Many companies and design agencies tend to look at the design and creativity stage from a narrow perspective. Usually, the design team is locked inside the ideas room with no contact with the rest of the world until it delivers the idea that gets approved by the client or project manager.
Once a project goes into crisis mode and stress increases, creativity is given an even more limited role in the project. This can be a result of the high cost of developing creative concepts or a lack of confidence that creative people are able to handle pressure and provide help at this critical stage of the project.
Additionally, generic models of the development process do not focus much on innovation and creativity, whether partially or holistically, leading enterprises such as BT, Microsoft, Starbucks, Xerox, Yahoo and others to provide the proof that an innovative design process can lead to a competitive position in the market — see “Eleven Lessons: Managing Design in Eleven Global Companies1” (PDF).
Over the last century, many incidents have provided examples that innovation and creativity can play an essential role for an organization in the midst of crisis. Creativity and innovation in such cases take a broader role outside of the ideas room. They can be applied to redesign a company’s structure and devise a more innovative process that leads to products that meet both creativity and business needs.
One interesting example of this is LEGO, the world-famous toy manufacturer. By studying its crisis, lasting from 1993 to 2004, we’ll answer two main questions: Can creativity and innovation help an organization in its time of crisis? And can studying cases such as LEGO’s reveal a model for the broader role of creativity in an organization for other enterprises to follow?
The History: The Rise Of The Toy-Making Giant
LEGO is a leading company4 in the toy-making industry and the sixth-largest enterprise in the field. In case you didn’t know, the word “lego” is an abbreviation of two Danish words, “leg godt,” which means “play well.” In Latin, the word means “I put together.” The Danish company was founded in 1932 by Ole Kirk Kristiansen, whose small carpentry workshop failed at providing wood supplies, according to David Robertson and Bill Breen in their book Brick by Brick5.
Kristiansen switched from the workshop business to wooden toys, which succeeded in the market at the time. Then, he bought an injection-molding machine and started to create toys using plastic materials, which also did well in the market. After Kristiansen passed away, ownership of the company went to his son, Kjeld Kirk Kristiansen. Brick-toy manufacturing was launched in 1958, giving the company more ways to compete and opening the door to unlimited building capabilities.
By 2006, revenue reached £717 million, following an 11% increase from the previous year. The company has 5,000 employees around the world, and its main facilities are located in LEGOLAND in Denmark. The company has 12,500 warehouses and more than 11,000 suppliers. In addition to the production location in LEGOLAND, production sites are located in Switzerland, Czech Republic, the US and South Korea. The LEGO design team consists of 120 people in Denmark and 15 others in Slough, UK.
Since the start of the company, LEGO has maintained a clear vision of “inventing the future of play.” While achieving this vision has been a matter of hard work and continual research into its customers and how to provide innovative products, repeatedly returning to this vision has been a key element that helped to save LEGO’s ship from sinking, as we’ll see later in this article.
The Problem: LEGO’s Hard Times
Before 1993, LEGO had faced some general troubles with sales but did not experience any hard times, as sales and revenues continued to rise. After a catastrophic period between 1993 and 2004, sales grew again and reached £163 million in net profit in 2008, with sales increasing by 51% in the UK, with an increased market share of 2.2 to 3.3%.
The question is what really happened between 1993 and 2004 to cause sales and, subsequently, revenue to drop off a cliff? And what did LEGO do to retrieve its position in the market and, furthermore, to increase sales and revenue more than expected?
Between 1993 and 2004, two major problems collided. The first occurred between 1993 and 1998, when LEGO toys were already on every shelf and the company had reached its natural growth cycle. In order to keep growing, the company produced more products, but sales did not increase. Subsequently, costs went up and hindered profits (see “How LEGO Stopped Thinking Outside the Box and Innovated Inside the Brick2110”).
In response to this loss, the company laid off 1,000 employees, and Kjeld Kirk Kristiansen stepped aside, saying, “Maybe I’m not the right person to lead this company in the next generation.”
