The reinvention of Danish toy company LEGO shows how non-linear thinking can future-proof a business.
LEGO began making wooden toys in the 1930s, experimented with plastic bricks in the 1940s and in 1958 patented its clutch power – that satisfying click of bricks coming together. The Company went onto become one of the most popular toys of all time.
With all of this success, you would never have thought that LEGO actually provides one of the great examples on how not to innovate, living on the brink of self-destruction just a decade ago. LEGO enjoyed steep and steady growth for decades, with sales doubling every five years from the late 1970s through the early 1990s. Then, as happens with many mature companies, things started to slow down.
In the old model, LEGO employees would try to guess what children would be buying and playing with in 12 months time, develop and manufacture the product and then hope they got it right when it came time for sales and marketing. The company more than doubled the number of new toys produced, averaging five major new product themes per year during that time. Innovation was starting to kill LEGO.
In 2003, the company was on the verge of bankruptcy. Faced with growing competition from video games and the Internet, plagued by an internal fear that LEGO was perceived as old-fashioned, the company had been making a series of errors.
LEGO began taking drastic measures to stay relevant. LEGO turned the old production cycle on its head with new concepts like the crowdsourcing site, “LEGO Ideas”. Superfans can submit a design, other fans vote and LEGO produces limited editions of the best and most popular. The concept has changed the production cycle from a long lead-time to a flat one and connected research and development with marketing for the first time.
What has LEGO’s thinking taught us?
- Innovation does not just happen at the product level. Too often companies focus all of their innovation efforts on their products. As with LEGO, this can result in looking too far afield. When LEGO reversed it’s fortunes, it was by looking for areas of improvement across the entire company.
- Innovation need not be on a massive scale. In LEGO’s failed attempt to spark new growth it went after risky innovation, such as opening theme parks, a costly business it did not know anything about or straying too far from what originally made it popular. The key is not just innovation but profitable, sustained innovation.
- Innovation thrives within boundaries. Perhaps LEGO’s greatest fault was giving its designers license to create new products with very few parameters. As a result, between 1997 and 2004, the number of elements in the company’s inventory more than doubled, as did costs. LEGO began giving its designers cost parameters; they could design anything as long as it fell within those limitations. Forced to work within those boundaries, designers actually got more creative. Managing innovation is about giving Teams the space to be creative while on the other hand there is direction, focus, targets and deadlines.
By managing innovation, LEGO’s sales have gone up an average of 24% annually and profits have grown by 41% over the last three years. LEGO products can be found in more than 130 countries.
LEGO may not regularly make the lists of the most innovative companies, though it is moving forward at a time when competitors such as Hasbro and Mattel are stagnating. Controlled innovation has clearly worked.
That is the lesson LEGO learned, just in time.
