The ubiquitous children’s toy company, Lego, is a great example of adapting innovation to change a business’ fortunes. Despite strong early growth, The Lego Group’s success started to plateau in the 1990s, as lower cost competition such as Megabloks entered the market, pushing down prices and volumes, thus reducing Lego’s margin. Margins were further squeezed by manufacturing complexity and the high cost of a Danish operating base. Lego also expanded it’s innovation beyond it’s core range and diversified into theme parks, and had invested in hiring creative and diverse staff. It had followed all the rules on innovation, and double down on innovation as future growth driver. But the investment was not focussed behind a clear goal. The Lego Group slid into irrelevance with its core consumer base as their innovation failed, and it spent a fortune in doing so. Ultimately, Lego made a loss of $240m in 2003.
The company needed to change how it innovated
It changed CEO, away from the traditionally family-led business. It clarified it’s goal to be the best company for family products. It changed the strategy of diversification by selling theme parks. Lego reinvented a better way to innovate by being more consumer centric with contributions from all parts of the business, and introduced a range of innovations such as Lego Factory, which was a form of co-creation with users. With the Future Lab, innovation culture was allowed to flourish with success and failure against the company’s goal. Lego’s broadening of innovation led them to expand its user base from solely young boys into young girls with Lego Friends, and also adults with their Architecture range. Lego started to work with third parties in open partnership, from videogames like Minecraft to movie franchises, including Star Wars, Jurassic Park, Marvel and National Geographic. But it did so in a more risk-averse way, keen to avoid the troubled waters of doing too much innovation. All innovation, no matter where the idea originated, had to prove it would work towards the company’s goal.
Innovate into new sectors
Emboldened by their success, Lego began innovating into new sectors such as new media, with apps, games and movies such as their game Lego Brawls. Having an innovation focus as part of its business model means that Lego has made a profit of over €1billion every year for the last five years.
Changing the innovation mindset changes fortunes
Lego is a great example of how a different mindset to innovation can dramatically change the fortunes of a business – by making it more consumer centric combined with a powerful innovation culture and focused on a long-term sustainable.
The above case study highlights the opportunities for innovative businesses, especially those that can build a sustainable culture of innovation against a clear goal, and have the ability to test all innovation against what consumers actually want to buy. But what about the opportunity cost of not doing innovation?