LEGO From The Beginning - Essay Example

LEGO Introduction The wide range of products by LEGO will keep on constituting a comparatively small segment in the global toy arena while acquiring a few percent of the market share distribution. This really calls for the requirement of the Group to target on the operational objectives like differentiation and cooperation with partners and stakeholders belonging to various links of the global value segments of this group. It can be easily deduced that such an operation and business model will require well-defined balanced relations with the six stakeholder groups of this group. The quest of a well balanced value creation among the stakeholders and market segment, keeping in mind the motives of different stakeholder groups continued in the year 2007 as well in LEGO (Annual Report, 2007). This has been a silent trait of this firm. The well maintained relationship and the support close all the inevitable people, like consumers, customers, business partners and all stakeholders was successfully extended to a more advance level during this year. Looking at LEGO’s dedication, it will not be an understatement that this work and their motives will always mark their presence in the coming years. Year 2007 for LEGO Group In 2007, the LEGO Group has covered the four years period out of its seven-year strategy. This was a very affective move with the motive, which is kind of acquired so far, that is to bring a complete change to the entire market and business scenario while developing LEGO as the best brand exhibiting their commitment towards creative building and playing the key role in providing effective learning techniques through play. As per their strategy, various aspects like processing, procedures, structure and relations to stakeholders will undergo a primary change during the years 2004-10 (Annual Report, 2007). The prime objectives for all the stakeholder groups were well defined by the group in the year 2006 (Annual Report, 2007). These have been further intensely developed in the year 2007. The rigorous balanced approach to different stakeholder groups will certainly provide a significant platform for the future operations of this group. The strategic move is divided into different stages, where every stage is targeting on some specific motives. The very initial stage was acquired in the year 2004-05 by enabling the Group to step out of the financial crisis situations due to the number of years of poor financial results as a result of unprofitable growth (Annual Report, 2007). Year 2003 for LEGO Group The cut-throat competition in the toy market brought a considerable loss of market share in most markets, due to the competitors, novel product trends and private labels by the retailers. The US market noticed around 35 percent drop in market share as compared to the previous year, where as Asian markets noticed a fall of around 28 percent (Annual Report, 2003). The year 2003 was very disappointing for the group. The net sales fell by around 26 percent from DKK 11.4 billion in 2002 to DKK 8.4 billion, where as the play material sales declined by 29 percent to DKK 7.2 billion and thus resulting in a pre-tax loss on earnings of DKK 1.4 billion, which showed a drop of DKK 2 billion as compared with the previous year (Annual Report, 2003). The retardation shows the failure of the growth strategy resulting in a considerable loss of the market shares. Finally by the end of the year 2003, the group decided to change its business strategy by creating new initiatives targeting effective and rapid development of the company. Owners It was decided that from the year 2007 onwards, the activities by LEGO Group refers to the LEGO A/S, which is owned 75% by LEGO Holding A/S, in the ownership of Kjeld Kirk Kristiansen and his three children, and rest of the 25% part is owned by LEGO Invest A/S, in the ownership of the LEGO Foundation (Annual Report, 2007). Kjeld Kirk Kristiansen is the Vice Chairman of the Board of Directors of LEGO A/S and completes the Chairmanship with the Chairman of the Board. He belongs to the fourth generation of the owners of the LEGO Group, Thomas Kirk Kristiansen (Annual Report, 2007). In the 2007 General Meeting, the owner families of KIRKBI A/S, i.e. the Kirk Kristiansen family and the Kirk Johansen family decided to divide KIRKBI into two companies (Annual Report, 2007). Management A number of changes occurred in the organization and leadership during the year 2003. Jorgen Vig Knudstorp, Corporate Affairs and Jesper Ovesen, Corporate Finance, joined the leadership team in November. In the next month, business strategy and corporate structure was decided to undergo some changes. As a result of this process, the leadership team was reduced to 9 members which were 14 earlier, with an aim of creating a simplified and self-motivated group reflecting a new and more effective business strategy (Annual Report, 2003). The Board of Directors consists of six members. Out of these six members, two are considered dependent on the company due to ownership, while the Chairman and three other members of the Board are considered independent. Six ordinary Board meetings are held