🇬🇧 From Crisis to Comeback – Leadership Lessons from the LEGO Turnaround

00:00:03: Great comebacks rarely begin with more complexity.

00:00:07: They often began with more clarity, focus and disciplined leadership.

00:00:12: Profit grows from minus two hundred twenty-two million to more than one point two billion euros.

00:00:19: An incredible turn around Hello!

00:00:28: And welcome To today's Lightwolf Podcast Your Leadership podcast for leading with impact.

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00:01:42: regarding leadership we always enjoy hearing from you.

00:01:48: today's episode focus on one of the most impressive business turnarounds in the history of economics at least I have witnessed In my last thirty five forty years off.

00:02:02: active awareness of impresses impressive business cases Impressive leadership turnaround cases.

00:02:12: It is the history of a brand that many of us grew up with, A brand associated with play, creativity and building your own world.

00:02:24: What Many People Don't Know Is That The Legal Brand Once Faced A Severe Crisis.

00:02:32: it was not clear whether the company would even survive yet IT DID SURVIVE and in a remarkable fashion.

00:02:43: I learned a great deal from the way Lego handled this existential crisis, lessons about strategy, Lessons About Teams And lessons about a consistent leadership culture.

00:02:58: The three columns that i'm convinced are at the heart of building strong sustainable companies I would like to share with you in today's Lightwolf podcast episode.

00:03:12: Because this LEGO case does three things for me, it challenges some common leadership misconceptions.

00:03:21: It offers incredibly valuable lessons particularly on strategy and decision making And its surprisingly easy and accessible to understand.

00:03:32: Let´s start at the beginning.

00:03:35: The LEGO story Founded in nineteen thirty two, with the legal brand officially introduced in nineteen-thirty four.

00:03:46: The company enjoyed decades of growth throughout the end of the nineteen eighties was just a few normal setbacks as success always is but trend line from all the way from the forties through the end off the eighties.

00:04:09: Then things changed.

00:04:11: By nineteen ninety-eight, some retailers such as Toys R Us were suddenly also becoming competitors for the brand.

00:04:20: Lego experienced three consecutive years of declining revenue and increasing costs.

00:04:29: Profit dropped from a hundred and ten million euros to zero.

00:04:36: The brand remains strong yet But the business model was getting under increasing pressure.

00:04:43: The question at that time, nineteen ninety-eight was how can we turn around?

00:04:49: How Can We Return to profitable growth?

00:04:52: in response To That Question In Ninety Eight Lego Launched Numerous New Products and new Ventures Lego Theme Parks Lego Watches Lego Children's Clothing.

00:05:05: Initially In Year One Those Initiatives appeared and seemed successful.

00:05:13: Revenue grew twenty-five percent in the first year, apparently there were some trial purchases.

00:05:19: but already a year later In two thousand sales fell by twenty nine percent And by two thousand three.

00:05:28: Lego reported its first major loss in their company's history Approximately two hundred million euros of loss in nine hundred million euros of revenue.

00:05:40: The company was close to collapse, costs had exploded, complexity was out-of control and LEGO had lost focus on what its customers truly valued about the

00:05:53: brand.".

00:05:54: The question was no longer how to start making money?

00:05:58: The question is How To Save The Company And How Once Saved How To Return The Company To Profitable Growth.

00:06:08: A massive challenge and a challenge that led the at-the-time, I think seventh family generation CEO to step down.

00:06:20: Just be honest and say look guys i'm not sure if can handle this.

00:06:24: And they invited relatively young at the time thirty nine year old Danish management consultant from top tier Management Consultancy To take their helmet become the CEO of Lego.

00:06:37: He's Danish, he had consulted the brands and company already so... ...he has a lot of knowledge.

00:06:43: And as a Danish definitely also hard blood passion into this originally Danish now global brand.

00:06:52: Let´s talk about the solution.

00:06:54: The core of that solution contains A LOT Of leadership lessons.

00:06:59: Reduce complexity by fifty percent five zero.

00:07:05: They took down the assortment from seven thousand two hundred articles, SKUs to three thousand six hundred.

00:07:14: Cut the number of products in

00:07:16: half.".

00:07:17: Many people get nervous when you do this because their immediate connotation is oh gosh if I cut articles i will lose sales!

