The LEGO Case Study
2014
Dimensions of Strategy from
John Ashcroft and Company
experience worth sharing
The LEGO Case Study - New for 2014
About the Author
In 2003 and 2004 LEGO announced losses of over $400 million dollars on annual
sales of just over $1 billion. The reorganisation plan announced in 2001 had begun
to falter. The company was forced to take a hard look at every facet of the
operation including costs, overheads, margins, sales, marketing and the product
offer.
John Ashcroft is an economist and expert in Corporate Strategy. The LEGO case
study was developed in 2014 following the success of the Apple Case study. An
extract from the Apple case study was published in the ninth edition of Johnson,
Whittington, Scholes - Exploring Strategy 2011, considered by many to be the
"bible" of corporate strategy texts. The Apple Case Study was the second most
highly rated case study in the Exploring Strategy text book.
!
!
Non performing assets, including the company's LEGOLAND parks were sold off.
A radical plan for recovery and growth was introduced.
!
Since then company revenues have increased from $1 billion to $4.5 billion
[2013] and profits have soared to $1.5 billion before tax. The company's share of
the world toy market has doubled from 2% in 2004 to over 5% in 2012. LEGO
has overtaken HASBRO as the second largest toy manufacturer in the world.
!
!
!
Author of The Saturday Economist, John publishes weekly updates and insights
into headline economics news. Other web sites include The Saturday Economist,
Dimensions of Strategy, The Apple Case Study, Social Media Experts and the
host site John Ashcroft and Company.
!
The textbook “Dimensions of Strategy” will be published in the Autumn of 2014.
Check out the web site www.thelegocasestudy.com.
How did LEGO achieve this sensational turnaround? We apply our Corporate
Strategy framework to help explain how and why. Comparisons with The Apple
Case Study abound! It's revealing! Update by John Ashcroft, John Ashcroft and
Company from the Dimensions of Strategy series.
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
World Toy Market
Toy Market
$ Billions
90
83.3
78.1
80
77.2
83.3
84.1
79.6
72.0
70
60
Data Source
2013
59.0
60.8
63.5
50
40
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
World Toy Market
Mattel
Hasbro
Lego
World shares of revenue
World Shares %
8.0
6.0
4.0
2.0
0.0
2004
2005
2006
2007
2008
2009
2010
2011
2012
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
World Toy Market
Mattel
Hasbro
Lego
Revenues $ Billion
7.0
Revenues $ Billion
6.0
5.0
4.0
Lego takes 2nd slot
3.0
Hasbro 2013 data
estimate based on Q3 YTD
2.0
1.0
0.0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Lego
LEGO - The Golden Arch
30.0
25.0
Rate of Change of Revenues
%
20.0
15.0
Actual Rate of Change
10.0
The Golden arch
5.0
0.0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Sales Revenues 1995 - 2000
10.0
9.8
7.5
7.5
7.6
7.7
1996
1997
1998
9.5
6.8
5.0
2.5
0.0
1995
1999
2000
Danish Krona Billions data from 2000 Financial Report
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Profit before tax 1995 - 2000
1.0
0.8
0.7
0.7
0.5
0.5
0.3
0.2
0.0
-0.3
-1.0
-0.3
-0.5
-0.8
-1.0
1995
1996
1997
1998
1999
2000
Danish Krona Billions data from 2000 Financial Report
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Sales Revenues 1993 - 2013
25.0
25.4
23.1
20.0
18.7
16.0
15.0
11.7
10.0
9.5
7.2
6.7
7.1
2003
2004
2005
5.0
7.8
8.0
2006
2007
0.0
2008
2009
2010
2011
2012
2013
Danish Krona Billions data from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Profit before tax 1993 - 2013
10.0
8.0
8.2
7.5
6.0
4.9
4.0
2.9
2.0
0.0
5.5
0.5
-1.5
1.5
1.4
1.8
-1.2
Losses include restructuring costs
-2.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Danish Krona Billions data from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Return on Sales %
40.0
30.0
30.5
29.6
2010
2011
32.6
32.5
2012
2013
24.8
20.0
20.0
17.6
19.4
10.0
6.5
0.0
-20.8
-18.5
-10.0
-20.0
Loss ratios include restructuring costs
-30.0
2003
2004
2005
2006
2007
2008
2009
Data derived from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Cash Flow
7
6.7
6.2
6
5
4
3.7
3.8
2010
2011
2.7
2
1.9
1
1.2
0.7
0.6
2004
2005
0.0
2003
2006
1.0
2007
2008
2009
2012
2013
Danish Krona Billions data from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Gross Margin %
80.0
75.0
72.4
70.0
70.3
70.5
70.6
70.1
2011
2012
2013
66.8
65.0
60.0
64.6
65.0
2006
2007
60.1
58.0
55.0
56.5
50.0
45.0
2003
2004
2005
2008
2009
2010
Data derived from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Overhead Ratio %
80.0
70.0
71.3
60.0
60.6
52.5
50.0
48.7
49.4
45.7
40.0
44.6
40.5
40.3
37.6
37.2
2012
2013
30.0
20.0
10.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
Data derived from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
The Golden Cross
“When Gross Margin exceeds overhead ratios”
80.0
75.0
71.3
70.0
72.4
70.3
60.6
65.0
60.0
80.0
52.5
60.1
64.6
48.7
65.0
49.4
58.0
56.5
Gross Margin %
70.5
70.6
70.1
60.0
66.8
45.7
44.6
Overheads %
40.5
40.3
40.0
37.6
37.2
55.0
50.0
20.0
45.0
0.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Data derived from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Sales per employee
2,400
2,221
2,000
2,159
1,998
1,914
1,912
1,768
1,600
1,600
1,594
1,330
1,200
1,197
800
400
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Danish Krona Millions data from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Working Capital Ratios : Stock
15.0
50.0
14.0
42.2
13.0
38.8
41.1
43
33.3
11.0
10.9
10.0
9.4
33.1
12.1
30.2
13.9
40.0
12.2
30
26.9
11.0
30.0
26.2
9.9
8.9
8.7
8.0
13.5
36.7
12.0
9.0
Stock “days”
Stock turn
20.0
8.5
7.0
Stock Turn : Sales / Stock
6.0
10.0
Stock days : Stock / Sales * 365
0.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Data derived from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Shareholders Funds
LEG total equity interest
12
11.1
10
9.8
8
7.0
6
5.5
4
4.5
4.2
3.3
3.3
2.6
2
1.7
2003
2004
2005
2006
2007
2.1
2008
2009
2010
2011
2012
2013
Danish Krona Billions data from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
Return on Shareholders Funds
100
90.0
84.7
88.1
89.7
79.8
75
76.5
74.4
50
34.8
25
13.9
0
-35.7
-47.3
Return on Shareholders Funds %
Pre tax profit / Total Equity Interest
-25
Pre Tax basis
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Data derived from Financial Reports
The LEGO case study from Dimensions of Strategy : John Ashcroft and Company 2014
The LEGO Case Study
2014
Dimensions of Strategy from
John Ashcroft and Company
experience worth sharing