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, supply chains are disrupted by pandemic , challanges to central banks by blockchain based private currencies, there is increasing trade war between United States & China, central banks are concerned over increasing inflation, increasing commodity prices, customer relationship management is fast transforming because of increasing concerns over data privacy,
increasing government debt because of Covid-19 spendings, there is backlash against globalization, 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 -
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.
Successful track record of launching new products
– Lego Logistics has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Lego Logistics 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.
Strong track record of project management
– Lego Logistics is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
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.
Ability to lead change in Leadership & Managing People field
– Lego Logistics 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 Logistics in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
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.
Digital Transformation in Leadership & Managing People segment
- digital transformation varies from industry to industry. For Lego Logistics digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Lego Logistics has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Learning organization
- Lego Logistics 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 Logistics is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in LEGO: CONSOLIDATING DISTRIBUTION (A) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
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 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.
Innovation driven organization
– Lego Logistics is one of the most innovative firm in sector. Manager in LEGO: CONSOLIDATING DISTRIBUTION (A) Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
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 -
Increasing silos among functional specialists
– The organizational structure of Lego Logistics is dominated by functional specialists. It is not different from other players in the Leadership & Managing People segment. Lego Logistics needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Lego Logistics to focus more on services rather than just following the product oriented approach.
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.
High operating costs
– Compare to the competitors, firm in the HBR case study LEGO: CONSOLIDATING DISTRIBUTION (A) 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 Logistics 's lucrative customers.
Need for greater diversity
– Lego Logistics has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
No frontier risks strategy
– After analyzing the HBR case study LEGO: CONSOLIDATING DISTRIBUTION (A), it seems that company is thinking about the frontier risks that can impact Leadership & Managing People 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.
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.
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.
High cash cycle compare to competitors
Lego Logistics 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.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Lego Logistics is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study LEGO: CONSOLIDATING DISTRIBUTION (A) can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study LEGO: CONSOLIDATING DISTRIBUTION (A), in the dynamic environment Lego Logistics has struggled to respond to the nimble upstart competition. Lego Logistics has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
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.
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 Logistics 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.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Leadership & Managing People industry, but it has also influenced the consumer preferences. Lego Logistics can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
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.
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.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Leadership & Managing People industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Lego Logistics 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 Logistics 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.
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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Lego Logistics in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Leadership & Managing People segment, and it will provide faster access to the consumers.
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.
Building a culture of innovation
– managers at Lego Logistics 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 Leadership & Managing People segment.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Lego Logistics is facing challenges because of the dominance of functional experts in the organization. LEGO: CONSOLIDATING DISTRIBUTION (A) case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
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.
Manufacturing automation
– Lego Logistics can use the latest technology developments to improve its manufacturing and designing process in Leadership & Managing People 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.
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 -
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.
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 .
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.
Shortening product life cycle
– it is one of the major threat that Lego Logistics is facing in Leadership & Managing People 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 Logistics needs to understand the core reasons impacting the Leadership & Managing People industry. This will help it in building a better workplace.
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.
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 Logistics business can come under increasing regulations regarding data privacy, data security, etc.
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.
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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Lego Logistics in the Leadership & Managing People industry. The Leadership & Managing People 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.
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.
Consumer confidence and its impact on Lego Logistics 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.
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.
