MOD001067 Strategic Management in Action : Product Development
Case study– Lego
Assignment Question:
Contemporary strategy theory to identify and discuss the types of strategy development evident at Lego.
PATCH 2: Organising for Success
Assignment Question:
Theory covered in the module to justify and support the key features of success of Ajisen Ramen in China.
PATCH 3: Leadership and Strategic Change
Case study – Transformational change at General Electric (GE)
Assignment Question:
• Theory on ‘types of strategic change’ and ‘managing strategic change programmes’, identifying what type of strategic change
was undertaken by GE?
• In addition, highlight what challenges organisations may face in trying to replicate this approach
Answer:
PATCH 1: Strategy Development Processes
Case study– Lego
Background of LegoLego has become the major market player in the period of over 85 years from the small workshop of a carpenter to its transformation to a completely modern global enterprise which is now one of the largest manufacturers of toys in the world. Lego reportedly employs over 19,000 employs around the world and has generated revenue of 37.9 billion in the year 2016 and therefore occupies a major market share.
Lego has the overall vision for ‘inventing the future of the play’ and for this purpose it has adopted the mission of ‘inspiring and developing the builders of tomorrow’ (Lego, 2017). For the purpose of keeping its customers engaged with the brand, it has adopted a brand strategy that creates moments of joy by identifying the voice of the customer. It adopted out-of-this-world marketing strategies in connection with the Juno mission to Jupiter by NASA and also partnered with Facebook for engaging kids in creating a series of videos (Morgan, 2017). Lego offers a variety toys consisting of interlocking plastic bricks such as LEGO City, LEGO NINJAGO, LEGO Friends, LEGO Technic, and LEGO Creator and has launched around 335 new products in 2016 including LEGO NEXO KNIGHTS. Its major competitors include Automoblox, VTech, Meccano and Leapfrog.
Product Development Strategy adopted by Lego
Lego’s basic strategy is based on ‘product development’ by introducing a large number of variations in its basic product theme. It continuously meets the requirement of the market by proper analysis of the preferences of the customers and market trends with the introduction of new products in the market or making innovation in the existing products. It made the use of brick colors with the view to appeal to both boys and girls and more complex Lego Technic sets were brand-named and endorsed in order to make them attractive to the young teenage market. One-third of the product range of Lego was replaced in a typical year. A three to three year period was utilized for developing new ideas which were backed by test marketing and international consumer research. Lego focuses on the buying habits of its customers by the proper consideration of the global tastes.
In the mid- 1990s, the sales of Lego were adversely affected due to the reason of change in the tastes of its customers as the computer games started gaining popularity by that time. For the purpose effectively dealing with the situation, in the year 1997 Lego opted for a new range extension. It started using technology and began to provide market construction kits with the instruction on CD-ROMS. Later on in the year 1998, Mindstorms range was introduced that was powered by AA batteries but the company was still waiting for the time when it could reduce the costs to the genuine levels. Lego further entered into the computer games market by allowing the users to build vehicles, train sets, etc. with the help of its CD based products. It also initiated a ‘Design by Me’ program in which children were allowed to design finished Lego models in their own way and then ship it to them. Also, various licensing deals were agreed for the kits based on Harry Potter, Star Wars and Bob the Builder (Elmansy, 2014).
With the rapid growth in the digital world, fluctuating fashion trends in the toy industry, higher dependence of the consumers on the international brands and faster development of child, Lego had to continuously respond to these changes with the help of combination of market adaptation and innovation. They met the expectations of its customers by introducing digital toys at regular intervals and creating virtual communities for the purpose of cross selling and providing support to the users. New business units were also formed by Lego like LEGO Direct and LEGO Interactive, caused collaboration with the popular global brands such as Warner Bros, Microsoft and Disney and entered into the range of lifestyle products.
LEGO Cuusoo, which was the newly developed product exceeded the sales expectations of the company as result of involvement of the customers in the process of innovation. Recently. Lego entered into partnership with one of the most popular online game Minecraft and therefore became the most successful customer-led product till date (Harwood, 2017).
Lego also tried diversification with a theme part where rides and displays were built with the Lego bricks. The innovations efforts by Lego including the theme parks, action figure called Galidor and Clikits crafts sets proved unprofitable for the organization and failed outright. Lego’s turnaround therefore came up with a new structure for coordinating the innovation activities strategically. Now the broader view of innovation is taken into consideration which focuses not only on the new products but also on the pricing plan, business processes, community building and channels to the market which acts as the powerful business drivers (Robertson & Hjuler, 2009). Lego achieved success in real terms when it introduced new range of products in the market designed especially for girls after realizing the fact that that their products were too boy focused and there missed a large proportion of children (Thompson, 2014).
