Identification of key issues, justification and evaluation of the choice of analytical models?
Lego group is not new in the toy industry and they are well aware of the requirements of the target market. Lego group is not the same as they were in the past. Brand management and reputation building is well taken care by the management of Lego group. Resource based view and porter’s five forces analysis has helped Lego group to improve the existing position in the market. There have been ups and downs for Lego group but every time they have emerged stronger than what they were in the past.
Resource based view is well implemented at Lego, world’s popular toy manufacturer. In the year 2003, they suffered due to the financial crunch but that is not the case anymore. After 2003, the management of Lego decided to use the efficiencies efficiently. After the crisis, the company decided to look for ways by which they can get back the competitive position in the market and at the same time, they also wanted to regenerate the profits which they use to regenerate in the past. In the past, the management use to continuously look for ways by which the target market can be satisfied with new ideas but that is not the case now. Now the company looks for ways by which creative ideas can be implemented and at the same time, they are also willing to generate good profits so that the company can survive in the market (Schultz 2000).
Production Facility
The production capacity of Lego before 2004 was huge as they had different types of machineries for manufacturing different types of toys. It was seen that only 30% of the toys produce 80% of revenue but then the organization has plenty of types of designs. The innovation team had to just innovate new toys without considering the production facility required or the revenue that will be generated. Lego had approximately 11000 suppliers and hence, they were spending huge money on maintaining the suppliers.
Lego group decided to change the strategy which they were following till date. They decided to start with outsourcing the production responsibility rather than that of having it in-house. They outsourced the production responsibility to Mexico and Czech Republic. This helped Lego to reduce the production cost and at the same time, the time required for the toys to reach from manufacturing factory to the store shelves was just 3-4 days (Oliver 2007).
Energy consumption
Fossil fuel energy was used in the past for the purpose of manufacturing but they realized that it is very expensive. Lego group has started to use renewable energy sources so that they can save money. Apart from the usage of renewable energy, they have decided to optimize on the usage of electricity. The group has started to make investment in intelligent lighting, hydraulic pressures are replaced and optimizing the usage of compressed air system.
Supply chain management
Lego was initially reaching the customers through small retailers. Small retailers use to purchase small quantity from Lego and hence, Lego was spending lot of money in reaching the retailers. Lego also had 5 logistics centers in Denmark, Germany and in France. Maintenance of these logistics centers were also adding to the cost center of Lego. Later on Lego decided to tie-up with big companies like Wal-mart and other retailers who will be buying the toys in bulk. This helped the organization to reduce the cost of transportation and at the same time, these retailers had their own logistics center. Lego also decided to close their logistics center and hence, their cost was reduced. Along with the external logistics, the internal logistics of the organization was also improvised. Employees who were travelling between the production center and administration center were asked to use bicycles and not cars. This helped the organization to save energy and the negative impact on the environment was also reduced.
Recycling and waste management
Recycling was one of the strategies that were used by the management of Lego group so that they can reduce the impact that they are creating on the environment. A system wherein the waste is recycled and directly returned to the production machinery was implemented. This saved time and also the raw materials were used efficiently. The wastage due to handling was reduced. The production cost reduced drastically due to the recycling process that was undertaken (Aanderson 2011).
Quality of production
Lego toys are known for the high quality bricks that they produce. The bricks can be used to create anything that the child wants. Apart from that, the bricks will remain intact even when it is thrown up in the air. In fact, it was seen that Lego bricks was passed from one generation to that of another. A special plastic was used to manufacture Lego bricks. The materials used by Lego for the purpose of producing bricks are made up of special polymer. Due to this, the usage of fossil fuel has increased extensively.
The management of Lego toys wants the toys to be safe and hence, ongoing testing is undertaking so that the toys can be safe for the customers to be used. Apart from that, the chemicals and paints that are used for the purpose of designing the toys is also checked before it is used. Mechanical tests are also conducted so that strains can be avoided when the child bites, hits or twists the toys. The size of the toy is well considered in advanced so that the customer doesn’t get choked if they place the toys in their mouth. The sharp edges are also well tested so that it doesn’t hurt the consumer by any chance. The company is not only strict with the suppliers and retailers but they are very strict with themselves as well. Internal audits are conducted aggressively so that even the smallest mistake can be identified and corrected (Shiller 2005).
