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 - – cloud computing is disrupting traditional business models, challanges to central banks by blockchain based private currencies, geopolitical disruptions, increasing commodity prices, central banks are concerned over increasing inflation, increasing inequality as vast percentage of new income is going to the top 1%, digital marketing is dominated by two big players Facebook and Google,
increasing household debt because of falling income levels, increasing transportation and logistics costs, 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 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.
Strong track record of project management
– Lego Flextronics is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
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.
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.
Effective Research and Development (R&D)
– Lego Flextronics has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Lego Group: An Outsourcing Journey - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
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.
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.
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.
Operational resilience
– The operational resilience strategy in the Lego Group: An Outsourcing Journey Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Low bargaining power of suppliers
– Suppliers of Lego Flextronics in the sector have low bargaining power. Lego Group: An Outsourcing Journey has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Lego Flextronics to manage not only supply disruptions but also source products at highly competitive prices.
Analytics focus
– Lego Flextronics is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Marcus Moller Larsen, Torben Pedersen, Dmitrij Slepniov can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
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 -
Capital Spending Reduction
– Even during the low interest decade, Lego Flextronics has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Products dominated business model
– Even though Lego Flextronics has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Lego Group: An Outsourcing Journey should strive to include more intangible value offerings along with its core products and services.
Slow decision making process
– As mentioned earlier in the report, Lego Flextronics has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Lego Flextronics even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Lego Group: An Outsourcing Journey HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Lego Flextronics has relatively successful track record of launching new products.
Lack of clear differentiation of Lego Flextronics products
– To increase the profitability and margins on the products, Lego Flextronics needs to provide more differentiated products than what it is currently offering in the marketplace.
Skills based hiring
– The stress on hiring functional specialists at Lego Flextronics has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers 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.
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.
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.
No frontier risks strategy
– After analyzing the HBR case study Lego Group: An Outsourcing Journey, it seems that company is thinking about the frontier risks that can impact Global Business strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
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.
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 -
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.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Lego Flextronics to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Lego Flextronics can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
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.
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.
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.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Global Business industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Lego Flextronics can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Lego Flextronics can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
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.
Buying journey improvements
– Lego Flextronics can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Lego Group: An Outsourcing Journey suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
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.
Better consumer reach
– The expansion of the 5G network will help Lego Flextronics to increase its market reach. Lego Flextronics will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Building a culture of innovation
– managers at Lego Flextronics can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Global Business segment.
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.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Lego Flextronics needs to understand the core reasons impacting the Global Business industry. This will help it in building a better workplace.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
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.
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 .
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
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.
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.
Easy access to finance
– Easy access to finance in Global Business field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Lego Flextronics can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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.
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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Lego Flextronics with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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.
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.