Business Environment And Strategic Management: A Case Of Lego

The toy making company has integrated theme parks, Lego video games and also designed scenes of popular movies like Man of Steel, Lone ranger, Ninja Turtles etc which attracts the attention of all ages of customers. The introduction of the new Friends Line in 2011 for the girls made it possible for the company to surpass Mattel (Barutçu & Tunca, 2012).

3. PESTEL analysis

3.1 Political

The depiction of the Star wars fight sequences, The Berlin wall Collapse and some of the other comic fight sequences by Lego was opposed by the Ministry of defense (_). The depiction of armed forces to the children was politically wrong and hence the removal order was passed against Lego.

3.2 Economical

The company has faced reductions in sales due to the positive economic downturn in Korea by 52%. Conklin (2012) opined that the purchasing power of the country determines the demand for a particular product. Due to reduction in the purchasing power the Customers are switching over to purchase necessary items instead if toy products. Moreover factors like seasonal buying behavior also affect the sales of Lego. The company experiences 60% of the total sales in December during Christmas. Moreover advanced economic growth in the countries like UK and USA are also hampering the economic stability of Denmark.

3.3 Social

Lego conducted Brick fest in order to give recognition to fan’s creations. By interacting socially with the fans the company was able to ascertain the type of product they should focus on. Moreover the company focused on making educational based promotions of the toys in order to retain the target customers (SuÅ‚kowski, 2013).

3.4 Technological

Olivas-Lujan & Bondarouk (2013) opined that with the advent of technologies like three dimensional printing, virtual platform development and video games in tablet and mobile the desires of the customers in toy market are changing and turning to technology based games.

3.5 Environmental

Lego’s current position may be hampered due to the lack of proper waste management system. Around 1099 pieces of plastic bricks are produced each day adding to the waste plastic and also carbon emission by the technologies. Hence improper management of the same will endanger the sustainability of the company. Moreover as per the Forbes majority of the paint used on the toys contain lead which is harmful for children use.

3.6 Legal

Lego in order to formulate a growth strategy has started implementing the laws set by the Toy Safety Directives 2009. The company has switched over to plastic bricks with rounded corners so that the use of the toys is safe foe children below the age of 14 years. The company also faced copyright issues in respect of the movie produced by Lego with the Warner bros. The negative movie showing the negative affect of the deal between Shell and Lego damaged the goodwill of the company (Lasserre, 2012).

4. Porter’s Five force analysis

4.1 Threat of new entrants

The factor like high oil prices, unstable economic condition and threat of substitutes makes it difficult for the new companies to enter into the toy market. Rothaermel (2013) opined that although the products can be copied easily however the economic condition is not favorable for the entrance of the new companies.

4.2 Threat of substitutes

The company is facing High threat from substitutes like traditional toys, computer games, extracurricular activities and personal hobbies (Lee & Carter, 2011). Especially in cases of girls dolls and traditional toys are a better option than construction toys.

4.3 Bargaining power of buyers

The customers and the retailers like Wal-Mart and Toys”R” plays an important role in fixing the price of the Lego toys. Hence a delay in the supply of products during Christmas induces the retailers to take Lego off the shelves (Bloomberg, 2015) .

4.4 Bargaining power of suppliers

The major raw material for Lego products is plastic which is being made by oil hence the bargaining power of suppliers are very high. Hence with the fluctuations of oil prices the company’s cost of production fluctuates.

4.5 Rivalry of competitors

The two other rival companies namely Best Lock from Hong kong and Mega Brands from Canada offers low priced products like Lego. However high brand loyalty and positive brand image reduces the chances of the rivals.

Figure 1: Porter’s five force model of Lego

(Source: Bloomberg, 2015)

5. Core competencies

• Developing product leadership and brand image in targeting a niche product market within the overall toy industry
• Adoption of the segmentation strategy to reach out to the target market
• Constant renewal of the same product and focus on high quality standards, design and efficient supply chain (Bloomberg, 2015)

6. Value chain analysis

6.1 Inbound logistics:

• Main supplier
• Use of standard commodities (Olivas-Lujan & Bondarouk, 2013)
• 3D Printing
• Robotic transportation

Operations include production according to market demand forecast and abiding by the rules of plastic directives (Azadi & Rahimzadeh, 2012). The outbound logistics deals with the transportation of the products to retailers like Wal-Mart for seasonal sales and use of DHL for the purpose of Superior delivery.

6.2 Marketing and selling

Lego for the purpose of increasing sales increase the brand value, enters into strategic partnerships and engages in services like downloadable manuals, web community etc.

6.3 Purchasing goods

• Quality control of plastics
• Procurement of oil from companies like Shell at high market price
• Arranging for fairs to recognize the creation of Fan’s

6.4 Technology development

• Digitalization of brick products by collaborating with reality company Metaio
• Usage of 3D animation technology(Barutçu & Tunca, 2012)

6.5 Human resource management

• High rate employee benefits like scope of innovation, employee brainstorming sessions
• Management workshops and congenial working hours
• Focused on employee motivation and satisfaction
• Employing creative people for the posts

7. Conclusion

The report thus summarizes the values like creativity, logical thinking, constant renewal and innovation that Lego offers to its target customers in order to retain its position as a niche toy maker. The influence of the external factors can hamper the position of the company however by availing to the rules and regulations Lego can avoid the same.

8. Reference list

Books

Lasserre, P. (2012). Global strategic management. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.

Olivas-Lujan, M., & Bondarouk, T. (2013). Social media in strategic management. Bingley, UK: Emerald.

Rothaermel, F. (2013). Strategic management. New York: McGraw-Hill Irwin.

Journals

Azadi, S., & Rahimzadeh, E. (2012). Developing Marketing Strategy for Electronic Business by Using McCarthy's Four Marketing Mix Model and Porter’s Five Competitive Forces. Emaj, 2(2).

Barutçu, S., & Tunca, M. (2012). The Impacts of E-SCM on the E-Tailing Industry: An Analysis from Porter's Five Force Perspectives. Procedia - Social And Behavioral Sciences, 58

Conklin, D. (2012). The global environment of business: new paradigms for international management. Strategic Direction, 28(2)

Lee, K., & Carter, S. (2011). Global Marketing Management. Strategic Direction, 27(1).

Sułkowski, Ł. (2013). Strategic Management as the Ideology of Power. Journal Of Intercultural Management, 5(3).

Sumpio, B. (2013). Application of Porter's Five Forces Model and generic strategies for vascular surgery: should be stuck in the middle?. Vascular, 21(3), 149-156.

Websites

Bloomberg,. (2015). Brick by Brick: Inside Lego: Video. Retrieved 27 January 2015, from https://www.bloomberg.com/video/brick-by-brick-inside-lego-4-17-SlbmZEQnSfyC~y1eSm9FAg.html