Strategic Analysis of LEGO Group - Research Paper Example

? Strategic Analysis of LEGO Group Table of Contents Table of Contents 2 Introduction 3 Part 4 Key Weakness of Lego Group, Justification & Evaluation of the Choice of Models 4 Key Weakness 4 Justification & Evaluation 4 Part 2 6 Strategic Analysis through SWOT, Value Chain & Porter’s Five Forces Model 6 SWOT Analysis 6 Value Chain Analysis 7 Porter’s Five Forces Model 11 Part 3 12 Recommendations and Conclusion 12 Introduction Strategic Analysis requires the assessment of the present situation of the organization with the help of some theoretical models (Kapferer, 2012). It requires the assessment of the strength and weakness of the organization. It also requires establishment of the long term goals and objectives of the organization with the help of strategic assessment models like strength, weakness, opportunity and threat analysis and also the external analysis of the business environment (Toy Industry Association, 2012). It is one of the processes of conducting the research on the external and internal environment which operates for the regulation purposes and helps in formulation of strategies. It gives a theoretical understanding of the business environment in which the organization is operating to improve the organizational efficiency and also effectiveness. It also helps in formulating strategy which has the capacity to deploy and also redeploy the resource effectively and intelligently. The usage of strategic analysis models differ in several organizations as they are of different nature and also have considerable influence on the organizational outcome. The author of the study would identify the strength and weakness of Lego Group and also conduct a situation analysis of the company. This would help the users of the study to also understand the impact of the strategic analysis of LEGO Group and how it has helped in formulation of strategies for the Lego Group. Finally, the study would conclude with recommendations which can improve its strategic position. Part 1 Key Weakness of Lego Group, Justification & Evaluation of the Choice of Models Key Weakness Although, Lego Group is one of the most successful toy making companies, it has not been able to develop advanced business models which have the capacity to gain competitive advantage over its competitors. The key issues that Lego Group is facing are as follows: The company supply chain managements system are based on the low cost production techniques which have the potentiality of building in-house capacity and not on-storage and transportation purposes (Handfield, 2011). The company has not developed technique which focuses on the coordination of the different production capacity lines while delivering regionally and internationally. The advertising section of the company is weak. It follows the traditional forms of methods of promoting like print, media and social media (Hill and Jones, 2009). Justification & Evaluation The chosen strategic analysis tools for the situational analysis and the external force of the business environment affecting the company would be the SWOT, Porter’s Five Forces Model & Value Chain Analysis. SWOT analysis helps in assessing the strength, weakness, opportunity and threats of the Lego Group because it directly points out the strength, weakness, opportunities and threats to be faced by the company with respect to the business environment (Muller, 2005). One of the major reasons for choosing the SWOT analysis would be that it is not a time consuming process and does not involve any cost in the preparation of the strategic analysis tool. Moreover it allows the strategic evaluation of the four areas individually which act as interacting factors. In this context, SWOT analysis would help in gathering information about the toy industry in a collective and cohesive manner with a good starting point from the strategic plan. Information regarding the Lego Group and the US toy industry would be given along with the current strategic position of the company (Landsecurities, 2012). The concept of value chain and five force model was implemented by Michael Porter in the year 1986. The concept of value chain helps in breaking down the activities into various elementary operations (ACDI VOCA, 2013). The value chain analysis is done to determine the activities which have the potentiality to be the competitive advantage of the company and also determine the activities in an integrated form (ACDI VOCA, 2013). In this context, the various elementary activities of Lego group would be highlighted and then segregated into various groups (ACDI VOCA, 2013). The decision making and steering team of Lego Group would largely depend upon the various activities of the company. Porter’s five forces model stand would focus on the understanding of various dimensions of business environment which helps to understand the current competitive position of the Lego Group in a very short span. This is one of the most illuminating tools which help to understand the strength and weakness of the organizations taking the current business environment in consideration (Pickup and Derbyshire, 2010). Part 2 Strategic Analysis through SWOT, Value Chain & Porter’s Five Forces Model SWOT Analysis Strength Lego group is one of the most coveted toy companies in the world and is regarded as the world’s third largest manufacturer of children’s play materials The company manufactures a diversified range of toys which include Lego Games, video games, Compellons and five other amusement parks (Lego, 2013a). Apart from a unique brand portfolio, the company has a strong brand capacity to make new innovations and inventions. This has allowed the company to maintain a strong market position through its wide range of product display. The company uses advanced software system to manufacture toys and other teaching materials with excellent technological support for the