Case Study Description of LEGO: CONSOLIDATING DISTRIBUTION (A)
Two years after joining the LEGO Group as their Logistics Manager for Europe and Asia, Egil MA?ller Nielsen finds himself fighting several battles at different fronts; the most difficult one on his home turf against his own management team. He is half-way implementing a bold plan: close down all existing local and regional logistics operations and consolidate all logistics and distribution activities from a central location in the Czech Republic, managed by an external partner - DHL. Outsourcing logistics services on a scale like this - in East-Europe - had never been done before by any other European company. The stakes are high as LEGO, struggling for survival, is also trying to re-invent itself. Should Nielsen push through his plan - in which he firmly believes - or give in to the mounting pressure from home and relax his efforts? Learning objectives: We observe two new partners, both active on new, unexplored territory in the early stages of their partnership. The relationship is strained; both companies are under tremendous pressure from their corporate headquarters to show results while there is a general distrust in each others capacity and motivation. In this first case we learn that building a relationship that is based only on a contractual agreement can be a painful experience. Cost accounting in general and cost drivers in specific are mentioned to illustrate their importance in key decision making.
Authors :: Carlos Cordon, Ralf W. Seifert, Edwin Wellian
Swot Analysis of "LEGO: CONSOLIDATING DISTRIBUTION (A)" written by Carlos Cordon, Ralf W. Seifert, Edwin Wellian includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Lego Logistics facing as an external strategic factors. Some of the topics covered in LEGO: CONSOLIDATING DISTRIBUTION (A) case study are - Strategic Management Strategies, Joint ventures, Marketing, Operations management and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the LEGO: CONSOLIDATING DISTRIBUTION (A) casestudy better are - – banking and financial system is disrupted by Bitcoin and other crypto currencies, digital marketing is dominated by two big players Facebook and Google, cloud computing is disrupting traditional business models, increasing transportation and logistics costs, increasing commodity prices, increasing household debt because of falling income levels, there is backlash against globalization,
there is increasing trade war between United States & China, geopolitical disruptions, etc
Introduction to SWOT Analysis of LEGO: CONSOLIDATING DISTRIBUTION (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in LEGO: CONSOLIDATING DISTRIBUTION (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Lego Logistics, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Lego Logistics 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: CONSOLIDATING DISTRIBUTION (A) can be done for the following purposes –
1. Strategic planning using facts provided in LEGO: CONSOLIDATING DISTRIBUTION (A) case study
2. Improving business portfolio management of Lego Logistics
3. Assessing feasibility of the new initiative in Leadership & Managing People field.
4. Making a Leadership & Managing People topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Lego Logistics
Strengths LEGO: CONSOLIDATING DISTRIBUTION (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Lego Logistics in LEGO: CONSOLIDATING DISTRIBUTION (A) Harvard Business Review case study are -
Superior customer experience
– The customer experience strategy of Lego Logistics in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High brand equity
– Lego Logistics has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Lego Logistics to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Highly skilled collaborators
– Lego Logistics 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: CONSOLIDATING DISTRIBUTION (A) HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Effective Research and Development (R&D)
– Lego Logistics 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: CONSOLIDATING DISTRIBUTION (A) - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Organizational Resilience of Lego Logistics
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Lego Logistics does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Ability to recruit top talent
– Lego Logistics is one of the leading recruiters in the industry. Managers in the LEGO: CONSOLIDATING DISTRIBUTION (A) are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Training and development
– Lego Logistics has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in LEGO: CONSOLIDATING DISTRIBUTION (A) 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.
High switching costs
– The high switching costs that Lego Logistics 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.
Low bargaining power of suppliers
– Suppliers of Lego Logistics in the sector have low bargaining power. LEGO: CONSOLIDATING DISTRIBUTION (A) has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Lego Logistics to manage not only supply disruptions but also source products at highly competitive prices.
Analytics focus
– Lego Logistics 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 Carlos Cordon, Ralf W. Seifert, Edwin Wellian 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.
Operational resilience
– The operational resilience strategy in the LEGO: CONSOLIDATING DISTRIBUTION (A) 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.
Sustainable margins compare to other players in Leadership & Managing People industry
– LEGO: CONSOLIDATING DISTRIBUTION (A) firm has clearly differentiated products in the market place. This has enabled Lego Logistics to fetch slight price premium compare to the competitors in the Leadership & Managing People industry. The sustainable margins have also helped Lego Logistics to invest into research and development (R&D) and innovation.
