Growing up, I was always a huge fan of LEGO. Many years on, with a masters in mechanical engineering, I may have outgrown my first LEGO technic set, yet LEGO still fascinates me, albeit now for very different reasons.
LEGO is a company that continues to reinvent itself successfully, while staying true to its simple beginnings, the brick.
It hasn't always been that way. In 2004 the company went almost bankrupt, after a failed attempt at a radical strategy change. A well-known consultancy suggested a move away from 'this old-fashioned brick' towards 'action toys'. This change was to the company what a 2-year old sibling is to a LEGO castle: a destructive attack on its stability, structure, and success.
An injection of $400M by LEGO's founding family brought the company out of bankruptcy and back to the brick.
Now, 11 years on, LEGO has grown over 400%. They made a net profit of $750M in the first six months of this year alone and have been recognised as the world’s most powerful brand in 2015 by the global consultancy Brand Finance, beating the likes of Red Bull, Rolex and Ferrari.
This transformation would not have been possible without a good innovation strategy.
David Gram, the head of marketing at LEGO’s Future Lab, shared at a recent breakfast event how LEGO’s innovation principles helped turn the company around. There are lessons for all businesses, including water utilities.
Be radical, but build on your core capabilities
Clearly, for LEGO this is the famous brick. Did you know that your old red bricks from 1958 will still link with the new green, purple, and transparent bricks. Now that's what I call backward compatibility! LEGO keeps the business focused by only allowing a certain maximum number of products on their shelf. If something is added, something else needs to go.
Scout for trends and technologies
LEGO meets with 20-30 startups per quarter to find out about the latest trends. They monitor households over three week periods to understand how modern families integrate play into their day-to-day, extract patterns from this and innovate around the families' needs. Often, they partner with other companies to discuss new markets without charging any fees, which also helps to minimise the development costs.
Co-create with consumers and customers: “Democratise development”
One of LEGO's cornerstones of success is an open innovation platform where via crowd-voting, customers decide which new products should be brought to the market. These products are designed by creative, LEGO-loving individuals and were often already sold through sites like Etsy. Instead of suing them for brand infringement, LEGO decided to collaborate with them (an idea that initially faced a lot of internal resistance). They created the platform ideas.lego.com to see whether the product would be accepted more widely and should be included in LEGO’s portfolio. Only if 10,000 votes for a product are reached, will a pilot launch be considered. LEGO Minecraft is a success story that started here: the set was included in LEGO's portfolio after a suggestion on their online innovation platform attracted 400,000 votes. It is now one of their three best-selling products.
Think big, start small
LEGO are testing many radical new ideas in small niche markets. Ever heard of 'LEGO paper'? Nor had I. LEGO paper was a failed attempt of combining bricks with paper that was only tested in the Japanese market and flopped. But that didn't matter, because it was kept so much under the radar. LEGO minimise the development cycles by developing only the key features when testing a new product. If they resonate well with the consumers, they then adjust and elaborate on that idea.
For individuals wanting to innovate and challenge their companies in their current ways, David Gram had the following tip:
'Be a rebel! … but be diplomatic about it.' How you can be a diplomatic, innovative rebel will be a topic in my next blog… meanwhile I’d be very interested to hear from you:
Which of these innovation principles are you already implementing in your business? What else are you doing to understand your customers and re-invent your business to meet their needs?
I am very interested in continuing the conversation with you!