As Lego has seen major success in recent years, I would like to highlight its generic strategy that didn’t work as opposed to what led the company becoming the only global corporation to receive a strong score from the reputation institute.
Generic strategy.
Lego’s years of struggle developed from not having a strategic fit. The company was having problems aligning its external environment to the core competencies of the Firm, added to this was the companies incapability to choose and define its business strategy, leaving the company stuck in the middle between a cost leadership and differential advantage dual strategy. This led to many forces working against the company as cut throat competition realised that the Lego group was straining its resources on expansion and diversification. Legos ultimate downfall was the mismanagement of uncontrolled innovation and expansion.
This all changed once a more disciplined approach to production and innovation was introduced. It was only at this stage that the company was able to differentiate without straining its resources on expansion. This disciplined ‘ dual strategy ‘ was complemented with outsourcing its production to manufacturers in China, giving the company a new direction, allowing it to compete on a global scale through a true dual strategy.
Constrained innovation was the key to the company finding its strategic Fit. It gave rise to the company making many critical decisions. Strategy after all is a set of decisions a company makes in order for it to compete. Some of these decisions included the Off loading brand extensions and non core business. This allowed the company to focus on its core competencies, in turn creating distinctive competence. By focusing on what the company does best, Lego was able to increase its economies of scope within the Lego design. As the company became focused on its brick and system of play it eliminated its major problems of having to source new ‘ expensive components and expensive moulds.
The new strategic fit allowed the company to make the most of its resources and value chain, giving rise to the LEGO corporation creating its own characters, thus becoming less reliant on movies and licenced characters. By Focusing its resources instead of spreading them, it avoided diluting its product mix. By focusing on the brick and play aspect of LEGO, it was able to focus on the diversity of the LEGO World, allowing for an endless mix of environments that 1 could build with the brick and play aspect of the product.
Added to this, the company was able to avoid dilution of its brand image and position itself as a unique company that provides an endless world of LEGO building, allowing the corporation to charge a premium price for its products while keeping operating costs at an all time low.
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Roxleigh Thornhill – Fisher