How Purpose Brought Lego Back From The Brink

From launching the first bricks in 1949 to one of the most popular toys in history, Lego is a product that many of us will have played with and loved as a child. But did you know that it nearly went bankrupt in 2004? And that it was focusing on Purpose that fuelled Lego’s turnaround, and how it continues to win with Purpose today.

Here’s the story of how leading with Purpose enabled Lego’s turnaround and continued success today.

Growth to almost bust

As a successful toy manufacturer, when Lego’s growth started to stagnate in the 90s, they sought to drive the next wave of growth by expanding the range and sophistication of their toys and Lego related products in adjacent markets. However, whilst they were expanding at a rate of knots, the result of more and more sophisticated and diverse products rapidly diluted the brand, increased operational complexity and moved focus away from the core product.

In 2003 sales dropped 35% in the US and 29% worldwide and in 2004 they hit their biggest ever loss. They were $800m in debt and near bankruptcy. As Jørgen Vig Knudstorp, the new CEO brought in to turn around LEGO, said to colleagues “We are on a burning platform. We’re running out of cash… [and] likely won’t survive”

The need to reset – back to basics with Purpose

From talking to others, Jørgen Vig Knudstorp saw that:

  • Lego was unique – easy to put together and hard to pull apart
  • Former colleagues at MIT told him ‘Lego is the ideal way for a child to learn how to think systematically and creatively’, a notion backed up by a story in Time magazine that he read, in which the Google founders said that it was Lego that had shaped their young minds
  • Children wanted to build with it, not just play with a finished article

He realised the problem was not the core product but their attempts to make themselves more modern and relevant in the age of the video game which had led them to expand into new markets at the expense of their core product.

He realised that Lego needed to refocus on what they were good at and what they could do better than anyone else – they needed to reconnect with their Purpose.

Lego re-discovered their Purpose… ‘To inspire and develop the builders of tomorrow’

For Lego, this means ‘to inspire and develop children to think creatively, reason systematically and release their potential to shape their own future – experiencing the endless human possibility’

From Purpose to Action

Having reset their Purpose, Lego swiftly took action to reorganise and realign all aspects of the organisation to it. This included:

  • Simplifying operations and focusing on what was key and what customers wanted – bricks that worked – significantly reducing the number of different brick types and number of products
  • Focusing on what they did as a business by pulling out of non-core markets, including selling a controlling share of theme parks, and introducing licensing arrangements with partners for other adjacent non-core markets
  • Focusing the research team on children, their core audience. Mads Nipper, LEGO’s former Marketing Chief, said: “Kids will never lie to you about whether something’s fun or not.”
  • Recognising that the best ideas were not solely inside the business, they harnessed the power of their users to crowdsource and co-create ideas and designs

Underpinning this realignment to Purpose was a reset of the Lego culture – driven by a recognition they needed to ‘live creativity’ everyday with ‘creative, happy people’ in order to inspire children. They therefore:

  • Built a culture focused on the same values they were building into their products for children – removing bureaucracy and ‘tell culture’, increasing autonomy, flattening hierarchy, encouraging people and focusing on what gets done rather than how the job gets done
  • Aligned the recruitment and onboarding processes for new people
  • Created an environment where they worked to foster connection, teamwork and innovation, which also included children often being present for tours and co-creation events

Overtime, Lego continued to hold themselves to account to their Purpose. For example, in 2014, they ended their long-standing, multi-million dollar partnership with Shell when their partnership was brought under scrutiny by customers over Shell’s actions.

The Result: Focusing on Purpose = commercial success

In 2008-10, Lego profits quadrupled, growing faster than Apple at the time. Between 2009-2021, profits grew from $311.5m to $1.9bn

By 2015, Lego had become the biggest toy retailer, with sales amounting to $2.1 billion and Brand Finance named Lego the world’s most powerful brand in the same year, toppling previous holder Ferrari.

Continuing to lead with Purpose today

Re-establishing Purpose in the organisation was not a one-off exercise to deliver the much needed turnaround. It continues to inspire what they do today as a business and they continue to develop their targets and actions in support of it. In particular they work closely with children and parents, employees, partners, NGOs and experts to ‘make a lasting impact and inspire the children of today to become the builders of tomorrow.’

You can see how their Purpose translates into the focus of their sustainability framework with its three key pillars:

  • Children – ‘We believe every child should have an opportunity to achieve their potential. And learning through play is a powerful way to develop skills that will allow children to tackle challenges that lie ahead. By the end of 2022, we aim to bring Learning through Play to 6 million children”
  • Environment – ‘We are committed to protecting the environment and the planet our children will inherit. It’s not enough to just reduce our impact on the environment, we want to go further and have a positive impact.’
  • People – ‘We value the people, partners and suppliers who make LEGO® play experiences possible and we work hard to make our workplaces inclusive, safe and motivating.’

Examples of today’s initiatives include working through community engagement and caregivers to extend ‘Learning with Play’, and striving for a circular economy with their first prototype brick made from recycled plastic, ‘Lego Replay’ initiatives to keep more bricks in play, and trialling sustainable packaging options to replace plastic both inside and around their boxes.  

Five lessons you can take from Lego’s Purpose turnaround story into your organisation?

  1. Listen to your customers – be clear on who you are for, what they say about your products and what they want, even over so-called ‘experts’
  2. Develop a culture that aligns with and delivers your Purpose – for Lego, creativity to inspire was key and needed to be supported by the culture, the people and the environment in which they worked
  3. Simplify, streamline and remove complexity – get rid of that which doesn’t serve your Purpose
  4. Think about the whole system, not just individual point solutions – e.g., the product, the positioning and messaging, processes and operations
  5. Invite innovation from outside the boardroom and put great processes in place to manage it effectively – your people, customers and superfans!

Sources:-

https://www.compassoffices.com/en/about-us/blogs/brands-with-purpose-5-purpose-led-companies-to-watch-in-2022/

https://www.advisorpedia.com/advisor-tools/how-legos-purpose-made-it-the-most-powerful-brand-in-the-world

https://www.theceomagazine.com/business/company-profile/rebuilding-lego/

BCG CEO Series: At LEGO, Growth and Culture Are Not Kid Stuff https://www.youtube.com/watch?v=m9WOG7RS6nc&t=509s

The Man Who Rescued Lego – Jørgen Vig Knudstorp, LEGO CEO, talks to MeetTheBoss: leadership tv

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