Value of products
Lego products are much researched and hence, they understand the psychology of children. These bricks will improve the intelligence of the children and this is what makes Lego different than that of the other competitors available in the market. They continuously track on the new things that are existent in the market so that they can develop something that will hold the attention of the children. Customers who were ordering Lego toys were having complaints related to missing parts and manuals but that was sorted. In the Lego’s website, the customers can complaint about the missing parts and give the address wherein they would like to receive the toys. The missing parts would be delivered to the address mentioned (Kotler 2006).
Other activities to maintain the value
Most of the parts of the Lego toys is manufactured by the suppliers and hence, maintaining quality is a big challenge. All the suppliers associated with Lego Toys are trained so that they can maintain the same quality. A document which talks about the minimum expectations that a supplier should maintain to be associated with Lego is mentioned. This ensures that only the quality customers are associated with Lego.
Lego wants to stay ahead in the competition and hence, they are coming up with animated characters. These animated characters are gaining popularity among the young children. During the initial days, Lego never thought of getting into digital gaming but they entered the digital gaming. They choose popular characters like Indiana Jones, Batman, star wars and others so that they can attract the kids. Just like they are concerned about the safety of the kids when producing toys, they are very particular about the advertisements that will be seen while the kid will be playing the games (Mankiw 2003).
Being responsive to the market trends
In the year 2004, most of the toy markers believed that gone are the days when Lego Toys were popular than that of the other toys but Lego proved them wrong. Lego toys are fifty years old and they are completely different than what they use to be in the past. They are changing continuously so that they can meet the fast changing requirements of the customer. To attract the target market, they developed digital games based on Star Wars, Batman and other animated characters which may be considered to be interesting by the kids. Lego toys are well aware of the fact that kids today are losing their physical ability to play games but Lego doesn’t want that to happen. To keep the physical toys into existence, Lego is trying its level best to improve the bricks game so that kids are willing to play the bricks game, in spite of the presence of plenty of digital games in the open market. For parents, Lego toys would be preferred for physical toys and digital games because of the security and safety that they offer to kids. Lego always wants to be ethical and they don’t want to lose their important for the few extra money that they can earn from advertisements (Porter 2008).
Brand management
Organizational culture can play a key role in branding because the employees speak about their experience while they are associated with the company. The management of Lego always ensures that they get feedback from the employees so that improvement can be made. Talking about the brand, it can be said that most of the people today refer to bricks as Legos and this is an achievement for any organization. External stakeholders hold a positive image about the organization because of the charity work that they do. At the same time, they ensure that they stick to the ethical values so that the human safety and rights are safeguarded. These are few things which ensure that the image of Lego is safeguarded at all possible times (Henry 2007).
Porter’s five forces analysis
Different forces in the industry create different impact on Lego toys. It is very important for the management of Lego to understand the importance of each force so that they can act accordingly. The impact of each force on Lego toys are discussed below.
The threat of new entrants
The threat of new entrants in the toys industry is very low. The cost of plastic used for the purpose of manufacturing toys is very less but the fixed cost associated while setting up a new business is very high. Apart from that, toys manufacturing needs to be done manufactured in huge quantity and hence, there are high chances that the new entrant will not be able to compete directly with Lego toys. The existing toy manufacturers will not allow the new entrant to survive in the market because of the name that they hold in the market. The new entrants will have to market extensively so that they can create awareness about their product among the target market. It is merely impossible for a new entrant to make investment like what Lego toys are doing and hence, the possibilities of a new entrant in toy industry are very low (Grant 2005).
The bargaining power of suppliers
The power of suppliers in case of Lego group is very low because of the availability of large number of suppliers. Most of the suppliers of Lego group are located in Eastern Europe and Mexico because of their close proximity. The suppliers are dependent on Lego group for their business and hence, Lego group has the power and potential to influence the price at which they are buying and also the quality that needs to be maintained by the supplier so that they can continue their business with Lego group. Buying in bulk is one of the major reasons due to which the suppliers are more than willing to be associated with Lego group.
Lego group is very precise when it comes to choosing suppliers. The suppliers will have to stick to the norms that have been set by the group as annual audits are created by Lego group to track the performance, impact on environment and also the employee rights. This ensures that the suppliers are in sync with the policies of Lego group. In the past, Lego group had a contract with Flextronics for supplying the raw materials but it was seen that Lego group was forced to follow the norms that are set by Flextronics and that is one of the major reasons due to which they decided to end the contract and get associated with small suppliers (Yeh 2004).
