The Interdependency Between LEGO’s Success and Open Innovation
In the face of digital competition, LEGO’s journey defending its market share has not been all fun and games. With 2017 revenues declining 8% (first decline in over a decade) and layoffs totaling 1,400 [1], LEGO needs a new growth strategy to compete in a slowing industry (the global toy market grew 1% in 2017) [2]. When faced with these pressures in 2003, LEGO’s initial response was to offer variety through new products, such as computer games and theme parks. However, these introductions had unintended consequences, adding complexity for the customer, inventory challenges for LEGO, and supply delays for retailers. [3]
LEGO’s famous turnaround strategy came from engaging its expansive customer base. LEGO utilized The Future Lab to develop low-risk, low-cost innovation techniques that led to rapid creation of minimum viable prototypes. [4] The goal was to generate customer feedback on a small scale before making substantial investments, illustrating LEGO’s philosophy that, “people don’t have to work for us to work with us.” [4] To further this practice, the company launched, LEGO Ideas, an online crowd-sourcing platform, allowing customers to share and to vote for ideas they wished to see as additions to the product line. LEGO Ideas yielded hundreds of suggestions annually, employing social media to generate actionable data. Focusing on products that would sell, LEGO was able to reach new audiences through its extensive physical footprint and brand awareness. Two successful efforts were LEGO Architecture (iconic building sets), which increased LEGO’s popularity with adults, and LEGO Friends, increasing its female presence. [5]
Open Innovation – Still the Answer
Now, to understand its next growth phase, LEGO is using open innovation to strategically increase its global footprint, widen its target audience and define its long-term product strategy.
In the short-term, LEGO is expanding in China by partnering with Tencent (Chinese internet company) to create a safe digital platform for children, allowing LEGO to experiment with digital in a region where it has found some digital success. [6] At its Shanghai stores, LEGO is also launching its exclusive “Future of Shanghai” product. Utilizing a small-scale launch, LEGO offers four different spaces for consumers to build their own future city, generating immediate feedback. [6] Additionally, LEGO is utilizing Indiegogo Enterprise (an innovation validation platform) to test ideas through pilot projects, the first is LEGO FORMA, targeting adults looking for a creative outlet. [7] These pilots are being run in limited batches to crowdsource, to rapidly iterate and to ascertain demand.
In the long-run, LEGO is attempting to build a bridge between traditional toys and the digital world. [8] To lay the foundation for this middle ground, LEGO’s red Duplo train is an opportunity to test the market’s appetite for products that offer this in-between, with an optional mobile app. [8] Beyond bricks and toys, LEGO has been experimenting with a variety of play experiences in digital – LEGO Life (children social media network) and LEGO Fusion (virtual mobile app) – and a variety of movie, television series and LEGO-themed playgrounds. [9] LEGO’s initial entry in the digital category has largely failed, while the later initiatives have found commercial success. [9]
Recommendation for the Future
With that lesson, LEGO needs to remember that while digital offerings not only increase competition, they also create a point of difference. LEGO’s value proposition to parents, the purchasers, is to provide children with an alternative to video games and to “do something physical that is good for fine motor skills, 3-D spatial realization, and creative construction.” [5] LEGO can leverage this in the short term and utilize open innovation to understand how it can better penetrate the educational market, increasing products targeted at developmental skills. In a similar vein, Lego Serious Play, LEGO’s innovation seminars, use 3D models to help business professionals uncover deeper insights and increase performance. [10] LEGO can diversify its growth by expanding these non-play services.
To deepen its open innovation strategy long-term, LEGO should increasingly focus on outbound innovation, generating ideas with suppliers and retailers to foster successful partnerships. [11] This will combat the typical problem with open innovation and rapid prototyping – as products quickly enter the market, there is little time to innovate downstream processes. [12]
What’s Next?
While open innovation holds great promise for LEGO, the question remains – how do you consistently and effectively incentivize your partners to engage with your efforts? [13] Upon success in finding the right incentives, the question then becomes – what impact will virtual reality have on the toy industry and will open innovation be enough?
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1) The LEGO Group, 2017 Annual Report (Denmark: The LEGO Group, 2017), p. 5-6.
2) “Toy Industry Sales Grew by 1% in 2017,” press release, January 25, 2018, PR The NPD Group, https://www.npd.com/wps/portal/npd/us/news/press-releases/2018/toy-sales-globally-and-in-the-us-both-grow-by-1-percent-in-2017-reports-the-npd-group/, accessed November 2018.
3) Mocker, Martin and Ross, Jeanne. “The Problem with Product Proliferation.” Harvard Business Review. (May-June 2017): 5.
4) The Leadership Network, “5 Sustainable Innovation Practices that Saved Lego,” Innovation Management, November 7, 2016, [https://theleadershipnetwork.com/article/lego-sustainable-innovation], Accessed November 10, 2018.
5) Robertson, David. Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry (New York, NY: Random House, 2013), p. 8-39.
6) “Lego Video Zone Goes Live on Tencent Video,” press release, May 25, 2018, on LEGO website, [https://www.lego.com/en-us/aboutus/news-room/2018/may/lego-group-and-tencent], accessed November 2018.
7) “Lego Creative Play Lab Takes Pilot Project to Indiegogo for Open Innovation,” press release, September 27, 2018, on LEGO website, [https://www.lego.com/en-us/aboutus/news-room/2018/september/lego-forma], accessed November 2018.
8) Milne, Richard, “Lego’s Niels Christiansen: picking up the pieces,” The Financial Times, August 19, 2018, [https://www.ft.com/content/955ec4de-8f3f-11e8-bb8f-a6a2f7bca546], accessed November 2018. – duplo
9) Robertson, David. “Lessons from LEGO: What do you do when your current growth phase ends,” The Leadership Network – Innovation Management, June 1, 2018, [https://theleadershipnetwork.com/article/lessons-from-lego-what-do-you-do-when-your-current-growth-phase-ends], Accessed November 10, 2018.
10) Dann, Stephen. “Facilitating co-creation experience in the classroom with Lego Serious Play,” Australasian Marketing Journal 26 (May 2018), p. 121-131.
11) Supply Management, “Put procurement at heart of innovation, says Lego buyer,” October 16, 2018, [https://www.cips.org/en/supply-management/news/2018/october/put-procurement-at-heart-of-innovation-says-lego-buyer], Accessed November 10, 2018.
12) Cina, Amelia and Cummings, Stephen. “Open innovation communication – improving strategy implementation in the public sector,” Policy Quarterly Volume 14, Issue 1, (February 2018), p. 74.
13) Bughin, Jacques and Chui, Michael. “The next step in open innovation,” The McKinsey Quarterly (June 2008), p. 3.
