Lego - The Danish Management Canon, 3

“The achievements include A.P. Møller - Mærsk, ISS, LEGO, JYSK, Novo Nordisk, the Danish pig farmers, the Danish EU Presidency 2002, the Welfare State, the Productivity Commission, Skanderborg Municipality, Lotte Nursing Home, and Roskilde Festival.”

“There are companies built on an idea so strong that it can survive for generations. If not centuries.”

“For a leader in such a company, the key task is to thoroughly understand the idea and ensure that everyone else in the company understands it as well, so that the idea can be constantly reinterpreted in harmony with a changing zeitgeist, changing generations of customers, and changing market conditions and technologies. Otherwise, the company risks losing its grip on customers and collapsing, as the idea becomes unclear and loses its appeal.”

“One such company is LEGO, known today by billions of people worldwide for its LEGO bricks, which have unleashed the imagination of children and adults for several generations. LEGO’s development has been canonized as one of the greatest management achievements in Denmark since World War II, and an example of successful idea-driven management, where new leaders have managed to create a successful business by bringing an idea into their own time.”

“But along the way, LEGO was at risk of losing its grip on its idea. In the mid-1990s, the belief faltered that the little building block could maintain children’s desire to create and play. LEGO instead bet on a wide range of other products. The result was that in 2003 the company came close to financial collapse.”

“Up to 2010, LEGO has manufactured over 400 billion building bricks. In 2010 alone, LEGO produced more than 24 billion bricks.”

“But the small bricks are neither the essence of LEGO nor the idea the company was founded on. The idea and essence of LEGO is good play – that is, toys that support children’s imagination, creativity, and desire to create as much as possible. The building blocks turned out to be the best way LEGO could promote good play.”

“It is this idea that LEGO’s changing leaders have been able to rethink and renew from generation to generation. It is the idea that was almost lost when the company lost faith in itself – and it is the idea that Jørgen Vig Knudstorp and his management team have returned to, while also bringing it into the digital and interactive age.”

“The very idea of good play was, however, born out of pure necessity by a Danish master carpenter in a small Jutland village during the agricultural crisis in the early 1930s.”

“The year was 1932. Master carpenter Ole Kirk Kristiansen faced a serious problem. His customers couldn’t pay their bills. There were no new orders. And the cash register was empty. Ole Kirk Kristiansen was at a loss. He had a family to feed.”

“Ole Kirk Kristiansen built houses and furniture for the farmers in the vicinity, and he had built up a quite reasonable business. But some years earlier, something had gone wrong in America. The stock market in New York had collapsed, and suddenly no one had money. Banks closed, companies closed, jobs disappeared, and millions of people lost their homes.”

“Things had otherwise been going well since he took over Billund Maskinsnedkeri back in 1916. Billund was a small village in the middle of the Jutland heath. There were some larger farms and smaller smallholdings, a school, a dairy, a general store, a masonry business, a smithy, an inn, a mission house, a cooperative association—and then the carpentry and joinery workshop. The town mainly lived off agriculture around the town.”

“He tried to find new ways to make money and talked with the National Association for Danish Work, which worked to promote Danish production. The government, led by the Social Democrats’ Thorvald Stauning, had enacted import bans and high tariffs on a range of goods to protect Danish businesses and jobs. The association suggested that Ole Kirk Kristiansen start the production of wooden toys. There was an opening now, as Germany, Europe’s great toy factory, was struggling to export.”

“Despite the adversity, the master carpenter in Billund began crafting chests of drawers, wardrobes, ironing boards, stools, and many other miniature wooden furniture pieces, plus toy cars, ducks on wheels, dolls’ carriages, etc. The first customers were the neighbors, so it was crucial for Ole Kirk Kristiansen that the quality was top-notch. No neighbor should be able to say a critical word about his craftsmanship. Therefore, knothole-free beech wood was used, air-dried for two years before the toys were milled, sanded, polished, painted, and varnished three times, just like real furniture. Children should play with something proper. Children deserve the best, Ole Kirk believed.”

“And it wasn’t just the neighbors’ children who deserved the best. Ole Kirk Kristiansen maintained the quality when he later produced in large quantities for customers far away. He even gave the quality a motto, which he found in a book: “The best is never too good.” It was put up as a sign in the workshop. Even today, this motto is a guiding value for LEGO.”

