5.04 | 02.26.22
LEGO is so omnipresent in today’s culture—through its stores, its theme parks, its movies, and of course its construction kits—that it’s hard to imagine a world not strewn with billions of colorful plastic LEGO bricks. Yet less than two decades ago, in 2003, the company came close to extinction, thanks to a frenetic bout of new-product introductions that left out LEGO’s core customers: the kids and adults who just love to build stuff with bricks. In today’s episode of Soonish, hear how the family-owned company behind the LEGO “system of play” recovered from this near-death experience ad reconnected with fans to become the world’s most valuable toy brand.
This episode comes to you courtesy of InnoLead, where I’m guest-producing and guest-hosting a four-episode podcast miniseries called “The Persistent Innovators.” This is Episode 3: “What Makes LEGO a Persistent Innovator?” The driving question of the miniseries is how big, established companies can defy historical trends and come up with the hit products needed to keep them on top of their industries, decade after decade. It turns out LEGO’s crisis, which played out between 1994 and 2003 or so, wasn’t about a lack of innovation, but rather an excess of it.
To find out what happened, I spoke with Bill Breen, a business journalist who co-wrote the best book about LEGO’s turnaround, and former LEGO executives Robert Rasmussen and David Gram. They explain how the company lost sight of its core mission—encouraging learning and exploration through the “hard fun” of building with LEGO bricks—and how it clawed its way back to success through a careful combination of discipline and creativity.
"What Makes LEGO a Persistent Innovator?" was first published by Innovation Answered on Febuary 14, 2022. You can hear the entire miniseries at innovationleader.com or in your podcast player of choice.
Resources Related to This Episode
Charles Fishman, Why Can’t LEGO Click?, Fast Company, August 31, 2001
Jonathan Ringen, How LEGO Became the Apple of Toys, Fast Company, January 8, 2015
Jesus Diaz, The Secret to LEGO’s Enduring Appeal, Fast Company, June 8, 2021
Bjørnvig T., Building Outer Space: LEGO and the Conquest of the Beyond in the 1970s, in: Geppert A. (eds) Limiting Outer Space, Palgrave Studies in the History of Science and Technology, Palgrave Macmillan, London, 2018.
At LEGO, Growth and Culture are Not Kid Stuff: An Interview with Jørgen Vig Knudstorp, BCG, February 9, 2017
David Robertson and Bill Breen, Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry, Crown Business, 2013
Wilhelm Scream, Twenty Thousand Hertz
Abby Abazorius, Women of NASA LEGO Set Blasts Off, MIT News, March 2, 2017
Notes
The Soonish opening theme is by Graham Gordon Ramsay.
All additional music in this episode by Lee Rosevere and Tim Beek.
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Full Transcript
Wade Roush: You’re listening to Soonish. I’m Wade Roush.
So it’s Saturday, February 26, 2022, and I just got back from a long walk with my dog Gryphon around the Charles River in Boston.
There’s a bunch of snow on the ground from a storm yesterday, and today is one of those severe-clear days that can follow a big blizzard.
It’s so gorgeous out that it’s hard to keep in mind just how desperate things are in other parts of the world.
Today is Day Three of the Russian invasion of Ukraine. And it’s Day 700-and-something of the coronavirus pandemic. And it feels like history just won’t stop shifting right under our feet.
So in a way it’s an odd day to be sharing a podcast about something that’s arguably as frivolous as LEGO bricks.
But hey, life goes on, right?
If we lost sight of the importance of play, then we’d be letting the monsters win.
So what I have for you today is the Part 3 of The Persistent Innovators, a miniseries I’ve been guest-producing and guest-hosting for another podcast called Innovation Answered, from the Boston-based company InnoLead.
And, yeah, this one is all about LEGO.
This family-owned company from Denmark feels just as omnipresent as Apple and Disney, the two other companies we’ve covered so far in the miniseries.
And clearly LEGO is way more than just a system of plastic bricks. It’s a huge global brand, with hundreds of retail stores and 10 theme parks and a franchise of blockbuster movies.
