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 - – competitive advantages are harder to sustain because of technology dispersion, cloud computing is disrupting traditional business models, technology disruption, wage bills are increasing, talent flight as more people leaving formal jobs, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing inequality as vast percentage of new income is going to the top 1%,
customer relationship management is fast transforming because of increasing concerns over data privacy, supply chains are disrupted by pandemic , 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 -
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.
Diverse revenue streams
– Lego Logistics is present in almost all the verticals within the industry. This has provided firm in LEGO: CONSOLIDATING DISTRIBUTION (A) case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
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.
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.
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.
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.
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.
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.
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.
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.
Cross disciplinary teams
– Horizontal connected teams at the Lego Logistics 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.
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 -
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.
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.
Slow decision making process
– As mentioned earlier in the report, Lego Logistics 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 Logistics 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.
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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study LEGO: CONSOLIDATING DISTRIBUTION (A), is just above the industry average. Lego Logistics 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.
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.
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 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 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.
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.
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.
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 -
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.
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.
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.
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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Lego Logistics 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: CONSOLIDATING DISTRIBUTION (A), to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in 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.
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.
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.
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.
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.
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.
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.
Better consumer reach
– The expansion of the 5G network will help Lego Logistics to increase its market reach. Lego Logistics 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.
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 -
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.