“Initially, sales of the toys did not go spectacularly. In the first year, Ole Kirk sold for only 4,000 kroner, which was far from enough to make ends meet. He suddenly faced a bankruptcy petition because he couldn’t pay his bills. Ole Kirk Kristiansen went around to family and friends in the area asking for help. He got it, even though people nearby frowned upon the master carpenter who made toys. It wasn’t really man’s work.”

“In 1932, the yo-yo emerged as a popular toy. Ole Kirk Kristiansen set out to produce thousands of yo-yos. They sold well, and he got the business going more and hired unemployed craftsmen in Billund and the surrounding area.”

“By 1934, toy production had become so extensive that Ole Kirk Kristiansen thought it should have a name. He announced a contest among the people in the workshop with a bottle of homemade red wine as the prize. It was Ole Kirk Kristiansen himself who got the bottle. He thought it should be related to good play and came up with LEGO—a contraction of LEg GOdt. Thus, the LEGO Toy Factory in Billund was created.”

“Godtfred attended evening school for four years at the Technical School in Grindsted after the mandatory seven years of primary school, and at 19, in 1939, he had a short stay at the Handicraft School in Haslev, which was especially recognized in the construction field. The older brothers, Karl Georg and Johannes, trained as carpenters, while little brother Gerhardt became a dairyman. Ole Kirk actually preferred Godtfred to stay at the factory and help out, but the son insisted that he wanted a journeyman’s certificate like his brothers.”

“Godtfred Kirk Christiansen also did not find recognition for the wooden toys among his peers at the Handicraft School. While the other students wanted to build houses or work in machine factories and workshops, Godtfred sketched designs for new toys, which he sent to his father in Billund.”

“One day news arrived that the German Chancellor Adolf Hitler had invaded Poland, and Europe broke out in war. Business-wise, the war turned out to be good news for the small toy factory in Billund. Now the large German toy manufacturers were suddenly completely out of operation, and LEGO could capture larger market shares. Production increased in Billund, war or not.”

“When the war ended, it was challenging to obtain wood from Sweden for production, so Ole Kirk was in search of new raw materials. In 1947, a representative from Windsor, a machine factory in England, visited Copenhagen to demonstrate a plastic injection moulding machine. He spoke about the advantages of a new material—plastic—and carried with him plastic bricks from the English company Kiddicraft, which he suggested as a possibility to all the gathered potential customers.”

“The blocks were developed by the Englishman Hilary Fisher Page, who founded the toy company Kiddicraft in 1932. The plastic blocks were square with studs on top and hollow inside, allowing them to be assembled much better than the old wooden blocks. They could be used to build houses, for example. The blocks came in several bright, strong colors and had a smooth surface that dirt didn’t easily stick to, making them easy to wash—hygiene had become a popular concept in child-rearing.”

“Ole Kirk bought a plastic injection molding machine because he believed there were many possibilities in the new material. The machine cost 30,000 kroner. It was 50 percent more than the company’s total profit in 1946. In other words, it was a very risky investment. Although LEGO was now selling 500,000 kroner worth of toys annually, expenses were also many, and cash reserves were low. On a random day in 1947, the company had a cash reserve of just 6,000 kroner and a bank debt of 150,000 kroner.”

“In fact, Godtfred was so concerned about his father’s lack of interest in finances that he asked the closest employees to do what they could to “restrain the old man” and his almost “unfortunate urge to build, build, and build.” At the same time, Godtfred had his bookkeeper calculate the cash balance every day before closing time so he knew exactly how much money they had.”

“But the purchase of the plastic molding machine was a success. LEGO produced, among other things, a Ferguson tractor made of plastic, which was sold as a kit. The new plastic tractor sold 20,000 units in the first production run. An unprecedented record for toys from LEGO.”

“Still, Godtfred was not convinced about the future of plastic toys. In an interview with Fyens Stiftstidende in 1949, he said: “You can make nice and neat things in plastic, but wood is undeniably the most solid.””

