Innovation Under Constraint: Constructing a Turnaround at Lego
Brian Kenny: I can’t imagine there are many people who don’t know the name Lego. Probably, most didn’t know that it means “play well,” which I think is a great little insight that comes from the case. And the Latin translation of that is?
Jan Rivkin: “I assemble.”
Kenny: So, just start us off by telling us how does the case begin? Where do we start?
Rivkin: Sure, as the curtain rises on the case in 2004, Lego stands on the brink of bankruptcy. It looks certain that this iconic toymaker will be taken over by Hasbro, or Mattel, or some other large company, or maybe a private equity shop that will break it down into pieces, and Jorn vig Knudstorp, a fresh-faced 36-year-old has just been given the helm of the company, and he has one last shot to save the company. It is do or die.
Kenny: What prompted you to write this case? You played with Legos as a child, I assume, as many of us did.
Rivkin: I played as a child and I played with my kids, and sometimes I still play with them. Sometimes I share with the kids as well. My co-author on this case is Stefan Thomke and Stefan and I had the opportunity to get to know the Lego executives. We were interested in the company for a while, and they were interested in Harvard Business School, as well. So, we had an exchange with their CEO, and with the head of North America, and one of our alums who works at Lego, and they were interested in perhaps understanding more about what they might learn from Harvard Business School. They invited us out first to their North American headquarters in Connecticut, and then onward to the headquarters in Denmark.
Kenny: What was that like? Did you get to see behind the scenes as they make these, the bricks?
Rivkin: It was magnificent going into the Lego factory. Imagine a half-kilometer-long factory filled with injection molding machines, every few seconds churning out new Lego bricks. It was like going into Willy Wonka’s factory. I kept looking for the oompa loompas.
Kenny: That’s great. Many people probably don’t realize that Lego is part of an enormous, ever-changing toy industry. Can you talk about the landscape that the case takes place in?
Rivkin: Yes, that is one of the first things the students discuss when we teach this case. They’re looking at Lego on the brink of bankruptcy and asking, “Is this an industry problem? Is it a problem with the company’s position? Is it somehow a change in the industry that has undermined the company’s position?” And I don’t want to ruin the case discussion, but I will say that not all is well in toyland as the case opens There are changes in the customers. There is a threat of substitution. There are threats of new entry. Kids’ play habits are changing in ways that make the industry as a whole more challenging, but also in ways that particularly undermine the Lego value proposition.
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