each year including a two-day strategy seminar. Planning regarding objectives and contents of each Board meeting is prepared on the basis of role and responsibilities of the Board of Directors. The Chairmanship i.e. the Chairman and the Vice Chairman of the Board is always in contact with Corporate Management and organize regular monthly meetings with Corporate Management. They also make it a point to meet with the appointed auditors, mention in their 2003 Annual Report. Creditors and Shareholders This group has been aiming to be on the top as the best toy company of the world and they are working really hard to achieve this objective, as said by their motto itself, Based ”Only the best is good enough”. A timely interaction with stakeholders is an inevitable aspect of the mission by this group. They have defined five primary stakeholder groups, which will interact with the sixth stakeholder group i.e. the surrounding society (Annual Report, 2007). This is a very sound move and will play the key role in achieving their prime motive. Customers Retailers who sell the LEGO products are the primary customer’s for the company. According to the 2007 Annual Report, relocation of the production has taken place during this year, resulting in higher challenges to ensure the objectives of high delivery service. But better delivery service was obtained this year despite of the problems caused by relocation, by making the investments in additional production capacity and building up larger inventories to assure timely operations and delivery (Annual Report, 2007). Society The influence of LEGO group, through its interaction and established relationship with the society can be deduced as (Annual Report, 2007): Opportunities provided to children for playing and learning Creating opportunities for children in developing countries and providing support to disadvantaged children Environmental impact It is really necessary for the Group to effectively contribute towards the formation of a nice external environment and the initiative to educate children about renewable energy, by LEGO is one of the significant contributions. Their school products include building sets with solar panels, windmills and many more possessing the heading e-lab. The First LEGO League competition held in 2007 had Renewable energy as its theme, where more than 100,000 children participated from various parts of the world. Employees In 2003, individual development plans were prepared by the group for their 1,500 salaried employees all over the world in order to cultivate and reinforce professional management skills and understanding. A Global Works Council, consisting 17 members from many parts of the world was set up by the group in autumn 2003, representing the group’s activities in different regions of the world. Their objective was to enable the effective dialogue between management and employees to bring to the notice and discuss the topics important for the company, employees and development (Annual Report, 2003). Employees faced some serious challenges in the year 2007. The relocation of the production units is a very difficult process. It requires a lot of efforts from almost every functionary part of the organization. But the hard work and dedication of the LEGO employees easily enabled the group to satisfy the huge demand of LEGO products in the market. Wages, salaries, social security contributions, paid annual leave and sick leave, bonuses and non-monetary benefits are the added benefits when the related services are performed by the employees in the specific year. The LEGO Group also provides long-term employee benefits (Annual Report, 2007). The LEGO Group in the defined contribution plans identifies and process the premium payments i.e. a fixed amount of the salary to independent insurance companies responsible for the pension obligations. In the year 2007, DKK 86 million, which was DKK 51 million in 2006 has been identified in the income statement as costs related to defined contribution plans, as given in the Annual Report. Conclusion Interaction within the stakeholder groups helps in creating value to everyone involved in the process. Due to this reason, LEGO Group became the first toy manufacturer to join the UN Global Compact in the year 2003. The LEGO Group is moving with a well balanced framework which integrates the three most important fields for the stakeholders, stakeholders’ expectations to value creation, their brand expectations and their expectations regarding the Group’s responsibility (Annual Report, 2007). These are interlinked fields and have to be viewed altogether. To attain a position assuring stable earnings and growth in the play material segment is really crucial for the group’s future. Their prime target will be to regain the market shares in the comparatively strong Central European and Nordic markets. On the other hand, investments will consider long-run as key factors in classic products segment in the American and Asian markets. References Annual Report. 2003, Annual Report 2003: LEGO Group. Billund: Corporate Communications. Annual Report. 2007, Annual Report 2007: LEGO Group. Billund: Corporate Communications. Read More