Managment Policy and Strategy Kaplan University


MT460 Assignment Rubric Unit 6.pdfRead rubric and has to be at least 4 pages long. Cite all references. Use outside references APA FormatCase 12.docxAlso ensure that you are not posting yourself as a Author on the paper. This can get some students messed up quickly.


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Assignment Grading Rubric
Course: MT460
Unit: 6
Points: 45
Unit 6: Implementation
Case Study Analysis Paper:
Prepare a case study analysis of Case 12: LEGO Group: An Outsourcing Journey found in the Cases section of your
digital book.
Closely adhere to the Case Study Analysis Template by clicking on the hyperlink. Please utilize this template format for
this Assignment. Use titles and subtitles per the format for readability purposes.
Focus upon the idea of the company’s short-term objectives, and through internal and external analyses create functional
tactics to support the company’s implementation and outsourcing proposition in order to help move LEGO Group forward.
Please include the SWOT analysis with the four quadrants in the appendix of your paper (after the References page). You
can find the SWOT analysis template in Doc Sharing.
Assignment Checklist:
Conduct a SWOT Analysis on the case study company’s internal and external challenges.
Create a case study analysis focusing on the company’s internal and external challenges through the development
of short-term objectives.
Design the functional tactics required for the company’s implementation and outsourcing proposition.
In this Assignment on conducting a SWOT Analysis on the case study company’s internal and external challenges, you
will engage in developing the following professional competency:
Global awareness
The case analysis should be 2–3 written pages in length (not including the formal title page and References page),
double-spaced. Ensure that you use correct spelling, grammar, punctuation, mechanics, and usage. The citing of sources
(text and list references) should use the current APA format and style.
For assistance with APA format and citation style visit the Kaplan Writing Center.
Directions for Submitting Your Project
Before you submit your project, you should save your work on your computer in a location and with a name that
you will remember.
Make sure your Assignment is in the correct file format (Microsoft Word .doc or .docx).
Submit your completed document to the Unit 6 Assignment Dropbox.
Need help with the Dropbox? Click on the Dropbox Guide link under Academic Tools tab.
MT460 Unit 6 Assignment Grading Rubric
Answer provides correct and complete
information demonstrating critical
Conduct a SWOT analysis on
the case study company’s
internal and external
Create a case study analysis
focusing on the company’s
internal and external
challenges through the
development of short-term
Design the functional tactics
required for the company’s
implementation and
outsourcing proposition.
Analysis and Critical Thinking
Synopsis of situation
Key issues
Problem definition
Alternative solutions
Select a solution
Writing Style, Grammar
APA Format and Citation Style
Case 12: LEGO Group: An Outsourcing Journey
Marcus Møller Larsen
Torben Pedersen
Dmitrij Slepniov
1 The last five years’ rather adventurous journey from 2004 to 2009 had taught the fifthlargest toy-maker in the world—the LEGO Group—the importance of managing the
global supply chain effectively. In order to survive the largest internal financial crisis in
the company’s roughly 70 years of existence, resulting in a deficit of DKK1.8 billion in
2004, the management had, among many initiatives, decided to offshore and outsource a
major chunk of LEGO’s production to Flextronics, a large Singaporean electronics
manufacturing services (EMS) provider. In this pursuit of rapid cost-cutting sourcing
advantages, the LEGO Group planned to license out as much as 80 per cent of its
production, besides closing down major parts of the production in high-cost countries.
Confident with the prospects of the new partnership, the company signed a long-term
contract with Flextronics. “It has been important for us to find the right partner,” argued
Niels Duedahl, a LEGO vice-president, when announcing the outsourcing collaboration,
“and Flextronics is a very professional player in the market with industry-leading plastics
capabilities, the right capacity and resources in terms of molding, assembly, packaging
and distribution. We know this from looking at the work Flextronics does for other global
2 This decision would eventually prove to have been too hasty, however. Merely three
years after the contracts were signed, LEGO management announced that it would phase
out the entire sourcing collaboration with Flextronics. In July 2008, the executive vicepresident for the global supply chain, Iqbal Padda, proclaimed in an official press release,
“We have had an intensive and very valuable cooperation with Flextronics on the
relocation of major parts of our production. As expected, this transition has been
complicated, but throughout the process we have maintained our high quality level.
