Lego Case Study - Hbr

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Travis Radcliffe Lego Case Study MBA 500 - Spring 2015 Issue: In 2004, after decades of poor management, Lego is on the brink of bankruptcy. Lego must raise cash and earn consistent annual profits to remain a solvent corporation. Lego is faced with a decision to make substantial changes to the fundamental company strategies that have been in place for nearly 90 years. Contributing Factors: There is no singular factor that put Lego into their dire position. Rather, there are a multitude of factors that have taken their toll, slowly over time (Reference Exhibit 1 – SWOT Analysis). Arguably, the most significant contributing mistake would be Lego’s mismanagement of inventory, amplified by the rapid introduction of new products. In 2004, there were 3,560 different shapes, 157 colors, and 10,900 elements (assumed to include Lego people, accessories, stickers, etc…). This complex array of components led to increased inventory costs, write-offs, and obsolescence. As a former employee stated, Lego management demonstrated a lack of discipline, accountability, and a formal costing system. These issues led to frequent stock-outs and slow moving inventory. Responding accordingly, retailers would become stingy with shelf space. Early attempts to resolve these issues actually made matters worse. In 1999, Lego introduced a restructuring program that included cutting costs by $1B DKK, firing a significant number of executives, and laying off approximately 1,000 employees. While this move reflected management’s willingness to make large systemic changes, there were pieces that revealed Lego was not completely rehabilitated. For example, Lego frequently realigned the remaining managers every 6-12 months in an attempt to fill each position with the best possible employee. Creating a workforce that is well-rounded in operations, at this point, should not have

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