Weaknesses LEGO: CONSOLIDATING DISTRIBUTION (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of LEGO: CONSOLIDATING DISTRIBUTION (A) are -
Slow to strategic competitive environment developments
– As LEGO: CONSOLIDATING DISTRIBUTION (A) HBR case study mentions - Lego Logistics 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.
Lack of clear differentiation of Lego Logistics products
– To increase the profitability and margins on the products, Lego Logistics needs to provide more differentiated products than what it is currently offering in the marketplace.
Interest costs
– Compare to the competition, Lego Logistics 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.
Low market penetration in new markets
– Outside its home market of Lego Logistics, firm in the HBR case study LEGO: CONSOLIDATING DISTRIBUTION (A) needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Capital Spending Reduction
– Even during the low interest decade, Lego Logistics 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.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study LEGO: CONSOLIDATING DISTRIBUTION (A), it seems that the employees of Lego Logistics 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Lego Logistics 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.
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 Logistics supply chain. Even after few cautionary changes mentioned in the HBR case study - LEGO: CONSOLIDATING DISTRIBUTION (A), it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Lego Logistics vulnerable to further global disruptions in South East Asia.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the LEGO: CONSOLIDATING DISTRIBUTION (A) 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 Logistics has relatively successful track record of launching new products.
High bargaining power of channel partners
– Because of the regulatory requirements, Carlos Cordon, Ralf W. Seifert, Edwin Wellian suggests that, Lego Logistics 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.
Products dominated business model
– Even though Lego Logistics 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: CONSOLIDATING DISTRIBUTION (A) should strive to include more intangible value offerings along with its core products and services.
Opportunities LEGO: CONSOLIDATING DISTRIBUTION (A) | 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: CONSOLIDATING DISTRIBUTION (A) are -
Learning at scale
– Online learning technologies has now opened space for Lego Logistics 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Lego Logistics 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 Logistics can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Loyalty marketing
– Lego Logistics 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.
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 Logistics can use these opportunities to build new business models that can help the communities that Lego Logistics operates in. Secondly it can use opportunities from government spending in Leadership & Managing People sector.
Creating value in data economy
– The success of analytics program of Lego Logistics has opened avenues for new revenue streams for the organization in the industry. This can help Lego Logistics to build a more holistic ecosystem as suggested in the LEGO: CONSOLIDATING DISTRIBUTION (A) case study. Lego Logistics can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, Lego Logistics 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Lego Logistics 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 Logistics to hire the very best people irrespective of their geographical location.
Buying journey improvements
– Lego Logistics can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. LEGO: CONSOLIDATING DISTRIBUTION (A) 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.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Lego Logistics in the consumer business. Now Lego Logistics can target international markets with far fewer capital restrictions requirements than the existing system.
Leveraging digital technologies
– Lego Logistics 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.
Developing new processes and practices
– Lego Logistics can develop new processes and procedures in Leadership & Managing People 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.
Using analytics as competitive advantage
– Lego Logistics 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: CONSOLIDATING DISTRIBUTION (A) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Lego Logistics to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats LEGO: CONSOLIDATING DISTRIBUTION (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study LEGO: CONSOLIDATING DISTRIBUTION (A) are -
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 Logistics 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.
Increasing wage structure of Lego Logistics
– 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 Logistics.
Regulatory challenges
– Lego Logistics 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 Leadership & Managing People industry regulations.
High dependence on third party suppliers
– Lego Logistics 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.
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: CONSOLIDATING DISTRIBUTION (A), Lego Logistics may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Leadership & Managing People .
Stagnating economy with rate increase
– Lego Logistics 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.
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.
Easy access to finance
– Easy access to finance in Leadership & Managing People field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Lego Logistics can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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 Logistics in the Leadership & Managing People sector and impact the bottomline of the organization.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Lego Logistics with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Environmental challenges
– Lego Logistics 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 Logistics can take advantage of this fund but it will also bring new competitors in the Leadership & Managing People industry.
Technology acceleration in Forth Industrial Revolution
– Lego Logistics has witnessed rapid integration of technology during Covid-19 in the Leadership & Managing People industry. As one of the leading players in the industry, Lego Logistics needs to keep up with the evolution of technology in the Leadership & Managing People 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.
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 Logistics.
Weighted SWOT Analysis of LEGO: CONSOLIDATING DISTRIBUTION (A) 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: CONSOLIDATING DISTRIBUTION (A) 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: CONSOLIDATING DISTRIBUTION (A) 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: CONSOLIDATING DISTRIBUTION (A) 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: CONSOLIDATING DISTRIBUTION (A) 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 Logistics needs to make to build a sustainable competitive advantage.