“Ole Kirk Kristiansen decided to put the blocks into production. The blocks were slightly adjusted—the thickness was changed, and the studs were flattened, but otherwise, they were like Kiddicraft’s blocks. That same year, LEGO entered the market with the so-called Automatic Binding Bricks—it was popular to have English names for toys back then—and sold them, as Kiddicraft did, in a cardboard box with pictures showing what children could build with them.”

“In June 1950, Ole Kirk Kristiansen appointed his now 31-year-old son Godtfred as junior director at LEGO. He remained the managing director and chairman of the board.”

“Godtfred hired two sales representatives solely to travel around and sell LEGO Bricks and explain to toy retailers the possibilities of the bricks. They did so without success. The representatives’ poor results led Godtfred to spend time himself traveling around and selling toys to retailers. This gave him an understanding of the importance of how the toys were displayed in stores and warehouses. He thought that the bricks should be seen as fully built models so that people could see what could be done with them.”

“In 1952, Ole Kirk Kristiansen suddenly intervened in the operations by deciding that the factories in Billund should be expanded again—he wanted greater production capacity. However, liquidity was tight, and the investment, according to Godtfred’s accounts, was larger than LEGO could bear: “I said to father: ‘Let’s start with a third.’ But shortly after, he poked his head in and said: ‘Here, I decide what is to be built, but you get the task of finding the money!’.””

“The resignation didn’t last long, however. Instead, Godtfred went to Norway, where he had a contact, and established production there for the Norwegian market. The foreign expansion was not planned. It purely stemmed from a necessity to create more sales, so the new factory investments could be covered.”

“When Godtfred became junior director in 1950, he changed the name of Automatic Binding Bricks to the Danish LEGO Mursten.”

“Before the war, German manufacturers held 90 percent of the Danish toy market. At the same time, toy manufacturers were heavily copying each other, so what LEGO developed one year was on the market the next year at lower German prices—and often in lower quality as well.”

“During the trip, he met Troels Petersen, the newly appointed purchasing manager for the toy department at Magasin du Nord. Troels Petersen was puzzled by the assortment. “There isn’t a single piece of toy with a decent idea or a well-developed concept,” said the purchasing manager, highlighting that there wasn’t “a single product that is based on a system in play.””

“The conversation made Godtfred think about the requirements the ideal toy for children worldwide should meet. In the following months, he formulated a series of “LEGO characteristics,” which he believed the company’s products should fulfill to have a future: 1. The toy must have a limited scope without restricting the free unfolding of the imagination. 2. It must be affordable in purchase price. 3. It must be simple and durable yet offer rich possibilities for variation. 4. It must be relevant for children of all ages and both genders. 5. It must be timeless, i.e., a classic among toys that does not need renewal. 6. It must be easy to distribute.”

“After nearly a year with plenty of trials, they were ready with a new range of bricks, launched as the LEGO System in Play. 28 different boxes, 8 vehicles, and a number of other elements formed a complete set in the form of a city. As a framework for play, there was a plastic mat that could be spread out on the floor or table. Here, children could build houses, trees, traffic signs, and cars, and they could drive around following real traffic rules that came with it, coordinated with the Council for Greater Traffic Safety. The news was met with skepticism among many toy retailers. They did not believe in the idea. The largest toy retailer in the province, Holger Sørensen in Odense, said, “I don’t believe in that. The LEGO people have made a mistake. It will never amount to anything.””

“Only LEGO bricks were introduced in Germany, none of the other toys. But the German entry proved not to be easy. As in Denmark, the German toy buyers could not see the idea and believed that Germans were interested in mechanical toys. Export advisors in Denmark shook their heads at the thought of exporting toys to Germany, which had the status of the homeland of toys.”

“The wave of prosperity opened up new ideas about life and existence. Denmark introduced the concept of the “nuclear family” with a new term in the dictionary. Politically, it became a goal that all Danish families should have the opportunity for their own house, garden, and car. The result was that many families left the cities and moved to single-family houses in the suburbs and even began to take charter trips with newly established travel agencies like Spies and Tjæreborg.”

“With its bricks, LEGO offered to build the new dream in all sorts of variations. So while the parents built new lives in the suburbs of reality, the children could play it out with the bricks.”