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Lego: Is This Time Really Different?

In the early 2000s, Lego veered toward bankruptcy. As the Danish company sought to keep pace with the way children live and play, it unveiled a series of new products and acquired satellite businesses that diluted its brand. Profits plunged as a result, ushering in a dark time in Lego's history from which the company almost did not recover.

That it did recover had a lot to do with Jørgen Vig Knudstorp, who took over as CEO of Lego Group in 2004. Over the next two years, he shed unnecessary businesses and eliminated products that did not fit the company's identity, leading to a rapid recovery in sales. The turnaround remains one of the most celebrated in recent business history, attracting the praise of industry experts and even book-length analyses.

Lately, though, Lego may be repeating the mistakes that courted disaster 15 years ago. At least that is what Richard Milne argues in the Financial Times, warning that Lego's management “risks a return to the bad old days” with a spate of recent decisions. Milne notes that the number of pieces Lego sells is rising again, with “specific parts for Angry Birds, Marge Simpson’s hair, or Darth Vader’s helmet”— a trend that boded ill for the company 15 years ago, before Knudstorp reduced extraneous pieces. Milne also criticizes two recently-unveiled digital lines that are “arguably more about video games” than about the classic brick toys for which the company is famous. Such decisions, Milne suggests, have led to a flattening of sales in 2016.

Of course, Lego's efforts to go digital do not necessarily reflect an abandonment of its core identity. As John Seaman and Robert Ferguson noted in a recent Saybrook blog about storytelling, Lego's turnaround did not come by re-focusing on the iconic brick toy itself. Rather, Lego rediscovered its core identity as a brand that shapes the next generation of builders, which paradoxically opened up whole new product lines and ways to engage with customers and retailers. And as the success of recent digital construction games like Minecraft makes clear, it is quite possible to integrate online play into a building-focused brand identity. In this sense, Milne's concerns may be premature.

Still, Milne's more general argument—that Lego is failing to learn from its past—points to a larger pattern of behavior that is not unique to Lego. Organizations frequently run into trouble when they fail to maintain self-knowledge through periods of growth and change, or when they forget past mistakes during a period of success. In Lego's case, a big influx of new workers in recent years means that, as Milne puts it, “most people at Lego have not known anything other than success.” Meanwhile, with new offices around the world, the company faces the challenge of keeping its culture intact.

Managing success may indeed require a different style of leadership than recovering from failure, as Milne concludes. Still, before it considers changes at the top, Lego might take a hard look at its own history to understand how today’s challenges stack up against those of the early 2000s. Is this time really different, with stronger cash flow and profitability and higher customer and retailer satisfaction, as Lego's management insists? Or do current patterns, such as the expansion into products with no real connection to its core identity, again signal trouble ahead? Capturing the rich stories that make up Lego’s past would also help the company maintain continuity in culture and brand identity, even as it continues to evolve and adapt alongside modern childhood.


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