Do you know, the winner of the title “Toy Of The Century” by Fortune magazine- The Lego Group struggled for 7 years to get back to their place in the market? Yet after 7 years, they came out with the flying colours. Wonder what would have happened? How they might have managed to get back in just 7 years?
The Lego Group generated the loss for four out of the seven years from 1998 through 2004. Their sales dropped down by 30% in 2003 and by 10% more in 2004. The biggest reason behind this was the poor supply chain. The supply chain of the Lego Group was outdated by at least 10 years. The poor customer service and on the spot availability of the products was gradually destroying the company’s franchise in key markets.
The company owned the toy market in the year 1950’s when its bricks first became popular. For nearly 6 decades, the company had the great business. But, when in 1990, its competitor firm started regearing their supply chain the Lego Group did not pay attention to that. And that is when the system started to fail.
This is when the company decided to inherit the organizational transformation. To rebuild profitability, the company had to redesign each and every aspect of its supply chain along with eliminating inefficiencies & improving their innovation capacity.
Since the mid-1990s till 2004, the company shifted towards video games, TV programs, and retail stores. But this diversification made it more complex for the company, and the red ink continued to flow.
The CEO of the organization would often visit the gemba, asking managers when he saw that an item had not been resolved since his previous visit. “This is still here?” he would ask.
Finally, after a painful but impactful transformation, the Lego Group made its first profit after 7 years. It approximately saved €50 million ($67 million) and forecasts savings in excess of €100 million ($135 million) in coming two years. Their stock turnover also increased by 12% in 2005. And in the same year, the Lego Group announced its first profit of €61 million ($72 million) since 2002. In 2005, its turnover increased by 11% and profits up by a staggering 240%.
In here, the gains are not just limited to operations. The supply chain redesigning and restructuring the ideas and implementations impacted the most. The Top Management believed that getting the right product at the right time to the right place at the right cost was an important early step in grappling with an array of strategic challenges. “
The transformation journey for Lego groups was painful but was a necessity. The Top Management said that as per their perspective, the supply chain is a circulation system of the company which you have to fix it to keep the blood flowing.
If big and profitable names like these had to inherit the organizational transformation to sustain in the market, have you initiated your organizational transformation journey to keep the blood flowing?
Write & Compiled by Faber Priyal & Faber Mayuri.