Strategic profile of Lego Group

The strategic profile of Lego Group has pointed out the facts that the company is successful in maintaining its reputation and global supply chain in the financial crisis between the years 2004 to 2009. The case study pointed out many issues that Lego Group had to face in order to mitigate the issues in the global supply chain management. It results in the deficit of DKK 1.8 billion in the year of 2004. However, it can be said that the strategic management department of Lego group has taken many initiatives that has decided to outsource and offshore the major chunk in order to outsource the production of the company to Flextronics (Andersen, Kragh and Lettl 2013). The decision of outsourcing the production of the company and the global supply chain of the company are the major factors of success. The case study points out many factors of the success as well as the issues in operations faced by Lego in order to expand its business operations in various countries of the world. The ability of the management in order to control all the business operations in different countries of Asia, Europe and North America while putting emphasis on the value chain analysis of Lego is the main objective of the company (Baron-Cohen et al. 2014).

Situational analysis of Lego will include the implementation of theoretical frameworks of Porter’s Five Forces and SWOT Analysis in the business operations of the company so that the problems in the different operation level are easily identified. The involvement of the stakeholders in the decision making process of the company in terms of expansion and supply chain management issues in the company (Bartneck et al. 2016).

SWOT analysis of Lego will describe the external and internal environment of the company. SWOT analysis of Lego will describe the microenvironment of the business operations of Lego in the global business scenario.

Strengths:

• Lego has a strong brand image not only in the US market but also in the European market and Asian market.
• The company has an industry experience of more than 70 years of experience in the toy manufacturing market (El Sawy et al.2016).
• The company has a vast presence in many countries of the world.

Weaknesses:

• In the financial crisis, the strategic management of Lego had taken the decision of too many diversions and business expansion operations.
• Many of the production facilities are located outside the country of the parent company that incurs huge cost. (Graupp, Jakobsen and Vellema 2014)

Opportunities:

• The strong brand image of Lego is the main aspect of the growth of the business.
• The vision of the company of inspiring children is the motto while achieving the business objectives in the world market.

Threats:

• The main threat of Lego is the growth of competitors in the market both in terms of toy manufacturing aspect and in terms of the other diversified business segments.
• Another threat is the maintenance of global supply chain and production facilities by using modern technologies at their manufacturing sites (Hofmann and Knébel 2016).

Threat of entry: High

The threats of the new entry in the toy manufacturing market is high because there are many other companies that are famous for their signature toy products in the market and the customers has the ample options while choosing different toys. The need of the change in the business is also a cause of high threat in the entry of new companies in the industry.

Degree of competitive rivalry: High

Competition in the market is always high. However, the company has gained a substantial market share but the competition is high in the differentiation strategy of the company. Competition is also present in terms of the production cost of the toys in the market (Jensen 2013).

Situational analysis

Power of suppliers: Low

The case study points that Lego has a huge supplier base, that is the reason of the lower power of the suppliers towards the company.

Power of buyers: Medium

Lego has their signature toy product the Lego bricks, which do not have any alternatives to it. Apart from that, Lego sells other product lines. Hence, buyer’s power is medium (Johnston 2015).

Threat of Substitutes: Low

Lego is a huge company and other toy companies cannot replace the signature toys of Lego. However, the issue of the supply chain must be mitigated for becoming the market leader.

The vision of the company is to “inspire children to explore and challenge their own creative potential.” On the other hand, the mission of the company is “Only the best is good enough.”

The case study points out that the company is facing issues in many aspects that will be defined in an elaborated way.

Collaboration with Flextronics

The strategic management department of Lego has taken the decision of outsourcing their production activities with the renowned company based in Singapore named Flextronics. During the time of the financial crisis, the company has debt. However, Lego is not satisfied with the effectiveness of the service provided by Flextronics to Lego. Lego is unable to coordinate the network of the manufacturing facilities while ensuring a seamless and reliable transfer of the production knowledge (Lakhani, Lifshitz-Assaf and Tushman 2013).

Too many global suppliers

In order to expand the business operations in the different parts of the world, Lego is connected with more than 11,000 suppliers across the worldwide. It is becoming difficult for Lego to maintain standardization in the global supply-chain management issues with the existing suppliers. The result of the strategic management department, while attempting in managing and overcoming the complexity in the manufacturing network is the point of issue (Larsen and Pedersen 2014).

