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PGBM16 Global Corporate Strategy: LEGO by John Ashcroft and Company Case Study Assessment Answer

Sunderland Business School 

PGBM16 

Global Corporate Strategy 

Individual Assessment Case Study:  

LEGO by John Ashcroft & Company 

Introduction: 

This individual assignment will be assessed by means of a 3,000 maximum words report. The assignment has been designed to allow you to develop and use your knowledge and skills in understanding key strategic issues relating to LEGO. You will be required to apply the strategic concepts and analytical techniques studied in this module. All the learning outcomes below will be assessed: 

1.Demonstrate critical understanding and application of relevant theories associated with global corporate policies and strategies.

2.Understand the holistic nature of strategy and apply analytical techniques to solve complex problems in real life organizations.

3.Demonstrate knowledge of the strategic decision making process through critical analysis of how strategic decision making enables an organisation to relate to its global business environment.

4.Critically evaluate and monitor the business mission, objectives and policies of international organisations.

5.Use critical reflective skills to reflect on the impact of their understanding on the problem solving process

The assignment will be internally moderated by: Dr Augustus Ernest Osseo-Asare 

Please note: 1. All work must adhere to the University regulations on ‘Cheating, Collusion and Plagiarism’ which are provided as an Appendix in your Programme Handbook. You are encouraged to use

‘Harvard Referencing Style’ and avoid ‘Plagiarism’.

2. Students are required to submit their assignments through JIRA. Only assessments submitted through JIRA will be marked. Any other submission including submission to your study centre in hard copy will be treated as a non-submission.

If your centre supports Turnitin or alternitively, SafeAssign by Blackboard, a copy of your Turnitin or SafeAssign originality report must be submitted in conjunction with your assignment.

University of Sunderland: Sunderland Business School 

Task 

Your task is to carry out a critical analysis and evaluation of the strategies adopted by LEGOusing the information provided and other materials researched. You will be expected to select and apply appropriate theories, techniques and models studied during the module whilst having regard to the practical aspects of strategy development. 

Your assignment should be presented in a business report format and should be within the range 3,000 maximum words (excluding executive summary/abstract, references and relevant appendices). The report should include a title page and abstract and be fully and consistently referenced, using HarvardReferencing style. 

It is recommended that you research information additional to the case study to support your arguments. This may be obtained from a diverse range of sources and you are encouraged to research the issues in whichever way you deem appropriate. 

Assessment Criteria 

In the event of failing this individual assignment, normal referral / deferral procedures will apply. This assignment carries a weighting of 100%. The assessment will focus on the level of ANALYSIS carried out. That is, the application of THEORETICAL CONCEPTS studied in the module to the ‘practical’ case study presented. In other words, you should proceed beyond a DESCRIPTION of the company and its actions. You should be analysing ‘why’ rather then describing ‘what’. The assignment will be assessed and moderated by two members of staff in accordance with the marks allocated to each of the questions detailed below. 10% of the marks are set aside for the ‘presentation’ criteria. Academic Rigour 

  • your ability to isolate the key strategic issues
  • the coherence and depth of the analysis of those issues
  • the ability to analyse the strategy context within which companies operates
  • the ability to critically review and evaluate strategic decisions made by companies Methodology 
  • the use of relevant evidence, from material provided and personal research to support any statements made
  • the appropriateness of the methods used and theoretical models and frameworks applied
  • the breadth and depth of research undertaken

Evaluation of data 

  • the ability to make sound recommendations or conclusions arising from the analysis
  • the soundness of arguments put forward

Presentation

  • the summary of arguments
  • report layout and format
  • use of illustrative material and evidence to support arguments
  • the appropriateness of length
  • the quantity and accuracy of referencing

University of Sunderland: Sunderland Business School 

Question One: Toy industry competitiveness 

“We are on a burning platform, losing money with negative cash flow and a real risk of debt default which could lead to a break up of the company”. Fact finding is the first step to problem solving. That would require a back to basics review and assessment”.  

Using the information in the case study, and relevant data/information from company annual reports, websites and related journals critically evaluate the nature of the competitive landscape faced by LEGO from its most relevant competitors. Discuss the extent to which you believe that industry dynamics had a significant impact on LEGO’s profitability during the period 1997 to 2006. 

Question Two: Innovation and knowledge management 

In the late 90s, LEGO’s market share had begun to decline.  Kids were playing more with video games, and other toys, and LEGO wasn’t cool anymore.They decided that they had to disrupt themselves, before someone else did. Lego appointed turnaround specialist, Poul Plougmann, as the new CEO in October 1998.  Plougmann launched a number of initiatives to achieve disruptive innovation at LEGO, but ultimately was not able to achieve a successful turnaround, and was replaced in January 2004 by Jørgen Vig Knudstorp, who succeeded where Plougmann had failed.  

