What happens when a McKinsey alum takes over Lego?
Jorgen Vig Knudstorp, 40, a father of four and a McKinsey & Company alumnus who took over as Lego’s chief executive in 2004, made it clear that results, not simply feeling good about making the best toys, would be essential if Lego was to succeed.
“We needed to build a mind-set where nonperformance wasn’t accepted,” Mr. Knudstorp says. Now, “there’s no place to hide if performance is poor,” he says. “You will be embarrassed, and embarrassment is stronger than fear.”
[...]
Founded in 1932 on the principle of “play well,” or “leg godt” in Danish, by a local carpenter, Ole Kirk Christiansen, this privately held company had a very Scandinavian aversion to talking about profits, much less orienting the company around them.Mr. Christiansen’s family still owns Lego and its business may still be fun and games, but working here isn’t. Before Mr. Knudstorp’s arrival, deadlines came and went, and development time for new toys could stretch out for years; in 2004, the company racked up a $344 million loss.
Now, employee pay is tied to measuring up to management’s key performance indicators (K.P.I.’s, in Lego-speak). And cost-saving touches are encouraged when it comes to designing new toys.
That has helped to lower development time by 50 percent, with some new products moving from idea to box in as little as a year. Mr. Knudstorp’s bottom-line-oriented team, meanwhile, has shifted some manufacturing and distribution from Billund to cheaper locales in Central Europe and Mexico.
Lego is following Apple’s lead:
Last month, it opened its first “concept store” in Concord, N.C., where parents can bring children for birthday parties and classes with master builders; another concept store is set to open near Baltimore this fall. It’s all part of a broader retail expansion that will give Lego 47 retail stores worldwide by year-end, up from 27 in 2007.
They’re also moving “beyond the brick”:
In 2010, the first board game designed by Lego will go on sale in the United States, while its new virtual reality system, Lego Universe, will make its debut on the Web, with children able to act out roles from Lego games and build toys from virtual bricks.
Video games — yes, Lego is there, too — are increasingly important to the company, as are Lego’s legions of adult fans, who can now buy kits to build architect-designed models of Frank Lloyd Wright’s Fallingwater and the Guggenheim Museum. What’s more, the company is in talks with Warner Brothers about a mixed live-action and animation Lego-themed movie that would move the company and its Lego brand even further into the Hollywood orbit.
“Developing a movie doesn’t come cheap,” says Soren Torp Laursen, a 23-year Lego employee who heads its North American operations. “But five years ago, we were in the midst of a crisis, and now we’re in a growth phase. We are definitely taking bigger risks than we previously did.”
Those bigger risks seem to be paying off, at least so far:
Amid a 5 percent drop in total United States toy sales last year and the industry’s worst holiday season in three decades, according to Sean McGowan, an analyst at Needham & Company, Lego’s sales surged 18.7 percent in 2008. And despite a worsening global recession, Lego powered through the first half of 2009, with a 23 percent sales increase over the period a year earlier. It earned $355 million before taxes last year, and $178 million in the first half of 2009.
The numbers are all the more impressive given the sales declines this year at the two biggest toymakers, Mattel and Hasbro.
It looks like everything about the company has improved, including its supply chain:
John Barbour, a former top executive of Toys “R” Us, recalls “a series of truly frustrating meetings” with Lego officials in Billund and New York at the beginning of the decade, which climaxed when Mr. Barbour bluntly told them that Toys “R” Us cared more about the Lego brand than they did.
The most popular toys would run out, he recalls, and Lego was simply unable to ship more or manage the complex process of producing the plastic pieces for its most complicated sets.
That began to change in 2004, after Mr. Knudstorp took over in Billund and Mr. Laursen arrived at Lego’s regional headquarters in Enfield, Conn. Besides reaching out to top retailers and cutting costs, they untangled a supply chain that churns out 29 billion pieces a year.
The changes also filtered down to the ranks of Lego’s toy designers, says Paal Smith-Meyer, head of Lego’s new-business group. The number of different bricks or elements that go into Lego toys has shrunk to less than 7,000 from roughly 13,000, and designers are encouraged to reuse parts, so that a piece of an X-wing fighter from the “Star Wars” series might end up in Indiana Jones’s jeep or a pirate ship.
That’s very different from when Mr. Meyer joined Lego a decade ago. Though creating a mold to make a new plastic element might cost 50,000 euros. on average, he recalls that 90 percent of new elements were developed and used just one time.
Nowadays, Mr. Meyer says, “you have to design for Lego. If you want to design for yourself, go be an artist.”