Jointly we have now come to the conclusion that it is more optimal for the LEGO Group
to manage the global manufacturing setup ourselves. With this decision the LEGO
supply chain will be developed faster through going for the best, leanest and highest
quality solution at all times.”2
PhD Fellow Marcus Møller Larsen, Professor Torben Pedersen and Assistant Professor
Dmitrij Slepniov wrote this case solely to provide material for class discussion. The authors do
not intend to illustrate either effective or ineffective handling of a managerial situation. The
authors may have disguised certain names and other identifying information to protect
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or
transmission without its written permission. Reproduction of this material is not covered under
authorization by any reproduction rights organization. To order copies or request permission to
reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The
University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax
(519) 661-3882; e-mail
Copyright © 2010, Richard Ivey School of Business Foundation
Version: (A) 2010-11-12
3 This sudden change in its sourcing strategy posed LEGO management with a number of
caveats. Despite the bright forecasts, the collaboration did not fulfill the initial
expectations, and the company needed to understand why this had happened. Secondly,
what could LEGO management have done differently? Arguably, with little prior
experience in outsourcing this large amount of production, the LEGO Group had had a
limited knowledge base to draw on to manage a collaboration like this. Yet, with
Flextronics’ size and experience with original equipment manufacturers (OEMs), this, in
theory, should not have been a problem. Lastly, one could ponder whether the
unsuccessful collaboration with Flextronics had been a necessary evil for the LEGO
Group. LEGO management’s ability to handle its global production network after the
Flextronics collaboration had surely changed, and aspects like standardization and
documentation had to a much larger extent become valued.
4 The LEGO Group’s vision was to “inspire children to explore and challenge their own
creative potential.” Its motto, “Only the Best is Good Enough,” had stuck with the
company since 1932 when Ole Kirk Christiansen, a Danish carpenter, established the
company in the small town of Billund in Jutland, Denmark, to manufacture his wooden
toy designs. As the company itself said, “It is LEGO philosophy that ‘good play’ enriches
a child’s life—and its subsequent adulthood. With this in mind, the LEGO Group has
developed and marketed a wide range of products, all founded on the same basic
philosophy of learning and developing—through play.”3 With this simple idea, the
company, through its history, had grown into a major multinational corporation, and, by
2009, was the world’s fifth-largest manufacturer of toys in terms of sales. The same year,
the LEGO Group earned DKK11.7 billion in revenues and DKK2.2 billion in profits, and
had a workforce of approximately 7,000 employees around the world (see Exhibit 1). Its
corporate management consisted, besides the chief executive officer and the chief
financial officer, of four executive vice-presidents with respective business areas
(markets and products; community, education and direct; corporate centre; and global
supply chain) (see Exhibit 2).
Products and Markets
5 The LEGO brick was the company’s main product (see Exhibit 3). The iconic brick
with the unique principle of interlocking tubes offering unlimited building possibilities
was first introduced in 1958 and had basically remained unchanged ever since. The
underlying philosophy of the brick was that it would stimulate creative and structured
problem-solving, curiosity and imagination. In the company’s own words: “In the hands
of children, the products inspire the unique form of LEGO play that is fun, creative,
engaging, challenging—all at the same time …. We strive to accomplish this by offering
a range of high quality and fun products centred around our building systems.”4 The
simple yet multifunctional and combinational structure of the brick (there were as many
as 915 million possible combinations to choose from with six eight-stud LEGO bricks of
the same color) had therefore been core to the company’s history and success. In fact, the
LEGO brick had been rewarded the “Toy of the Century” designation by both Fortune
Magazine and the British Association of Toy Retailers.