Manufacturing sites at foreign locations

Lego finds huge investment in the production facilities that are located in the countries of Asia, Europe and North America. To maintain the operations of the sites Lego finds difficulties in educating people to meet the expectations f the quantity and quality maintained by the company. Cost cutting and reduction in business complexity are the main issues in foreign location production facilities.

There are three major problems selected in the above. Solutions regarding the selected problems are to be discussed in the following.

SWOT analysis of Lego

Collaboration with Flextronics

• Direct control on the production facilities:After the breaking of the outsourcing partnership with Flextronics, Lego will have to make a direct control over the production facilities and their management control over them (Lotts 2016).
• Changed business model:Business model of Flextronics is no longer beneficial for Lego and to the suppliers also. Hence, the business model should be changed. The business operations practiced in the subsidiaries and the manufacturing sites of Lego must be changed.

Too many global suppliers

• Reduction of suppliers:Lego has huge supplier list that is very difficult to maintain. Lego has to revise their strategy in their global supply chain management aspects. If the number of the suppliers is reduced then the relation will be better (Oshri, Kotlarsky and Willcocks 2015).
• Formulation of effective strategy of innovative business model:Lego has to reduce the number of suppliers while formulating business model, which is profitable for both the parties.

Manufacturing sites at foreign locations

• Cost reduction: Lego must have to use strategies for cost reduction at the manufacturing sites for earning more profits for the business (Pankok et al.2017).
• Direct control over the production sites:Lack of direct control is the reason of diminished quality of the toys and it incurs more investment in the sites that results in unexpected results.

The strategic management department of Lego controls the strategy control and the evaluation process. The balanced scorecard model includes vision and mission of the company after the identification of the issues of Lego are checking the financial performance, stakeholders and customers’ satisfaction, efficiency of the business i.e. internal business proves, and the organized capacity of knowledge and innovation (Pearlson, Saunders and Galletta 2016). Lego must have to analyse the alternative solutions of the problems identified that will suit to the business needs. The new strategy will be implemented before that performance measurement of the company is essential in order to access the future performance after the new strategy implementation. These aspects can be done by using the balanced scorecard model (Pinto-Llorente et al. 2016).

Conclusion and Recommendations

It can be said that Lego has a good reputation in the market but the company has witnessed many issues in the outsourcing services, global supply chain management and in the production sites of the company. The internal issues are explained in details along with the detailed description of the macro and microenvironment of the business. The strategic objectives of the company must focus on the market needs as well as the customer needs. The case study portrays the fact that Lego has learned many things regarding the techniques of business operations while collaborating with Flextronics in the outsourcing services. It can be concluded that Lego is not focusing on the operations at the production facilities that is a main drawback for the company.

Recommendations are to be formulated based on the identified problems at the management of business operations of the company in the different parts of the world. The three categories of problems will be solved if the solutions that are provided earlier in the study are implemented properly (Rothaermel 2015). To mitigate the issues, every proposed solutions regarding global supply chain, suppliers relation, production sites, etc. must be implemented in order to get best results out from the business. The implementation of the solutions are to be described below that will yield maximum benefit for the company for maintaining sustainability (Day 2013).

After breaking the partnership with Flextronics, Lego must have to reduce the cost of manufacturing toys at their production sites. Cost reduction can be done with the implementation of new technologies along with the cost leadership strategy. Productions should be done in a massive scale. The business model will be formulated by using the balanced scorecard model. Suppliers need to be reduced. However, the employees who are responsible for maintaining relations with the global suppliers will formulate strategies for improvement of the profitability of both the company and the suppliers as a whole. The production facilities at foreign locations should be under the direct control of the company (Skarzynski and Gibson 2013). The senior management of the company must contact with the regional subsidiaries of Lego for the direct control over it. The management department must report to the regional subsidiaries of Lego. On the other hand, the regional subsidiaries report to the headquarters. This chain of information transfer will be added to the business model of the company (Von Rosing, Von Scheel and Scheer 2014). The changed business model will be more focused on the increased profitability along with cost reduction in the operations of the business procedures. The new strategies must be customer oriented and the company must have to keep in track with the demands of the market. The new strategy of supplier management will be formulated with the involvement of the stakeholders of Lego, so that they are responsible of giving expected results to the business (Schultz and Hernes 2013).

Threat of entry

References

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