Lego's One Trick Pony

Hes a one trick pony
One trick is all that horse can do
He does one trick only
Its the principal source of his revenue

I believe Paul Simon was really singing about a horse when he wrote that, but he may well have been looking into his crystal ball and describing Jorgen Vig Knudstorp, boy wonder, former McKinsey wizard at the helm of Lego.  The only trick the ponies from McKinsey know is outsourcing, which is exactly what Jorgen did.  The work in the U.S. plant in Connecticut is being sent off to Mexico.  The Danish town of Billund where Lego is headquartered and the factory has long been the biggest employer in town, is being decimated as most of the work is being farmed out to Flextronics to do in the Czech Republic.

There are a couple of curious aspects of the deal, however. Lego already owns the plant in Kladno in the Czech Republic where the work from Denmark is being sent.  The plant, the employees and the equipment are merely being turned over to Flextronics to run.  If McKinsey folks know any other tricks besides outsourcing, manufacturing management apparently is not one of them.  The only change is who is going to manage the plant.  The McKinsey management expert obviously thinks that Flextronics is the better manager than himself.  In fact, he must really have reservations about his managerial skills since Flextronics has only been in the Czech Republic once before, and that effort failed.  Flextronics even had to repay the incentive money given to them bu the Czech Republic.

Even more curious is that Jorgen has outsourced the plastics and packaging work to Flextronics, but has retained the little bit of electronic work Lego does for their Technic and Bionicle product lines.  The 'tronics' part of Flextronics denotes that they have long been primarily an electronics contract manufacturer.  Yet Jorgen's insight led him to keep that work in house, and have an electronics company with a track record of failure in the Czech Republic take over management of an injection molded plastics plant.  I guess all that really mattered to our one trick pony is that the manufacturing be done by someone else - anyone else - and that it be done by cheap labor.

That the Lego company had some problems cannot be disputed.  The company was as much a social organization as a business.  The name Lego is a distortion of the Danish "leg godt", which means 'play well'.  The focus has been on the toys and the kids who play with them, as well as on providing employment for the town of Billund.  A number of ventures into things from clothes to theme parks did not pan out, and the company was losing money.  Obviously all of the good intentions in the world at Lego are worthless if the company cannot survive.

The tragedy of Lego is that, "Lego's first leader to come from outside the founding family, Knudstorp has also upended Lego's corporate culture, replacing 'nurturing the child' as the top priority in Lego's employee mission statement with 'I am here to make money for the company'."  It has gone from one extreme to another.  The man from McKinsey took the nuclear approach to the necessary cultural change.  But of course, that is what you can expect from a one trick pony from McKinsey. 

I imagine the family owners and the rest of the stockholders knew exactly what they were getting.  That McKinsey has become the outsourcing  company, rather than a management consulting company, is no secret.  As Sunil Mehta, vice-president of NASSCOM, India's software industry association.said, "Every time we have an outsourcing forum, it's like a GE and McKinsey alumni association meeting,"

The tragedy of the whole thing is that the alternate solution - lean manufacturing - was never given a chance, and Lego was a perfect environment for it.  A family controlled business in a small town, with a built in culture of concern for the product and the customer ... a lean manufacturers dream.

Everyone lost on this deal, except of course Flextronics and the employees in the Czech Republic and Mexico, and I hope they become very lean, perform very well and prosper.  In the long haul, however, don't bet much on Lego prospering with this strategy, and replacing the 74 year old devotion to 'playing well' with "I am here to make money for the company" didn't do millions of Lego customers much good either.

See how he prances
The way his hooves just seem to glide
Hes just a one trick pony (thats all he is)
But he turns that trick with pride

Comments

[AWilhem]

Just knew you weren't going to let this one go by without taking a shot, Bill! I almost fell out of my chair reading Borsen (the Danish Wall Street Journal) this morning.

Headline "Legos topchef får ros for udflytningsplan" Legos director recieves praise for relocation plan

Who was giving him praise? One of the company’s many consultants.

" 'Der er tale om en meget modig, men rigtig beslutning, der kan give Lego det strategiske manøvrerum, som virksomheden ikke har haft i mange år,' siger Knud Sant, bestyrelsesformand for konsulentvirksomheden Valcon, der arbejder for Lego."

