Brick by Brick

1. LEGO's core values and founding principles drove its success

Only the best is good enough.

Founding principles. LEGO's success was built on core values established by founder Ole Kirk Christiansen:

• Focus on quality and craftsmanship
• Commitment to children's development through play
• Belief in the power of imagination and creativity

System of Play. The LEGO brick and its interlocking system became the foundation of the company's success:

• Backward compatibility ensured all bricks worked together
• Allowed for endless creative possibilities
• Created a loyal customer base and repeat sales

Brand authenticity. LEGO maintained its appeal by staying true to its roots:

• Realistic models based on everyday objects and themes
• Emphasis on building and construction
• Fostering a sense of accomplishment in children

2. Innovation led to near-bankruptcy in the early 2000s

We were a heavy institution. We were losing our dynamism, and our fun.

Overambitious expansion. Under CEO Poul Plougmann, LEGO pursued aggressive growth strategies:

• Diversification into theme parks, retail stores, and video games
• Launch of electronic toys and action figures
• Attempts to appeal to a wider audience beyond core LEGO fans

Loss of focus. The company strayed from its core competencies:

• Neglect of traditional construction toys
• Overemphasis on licensed properties and media tie-ins
• Lack of profitability in new ventures

Financial crisis. By 2003, LEGO faced severe financial difficulties:

• Record losses and mounting debt
• Declining market share in core markets
• Risk of losing independence as a family-owned company

3. Refocusing on core products and customers sparked turnaround

We wanted to break the back of the culture.

New leadership. Jørgen Vig Knudstorp became CEO in 2004 and implemented a turnaround strategy:

• Focus on profitability rather than growth at any cost
• Streamlining operations and cutting costs
• Reconnecting with core customers and retailers

Back to basics. LEGO returned to its roots in construction toys:

• Revitalization of classic themes like LEGO City
• Emphasis on the brick and the LEGO System of Play
• Improved quality control and design processes

Financial recovery. The refocus on core competencies led to a dramatic turnaround:

• Return to profitability within two years
• Steady growth in sales and market share
• Strengthened brand identity and customer loyalty

4. LEGO mastered customer-driven innovation through deep engagement

Children and drunks are the last honest people left on the face of the Earth. And children will never buy a product that isn't fun.

Understanding customers. LEGO developed a deep understanding of its target market:

• Extensive market research and focus groups
• In-home observations of children at play
• Collaboration with child development experts

Co-creation with fans. LEGO actively engaged its passionate adult fan base:

• Creation of LEGO Ambassador program
• Soliciting ideas and feedback through online platforms
• Involving fans in product development (e.g., Mindstorms)

Iterative design process. LEGO implemented a rigorous product development cycle:

• Rapid prototyping and testing with children
• Continuous refinement based on feedback
• Balance between innovation and maintaining brand identity

5. Full-spectrum innovation: Bionicle's success and lessons learned

Bionicle is the toy that saved LEGO.

Comprehensive approach. Bionicle exemplified LEGO's full-spectrum innovation:

• New building system with articulated figures
• Rich storyline and character development
• Multi-platform media presence (comics, movies, video games)

Revenue diversification. Bionicle created multiple income streams:

• Traditional toy sales
• Licensing and merchandising
• Media content production and distribution

Lessons for future innovation. The success of Bionicle informed LEGO's approach to new product development:

• Importance of storytelling and world-building
• Balancing novelty with core LEGO values
• Leveraging multiple channels to engage customers

6. Open innovation: Mindstorms and the power of co-creation

You can't fire them, because you haven't hired them.

Embracing the hacker community. LEGO's response to Mindstorms hacking set a new precedent:

• Initially considering legal action against hackers
• Deciding to embrace and encourage user modifications
• Adding a "right to hack" clause to the software license

Collaborative development. LEGO actively involved expert users in product development:

• Creation of the Mindstorms User Panel (MUP)
• Incorporating user feedback and ideas into new versions
• Balancing user input with internal design expertise

Benefits of open innovation. The Mindstorms experience demonstrated the power of co-creation:

• Rapid product improvement and innovation
• Expanded market reach through user evangelism
• Building a passionate and loyal community around the product

7. Disruptive innovation challenges: LEGO Universe's rise and fall

This is the largest and most complex project that LEGO has ever undertaken. It touches every part of the company.

Ambitious vision. LEGO Universe aimed to disrupt the company's own business model:

• Creating a massively multiplayer online game based on LEGO
• Attempting to bridge physical and digital play experiences
• Targeting a new market of online gamers

Development challenges. The project faced numerous obstacles:

• Complexity of game development and online infrastructure
• Balancing LEGO's family-friendly values with gaming expectations
• High development costs and extended timelines

Lessons learned. The failure of LEGO Universe provided valuable insights:

• Importance of staying true to core competencies
• Challenges of entering unfamiliar markets
• Need for realistic expectations and scalable development processes

8. Blue ocean strategy: LEGO Games' success in an untapped market

Obviously LEGO, but never seen before.

Identifying a new market. LEGO Games targeted an untapped opportunity:

• Combining traditional board games with LEGO building
• Appealing to families and a broader age range
• Creating a new category in the toy market

Innovative development process. The creation of LEGO Games involved:

• Small, focused team working in secrecy
• Rapid prototyping and extensive play-testing
• Collaboration with expert game designers

Market success. LEGO Games quickly became a hit:

• Exceeded sales expectations in initial markets
• Expanded LEGO's presence in new retail channels
• Demonstrated the potential of blue ocean strategies

9. Leveraging diverse talent: The creation of Ninjago

People who come from different disciplines provoke and challenge each other, which is a lot more fruitful than working with people who think the same way.

Diverse team. The Ninjago development team brought together talent from various backgrounds:

• Designers, marketers, and storytellers from different countries
• Blend of LEGO veterans and fresh perspectives
• Collaboration with external partners (e.g., Cartoon Network)

Comprehensive product ecosystem. Ninjago was designed as a multi-faceted experience:

• Traditional LEGO sets and minifigures
• Television series and video games
• Board games, apps, and books

Record-breaking success. Ninjago became one of LEGO's most successful original themes:

• Highest single-year sales for a LEGO-invented theme
• Demonstrated the power of diverse, empowered teams
• Set a new standard for future LEGO innovations

Last updated: January 24, 2025