Using your understanding of sustaining innovation and disruptive innovation, critically analyse and compare the innovation strategies adopted by both CEOs. How did LEGO address the challenges of recruiting and retaining a skilful workforce? 

Question Three: Corporate social responsibility 

“When we design and engineer our toys, we strive to make them safe for children. We look to reduce their environmental impact and build them in facilities that adhere to high standards. We are committed to strong ethical and environmental performance both within our company and in our communities”, Mattel Citizenship website.  

“It is at the very heart of our company to always strive to do better. We aspire to give children the best play experiences, to be the best partner to work with, to be the best workplace for our employees, and to be the best company for society”, Lego owner, Kjeld Kirk Kristiansen, 2015 

Carry out a comparative analysis of the CSR strategies adopted by both Mattel and Lego. 

Question Four: Expansion strategies and global competitiveness 

In 2015, LEGO enjoyed an astounding growth of 25% in revenue ($5.2b) and 31% in net profits ($1.3b). Mattel sales dropped by 5% but they still retained the number one spot with $5.7b in revenue whereas Hasbro came in third with $4.45b in revenue. In 2016, Mattel and Hasbro (both US-based corporations) were rumoured to have discussions about a possible merger to take on LEGO though it is highly unlikely to happen. 

 As a strategic business consultant, what strategies would you recommend and what would be your advice to LEGO management to move forward and to take over the number one spot in the toy industry. 

Answer

PGBM16: Global Corporate Strategy

Case Study: LEGO by John Ashcroft & Company

Executive Summary

This entire report discusses the sustainable strategies of the LEGO Company. This entire study describes the competitive landscape faced by the LEGO Company by comparing the most relevant competitors Mattel and Hasbro. This report discusses Porter's five forces analysis of the LEGO Company. In addition, Innovation Strategies adapted by PoulPlougmann, and JørgenVig Knudstorp to develop their overall entire market value of the company has been discussed here. This report also discusses the LEGO's challenges of recruiting and retaining a skilful workforce in the organization. This report compares the corporate social responsibility strategy of both companies LEGO and Mattel. This report also provides a recommendation to develop their company's strategy to improve its global competitive market.

1. Introduction

This entire report discusses the key strategic issues of the LEGO Company. LEGO Company is one of the popular Toy building company in the UK. This entire study describes the competitive landscape faced by the LEGO Company by comparing the most relevant competitors Mattel and Hasbro. This study provides information about the key industry success factors of the other competitors, discusses Porter’s force analysis of the LEGO Company. In addition, this report also discusses the Corporate social responsibility strategy and Innovation and knowledge management strategy of the LEGO Company. This report also provides recommendation for expansion of the business in a globally competitive market.

2. Question One: Toy industry competitiveness

2.0 Critical evaluation of competitive landscape: Porter’s 5 Force analysis

This section critically evaluated the competitive landscape of the LEGO Company through Porter’s Force analysis. 

Porter’s five force analysis for industry rivalry

Figure: Porter’s five force analysis for industry rivalry

Source: (Mathooko & Ogutu, 2015, p. 339)

2.0.0 Competitive rivalry:

The economies of the scale are difficult to achieve in the industry where the LEGO Company operates its Business. The Key Competitors of the LEGO, Mattel, and Hasbro are threats for this company. The key competitors of the Lego sell similar products as the Lego Company. Competes against Mattel is quite difficult because of Mattel company trying to take the market share of the Lego Company (Legofoundation, 2019, p.12). Also, the consumers trying to buy construction toys than the other company’s model vehicle toy products. It indicates that Competitive Rivalry is high for the Lego Company (Von Wallpach et al. 2017, p. 445).

2.0.1 Bargaining Power of buyers:

The bargaining power of buyers has influenced the Lego Company. Lego Company has maintained a reasonable price for their products to attract more customer base (Hsu et al. 2016, p. 75). The bargaining power of the buyers creates effects on the revenue and net profit margin of the company. The key competitors of the Lego Company, Mattel and Hasbro, have also maintained a reasonable price, which is affordable for every section of the society. Lego Company also cut down the prices of the company and maintain the quality of the products. 

2.0.2 Bargaining Power of suppliers:

The bargaining power of Suppliers has influenced the Lego Company. The bargaining power of the suppliers is average in the Lego Company. Lego Company has the freedom to choose any suppliers for supplying raw materials for the company because the switching cost is low.