The new president for the company, Poul Plougmaan, understood that the company was operating very differently than before. After analyzing the market and its consumers, he discovered that kids were continually getting smarter. Added to this, new competitors had entered the market, such as Toys “R” Us and Walmart, with powerful strengths. And many toymakers had moved their production to China in order to decrease manufacturing costs.
The Analysis: Outside the Box, Outside the Business
As a company built on innovation to meet customer expectations and market demands, LEGO first responded to financial crisis by inventing new products, hoping that they would lead to new opportunities. LEGO collaborated with production companies behind famous movies and characters such as Star Wars and Harry Potter to create new bricks that children would buy based on their passion for the movies rather than for LEGO itself.
Some of these products, such as Star Wars, did well in the market and appeared to be saving the company from sinking, while other products were a big failure, such as Galidor. While this innovative thinking might have appealed to LEGO at the time, it had two main pitfalls:
- The new products were not actually solving the company’s problem because they were focusing on consumer passion for other movies and characters, instead of LEGO products themselves.
- The themed products were a short-term success, because once a movie grew old, no one would buy the theme again.
As a result of venturing into these new innovative product areas, LEGO found itself outside the business while trying to get back on track. Furthermore, the new products diminished the market for consumers seeking original LEGO bricks.
These new products were one reason for the company’s second fall in 2003. Once sales for its two main themes, Star Wars and Harry Potter, started to fall, company sales went off another cliff.
The solution to the first drop highlighted another situation that needed to be studied. LEGO’s problem was not its innovation, but rather the connection between its innovation and its business goals. When innovation gets out of control, it disconnects from the company’s strategy, leaving a gap between business and creativity, leading to sales losses.
The Solution: Relinking Creativity and Business
The short answer to how LEGO solved its market problem was simply by thinking inside the box again. It returned to its ordinary brick themes, such as racing cars, police stations and schools. These products allowed children to reuse the bricks again and again. Buying a new brick set would actually add to the previous one. This is one of LEGO’s key marketing strengths and something consumers really want.
Behind this conclusion were new innovations in the process itself. Unlike many companies that lock creativity inside the thinking room, LEGO strongly believes in expressing creativity not only in its products but in its production process. To understand how creativity and innovation helped to solve LEGO’s problem, we need to learn more about the role of design strategy in LEGO’s manufacturing process.
Design for Business
LEGO is one of the few companies that has had a clear vision of the role of creativity within its organization. LEGO developed a design process model known as “Design for Business” (D4B) to ensure the continual linkage between innovation and its business plan. D4B also shifts the strategy for innovation from being product-focused to being company-focused.
D4B focuses on defining creativity and design within an organizational strategy. For example, it links the company’s objectives and design strategy in order to achieve these corporate goals. Also, D4B provides for more collaboration between teams to improve the innovation process. It required a number of processes and tools to ensure that innovation was better presented and discussed. According to Design Management Europe’s award poster for LEGO15 (PDF), these tools and methods are divided into being innovation-related and design-related — understandable given that design is the roadmap that turns creativity into innovation.
While the D4B model provided a unique management process, allowing for design and innovation to be more holistically integrated in the organization, a gap still existed between the marketing strategy and creative team. This gap was one of the causes of LEGO’s dramatic fall by the end of the 1990s. We can trace it back to the creative team thinking differently from the company’s initial vision.
LEGO’s Shared Vision
D4B was part of a seven-year strategy named “Shared Vision” established in 2004. The new vision was to rebuild the company’s brand identity as a creative toy-manufacturing enterprise. In this strategy, the marketing department was asked to provide a wider vision of innovation and creativity in the product development process. This vision ensures that both the creative side and business side share the same aims and fully understand LEGO’s business strategy and how to achieve strategic goals using the other team’s resources.
As mentioned, LEGO’s problem was not its creativity but in the disconnect between its creativity and corporate strategy. The business and creative teams were working in silos, each having authority to innovate on whatever it wanted. While LEGO struggled with this problem, many companies do not position design and creativity correctly within their business and strategy. Perhaps the problem was acute for LEGO because it is a creativity-based company.
