book.chapter The innovation principles and lego s downfall

The advent of video games and high-tech gadgets in the global toy market at the close of the 20th century posed a significant challenge for LEGO. Despite its history of innovation, the company found itself playing catch-up. In an attempt to regain its footing, LEGO implemented an ambitious growth strategy based on seven renowned innovation theories from the business world. However, these theories, which had proven successful for other companies, nearly led to LEGO's downfall. The company, founded by Kirk Christiansen in a small carpenter's workshop in Billund, Denmark in 1934, had weathered numerous hardships, including the Great Depression, World War II, and a devastating factory fire in 1942. Despite these challenges, Christiansen's tenacity and commitment to his employees led to the rebuilding of the company and the establishment of its mission to "inspire and develop the builders of tomorrow". In 1946, LEGO became the first Danish toy manufacturer to acquire a plastic injection molding machine, a significant investment that cost more than double the previous year's profits. It took a decade of experimentation for LEGO to perfect its trademark brick, a process largely consumed by figuring out the stud-and-tube coupling system that allows the bricks to connect with a satisfying click. This innovation allowed children to build whatever they wanted, making LEGO an endlessly expandable toy. As Christiansen worked to build the LEGO Group, he adhered to a set of founding principles that emphasized the importance of values, relentless experimentation, a focus on the big picture, and authenticity. By the 1960s, LEGO had expanded its market to Western Europe, the United States, Asia, Australia, and South America. However, by the 1990s, despite its expansion, LEGO's sales began to plateau due to the emergence of new technologies like VCRs, video games, cable TV, and computers. LEGO's patents for its interlocking brick expired, leading to the emergence of low-cost competitors worldwide. The company realized that to continue growing, it needed to develop new growth engines. However, when LEGO reported a $48 million loss in 1998 and laid off over a thousand employees in 1999, it became clear that the company was fighting for relevance. In response, Kjeld Christiansen, who had taken over leadership from his father, appointed Danish turnaround specialist Poul Plougmann as finance director and then chief operating officer. Plougmann set an ambitious agenda to reignite growth at LEGO based on seven pervasive business ideas. However, most of these ventures failed due to a lack of follow-through and a disconnect between innovation and commercialization. By 2003, LEGO was on the brink of bankruptcy, and Christiansen fired Plougmann, appointing himself as temporary CEO and Jorgen Vig Knudstorp, a grandson of LEGO's founder, to take over day-to-day management. The new management team faced daunting challenges, including a 30% drop in sales from 2002 to 2003, $800 million in debt, and an internal study concluding that 94% of LEGO's sets were unprofitable