The bargaining power of buyers
The bargaining power of individual buyers is very low but the retailers have a lot of power to bargain on the kind of toys. Many large retailers try and understand the requirements of individual buyers and it is accordingly shared with Lego group. Lego group works in accordance with the preference of the customer standard. The degree to which the products are differentiated is very high in toy industry. Lego group will have put in great efforts so that they can create brand awareness among the target market. Today, Lego toys are considered as something that is safe for kids, durable so the kids can use it for longer and lastly, it increases the creativity of the kid.
Switching cost is not expensive and hence, if the customers are not happy they don’t think much before they switch to some other toy manufacturer. The backward integration for Lego group is also very low and hence, the customers will not produce toys (McMillan 1996).
The threat of substitute
The threat of substitute for Lego group is very high. Lego is known for the brick games that they manufacture and brick games are used by kids at a very young age. Once they grow up, they prefer computer games over the brick games and hence, the threat of substitutes is very high. Boys prefer to play video games and girls are more interested in fashion shows and Barbie dolls and hence, it is very difficult to impress the kids who are above the age of 5. All the kids are playing computer games and hence, it is difficult for the parents to convince their kids to play with Lego toys. PC game industry is dominating the games industry at this point of time and hence, it can be stated that the threat of substitute is very high (Elton 1970).
The intensity of rivalry
There are plenty of toy manufacturers and hence, the intensity of rivalry is high in the industry. It is very important for Lego to ensure that the customers are completely aware of the availability of toys in the Lego group. People prefer to spend on toys only when their disposable income is high. During the year 2007-2009, financial crisis hit the globe and hence, it was seen that the people’s willingness to spend on toys was less. The fixed cost associated with Lego group is very high and it cannot be reduced depending on the sales. Lastly, the exit barriers in the industry are also very high. If Lego group is not generating sufficient profits then there are very high chances that they will have survive rather than that of exiting because of the high investments that they have made in machineries (Pupo 2002).
Recommendations for Lego group
Few of the recommendations that would help the group to be better that what it is today are as follows: –
1. Rebranding can be undertaken by Lego group so that they can continue to grow rather than that of being stagnant. When people talk about Lego, they mean the bricks game and not the other games. Rebranding should be done in such a way that the target market is aware of the digital games of Lego as well.
2. Board games operations can be stopped completely by Lego. In the past, board games were very popular but that is not the case anymore as the kids have started to play digital games instead of board games. Stopping the complete board game operation will help the company to make profits by reducing the operational cost.
3. Lego group should keep a track on the upcoming technology. Batman and Star wars are still popular but there are plenty of other companies as well which produce similar kind of games. Lego group can look for new thematic games so that they can survive the tough competition in the gaming industry (Barney 1996).
References
Barney J. B. (1996), Gaining and Sustaining Competitive Advantage, 1st ed., Prentice Hall, US
Pupo G. A. R, (2002), Attain Sustainable Competitive Advantages by means of Organizational Learning, < https://www.managementweb.com.ar/Estrategia4.htm>
Elton E. J., Gruber M. J., (1970) Marginal Stock Holder Tax Rates and Clientele Effect, < https://pages.stern.nyu.edu/~eelton/papers/70-feb.pdf>
McMillan C. J., (1996) The Japanese Industrial System, 3rd ed., Walter de Gruyter & Co, Germany
Yeh R. T., Yeh S. H., (2004) The Art of Business: In the Footsteps of Giants, Zero Time Publishing, London
Grant R. M., (2005) Contemporary Strategy Analysis, 5th chapter: Analyzing Resources and Capabilities, 7th Edition edition, John Wiley & Sons, US
Henry A., (2007) Understanding strategic management, OUP Oxford, London
Porter M. E., (2008), On Competition, Updated and Exploited ed., Harvard Business review, Boston, MA
Mankiw G. N., (2003), Principles of Economics, Third Ed., South-Western, US.
Kotler P., Kevin L., K., (2006), Marketing Management, 12 ed., Prentice Hall, New Jersey
Shiller R. (2005). Irrational Exuberance, 2d ed., Princeton University Press, US.
Aanderson S., (2011), Cost Reduction ≠ Cost Advantage, < https://www.qualitydigest.com/inside/quality-insider-article/cost-reduction-costadvantage.html>
Oliver K., Samakh E., Heckmann P., (2007), Rebuilding Lego, Brick by Brick, < https://www.strategy-business.com/article/07306?gko=99ab7>
Schultz M., Hatch M. J., Larsen M. H., (2000), The Expressive Organization: Linking Identity, Reputation and the Corporate Brand, Oxford University Press, USA
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