The Shared Vision strategy is the link between business and creativity and puts the process of innovation in its correct place in the organization. It brought the creative team out of its silo and connected it to the company’s business goals, allowing it to create under the umbrella of a company-wide strategy. The move brought LEGO’s strategy back to life, with products that met both creativity and business needs.
The Result: LEGO Goes On
While the Shared Vision strategy is a seven-year initiative, it has already affected the company’s sales and revenue. In 2006, LEGO was named the world’s sixth-largest toy maker, with revenue at £717 million, an 11% increase from the previous year. Net profit for 2006 was £123.5 million, a jump of 6.5% over 2005.
This dramatic increase in revenue is a result of a number of procedures, including the application of the Shared Vision strategy with the D4B design process, in addition to a reduction in costs (the company reduced its fixed costs by 33%).
The story of LEGO is an important and rare lesson for designers and design strategists on the true importance of design and creativity in an organization. It also indicates that many current business models do not put design and creativity in their right place in the organizational process. As a result, many of those business models can lead to failure, especially for a company that depends so heavily on creativity and innovation, like LEGO.
In many companies, designers and design managers are not invited to help conceive the corporate strategy, and this is one of the essential problems that led LEGO off a financial cliff and into bankruptcy. Rather, putting design and innovation in the right place can lead a company to achieve its business goals and overall strategy.
How does your company or the company you work at deal with creativity and innovation? Please share your thoughts in the section comment below — I’d love to hear them!
- “LEGO History Timeline16,” LEGO
- Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry17, David Robertson and Bill Breen
- “Design for Business18” (PDF award poster), Design Management Europe
- “Eleven Lessons: Managing Design in Eleven Global Companies19,” Design Council
- “Case Study: LEGO20,” Financial Times
- “How LEGO Stopped Thinking Outside the Box and Innovated Inside the Brick2110,” Knowledge @ Wharton
- 1 http://www.designcouncil.org.uk/sites/default/files/asset/document/ElevenLessons_Design_Council%20%282%29.pdf
- 2 http://www.smashingmagazine.com/wp-content/uploads/2014/07/lego_fig01-large-opt.jpg
- 3 http://en.wikipedia.org/wiki/Lego
- 4 http://aboutus.lego.com/en-us/lego-group/the_lego_history
- 5 http://www.amazon.com/Brick-Rewrote-Innovation-Conquered-Industry/dp/0307951618/ref=sr_1_1?ie=UTF8&qid=1404826095&sr=8-1&keywords=Brick+by+Brick
- 6 http://www.smashingmagazine.com/wp-content/uploads/2014/07/lego_fig02-large-opt.jpg
- 7 http://brickfetish.com/toys/duck.html
- 8 http://www.smashingmagazine.com/wp-content/uploads/2014/07/lego_fig03-large-opt.jpg
- 9 http://www.legoland.dk/en/About-LEGOLAND/LEGOLAND-Parks/
- 10 https://knowledge.wharton.upenn.edu/article/how-lego-stopped-thinking-outside-the-box-and-innovated-inside-the-brick/
- 11 http://www.smashingmagazine.com/wp-content/uploads/2014/07/lego_fig04-large-opt.jpg
- 12 http://www.lego.com
- 13 http://www.smashingmagazine.com/wp-content/uploads/2014/07/lego_fig05-large-opt.jpg
- 14 http://brickfetish.com/sets/700/700_3_1950.html
- 15 http://www.dmeaward.com/wp-content/uploads/2013/07/LEGO.pdf
- 16 http://aboutus.lego.com/en-us/lego-group/the_lego_history
- 17 http://www.amazon.com/Brick-Rewrote-Innovation-Conquered-Industry/dp/0307951618/
- 18 http://www.dmeaward.com/wp-content/uploads/2013/07/LEGO.pdf
- 19 http://www.designcouncil.org.uk/sites/default/files/asset/document/ElevenLessons_Design_Council%20(2).pdf
- 20 http://www.ft.com/intl/cms/s/0/05806aa4-f819-11df-8875-00144feab49a.html
- 21 https://knowledge.wharton.upenn.edu/article/how-lego-stopped-thinking-outside-the-box-and-innovated-inside-the-brick/