Story | Lego Turn Around

In the years from 1932 through to 1998, Leog had never made a loss but from 1998, the losses had increased year by year. By 2004, the company recorded its biggest ever loss of about £217 million that is more than 40% of the yearly revenue. Knudstorp was appointed CEO in 2013 who took on a short-term life-saving action plan rather than a long-term strategy for LEGO, which would involve managing the business for cash rather than sales growth. Key moves included:

• Setting financial targets. Ovesen introduced a near-term, measurable goal of 13.5% return on sales benchmark and established a financial tracking system—the Consumer Product Profitability system. It measured the return on sales of individual products and markets so the company could track where it was making and losing money. Every existing or proposed product had to demonstrate it could meet or surpass that benchmark.
• Cost-cutting (including cutting 1,000 jobs)
• Improving processes (many processes were outsourced which meant employee numbers could be cut by another 3,500)
• Managing cash flow
• Introducing performance-related pay
• Reducing the product-to-market time.
• Selling the theme parks and slowing retail expansion.
• Cutting the number of components from almost 7,000 down to about 3,000.

The result of these and other changes was that LEGO recovered and went on to become the most profitable and fastest-growing toy company in the world. During the worst of the recession in the years 2007 through to 2011, for example, LEGO’s pre-tax profits quadrupled. Its profits grew faster than Apple’s in the years 2008 through to 2010.

A True Toy Story: LEGO’s Incredible Turnaround Tale, Oct 6, 2017