2.0.3 Threats of Substitution:

The threats of substitution are high. Lego Company sells construction toys for the children. Lego Company had few competitors like Mattel and Hasbro who are also supplying high-quality toy products for the children. Because children are getting bored easily with the same type of toys and quickly switched to substitute products. It indicates that substitute products create an impact on the market of the company. 

2.0.4 Threats of New Entrants:

The threat of the new entrant is low because it is difficult for the new entrants to achieve their marketing position. The capital is a requirement is very high to set up the business. So, it is difficult for the new entrants to set up their business easily. New entrants easily develop the same quality toy products, but it is quite difficult to achieve the same market position.

2.1 Key industry success factors

Key Industry
Success Factors
MattelHasbro
1 - Extensive distributionMattel company has spread its   business from the United States to all over the world. Mattel Company has   physically opened its stores in forty countries, but their products are available   in one hundred and fifty countries including the United Kingdom, China,   Egypt, India, and the United States (Stevens, 2018, p. 235). The company has a strong Distribution Channel that   includes retailers, distributors, suppliers and finally customers via hypermarkets,   Supermarkets, gaming Outlets, Convenience stores, and discount markets.Hasbro has Two Self Owned factory. Third-party   vendors manufacture their products. They distributed their products through   direct stores and retailers. Hasbro has advanced its distribution of the   products through online and offline (Ferguson & Clarke, 2017, p. 171). Hasbro Has expanded its business in many countries   including the UK, Greece, Hungry, Russia, Europe, Turkey Latin America, and Mexico.   They generate more profit from the International market for a strong distribution   channel and increased globalization.
2 - Customer focusMattel company has a variable pricing   strategy. Because its products are reasonable for every financial section of   society (Stevens, 2018, p. 236).   Mattel company’s products price range is reasonable for middle-class people,themid-premium   Price range for the upper middle class and premium price range for upper-class   people. The company has adopted this strategy to gain new and variable   customer base and generate a larger profit margin.Hasbro operates its services in the   price range of 10$ to 100$. They provide cheaper products which reasonable   for the middle-class society (Ferguson & Clarke, 2017, p. 173). Hasbro has a variable pricing strategy to engage a new   customer base and to generate more profit. The company has focused on the quality   and uniqueness of the products to attract more customer.
3 - Economies of scaleMattel company net revenue $4511   million decreased by 3.80% in 2018. Gross Profit, $1795 Million in 2018 and in   2018 the net income of the company, decreased $531 million from 2017 (Stevens,   2018,   p. 237).Hasbro Company net revenues of $4.58   billion decreased by 12% in 2018 that includes the unfavourable impact of   foreign exchange $43.0 million. Net earnings of the companyare $220.4 million   in 2018 and returned $559.4 million to shareholders (Ferguson & Clarke, 2017, p. 173).
4 - Product innovationMattel has several products base WWE   Toys, Hot Wheels Monster High Dolls, Barbie dolls and more. The company has   expanded its products such as Puzzle game like Limo Jam, Kooky Kitchen, Hot   wheels matching game, Arcades like series slam down, Hot wheels party Panic,   Rock star Makeover, Super stylish makeover, Racing Game, action, Activity and   ASports type game and more to generate more Profit.Hasbro company had been the market   leader in the toy industry by launching innovative and unique toy products.   Hasbro company first launched doctor kits, life games like monopoly and action   figures.


2.3 Impact of industry dynamics on LEGO’s profitability during the period 1997 to 2006

During the period of 1997 to 2006, Lego Company had faced bankruptcy situation for their poor diversifying strategy. From 1950’ the company using plastic bricks for making their products. In the Late ’90s, the Lego company market share had begun to decline because children are more attracted to video games. However, at that time Lego Company produced Automatic binding bricks, plastic toys like baby rattles, toy tractors, animals and small dolls. This business strategy neither proved to be attractive nor profitable for the company because by the time the toy industry started adopting video games and children preferred those over Lego games. Between 1997 to 2006 the profit margin of the company decreased by 50%. Because the children are more attracted to video games; hence, the traditional toy market of the Lego fallen down the entire market value of the company. 

Lego Profit and Loss from 1995 to 2014

Figure: Lego Profit and Loss from 1995 to 2014

Source: (Legofoundation, 2019, p. 12)

3. Question Two: Innovation and knowledge management

3.0 Disruptive innovation strategy:

Disruptive innovation strategy is an innovation strategy, which disrupts the existing value network and market of the company and creates a new value network and the market for the company. This strategy is not a profitable long-term strategy for the company. The risk associated with this strategy is higher than the other marketing strategy. This process takes a longer time to develop, but after deploying in the market, it achieves better market penetration and generating more profit, but this process is short term profitable marketing strategy.

