Case Study Description of Lego Group: An Outsourcing Journey
The last years' rather adventurous journey from 2004 to 2009 had taught the fifth-largest toy-maker in the world - the LEGO Group - the importance of managing the global supply chain effectively. In order to survive the largest internal financial crisis in its roughly 70 years of existence, the management had, among many initiatives, decided to offshore and outsource a major chunk of its production to Flextronics. In this pursuit of rapid cost-cutting sourcing advantages, the LEGO Group planned to license out as much as 80 per cent of its production besides closing down major parts of the production in high cost countries. Confident with the prospects of the new partnership, the company signed a long-term contract with Flextronics. This decision eventually proved itself to have been too hasty, however. Merely three years after the contracts were signed, LEGO management announced that it would phase out the entire sourcing collaboration with Flextronics. This sudden change in its sourcing strategy posed LEGO management with a number of caveats. Despite the bright forecasts, the collaboration did not fulfill the initial expectations, and the company needed to understand why this had happened. Secondly, what could LEGO management have done differently?
Authors :: Marcus Moller Larsen, Torben Pedersen, Dmitrij Slepniov
Swot Analysis of "Lego Group: An Outsourcing Journey" written by Marcus Moller Larsen, Torben Pedersen, Dmitrij Slepniov includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Lego Flextronics facing as an external strategic factors. Some of the topics covered in Lego Group: An Outsourcing Journey case study are - Strategic Management Strategies, Performance measurement, Strategy, Supply chain and Global Business.
Some of the macro environment factors that can be used to understand the Lego Group: An Outsourcing Journey casestudy better are - – digital marketing is dominated by two big players Facebook and Google, there is backlash against globalization, increasing government debt because of Covid-19 spendings, cloud computing is disrupting traditional business models, banking and financial system is disrupted by Bitcoin and other crypto currencies, there is increasing trade war between United States & China, increasing commodity prices,
central banks are concerned over increasing inflation, increasing energy prices, etc
Introduction to SWOT Analysis of Lego Group: An Outsourcing Journey
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Lego Group: An Outsourcing Journey case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Lego Flextronics, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Lego Flextronics operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Lego Group: An Outsourcing Journey can be done for the following purposes –
1. Strategic planning using facts provided in Lego Group: An Outsourcing Journey case study
2. Improving business portfolio management of Lego Flextronics
3. Assessing feasibility of the new initiative in Global Business field.
4. Making a Global Business topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Lego Flextronics
Strengths Lego Group: An Outsourcing Journey | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Lego Flextronics in Lego Group: An Outsourcing Journey Harvard Business Review case study are -
High brand equity
– Lego Flextronics has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Lego Flextronics to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Diverse revenue streams
– Lego Flextronics is present in almost all the verticals within the industry. This has provided firm in Lego Group: An Outsourcing Journey case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Ability to recruit top talent
– Lego Flextronics is one of the leading recruiters in the industry. Managers in the Lego Group: An Outsourcing Journey are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Sustainable margins compare to other players in Global Business industry
– Lego Group: An Outsourcing Journey firm has clearly differentiated products in the market place. This has enabled Lego Flextronics to fetch slight price premium compare to the competitors in the Global Business industry. The sustainable margins have also helped Lego Flextronics to invest into research and development (R&D) and innovation.
Superior customer experience
– The customer experience strategy of Lego Flextronics in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Successful track record of launching new products
– Lego Flextronics has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Lego Flextronics has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Ability to lead change in Global Business field
– Lego Flextronics is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Lego Flextronics in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Highly skilled collaborators
– Lego Flextronics has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Lego Group: An Outsourcing Journey HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Organizational Resilience of Lego Flextronics
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Lego Flextronics does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Innovation driven organization
– Lego Flextronics is one of the most innovative firm in sector. Manager in Lego Group: An Outsourcing Journey Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
High switching costs
– The high switching costs that Lego Flextronics has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Learning organization
- Lego Flextronics is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Lego Flextronics is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Lego Group: An Outsourcing Journey Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Weaknesses Lego Group: An Outsourcing Journey | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Lego Group: An Outsourcing Journey are -
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Lego Flextronics supply chain. Even after few cautionary changes mentioned in the HBR case study - Lego Group: An Outsourcing Journey, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Lego Flextronics vulnerable to further global disruptions in South East Asia.
