Vigilantly looking out for changes is the last step of a winning strategy (read more here). It is important to look out because even the most powerful brands can suffer badly when caught unprepared – as the case of Lego teaches us.
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Lego is a family-owned Danish company that, in the 1930s, invented molded plastic building bricks for children's play. The business was highly successful for many years. When Kjeld Kirk Kristiansen, the grandson of Lego founder Ole Kirk Kristiansen, took charge of the company as CEO in 1979, things looked good. Lego's years of steady sales growth and its powerful brand name had made it seem invulnerable.
In the 1980s, Lego's sales continued to grow, and the profits peaked in 1997. But, in 1998, sales and profits fell abruptly. By 1999, Lego was forced to lay off 1,000 people – the first big layoff in the company's history. Even with the mass firing, Lego still lost $120 million on sales of $1.1 billion in 2000." What caused this sudden reversal of fortune?
Lego had reacted slowly and inadequately to long-term changes in the marketplace. Technologically sophisticated toys were gradually growing, replacing plastic bricks as the preferred toys. Like many changes, it started slow, but once it reached a critical mass, it became a torrential force of nature. As Lego's executives didn't vigilantly look out for changes, this change in consumer choice seems like a sudden and unexpected development. The company was caught off guard and struggling to cope. Even though the Lego brand remains consistently rated as the most powerful for families with children, the powerful brand couldn't shield the company from the changes in the competitive market of children's toys. This forced Kirk to step aside, "Maybe I'm not the right person to lead this company in the next generation."
In 2004, Jørgen Vig Knudstorp (former McKinsey consultant, an outsider to the Christiansen family) was appointed as the CEO of the Lego Group. Since then, Lego has transformed its product development and design through a design system called Design for Business (D4B), which emphasizes a vigilant lookout at the market via collaboration and continual evaluation. The program has helped Lego to find its mojo back. As Jørgen noted: "We successfully develop and launched products that children put on their wishlist all over the world."
The (business) history is full of companies that were out of touch with the market and caught off guard. While a few of them managed to regain their mojo (like Lego), many struggled to overcome and never returned.
So, make sure you vigilantly look out. Don't be caught surprised by the market changes.
As Napoleon the Great once said: "A leader has the right to be beaten, but never the right to be surprised."
Continue exploring the secrets of winning strategy here.
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