3.1 Sustainable innovation strategy:

Sustainable innovation is an innovation strategy, which creates a new market, space, services, and products based on social and environmental issues, which are more sustainable. It is the concept, which is about the commercialization of products, services, and technologies of the company. Redesigning the products, adopting new products, and services, are major aspects of sustainable innovation, which satisfy the customer and functional need of the company. This strategy is more innovative, incremental, long term and sustainable strategy for the company.

3.1.1 Innovation Strategies adapted by PoulPlougmann

In 1998, PoulPlougmann appointed as a new CEO. After appointing the New CEO, the company returns its profitability. The new CEO decided that the company had to disrupt the customers and the new CEO launched some initiatives to achieve disruptive innovation at the company (Cochran, 2015, p. 227). The New CEO Launched fitness programme that injects vigour into the values of the company to achieve the company’s goal. The New CEO stimulate the spirit among the employee by setting objectives, common sense, will to change, simplicity and respect for the individual skill. The aim of the spirit is to overcome the deficits in three phases (Cochran, 2015, p. 226). Corporate management of the company implements a shared vision to improve the three phases of the company. The three phases are survival in the global market, established a healthy core business and growth of the business in a globally competitive market. The main aim of the shared vision is 

  • Creating a valuable position by introducing innovative products, maintaining the quality of the products to attracts the new customer base for the company.
  • Increasing operational excellence by arranging training programme for the employee to increase their knowledge and skills. By increasing operational excellence, it helps to increase the productivity of the company.

However, the PoulPlougmann business strategy is straight to the point. The PoulPlougmann applied disruptive innovation strategy for developing the performance of the company. After implementing this operational strategy in the short term, PoulPlougmann succeeds in cutting the company’s cost and increased the profit margin level for the company temporarily. However, this strategy was unable to provide a profitable long-term market for the LEGO Company. 

3.1.2 Innovation Strategies adapted by JørgenVig Knudstorp

In January 2004 the Lego company appointed JørgenVigKnudstorpas a new CEO. The new CEO of the company implement sustainable innovation strategy in the Lego Company. Sustainable innovation strategy is more profitable for the company, and Knudstorp is the right person who adopted this strategy to overcome the crisis of the Lego Company. Knudstorp applied a diversification and action plan strategy to develop the products of the company. In this time, the company launched a more innovative and creative wide range of new products and redesigned the traditional construction toy theme (Cochran, 2015, p. 227). The new products include robotics products, media products like software game, video game, music, books, educational products for school-children and kindergarten children, and lifestyle products like puzzles, watches, clothes and bed linen. This innovation strategy helps to generate more profit for the company. The company return to focus on their core competencies, and this sustainable innovation strategy increases the profit margin level of the Lego Company.

3.2 LEGO’s way of addressing the challenges of recruiting and retaining a skilful workforce

LEGO Company is a more innovative game builder company. Recruiting and retaining a skilled workforce for innovative companies is the important factor to retain their market value in the globally competitive market (Cochran, 2015, p. 228). LEGO Company introduced the world’s most fun gamified recruitment programmes for recruiting skilled employees for the company. Every year during the recruitment time, the company invited the prospective designers to submit their videos, which give more innovative ideas to develop the company’s game products. The best designers are invited for the next special design game stage. In the next stage, the company provides puzzles to the designers to solve it. The company creates pressures on the designers at the time of solving the puzzle. After completing the stage, highly efficient designers are recruited into the Lego design Team.

The Lego Company also implement training programmes for the employees to retain their skill. The company has completed its training programme through mini-games, which is related to the company's game strategy. This application is more beneficial for employees. The employees successfully completed this training programme, which helps to develop their own performance, knowledge, and skills. 

4. Question Three: Corporate social responsibility

4.0 Comparative analysis of the CSR strategies adopted by both Mattel and Lego

4.0.1 Lego

The Lego Company maintains the corporate social responsibility to making a positive impact across the global competitive market (Cochran, 2015, p. 229). The Lego Company takes many steps to achieve responsibility ambitions. To meet corporate social responsibility, the Lego Company has taken initiatives, which are:

The Lego Company launched LEGO life play game, which is a social network game for tweens and kids to encourage them. This online play game is more secure and safe for children.

The company also overcome environmental issues such as 100% of the energy, which is used during the time of making LEGO bricks is now balanced by generating renewable energy like generating wind power. 

The company inspired the children to learn with more curiosity, creative and imaginative process through playing which is more safe and right for the children (Cochran, 2015, p. 229).