" 'We're talking about a very brave, but correct decision, that can give Lego the stratigic room to manuver that the company hasn't had in many years, ' says Knud Sant, Chairman of the Board for consulting company Valcon, that has Lego as a client."

----

The way things have been going there, we all new it would happen. Most of your facts are correct (they actually made money with theme parks but was forced to sell because core business was failing, clothing is also another money maker as the name is licensed to clothing manufacturers). Yes, they are a company as far away from Lean as is humanly possible.

Here is a good story, happened within the past year or so...I won't say who told it to me, but they were at a Lego executive meeting where the head of sales was complaining about the amount of inventory that was deep discounted because it just wouldn't sell. The head of the internet portal said; we knew that product wouldn't sell, we can see a direct correlation between LIFETIME product sales and the first 10 days of internet sales, so we knew those products wouldn't sell. The Sales Director's blood boiled; why hadn't anyone told him this before. The Head of Production said; it wouldn't matter, our lead times are at least 6 months so we couldn't have used the data anyway.

P.S. Thanks for the advice about a month ago...I've been busy!

[Bill Waddell]

I appreciate your taking the time to write in with your perspective. And you are right - I just didn't have the self discipline to let this event pass unnoticed. Good luck - you might be the only lean guy left in Denmark.

[Panu Kinnari]

And another point. Legos today are not something I would want if I were a kid. They have way too many specialized parts when in the past these bigger components were assembled from several smaller standard parts.

So amount of parts in one kit has gone down and at the same time possible variations have done down even more.

I don't believe that kids of today are any dumber than kids 15 years ago. I feel that Legos today are dumbed down version of ultimate toy of my childhood.

And I can't see how they can cut product development time in half when direction of parts is going to more specific ones instead of standard parts that you can build anything from.

[Mike]

For me a sad part of this story is the fact that years ago I would play for hours with Lego. Bridges, houses, cars, cable cars(!) and later 4 and 6 wheel drive vehicles.

More than anything in my childhood it probably led me into the engineering and manufacturing world through a fascination with how things are designed and manufactured.

I agree that a company which is (was?) customer focused with a proud and loyal workforce making educational toys sounds like an ideal place to introduce lean practices. Can any Lego people shed any light on how the factory operates (batch, single piece, KPIs etc..)? I'd be interested.

[Peter]

Being an engineering student (in the field of production-engineering no-less), from Denmark, I have seen alot of examples of the very advanced production system at LEGO. Some of this info is marked confidential though, and cannot be shared here. Apart from the advanced production processes, I heard in one of my classes that LEGO was moving towards a "lot-size-one" concept, where you could order any brick, or number of bricks on their internet site, and that would then be made and sent for you. They have a similar system now, although it is nice, it is not JIT.

I think that LEGO's problem is also due to the normal fluktuations in toysales, as most toys (ca. 60%) is sold around november/december. They are used to levelling out their prodcution, but if "whats in" changes from March to December this is not a wise strategy.

All the best in the future for LEGO. Lets see how long the current CEO lasts.

As a side note in the Danish paper "Ingeniøren" ("The Engineer"), a production engineer from LEGO explained their current problem:" Every time we invented some new series of LEGOS we invented a new cook-figure. Up to a point where we had 13 cooks". I don't know if they have taken any specific measures to counter this, but it looks like a classical clash between R&D and Production.

[Josef Horber]

I have read in the german F.A.Z, that LEGO-s strategic goal is to outsource ALL production on the long term, not just the injection molding. So, the pony does it´s one trick to full perfection, not just in a half-hearted approach.

The article also mentioned the other strategic goal, to reduce the amount of new products developped. I just don´t get it: What´s wrong with offering 13 cooks and just producing the one, Your customers want? Isn´t this variety the reason, why You expect Your customers to pay more compared to cheap products who all look the same? Was the “…as long as it´s black” not one of the reasons for loosing the popularity of the T-Model, when customers started to like different colors?

So, in fact, this CEO is a two-trick pony. He can give away production know-how AND cut customer value at the same time. I bet, in one year from now he will complain about the competition´s flood of cheap products steeling LEGO-s market share and he would never think, that he just paved their way, by starting to do, what all others can do anyway.

I sometimes wonder: if these simple-minded ideas are all, that You have after X years of study and Y years of consulting experience, what is then Your real net value compared to anybody else? What learnings did You take away in all those years? And what is the justification / the business case of the company paying You a huge amount of money?