High operating costs
– Compare to the competitors, firm in the HBR case study Lego Group: An Outsourcing Journey has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Lego Flextronics 's lucrative customers.
High bargaining power of channel partners
– Because of the regulatory requirements, Marcus Moller Larsen, Torben Pedersen, Dmitrij Slepniov suggests that, Lego Flextronics is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Workers concerns about automation
– As automation is fast increasing in the segment, Lego Flextronics needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Aligning sales with marketing
– It come across in the case study Lego Group: An Outsourcing Journey that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Lego Group: An Outsourcing Journey can leverage the sales team experience to cultivate customer relationships as Lego Flextronics is planning to shift buying processes online.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Lego Group: An Outsourcing Journey, it seems that the employees of Lego Flextronics don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Increasing silos among functional specialists
– The organizational structure of Lego Flextronics is dominated by functional specialists. It is not different from other players in the Global Business segment. Lego Flextronics needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Lego Flextronics to focus more on services rather than just following the product oriented approach.
High cash cycle compare to competitors
Lego Flextronics has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Interest costs
– Compare to the competition, Lego Flextronics has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Slow to strategic competitive environment developments
– As Lego Group: An Outsourcing Journey HBR case study mentions - Lego Flextronics takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Lego Flextronics is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Lego Group: An Outsourcing Journey can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Opportunities Lego Group: An Outsourcing Journey | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Lego Group: An Outsourcing Journey are -
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Lego Flextronics can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Lego Group: An Outsourcing Journey, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Global Business industry, but it has also influenced the consumer preferences. Lego Flextronics can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Lego Flextronics can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Lego Flextronics to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Lego Flextronics to hire the very best people irrespective of their geographical location.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Lego Flextronics in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Global Business segment, and it will provide faster access to the consumers.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Lego Flextronics can use these opportunities to build new business models that can help the communities that Lego Flextronics operates in. Secondly it can use opportunities from government spending in Global Business sector.
Manufacturing automation
– Lego Flextronics can use the latest technology developments to improve its manufacturing and designing process in Global Business segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Creating value in data economy
– The success of analytics program of Lego Flextronics has opened avenues for new revenue streams for the organization in the industry. This can help Lego Flextronics to build a more holistic ecosystem as suggested in the Lego Group: An Outsourcing Journey case study. Lego Flextronics can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Developing new processes and practices
– Lego Flextronics can develop new processes and procedures in Global Business industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Leveraging digital technologies
– Lego Flextronics can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Using analytics as competitive advantage
– Lego Flextronics has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Lego Group: An Outsourcing Journey - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Lego Flextronics to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Low interest rates
– Even though inflation is raising its head in most developed economies, Lego Flextronics can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Loyalty marketing
– Lego Flextronics has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Threats Lego Group: An Outsourcing Journey External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Lego Group: An Outsourcing Journey are -
Stagnating economy with rate increase
– Lego Flextronics can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Lego Flextronics.
High dependence on third party suppliers
– Lego Flextronics high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Technology acceleration in Forth Industrial Revolution
– Lego Flextronics has witnessed rapid integration of technology during Covid-19 in the Global Business industry. As one of the leading players in the industry, Lego Flextronics needs to keep up with the evolution of technology in the Global Business sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Environmental challenges
– Lego Flextronics needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Lego Flextronics can take advantage of this fund but it will also bring new competitors in the Global Business industry.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Lego Flextronics business can come under increasing regulations regarding data privacy, data security, etc.
Regulatory challenges
– Lego Flextronics needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Global Business industry regulations.
Increasing wage structure of Lego Flextronics
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Lego Flextronics.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Lego Group: An Outsourcing Journey, Lego Flextronics may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Global Business .
Shortening product life cycle
– it is one of the major threat that Lego Flextronics is facing in Global Business sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Lego Flextronics in the Global Business sector and impact the bottomline of the organization.
Consumer confidence and its impact on Lego Flextronics demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Lego Flextronics will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Weighted SWOT Analysis of Lego Group: An Outsourcing Journey Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Lego Group: An Outsourcing Journey needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Lego Group: An Outsourcing Journey is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Lego Group: An Outsourcing Journey is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Lego Group: An Outsourcing Journey is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Lego Flextronics needs to make to build a sustainable competitive advantage.