To minimize the environmental impact the company reduces the CO2 emission during the production of the products, invest in sustainable materials and renewal energy, recycle and reduce the waste of the production. By using this strategy, the company inspired the children to protect the planet and the environment. It helps to protect the environment for the future generation of the children. 

Caring, transparent and ethical are the important factors for the Lego Company. The company leads an ethical business, provides respect to labour and human rights. The company provides the best security to their employees and protect them.

The company to increase the market value socially and environmentally implements the overall corporate social responsibility. The corporate social responsibility initiatives are helping to create a more sustainable market for the company.

4.0.2 Mattel

The Mattel Company also maintains the corporate social responsibility to increases their profit margin level of the company and develop their market value in the globally competitive market. 

The company first implement environmental and sustainability strategy, which helps to overcome the environmental issues of the company. By implementing this strategy, the company reduced electricity usage during the manufacturing process. It is decreased by 10% compared to 2017. The company used 25% of renewable energy during the manufacturing process. 

Reduces the CO2 emission by 20%, compared to 2017. Reduced the waste materials by 20%, compared to 2017. Increases the diversion rate during the manufacturing process. The Mattel has taken the initiative to recycle the 90% wood and paper materials. 

The company has taken the initiative to protect the employees and provide them with the best security by giving proper overtime facility and safe environment in the workplace.  

Mattel Company arranged summer programmes for the children to develop innovative and creative skills through implementing outdoor games and sports programme (Cochran, 2015, p. 228). 

The Mattel Company creates partnership bond with the children's hospital that includes Beijing Children's Hospital and Children's Hospital. Mattel Company’s aim is to improve the children’s physical health by developing social, emotional and creative skills through creative playing session. 

Mattel also launched ethical toy programme’s pilot project to improve communication, to receive real-time feedback from the employees by using smartphones of the company. This initiative provides proper job satisfaction to the employees of the company (Citizenship.mattel, 2019, p.14). 

Mattel Company also celebrates international women’s day to increase the importance of women’s health and provides a concept about women’s rights. They also involved female workers in improving the values for the women in the workplace. This initiative creates a positive social image of the Mattel Company. 

This overall corporate social responsibility strategy is implemented by the Mattel Company to improve its market value globally. It creates a competitive market for the LEGO Company.

5. Question Four: Expansion strategies and global competitiveness

As a strategic business consultant, after analyzing the case study of the LEGO company, it is recommended that the company must implement some innovative and creative strategies which help the company to move forward and to take over the number one point in the toy industry. 

Following strategies are:

5.0 Geographical diversification:

The company must implement the geographical diversification strategy to overcome the risk associated with the company. The company must expand its business in a different geographical region to improve their market value. This strategy reduces the overall risk of the LEGO Company. The company must develop more innovative products and includes diversification in its products to satisfy the different region’s customer. The company must expand its business globally to generate more profit for the company. If the company loses in the market of one region, then another may be compensated and provides balance to maintain its revenue of the company.

5.1 Internationalization:

The LEGO company must implement this internationalization strategy to expand its market at the international level. The company must open its gaming outlet store at the international market and also develop their online app facility to the international customer through online shopping. To develop its business globally, the company need to improve their understanding of international culture by appreciating their values and beliefs, international business strategy. The Lego Company must involve this strategy to generate more profit for their company and to develop their company globally.

5.2 Market Development:

The LEGO Company must implement this market development strategy to improve their market value in the globally competitive market. This strategy identifies a new market segment for the current products of the LEGO Company. This strategy helps to target non-buying customers and creates a new customer base for the company. The company must introduce new products, which provide more satisfaction to the customer. The company must redesign their existing products to attract the new customer base for the company. The company must conduct research among the customer to know their requirements and needs, which helps to provide a concept about customer's expectation. This strategy helps to gain more profit for the LEGO Company.

These above-mentioned strategies help the company to move forward and to take over the number one point in the toy industry. It creates a globally competitive market for the LEGO Company.

6. Conclusion

After analyzing the entire report, it is concluded that the LEGO Company faced different financial issues due to improper marketing strategies. The company develops a sustainable innovation marketing strategy to develop its global market. This sustainable innovation strategy provides more innovative and creative ideas to develop its marketing value and to generate more profit for the company. This report also provides a recommendation to develop its company’s strategies, which help to develop their market internationally and to obtain the number one point in the toy industry. This report also provides corporate social responsibility strategies of the LEGO Company, which helps to improve their market socially and environmentally. It helps to inspire the children to develop their innovative and creative ideas.

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