6 To segment the products, however, a number of categories had been created: First, “pre-school
products” comprised products for the youngest children, who had yet to start school. The LEGO DUPLO
products were examples of this category. Second, the “creative building” category targeted sets or
buckets of traditional LEGO bricks without building instructions. Third, “play themes” products were the
products that had a particular story as their 12-312-4basis. This could be themes such as airports,
hospitals and racing tracks. The classic LEGO City line and futuristic BIONICLE theme products were
examples of this category. Fourth, and related to the play themes, were the “licensed products,” which
were built up around movies or books that the LEGO Group had acquired the rights for, such as Harry
Potter, Star Wars and Indiana Jones. Fifth, “MINDSTORM NXT” was a programmable robot kit, 12-4125where consumers could construct and program robots to perform different tasks and operations. Sixth,
“LEGO Education” comprised products that had been specifically developed for educational purposes.
Last, in 2009 the LEGO Group made its first move into the board game category with the launch of the
“LEGO Games” product line. The underlying logic of the entire product portfolio was to reflect the fact
that children grow older and develop, and thus demand more challenging stimulation.
7 LEGO products were sold in more than 130 countries. The largest single market was the United States,
which in 2007 accounted for 30 per cent of the revenue in combination with Australia, New Zealand and
the United Kingdom. Central and Southern Europe represented 27 per cent, while Scandinavia, Benelux,
Eastern Europe and Asia represented 26.5 per cent.
Dealing with a Crisis
8 In 2004, radical changes took place within the LEGO organization as a consequence of
a major internal crisis that drew the company near bankruptcy. The crisis, which could be
traced back to the end of the 1990s, had accumulated with net losses worth DKK888
million and DKK1.8 billion in 2003 and 2004, respectively. Sales had fallen by 30 per
cent in 2003 and 40 per cent in 2004. These results had been the most disappointing in
the history of the company. On average, the toy maker had made economic losses
equivalent to DKK2.2 million per day in the period from 1998 to 2004.
9 The reasons for the crisis had been many. The immediate explanation was the
company’s general loss of confidence in its core product—the LEGO brick. With an
initiative to create new engines of growth and to address a decline in the traditional toy
market, LEGO had sought over the last decade to broaden its portfolio into new, rather
discrete areas, including computer games, television and clothing. This act of
diversification had resulted in vast complexity and inefficiencies, as well as highly
confused customers and employees. For instance, with the surge of licensed products like
Harry Potter and Star Wars, the LEGO Group produced a range of unique bricks for each
single new product. The LEGO Group had at the time roughly 11,000 suppliers—a
number almost twice what Boeing used for its planes. Unfavorable developments in the
global toy market as well as in the exchange rates of key currencies of important markets
had not made matters easier. As former chief executive officer Kjeld Kirk Kristiansen
argued, “We have been pursuing a strategy which was based on growth, increase in
market shares and growth by focusing on totally new products. This strategy did not give
the expected results.”5 Moreover, he noted that “we shifted the focus from our actual core
product, which at the same time faced difficulties in a more competitive and dynamic
10 In October 2004, Jørgen Vig Knudstorp was appointed as Kristiansen’s successor.
Kristiansen, who was the grandson of the founder, Ole Kirk Christiansen, had been the
president and CEO of the LEGO Group since 1979. Knudstorp was only the second
person outside the founding family who held the position of CEO, and his primary task
was to steer the company back on track. “I don’t have any miracle cure,” he explained as
to how he would put an end to the financial turmoil. “LEGO shall first and foremost drop
its arrogance. We have been too sacred with our own virtues, not open enough, and not
willing to listen to what other people say. We shall now listen to customers and
consumers; simply drop the sacredness. We must be aggressive in the market; work
closely with retailers; 12-512-6and manage LEGO very tightly, also financially.”7
Accordingly, a strategy titled “Shared Vision” was soon implemented, and was defined
around three core principles:
o • “Be the best at creating value for our customers and sales channels.”
o • “Refocus on the value we offer our customers.”
o • “Increase operational excellence.”
