a mindset where non-performance wasn’t accepted,” Knudstorp told the New York Times. Today, “there’s no place to hide if performance is poor. You will be embarrassed, and embarrassment is stronger than fear.”
If that sounds a little harsh, consider this: development time has been cut by 50 per cent and Lego’s sales for the first half of 2009 were up 23 per cent on the previous year, despite toy sales at its competitors falling.
It’s now branching out and taking risks again, but this time it has a solid base and a structure to support new ideas from concept to completion.
