LEGO Boost: Continuing to Renew & Extend the Core

Great firms don't simply diversify into new businesses when their core business appears to be maturing.  Diversification attempts sometimes have two deleterious effects.  First, companies find themselves extending into areas in which they do not have distinctive capabilities that can lead to competitive advantage.  Second, the attention focused on the new businesses can accelerate deterioration of the core, as management becomes distracted and resources stretched thin.   Top performing firms search for ways to deepen their competitive position, to reinvigorate their core business.  Great firms don't simply accept the apparent decline of their core business.  

LEGO went through some substantial challenges in the early 2000s. Jargon Vig Knudstorp became CEO in 2004, and he engineered a remarkable turnaround.   He focused on what made the firm successful for decades - the LEGO bricks and the play associated with those iconic bricks.   Over time, LEGO has reinvigorated the brand and the famous LEGO bricks.  Moreover, the firm has deepened its competitive position with new product offerings and brand building efforts such as the LEGO movie.  

Now the Wall Street Journal reports on the introduction of a new line of products called LEGO Boost.  The products seek to capitalize on the movement to teach kids how to code.   Geoffrey Fowler reports:

Learning programming is awesome when you’re making Lego robots fart. “Usually Legos cannot fart, so we made these Legos fart a lot,” says Eleanor, 9 years old, who helped me code dance moves, jokes and simulated bodily functions into Lego Boost, a new take on the iconic bricks. “Also burp. Don’t forget the burping,” she adds.  Making Lego bricks come to life is a big deal for children aged 7 to 12—as well as for parents who want to teach them the basics of programming.

This new product line appears to build nicely off of the success of the company's Mindstorms products.  Mindstorms is used to teach older kids about robotics.  The Boost product line aims to introduce coding to younger children (ages 7-12).   The product line is consistent with the brand positioning, and it leverages what the company is already good at doing.  LEGO Boost appears to be another way in which LEGO continues to reinvigorate the core business and deepen its competitive position, rather than trying to do new things for which LEGO does not have a distinctive capability.  

How Growth Ambitions Lead to Complexity... and Perhaps Lower Revenues and Profits

The Wall Street Journal reported last week on McDonald's slumping sales.  The article was titled, "McDonald’s Menu Problem: It’s Supersized."  According to the Wall Street Journal, "McDonald’s doesn’t disclose historical data on its menu’s size, but Datassential, which tracks menu trends, says there were 85 items seven years ago, and McDonald’s says there are 121 today."   What are the negative consequences of this menu creep?  The article notes, "QSR Magazine, a trade publication that studies the drive-through performance of fast-food restaurants, reported last year that McDonald’s had clocked its slowest average speed of service in the study’s 15-year history: 189.49 seconds, more than twice the chain’s goal."   

The McDonald's story is not unique.  A firm has growth ambitions, and perhaps it is even worried about slowing growth.  What does it do?  Expand its product offerings.   However, the increase in product variety and selection adds considerable complexity to the business.  As a result, operational efficiency declines, and the company's fortunes actually worsen.  In some cases, it leads to excessive manufacturing and supply chain costs;  in other situations, it decreases customer service.   Consider what happened to Lego more than a decade ago.  A desire to increase growth led to an explosion in the number of different pieces that it produced and sold.  The added complexity became a huge burden for the company's operations.  It had significant negative consequences.  Many firms face this challenge.  Before they decide that new product offerings will be the answer to growth challenges, they have to think about the impact that additional complexity will have.  Are they prepared for that?  Can they cope with the strain that new products may create on operational processes? 

Lego: Sticking to Bricks

LEGO faced a perilous strategic and financial situation roughly a decade ago.   Since that time, the company has experienced a remarkable turnaround.  The LEGO story reminds us of the folly of poorly designed diversification strategies, as well as the value that can be created by renewing the core business.  

LEGO Moment: An Incredible Innovation Story

Lego Tries to Appeal to Girls

Business Week has a story this week about how Lego is trying to appeal more effectively to girls. I don't know if it will work, given the firm's historical image and positioning. However, I am very impressed with the research methodology that they employed before designing a new line of products specifically targeted at girls. Lego invested significant resources in anthropological research, sending researchers into homes to watch how girls play. They learned a great deal about how girls build, value beauty and color, and engage in role play. Here is one fascinating excerpt: Lego confirmed that girls favor role-play, but they also love to build—just not the same way as boys. Whereas boys tend to be “linear”—building rapidly, even against the clock, to finish a kit so it looks just like what’s on the box—girls prefer “stops along the way,” and to begin storytelling and rearranging. Lego has bagged the pieces in Lego Friends boxes so that girls can begin playing various scenarios without finishing the whole model. Lego Friends also introduces six new Lego colors—including Easter-egg-like shades of azure and lavender. (Bright pink was already in the Lego palette.)