Lego has therefore obtained the position of leader brand in the world as a result of its product development and integrated product design after going through the various stages of project selection, development and production for achieving customer satisfaction (DTU, 2017).
PATCH 2: Organizing for Success
Case study - Ajisne Ramen (China)
BackgroundAjisen Ramen is a Japan based fast food chain restaurant. It was initially started in 1968 as a small ramen house in Kumamoto, western Japan. Now the restaurant has more than 700 stores worldwide (Zhang, 2017). In 1996, the restaurant opened its first overseas shop in Hong Kong. It serves more than 40 kinds of ramen on their menu. The ramen noodle is served in the wooden bowl. Ajisen is best known for its white broth which is made by boiling many kind of bones including fish bones (Farrer, 2017). It is a leading chain operator in mainland China and Hong Kong. In 2007, the company was converted into a public company in Singapore. The company is listed on the main board of HKEx since 2007 that raised $210 million and stock was valued at $1.4 billion. Ajisen Ramen is an established brand in China and makes available high quality Japanese ramen and fast food. The company also manufactures and sells packaged noodles packaged noodles around the world. The company represent itself high quality Japanese food. The factors driven behind the Ajisen’s success are unique positioning of brand, reliable quality of products, customer base and brand recognition. The company has attained international QS certificates proving quality and has rigorous quality control system. The restaurant was featured in the Bib Gourmand section which highlights establishments and dinners can be enjoyed for ¥5000 or less (Chan, et. al., 2016). The company is facing declining demand in the ramen industry due to the falling birth rate in Japan. Now the company is having main business in China. The company has good market growth in China.
Key features of success
The company’s performance is judged by following Thompson model. The company’s information is used to sustain success by improvement, change and remedy for weakness of the company. Only financial success cannot guarantee success from competitors. There are some other points also which are needed to consider success such as:
Image and reputation: Ajisen is a successful brand in China. The company serves the better quality of ramen in wooden bowls and desirable taste at fewer prices, which attracted to younger white collar workers in China. The company enjoyed the rapid growth because of the perception that people consider ramen as healthier food than the fast food. The restaurant’s ambience is also based on the original Japanese restaurant look and includes a picture of byobu screen and customers are greeted good evening as soon as they enter by the Chinese waitress. The company serves more than forty kinds of ramen and is much more refined than the Chinese la mian. The business model contributed to the success of Ajisen ramen. It was the casual food which created the chain of noodle outlets. These outlets were setup based on the purchase of raw material and the method of production. The method of production of the company aims at keeping the same taste of noodles at all chains worldwide (Selden, 2014). The Chinese la mian varies in taste according to the locality of outlet and the type of noodles which is liked more. The standardisation of products at Ajisen enables each outlet to serve customers quickly. It gave large cost advantages to the company.
Financial measures: Like every public listed company, Japan food holdings limited is required to get a regular disclosure of the financial & business operations by Singapore stock exchange (Vekasi, 2014). The company has more than 700 outlets overseas. In 2007, turnover of the company exceeded Hong Kong $2 billion (Chen, 2014). The company has major factory expansion in China and has opened a new $13.7 million noodle factory in Shanghai, which is sufficient to supply noodles for 500 restaurants. The company also manufactures and sells 750 points of sale worldwide. According to 2009 interim report, the company has double digit growth in turnover, gross profit, and profit from core operations. The profit achieved was higher than turnover. Annual report of Japan food holding limited of the financial year 2015 reveals that the company has contributed 43.9% to the group’s total revenue. The group revealed that the total sales of the company were about $62.7 million. The expenditure done on raw material (noodles, vegetable, raw material and meat) was just 10.4 million or to say 16.6% of revenue almost. A bowl costs just 16.6% of the sales price to the company itself. So, it can be considered that the company sells noodles five times the cost taken to produce. So far, the company is making good financial gains.
