Piecing it Together
Australia is in the midst of an innovation and productivity crisis. It could do worse than look to Lego for solutions, Amy Birchall reports
This Christmas season, Lego will sell 28 products every second. This is an impressive figure for a company whose small plastic building bricks are competing with PlayStations and iPods for pride of place in Santa's stocking.
Lego's global profits were up by 17 per cent last year to $745 million, but it hasn't always been so successful.
Just a decade ago, productivity and inefficiency issues, combined with a loss of lucrative licensing agreements with Marvel Entertainment and unsuccessful legal battles with competitor MEGA Brands, meant Lego was teetering on the edge of bankruptcy.
Lego general manager for Australia and New Zealand Glenn Abell says this experience taught the family-owned Danish company some valuable lessons about innovation and productivity.
"We've been the type of company in the past that has done the same thing over and over again, you know, the definition of insanity type stuff," Abell says. "We got ourselves into trouble about 10 years ago, and one of the key issues was we didn't have control over our business. We had to revamp a lot. We had to change a lot of the ways we did business, reduce our workforce and simplify processes.
"We've forced ourselves to look in the mirror and say, 'Are we doing it in the most efficient or best way and to the highest quality we can?'"
This self-examination involved cutting the selection of colours available for Lego bricks in half, reducing the number of mini-figures on sale, improving supply chain productivity and realising that, as Abell says, "Lego is not a theme-park operator or a video-game developer. We thought we were, but we weren't".
Production capacity was also increased by assigning certain machines to make only specific Lego bricks on scheduled production cycles, reducing downtime.
"There's not a lot of fluff in our business now. Our supply chain, for instance, is so structured it would blow your mind," Abell jokes.
Abell says innovation is now central to what Lego does. To help drive this, Lego's product development team is focusing on "inventing the future of play".
"We have an area of our company in product development asking, 'What is going to be appealing to boys long-term?'
"It's an inspiration to us to want to be as innovative as we can be and at the leading edge of product development," Abell says.
He says this approach is vital given Lego's small target market.
"When you look at our key consumers, you're looking at boys aged six to nine. They grow up, so you need to constantly have introductions to Lego. It's an ongoing challenge for us and we always have to innovate in our products and our themes.
"We also have to ask ourselves what's important to a boy? We could go and develop a product that might be cool to us but has no bearing at all on what kids these days are into."
Lego also looks outside its own company for new product ideas. In April last year, it launched Cuusoo – a website where fans upload ideas for new Lego products. If a creation receives enough support, it is reviewed by the Lego Group for a chance to be made into an official product. The creator then receives a percentage of product sales.
A handful of these creations have been made into Lego products. The most recent was Lego Minecraft micro world, based on the popular video game of the same title. Abell is unsure of how many ideas have been uploaded to Cuusoo, but says it is a great way for Lego to learn from its own fans. As in any industry, Lego's recent successes have led to increased competition as other companies try to capitalise on its good results by introducing similar products.
This has placed renewed pressure on Lego to find new ways to connect with customers. "We can't expect our consumer to always come back to Lego just because we're Lego," Abell says.
"We need our consumers to come back to us because we offer the best quality and most relevant product that their kids want to play with. That's not to say other companies can't do it well, but I think we do it the best."
Engaging with consumers in a meaningful way is one technique that gives Lego an edge over its competitors.
"It's a bit of trial and error and we've tried a lot of things. We know there are a few things that do work. Our research into Lego video games, for example, has shown there is a translation between virtual play and physical play," Abell says.
"We might have a child who's never once played with a construction toy, but they open up a Lego Star Wars video game and have such a great time playing that they say, 'Wow. How cool would it be to get those physical bricks and actually build that product?'"
Similarly, Lego-branded TV shows have helped build engagement. Its branded programs are screened on Cartoon Network.