00:07:26: I'll loose revenue right?

00:07:28: Maybe maybe don't and that's what they did... cut the assortment by fifty percent.

00:07:34: They returned With LIGO, you create your own world.

00:07:40: They expanded into new customer segments – LIGO for girls and LIGO to adults so-called A-FALSE adult fans of LIGO.

00:07:51: And they created more attractive products for the core consumer segment boys.

00:07:58: There are a few other things but that was the core.

00:08:01: They also raised pricing ceiling before it was inconceivable more expensive than ninety-nine euros.

00:08:09: After the strategy changed, they gradually moved pricing up not only to above a hundred but even to about a thousand euros for one big Lego toy.

00:08:20: Ten years later we are now in two thousand and thirteen and the results are absolutely extraordinary!

00:08:30: In just ten years revenue increased from nine hundred million to four point four billion euros, a five-fold increase.

00:08:41: At the same time profit grows from minus two hundred and twenty two million to more than one point two billion euros.

00:08:52: an incredible turnaround.

00:08:54: Chapeau!

00:08:55: To anyone who contributed to that turn around at the time.

00:08:59: now let's talk about leadership lessons.

00:09:02: What can we leaders learn from this case?

00:09:05: Three lessons for you and for me.

00:09:10: Lesson number one, focus!

00:09:14: More initiatives do not necessarily mean more success.

00:09:19: Many leaders respond to challenges by wanting more sales... ...more initiatives.. ..more projects.... ...more activities.

00:09:31: And that is exactly what LIGO did When the decline started in ninety-eight, new theme parks.

00:09:41: New products Clothing for children Watches New business models Growth ideas everywhere But limited focus And no coherent thread.

00:09:57: Through brand equity and initiatives The result Complexity grew much faster than value.

00:10:07: The leadership lesson I think we should think about is not everything that's possible, it right and worth doing.

00:10:17: Action tip for you and me!

00:10:21: Every single quarter lets ask ourselves at least once which twenty percent of last quarters initiative and activities have generated eighty percent.

00:10:36: And then, let's look at those eighty percent of the activities that only contributed twenty percent... ...of value created.

00:10:46: That is what we should look at!

00:10:49: Let us be honest and consistent with these eighty percent initiatives which only contribute twenty percent of its value.

00:11:00: Which ones shall we stop doing?

00:11:04: and free up the capacity to invest into more value-adding activities.

00:11:09: So lesson number one, I draw from the case – focus!

00:11:14: More initiatives do not necessarily mean more success.

00:11:20: Lesson number two – challenge falls tradeoffs.

00:11:25: Yes you can reduce cost and grow revenue at the same time.

00:11:31: Challenge falls tradeoff.

00:11:35: In difficult times, companies sometimes lose confidence in their strength.

00:11:41: Leaders then fall into either-or thinking We can either reduce cost or increase sales.

00:11:52: Bullshit!

00:11:54: It may not be easy to do both at the same time.

00:11:58: I acknowledge that and agree with it.

00:12:02: but its possible It is possible.

00:12:07: The legal case proved it.

00:12:09: by cutting its product portfolio, by a fifty percent.

00:12:13: they cut in half the company dramatically reduced complexity and cost In days before retailers had gotten mad with lego because of so many products that didn't sell off fast enough or Those stocks piled up in the retailers warehouses, and they got pretty unhappy about it.

00:12:42: And they let the brand know.

00:12:44: so It was helpful to cut those slow turning articles To get them out of the system to Get back to a healthy frequency and a healthy turn In that logistics chain.

00:12:57: So in that way cutting the assortment cutting the product portfolio freed up and unclogged the pipe, and helped to increase sales rather than reducing sales.

00:13:11: So they reduced complexity, their reduced cost – at that same time revenue increased almost five-fold over the following decade!

00:13:22: The leadership lesson for us?

00:13:25: The strongest leader's challenge falls tradeoffs.

00:13:29: It is not always an either or Sometimes it can be both.

00:13:36: And that leads to my action tip for you, whenever you hear Dear Boss I Can Give You Either Or Then Ask Yourself ask your team member is there a way To achieve Both Objectives Simultaneously?

00:13:56: and That Always Makes me think of A Real Case A real Experience.

00:14:01: i made More Than Ten Years ago in year one of our consultancy way back then.