Stakeholder measures: Ajisen ramen is principally engaged in the restaurant operation. Ajisen holdings are the Hong Kong based holder. The company successfully listed on the Hong Kong stock exchange in 2007. The company raise $210 million and stock valued at $1.4 billion. The public offering was oversubscribed 192 times. The company also have options for the customers who are budget conscious, the basic costs $7.90 has remains at this price since the company started its operations in 1997. It attracts to students customer base and caters to many other type of customers. The shareholders of the company receive free membership of the company every year. Otherwise a person can get membership of the company after paying $10. The persons, who attend annual general meeting of the company, receive $20 voucher on the spot. The shareholders who have invested in Japan foods from its IPO (Initial Public Offering) in 2009 at 10.9 Singapore cents a share, they would have made returns around 460% in just five years (Ang & Chng, 2013). The stockholders who did not invest in IPO, but still managed to get return of 62.5% in just two years. The return included dividends as well as bonus shares.
Balanced score card is used to measure the effectiveness of activities against the strategic plan of the company. Balanced score card is used by the company to be sure that the efforts are associated with the strategy and the vision (Herold, 2015). It is used to evaluate activities than just knowing revenues, profits and costs.
PATCH 3: Leadership and Strategic Change
Case study – Transformational change at General Electric (GE)
Background to the changes that occurred in General Electric (GE)In the early 1980s, GE suffered from lack of technological advancement and therefore required international perspective in order to deal with this situation. The company had adequate assets as signified by the balance sheet but it was basically focused on the USA. The company was suffering from specific problems including slow revenue growth particularly in its core business i.e. electrical equipment as a result of which cash-flow problems were being created from the expensive investments. The company was stick to limited innovation and slow decision making process. Moreover, low profit margins were resulted due to poor productivity and widespread negative internal politics. Therefore, a transformation process was initiated in order to deal and overcome these problems. The process involved various steps including awakening, changes, envisioning and re-architecting.
Strategic change undertaken by GE
Types of Strategic Change
Change initiated by GE can be classified by the extent of change required and the speed required in order to achieve the change. The extent to which the change is required was articulated by Welch by keeping the focus on the weaknesses of the organization including sluggish revenue growth, poor productivity and lack of innovation. This was the ‘awakening’ stage of the transformation process and made Welch realize his first challenge which was to find out those managers which presented the utmost potential as transformational leaders and agents of intermittent change (Lynch, 2017). The change was even resisted due to some technical, political and cultural reasons as the reliance on the current bureaucratic systems were experienced and the overconfidence as a result of past successes lead to an unwillingness to accept the competitive weaknesses.
The speed of change determined that the change was not implemented all at once but it was implemented as a step-by-step incremental change. The programme involved three stages in particular namely:
Awakening- the need for initiating change was realized
Envisioning- a new vision was established for the organization along with harnessing of the resources.
Re-architecting- the new organization is designed and constructed.
Managing Strategic Change Programmes
Turnaround strategy was adopted with the view to emphasis on rapid cost reduction along with the speed of change. The change in the management was the element used by GE through the proper determination of the managers which possessed the greatest potential to become the transformational leaders and agents (Forward Focus, 2017). People were forced by Welch to act in accordance with the benchmark set by the competitors in terms of performance and achievements rather than depending upon internal budgets and measures. Management training and development approach originally adopted by GE was completely changed and all the rigid rules and guidelines regarding the procedure of conducting things were entirely abolished. External corporate communications were now under the control of Welch (Boyle, 2011). This was done with the view to create an ‘organization without boundaries’ where there is a free flow of information and greater emphasis is placed on architecture along with internal and external linkages. This helped in overcoming the lack of information and played an important role in the incremental change. Such strategic change was adopted with the view to bring people in a position along with generating the willingness among them to act quickly (Segal, 2004). The flexibility, speed and self- confidence possessed by a small organization was aimed to be implemented by GE through the removal of the number of boundaries as a part of the implementation process (Savitz, 2013).
The layers of management were altogether removed and the performance incentives were now available even for the managers and employees as earlier incentives were only focused on the senior executives of the organization. Moreover, cross- functional project teams were created as a result of the removal of horizontal/ internal walls. Also, increased emphasis began to be placed on the value added chain of the company and the satisfaction level of the customers is tracked from time to time (Brown, 2006).
Some important changes were required to be implemented in the ways various tasks and decisions were carried out by the people in the organization and in the manner adopted by them for working together due the reason of removal of the boundaries. Welch believed that the top management must promote the adoption of such changes with immediate effect and those senior managers who resist adopting the new style would have to leave the organization (Yang, et. al. 2017).