effective design making of toys. It also has a low cost manufacturing system. Weakness The company manufactures customized toys according to taste and preferences of the clients and unlike its competitors, the company have not focused on product imitation of popular cartoons or comic characters (Lego, 2013b). Of late, Lego Group has not been able to integrate its advanced system of software to manufacture toys and other merchandise. Opportunities Presently, the toy industry in US, UK and the rest of the world is not reaping profits due to the economic slowdown. There will be few emergences of novice toy companies which could provide chances for the existing companies like Lego group to create a niche for itself in the market. As per analyst opinions, the toy industry is expected to yield high amount of profitability in the upcoming five years. This would be a huge opportunity for Lego group. It would help the Group to yield high profitability by introducing wide range of product portfolio. The company can focus on the designs of the product portfolio which would be beneficial for the entire organization. Threats The company has less number of warehouses which makes the manufacturing of the stuffed toys and materials numbered. The company is unable to manufacture product in bulk unlike its competitors. The competition in the toy industry is extremely intense which directs the company to develop various strategies on a continuous basis which is rather time consuming. Value Chain Analysis The value chain of the company is categorized into primary and supporting activities as we can see in Figure 1. Figure 1: Value Chain Analysis (Source: Hitt, Ireland and Hoskisson, 2010) Primary Activity The primary activity of the company deals with the exclusive production of toys and other children teaching materials. The core activities of Lego Group are to develop various children toy centers which not only store their products but also help the customers to assimilate the products as per their choice (Lego, 2013c). Inbound and Outbound Logistics Lego group work in closely with its suppliers, customers and investors. Suppliers are important since they deliver raw material at the right place and time. The suppliers of the company are focused on delivering the parts of the toys to retail outlets, factors and warehouses etc. Apart from supplying to the above mentioned locations, Lego Group has a strong internal supply system which focuses on delivering finished product to the customers. Operations The operations of Lego Group include the assimilation of toys and the design of a strong product portfolio. Marketing and Sales The company promotes its product portfolio through print, media and social media networks. Lego Group has been aggressively promoting its products, discounts and vouchers through social media network (Lego, 2013d). Services Apart from toy manufacturing and providing customized items, the company provides services such as the delivery of the toys to clients; provide missing parts of toys to stores, clients and child development materials through its official websites. Supporting Activity Support activities involve support assistance which is required for the primary activities. Procurement The company procures its raw materials from the local plastic suppliers and has been recently been following e-procurement. As per E- procurement policy, the company uses the IBX software in the facilitation of the purchase requisition process. The raw materials procured by the company are done through well defined knowhow about the purchasing process (Lego, 2013c). Technology development The company utilizes strong and advanced system to assimilate the products and also digital software to design the toys in an accurate form. The company is totally dependent on technology for supplying the toys and also packaging the materials. Human Resource Management Lego Group has always maintained a diversified workforce and recruits talent from different wide-spread countries. This is done to maintain a stable functionality within the all the departmental units of the organization. Infrastructure The company has opened more than 10000 stores in 130 countries with more than 5000 stores with the focus on the rebuilding of the stores. Certain store like, Lego Land focus on the assimilation of various parts of the toys or designing customer toys. Competitive Advantage Lego Group is one of the few toys making companies that have opened amusement parks in addition to the toys. The amusement parks not only provide theme rides but also concentrate on restructuring the activities which are provided in the retail outlets of Lego Group. Porter’s Five Forces Model This model will deal with the strategic analysis of the external forces which have the potentiality of affecting the profitability of the industry. The Porter’s Five Forces model will scrutinize the external force affecting the profitability of the present US toy industry. The Degree of Rivalry Presently, the weak economic slowdown has resulted in a stiff competition among the existing competitors like Mattel Inc, Hasbro and Mega Brands. Each year the industry generates more than 25 billion in the US. However, it has generated only 15 billion in the year 2013 (Toy Industry Association, 2012). Owing to heavy investment and time consuming process, the existing toy companies have found it difficult to come up with innovative strategies which could help them to create a niche for themselves in the industry. The Threat of Entry The weak economic slowdown has prohibited the entry of several toy making novice companies. The US toy industry had seen the emergence of few new toy making companies during the tenure of 2011 to 2013. The Threat of Substitutes The economic slowdown led to a drop in the sales of the toys and led to the emergence of online gaming and virtual gaming programs. These act as major threat to the toy industry as most of the