11 After divesting its theme parks and receiving an extraordinary loan from the founding
family of 800 million DKK, the LEGO Group embarked on the comprehensive strategy
of right-sizing its activities, its cost base and its many assets. In particular, careful
scrutiny of the organization made the LEGO Group aware of the fact that its ineffective
and inflexible supply chain was a key problem for the creation of a sound business
platform. The degree of organizational complexity on multiple levels had basically
undermined an otherwise sound business platform. According to Knudstorp: “From my
perspective, the supply chain is a company’s circulation system. You have to fix it to
keep the blood flowing.”8
1. Preparing for Outsourcing
12 A key revelation of the comprehensive analysis that was initiated in 2004 was that
urgent transformations in all major areas of the supply chain were needed. In the
development function, the main focus was to simplify the LEGO sets, which over the
years had grown highly elaborate. One LEGO senior director noted, “This excessive
complexity of shapes and colors of LEGO elements that was coming from the
development was badly hitting the supply chain.”9 A major challenge was to ensure that
the right components were constantly in stock. Significant forecast errors and seasonal
demand fluctuations coupled with customers’ expectations of short delivery times
resulted in large stocks of many different components. The high numbers of components
also required heavy investment in molds. The decision was therefore made to limit the
growth in the number of product components and then to gradually reduce it. This was
not only supposed to drive costs out of the supply chain, but was also to prepare the
company for the new scenarios of the outsourced production set-up.
13 In the area of distribution, the analysis uncovered the need for major changes in how
the company approached its retailers. Describing the situation, a senior director was
quoted as saying, “It was impossible to be efficient and manage the supply chain with the
level of flexibility we had towards all retailers, including the smallest outlets. We clearly
needed to put certain rules here.”10 To manage this, clearly defined service policies were
established. The new policies distinguished explicitly between different approaches to the
retailers and helped the company to focus more on the large retail chains that were
increasingly gaining dominance in the toy market. This immediately helped to drive
down the cost of distribution, provided a more reliable overview of demand and, along
with reducing complexity, took some pressure away from the supply chain. Moreover,
the company’s five European 12-612-7distribution facilities (Flensburg and
Hohenwestedt in Germany, Billund in Denmark, and Lyon and Dunkerque in France)
were all centralized in Jirny, 10 kilometres east of Prague, Czech Republic. Occupying
51,000 square metres, the new European distribution centre was in full operation at the
beginning of 2007 and handled customers in Europe and distribution centres throughout
the world (except North America). The operation was outsourced to DHL Solutions. In
addition, the distribution of LEGO products in the United States and Canada was
outsourced to Exel Inc., a contract logistics provider operating in Alliance, Texas.
EXHIBIT 4: Production Value Chain
Source: Authors’ own creation.
14 However, no matter how significant the problems were in product development and
distribution, sub-optimizing only those areas without improving various aspects of the
actual production could hardly bring the company back on track. The LEGO Group’s
production value chain was divided into the following steps: the development of the
molding machine, molding, assembling, pre-packing and post-packing (see Exhibit 4).
Assembling and post-packing were the most cost-intensive parts of the value chain. Prior
to the crisis, the company owned and operated production plants in Denmark, the United
States, Switzerland, the Czech Republic and South Korea. Allocation of roles and
responsibilities to most of these factories followed a branding strategy in which one of
the Swiss factories only produced DUPLO toys and another produced Technic products.
Furthermore, the Danish factory only manufactured LEGO System products, while the
U.S. facility predominately served American demands. The vast majority of the
production took place in the Danish and U.S. sites, while roughly five to 10 per cent of
the LEGO Group’s total production was outsourced to Chinese contract manufacturers.
15 With the new strategic direction of achieving a lighter production portfolio, however,
the company started to look for external partners to carry out a larger bulk of its
production. There were two main strategic rationales for this. First of all, there was the
12-712-8cost-saving rationale. With the majority of the production in high-cost countries,
the management saw major potential for cutting co …
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