Question

Compare the strategic changes implemented at LEGO (by Jørgen Vig Knudstorp) and Pringle of Scotland (by Kim Winser) to highlight similarities/differences. Critically analyze the strategic change in each case: were there any lessons one of the CEOs could have learned from the other’s strategic change process? This question is focused on Lecture 10 (Strategic Change); you can incorporate other MGMT205 ideas as appropriate to deepen your analysis if you wish. Maximum 3 tables/figures.

Answer 1

*LEGO PESTEL ANALYSIS: -

-PESTEL Analysis In order to understand the organization in better manner the factors which will impact it externally are mentioned below:

1.1 Political Factors LEGO being international organization gets affected by the political situations in the countries wherever it has its presence. They are already present in Denmark and planning to build a factory in China too, which will be ready for production by 2017 (Ritzau, 2013). Since to be distributing its products in more than 130 nations therefore the local political decisions of these nations will also impact it (LEGO: About Us, 2013). Some nations like US have regulations for promoting safer toys for kids, while some countries are against the biased advertising and marketing of LEGO toys as just for boys which are gender biased (Miller and Gray, 2012). Corporate taxes in Denmark are supposed to be reduced by 1% every year till 2016, so that the new tax to be 22% (Matzen, 2013). Developing economies levy high import taxes.

1.2 Economic Factors Latest projection given by International Monetary Fund states that the general world economy will see a growth in2013 in both developed as well as developing economies. This will create more public wealth and increased spending by public on toys and games thus boosting LEGO sales (International Monetary Fund, 2013). However the EURO area the major market for LEGO are still under debt crisis which can have negative impact on LEGO sales .There is higher growth in the emerging economies middle-class as predicted by OECD that the middle-class will increase from 1.8 billion in 2009 to 3.2 billion in 2020 (Pezzini, 2012).

1.3 Socio-cultural Factors Lower fertility rates across the nations due to more involvement of women in the labour markets, increased standard of living and education has resulted in delayed pregnancies , which in turn increases the spending power of families one educational toys (Riising, 2013).

1.4 Technological Factors Technology and new product development are of significant importance for LEGO. Moreover the threat is from high access to Internet across the world, and smart mobile technology which is very much popular in Smartphones and used by kids. The new 3D printing technology used by LEGO can be easily imitated by its competitors (The Economist, 2012).

1.5 Environmental Factors LEGO has always emphasised on corporate social responsibility and has implemented several CSR initiatives to be ranked with the topmost companies regarding renewable energy and work safety (Progress Report, 2012). LEGO products being made of plastic it has immense pressure to make environment friendly toys.

Porter’s Five Forces Analysis:

By using Five Forces Framework the competitive Forces in the market would be understood and the origins of the profitability in industry can be found. This framework will also help in anticipating and handling competition in future. 2.1 Threat of Entry Since new toys are continuously entering the market with biog brand like Wal-Mart and Target etc., therefore the threat of entry is higher. But LEGO being very famous international brand it is tough for new entrants to imitate it in short-term.

2.2 Bargaining Power of Suppliers The primary suppliers of LEGO are the Chinese subcontractors and there are huge numbers of these Chinese suppliers which supply to various other industries too. Therefore the dependence level of LEGO is low. Moreover LEGO has most of its production in-house, supply needs are not highly differentiated and potential suppliers are easily available thus the switching cost for suppliers is low as well.

2.3 Bargaining Power of Buyers Since the products offered by LEGO are unique and cannot be exchanged by the retailers with similar products and the buyers therefore cannot backward integrate the production of LEGO toys. Due to differentiated products LEGO enjoys good market position amongst the buyers therefore the bargaining power of buyers is moderate because LEGO has good relationship with the retailers also.

2.4 Threat of Substitutes Since kids have started spending more time with digital products, but still LEGO has been defying the trend and its sales are rising. LEGO has incorporated technology in some of its products, therefore although the threat of substitutes is higher for the industry but for LEGO it is comparatively lower.

2.5 Competitive Rivalry The major competitors for Lego are Mattel, Bandai NAMCO, Takara Tomy, Hasbro, but the two main competitors of LEGO are Mattel and Hasbro. LEGO is way ahead them but in near future they might catch its share in operating margins and beat it therefore internal rivalry is high for LEGO.

*Strategic Groups:

Strategic Group Analysis helps in identification of various groups of competitors which have similar strategic characters. Some of the major competitors of LEGO are Mega Bloks Inc., which is largest toymaker in Canada and exports toys in more than 100 countries. Tyco Toys another major competitor has been acquired by Mattel and it ranked first in 2004. Considering product diversification Mattel produces more diversified products than LEGO.

Definition of Strategy According to Henry Mintzberg Strategy

It is commonly used as a plan for achieving goals, it is a pattern of actions used overtime. It is the position which reflects the decision to offer specific products or services in specific target markets and it is also the perspective associated with particular direction and vision (Mintzberg, 1994). Porter has argued that competitive strategy is about being different, which means choosing a totally unique as well as different set of activities in deliberate manner so as to deliver a unique mix of values to customers (Porter, 1996). Thus strategy is a competitive position which helps the firm to get differentiated in the eyes of the target customers (Nickols, 2012). LEGO adopts both growth strategy and innovative strategy to gain competitive advantage in the market. Strategic Drift Strategic Drift can be defined as a situation which occurs when a company, which is very successful, responds very slowly to the external environment and still continues with the same strategy which once served it very well in the past. Such organizations persevere with their successful business models, even when the business model turns out to be highly inappropriate according to the future trends.

One of eth main cause which has been found for strategic drifts occurring is changes in the technological environment. But there are some internal dimensions also which are source of strategic drift, like when eth leadership of eth organization continues and sticks with the obsolete or becomes highly redundant. LEGO can assess whether it is undergoing strategic drift or not by constantly monitoring its internal as well as external environment (McDermott, 2014). Lego’s external environment has changed due to faster child development at rapid pace, growth in the digital world, higher dependence on global brands and changing fashion trends in the toy industry.

To avoid eth strategic drift Lego responded to these changes by combining both innovation and market adaptation. They regularly introduced digital toys and also created virtual communities for cross-selling and supporting the users. The firm also formed new business units like LEGO Interactive and LEGO Direct, expanded into lifestyle products and also collaborated with many global brands like Microsoft, Warner Bros, Disney and Lucas Films (Schultz and Hatch, 2003).

Scenario Planning:

Scenario planning is an essential tool which is used for innovation and it is also related top strategy as it is a hedge against crisis management. LEGO adopts innovation for growth as scenario planning and it is all about the combination of strategy with innovation and not research and development. Scenario planning helps in avoiding two failures of over predicting or under predicting.

The article in Forbes about “Can Lego snap together a future in Asia” (Girard, 20132) doubts the effectiveness of scenario planning in making strategic decisions. Lego tackles uncertainty through scenario planning by actively identifying and then trying to analyse various ways in which this uncertainty can be tackled in successful manner. Since LEGO does not have any data for future, this approach helps it in active forecasting as well as engagement which provides best insight to the organization about the scenario that what might happen (Rasmus, 2013).