Challenges that organizations may face in the replication of the approach
Jack Welch is an exceptional leader that undertook to conduct a major program initiating the change and transformation of the organization (Welch, 2014). The immense success of the transformation strategy adopted by GE has successively encouraged many organizations to replicate the approach and procedure adopted by GE (Rowe & Guerrero, 2012).
The outstanding vision, style, approach and skills to deal with the situations as possessed by the Jack Welch cannot be easily replicated by other leaders. Moreover, other organizations may delay in realizing when the need for change arise i.e. delay in the awakening stage itself. Such delay will not provide the organization the same results as derived by GE. Also, the envisioning stage would create a challenge in front of the organizations as it would not take into account all the strands of the rope as Welch took technical, political and cultural systems in proper consideration. The removal of boundaries would cause serious stress for the organization as it would become difficult to manage an organization without any boundaries. Free flow of information can even cause miscommunications and misunderstandings among the people in the organization which can lead to reverse results and slowing down of the speed. Therefore, it can be concluded that the replication of the approach would not result in similar results for the other organization.
Conclusion
Therefore, it can be concluded that the strategies adopted by these three organizations have resulted in immense success for them. Lego has adopted product development as the limited growth strategy which facilitated in dealing with the changing trends in this competitive environment. The business model of Ajisen Ramen has resulted in rapid growth of the organization because of the perception of the people who considers its food healthy. On the other hand, General Electric adopted compete transformation process with the change of its vision by incorporating changes in the management. Downfalls were faced by each of them but appropriate strategies made them come back in the market and hold the position of strong market players.
References
Ang, R. and Chng, V., 2013. Value Investing in Growth Companies: How to Spot High Growth Businesses and Generate 40% to 400% Investment Returns. John Wiley & Sons.
Boyle, T. F. O. 2011. At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit. Knopf Doubleday Publishing Group.
Brown. 2006. An Experiential Approach to Organization Development. Pearson Education India.
Chan, G.S.H., Hsiao, A.C.H. and Lee, A.L.Y., 2016. Exploration of Customer Complaint Behavior toward Asian Full-Service Restaurants. International Journal of Marketing Studies, 8(2), p.46.
Chen, M., 2014. Comparative Research on the Development of Ajisen China, Korean Ramen and Lanzhou Ramen Enterprises in China. International Journal of Culture and Tourism Research, 7(1), pp.51-62.
DTU. 2017. Product development and portfolio management processes at LEGO, [Online]. Available at: https://apppm.man.dtu.dk/index.php/Product_development_and_portfolio_management_processes_at_LEGO [Accessed on: 13 December 2017].
Elmansy, R. 2014. Learning More About Creativity And Innovation From LEGO, [Online]. Available at: https://www.smashingmagazine.com/2014/08/learning-creativity-innovation-from-lego/ [Accessed on: 13 December 2017].
Farrer, J., 2017. Domesticating the Japanese Culinary Field in Shanghai. In Feeding Japan (pp. 287-312). Palgrave Macmillan, Cham.
Forward Focus. 2017. TRANSFORMATION LEADERSHIP, [Online]. Available at: https://www.forwardfocusinc.com/jumpstart-change/transformation-leadership/ [Accessed on: 13 December 2017].
Harwood, R. 2017. Unleashing Customer Innovation with LEGO Ideas, [Online]. Available at: https://www.100open.com/unleashing-customer-innovation-with-lego-ideas/ [Accessed on: 13 December 2017].
Herold, D.K., 2015. Whisper campaigns: market risks through online rumours on the Chinese Internet. China Journal of Social Work, 8(3), pp.269-283.
Lego. 2017. MISSION AND VISION, [Online]. Available at: https://www.lego.com/en-us/aboutus/lego-group/mission-and-vision [Accessed on: 13 December 2017].
Lynch, G. S. 2017. Uncertainty Advantage: Leadership Lessons for Turning Risk Outside-In. Archway Publishing.
Morgan, P. 2017. How LEGO Built a Brand Strategy Around the Voice of the Customer, [Online]. Available at: https://www.conductor.com/blog/2017/05/how-lego-uses-voice-of-the-customer/ [Accessed on: 13 December 2017].
Robertson, D. and Hjuler, P. 2009. Innovating a Turnaround at LEGO, [Online]. Available at: https://hbr.org/2009/09/innovating-a-turnaround-at-lego [Accessed on: 13 December 2017].
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Zhang, X., 2017. Spatial patterns and social/cultural implications of Japanese fast food chains in China. Asian Geographer, pp.1-20.
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