00:14:07: Six of us, so five colleagues of mine all twenty-plus years leadership experience very short notice.

00:14:15: unfortunately we had little time to prepare We did not invest the time to do interviews with middle management or junior management.

00:14:23: .We were invited to create develop and deliver a One Day Leadership Event With about two hundred participants.

00:14:33: I got nervous when one day in advance, how I have felt in that moment.

00:15:05: I wasn't sure what to answer, i think you only really understood the full meaning of it at the end of event itself.

00:15:15: management did show up but management was not ready to participate in workshops.

00:15:22: six of us.

00:15:23: will we let the workshop's island one of them and never forget when A few minutes into my workshop about how to implement the learnings, a gentleman raised his hands and heard Herr Hohmeister.

00:15:36: I don't really believe in all of you things that say it's just little bit strange... You can't reduce cost AND increase sales at the same time.

00:15:48: this is just

00:15:49: impossible.".

00:15:52: And i collected myself collected, and I asked a question.

00:16:02: And i raised the lego case said.

00:16:04: sir with all due respect i acknowledge it may not be easy but are you aware of the legal case where the brand managed to cut costs in half and increase sales fivefold in ten years?

00:16:19: maybe we talk about it in the next break yeah?I will never forget this paradigm thinking so don't ever allow false trade-offs.

00:16:30: When you and your daily leadership tasks face those false trade offs, then politely but consistently challenge these false trade offs.

00:16:42: Yes it's not easy But It is possible to reduce costs And increase sales at the same time.

00:16:48: Lesson number three Great leaders do NOT need To have all the answers.

00:16:55: The new CEO Danish man Jörgen Wieg Knutstorp, who at the age of thirty-nine in two thousand three took the helmet.

00:17:06: Did something remarkable?

00:17:09: He listened.

00:17:10: he spoke with customers and retailers as well as employees.

00:17:18: And asked insightful questions then led to his ears rather than mouth.

00:17:28: he based decisions on facts, so in those many views that he internalized and reflected an integrated.

00:17:37: On facts rather than hope and assumptions.

00:17:42: to me this contains one of the strongest leadership lessons I've ever come across.

00:17:48: if you ask me to summarize leadership in just two words then to seemingly contradictory skills.

00:18:00: The best leaders, to me have high willpower and equally high if not even higher personal humility.

00:18:09: they have courage and humbleness And these two things were demonstrated on a very high level by the CEO and his management team.

00:18:20: that turned around this wonderful company Action tip for you.

00:18:24: every month have at least three conversations with people who are closer to the operational reality and closer to customer than you.

00:18:35: No matter whether your a first time leader, middle manager or C-suite member maybe even CEO running company The higher up u get in ur organization ,the bigger risk that u lose sight touch & feeling for operational realty.

00:18:55: That is not good.

00:18:57: You're not responsible to do the operational work, you are there to work on the system rather than in this system acknowledged but you will be much better at working on the System if you still have a feel for operational reality and For customers real needs.

00:19:12: so three times a month talk To people and listen to People who were closer to operations and Closer to Customers.

00:19:19: then you yourself.

00:19:21: by The way If you want To create an environment if you'd like to create a leadership culture around your where everyone learns fast from success and failure.

00:19:36: Where every one grows, and gets stronger especially in crisis times then look into the show notes book a free call with me And I look forward to meeting you, listening to your challenge and maybe with just a few minutes.

00:19:50: Maybe i can give you a tip or an advice that helps you accelerate Your own journey To the culture You want would be my pleasure.

00:19:58: so go into The show notes book your car and in closing My challenge for you.

00:20:04: lego did not become So successful again because it Did more and More?

00:20:08: Lego became Successful Again Because It Regained Clarity About what it stands for, what is does better than anyone else and what must focus on.

00:20:21: Perhaps that leads to the most important question leaders should ask themselves – What do we not need add but simply needs more consistently again?

00:20:35: Because great comebacks rarely begin with complexity.

00:20:40: they often start with clarity and disciplined leadership.

00:20:46: I wish you every success in putting your insights from this podcast into your practice, and into your own growth!

00:20:55: Thank you for being here today... ...and i look forward to having you again as a guest on the show maybe already next week.

00:21:03: thank you and take care you're Stefan.