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 - – increasing energy prices, increasing transportation and logistics costs, competitive advantages are harder to sustain because of technology dispersion, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing household debt because of falling income levels, increasing government debt because of Covid-19 spendings, challanges to central banks by blockchain based private currencies,
central banks are concerned over increasing inflation, there is increasing trade war between United States & China, 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 -
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.
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.
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.
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.
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.
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.
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.
Cross disciplinary teams
– Horizontal connected teams at the Lego Flextronics are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
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.
Training and development
– Lego Flextronics has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Lego Group: An Outsourcing Journey Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer 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.
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.
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 -
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.
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.
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.
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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Lego Group: An Outsourcing Journey, is just above the industry average. Lego Flextronics needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
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.
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.
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.
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.
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.
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 -
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Learning at scale
– Online learning technologies has now opened space for Lego Flextronics to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
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.
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.
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 -
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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Lego Flextronics can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Lego Group: An Outsourcing Journey .
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.
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Lego Flextronics in the Global Business industry. The Global Business industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
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.
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.
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.
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.
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.
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.
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.
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.
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.