Friday, March 5, 2010

How Lego has built it's way to success

Lego has had a part to play in many a person's childhood. There are no rules with the multicoloured interlocking bricks, whatever you can imagine you can build - providing you have enough bricks. 2009 was a strong year for the Danish toymaker as it saw its profits growing strongly as there was a re-surge in the products popularity. Generating the largest profits for the company was its Star Wars and Lego City products.

But behind the hours of fun lies an extremely successful business that has stood the test of time, especially with 2009 seeing Lego come up against some of the most technologically advanced toys ever seen and still come out on top.

But it hasn't always been plain sailing.

Since 1932, the privately held Denmark-based company has entertained generations of children running as an intimate family firm, but when the company came close to going bust in 2004 it took an outsider to save it from the financial abyss.

High losses and negative cash flows

After taking the role of CEO at the tender age of just 34, Jørgen Vig Knudstorp was charged with trying to reverse the ailing fortunes of Denmark's largest company.

In an interview with Business Management Europe, Knudstorp described the poor state of the company he inherited, "In 2003 we lost pretty much 30 percent of our turnover in just one year. The decline continued in 2004 with another fall of 10 percent. We were reporting record high losses and cash flows were negative."

His job was to stop the bleeding and fast.

He set about developing a seven-year strategy called "Shared Vision" in an effort to stabilise and restructure the business so that sales could be boosted and debt reduced. To describe what they did in a simple soundbite, Knudstorp says the company use the slogan, "We changed everything but the brand."

Profits over 124 million euros

By making himself very open to those around him, Knudstorp was able to restore the intimate family atmosphere that once made the company great, and soon the numbers followed.

By 2008, Lego had grown 20 percent and in the first half of 2009 its sales had risen by 23 percent in comparison to the previous year with profits of over 124 million euros.

Managing director of Lego UK, Marko Ilincic, said the strong growth in its traditional lines "was particularly encouraging and suggests a demand among consumers for trusted quality, particularly in the current economic climate".

Five billion hours of playtime

The restructuring of debt and selling off of assets such as businesses and properties was risky but it worked, and for Christmas 2009 parents, perhaps in the light of the recession, were favouring the reliability of Lego over more high-tech toys and gizmos. The company almost couldn't cope with the demand.

Last month Gary Grant, chairman of the Toy Retailers Association, said: "There is an industry-wide shortage of Lego."

"It has been an outstanding success this year as parents call on old favourites in hard times."

Lego now claims that children across the globe spend five billion hours a year playing with its bricks, proving the 78 year-old company really does hold the building blocks of success.

via: BME

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