individual customers have internet access and online gaming has become easily available and accessible. Bargaining Power of Buyers The emergence of new substitutes like online gaming, virtual gaming and reduction in prices of the toys due to weak economic slowdown has led to the high bargaining power of buyers. One of the prime contributing factors which have also led to the high bargaining power of buyers is the low purchasing power of the customers. Bargaining Power of Supplier As mentioned before that the toy industry is highly dependent on the supplier because of their timings of their delivery. The bargaining power of buyers is extremely high in the industry. Part 3 Recommendations and Conclusion From the strategic analysis made through Value Chain, Porter’s Five Force Model and SWOT analysis it has been observed that Lego Group presently has to formulate several strategies which can help the company yield profitability in the present toy industry. The present US toy industry is weak and has been witnessing a decline in the profits. Constant innovative strategies will help the company to strive in the industry and also maintain its strong market position. Considering the key issue of Lego Group discussed in Part 1 of the study, the author will provide certain recommendations which will act as remedial solutions for the company to improve its currents strategic position. Lego Group should lay emphasis on the dynamic perspective of the business model which focuses on the development of sustainable solution for the improvement in the entire supply chain system of the company through innovative means. It also focuses on the development of several business decision which helps in community and society development (Dittmann, 2010). It is estimated that futuristic technology such as, 3D printing will help the toy making companies to manufacture toys easily. It will be of great utility to both the customers and Lego Group because it will be distributed under singular attribution license and also will enable the toy manufacturers to devise unique designs of toys. 3-D envisioning technology will enable the company to manufacture toys in less time, consuming process and with less cost (Rogers, 2001). The cross subsidization or bundling model will enable the certain department of Lego Group to restructure their pricing model. The restructuring will help in lowering the price of the toys than the normal market rate (Gregory, 2001). The premium model will help them to offer certain toys or parts at relatively low price with the main product or sometimes free of cost (Webster, 2000). Apart from the above mentioned strategies, the company can also apply the four box business model method which helps the company to focus on the innovation strategies. It focuses on the interplay between the factors affecting the customer value proposition, profit formula, key essential resources and also the other key processes. This model highlights the important components of the supply chain of the company and the features which needs immediate improvement. This will focus on providing customers value through conversion of the existing raw materials into something valuable. This will help in the improvement of the existing supply chain system and also help to increase the organizational outcome. It is extremely instrumental in product augmentation and service innovations which would also help in successful coordination of activities. This model will also aid successful facilitation of supply chain movement and effective market segmentation. The above mentioned model will act as catalyst to improve the existing business system and also increase the profitability of the business. Given the present scenario, Lego Group should also focus on the development of the several technological solutions which have the potentiality of increasing the goodwill of the company. Apart from dynamic perspective, the business models would also help in the easy accomplishment of goals and objectives of an organization (Westwood, 2005). Reference List ACDI VOCA, 2013. Value Chains and Value Chain Analysis. [Online]. Available at: [Accessed 31 October 2013]. Dittmann, J. P., 2010. Developing a Supply Chain Strategy. [Online]. University of Tennessee. Available at: [Accessed 31 October 2013]. Gregory, A., 2001. Planning and managing public relations champaigns. London: Kogan Page Publishers. Handfield, R., 2011. What is Supply Chain Management? [Online]. Available at: [Accessed 31 October 2013]. Hill, C. and Jones, G., 2009. Strategic management theory: An integrated approach. Connecticut: Cengage Learning. Hitt, M. A., Ireland, R. D. and Hoskisson, R. E., 2010. Strategic Management: Competitiveness and Globalisation, Concepts. Connecticut: Cengage Learning. Kapferer, J. N., 2012. The new strategic brand management: Advanced insights and strategic thinking. Delhi: Kogan Page Publishers. Landsecurities, 2012. About Us. [Online]. Available at: . [Accessed on May 11, 2012]. Lego, 2013a. The LEGO Group. [Online] Available at [Accessed 31 October 2013]. Lego, 2013b. Featured products. [Online] Available at [Accessed 31 October 2013]. Lego , 2013c. Child Development. [Online] Available at [Accessed 31 October 2013]. Lego , 2013d. Create & Share. [Online] Available at [Accessed 31 October 2013]. Muller, A. K., 2005. Swot-analysis for Henkel's loctite. Munich: GRIN Verlag. Pickup, B., and Derbyshire, W., 2010. Home truths: A practical guide to buying, selling and investing in property. London: Spiramus Press Ltd Rogers, S. C., 2001. Marketing strategies, tactics, and techniques: a handbook for practitioners. Connecticut: Greenwood Publishing Group. Toy Industry Association, 2012. Industry Facts. [Online]. Available at: . [Accessed 31 October 2013]. Webster, F. E., 1995. Industrial marketing strategy. New Jersey: John Wiley & Sons. Westwood, J., 2005. The marketing plan workbook. Delhi: Kogan Page Publishers. Read More