Tuesday, July 16, 2013
There could hardly be a more compelling story than the decline and eventual recovery of LEGO. Anyone who has been a child, or has a child, has experience with this iconic brand. The story contains all the necessary ingredients: hubris, near failure, a dogged recovery, a beloved brand. Actually, after reading Brick by Brick I’m amazed at how many parallels there are with Apple, another noted innovator.
Like Apple, Lego was burning cash and found itself months away from bankruptcy. Lego was forced to make huge changes quickly. Both Apple and Lego fell on hard times by dramatically increasing the range of products with little emphasis on profitability or differentiation. Both brought aboard unlikely executives to lead the recovery. Apple brought back Jobs, and Lego brought in a junior ex-McKinsey consultant with little turn around or leadership experience. Both leaders dramatically reduced product complexity and took a knife to operating costs, returning to profitability before attempting to grow through innovation.
As an innovator, I think Brick by Brick is really a forensic story about the recovery of Lego, and not really a book about innovation per se. In many cases the previous Lego administration got Lego into trouble through unfocused innovation aimed at expanding the idea of what Lego meant to consumers, without bothering to discover real needs or consumer goals. Lego operated on a “push” model and angered customers by changing the meaning of Lego and the products’ positioning. The resulting disaster wasn’t a failure of innovation, just poor management. After all, as the book points out, Lego didn’t understand that only two product lines were profitable, and didn’t take into account the fluctuation of the Star Wars branded products based on new movie releases.
As the authors note in the conclusion “the most difficult challenge in business is not to invent an innovative product; it’s to build an organization that can continually create innovative products”. Time will tell if Lego has learned its lesson, and built a sure foundation of effective processes and controls to sustain profitability while incorporating better customer insight gathering and market reading to identify new trends and opportunities. It’s not as though one can choose to be efficient and profitable or choose to be innovative. Both conditions must exist for future success.
Brick by Brick identifies what it calls the Seven Truths of Innovation. They are:
1. Build an innovative culture
2. Become customer driven
3. Explore the full spectrum of innovation
4. Foster Open Innovation
5. Attempt a disruptive innovation
6. Sail for Blue Oceans
7. Leverage diverse and creative people
Arguably, Lego before the downfall violated many of these “rules”. Lego was disjointed, run on a country by country basis, and had a fairly homogenous workforce that wasn’t customer driven. Plougmann, the former CEO who takes much of the brunt of the near failure of Lego, attempted to create more products in more spaces and to disrupt existing markets, but did so without enough customer feedback, and failed to understand who Lego’s customer was – both the retailer and the child. After Knudstorp, the new CEO took over, Lego first focused on efficiency and profitability, cutting almost 50% of the product lines. A new CEO brought in better financial controls. Only then was Lego ready to innovate effectively.
The real story here is that innovation isn’t a panacea for a poorly run business. Innovation can accelerate growth and profits of a well-run business but will eventually expose the shortcomings of a business that is too insular, too conservative, too narrowly focused or too poorly managed to maintain growth and differentiation. If you are looking for innovation insights, this may not be the book for you. If you are looking for an interesting forensic tale of a near death experience with a remarkable recovery of an iconic brand, which was supported through innovation, this is an excellent book.
This review is cross-posted on Amazon.