And LEGO isn’t just for kids.
Right here at home I’ve got a LEGO Saturn V rocket, made from one thousand nine hundred and sixty nine pieces, and a LEGO Space Shuttle Discovery, with two thousand three hundred and fifty four pieces.
I also have a journalist friend named Maia Weinstock who was the designer of a super-cool LEGO kit called Women of NASA. It came out in 2017 and it features minifigures of Nancy Grace Roman, Katherine Johnson, Margaret Hamilton, Sally Ride, and Mae Jemison.
So the LEGO fan community grows and as LEGO itself enters its tenth decade in business, it’s hard to imagine a world that’s not littered with billions of colorful plastic LEGO bricks.
But what most people don’t realize is that less than two decades ago, in 2003, the company came really close to going out of business.
The point of this “Persistent Innovators” miniseries is to understand how certain companies stay successful way past the age when you might expect them to stop innovating.
But LEGO’s challenge wasn’t a lack of innovation. In a way, it was too much innovation.
And how it got a handle on that problem and bounced back from its near-death experience is the story you’re about to hear.
So, here’s the full version, including ads and everything, of Innovation Answered, Season 6, Episode 4, “What Makes LEGO a Persistent Innovator?”
Kristen Krasinskas: Hi, I'm Kristen Krasinskas from InnoLead.
If you work inside a large organization in any kind of innovation related job — whether you're in R&D, design, emerging technology, or new product development — I'd love to invite you to learn about the resources we provide.
We can connect you to a network of peers and make sure you have the data, templates, and case studies you need to succeed.
You can find out more — and sign up for our email newsletter — at innolead.com.
Now, on with the show.
Wade Roush: Hello and welcome to The Persistent Innovators, a special miniseries from Innovation Answered, InnoLead’s podcast for corporate change makers.
I’m Wade Roush. I’m your guest host for the miniseries.
Now, here’s a sound you may recognize. I’ll give you one guess about what it is.
[sound effect]
Of course, that’s the clatter made by few thousand LEGO bricks when your kid dumps them all out on the living room floor.
[Audio clip: The Wilhelm Scream]
And that’s the LEGO Ouch, which is the sound YOU make a week later when you accidentally step on one of those bricks with your bare feet.
Today, in the third episode of the miniseries, we’re going to talk about the LEGO Group, the toy maker that was got its start 90 years ago in a tiny town in Denmark and managed to grow into one of the world’s most famous brands.
I wanted to start with the sound of LEGOs because any truthful story about the company has to begin and end with … the actual bricks.
Bill Breen: There's a magic to the brick itself.
Wade Roush: That’s Bill Breen. He’s a business journalist and a founding team member at Fast Company magazine.
Bill Breen: So when you look at it, it's just like eight little knobs on the top and the three little hollow tubes underneath it. When you pick up a single brick, it's inanimate, it's lifeless. There's nothing to it. But you click two of those things together, and a lot of possibilities open up.
Wade Roush: Back in 2012 Breen and University of Pennsylvania business scholar David Robertson co-wrote what is hands-down the best book about LEGO and its history.
It’s called Brick By Brick.
And one of the factoids Breen picked up when he was writing the book was if you have six LEGO bricks with eight studs each, or two-by-fours in LEGO-speak, the number of possible ways to fit them together is 915 million.
Bill Breen: There are a lot of Lego geeks, so I sort of trust their math on that. But just think about that for a minute, that one brick can yield so much creativity. Yet it's a tightly bound product, a tightly bound piece of plastic. And I think kids really innovate inside the brick. And we’re often encouraged to think outside the box. But Lego was very successful by innovating within the box, by understanding its boundaries.
Wade Roush: If you listened to the first two episodes in the miniseries, you know that we’re trying to do is get under the hoods of the companies we’re calling Persistent Innovators.
These are companies that never settle into complacency about their existing product lines.
Instead they have the curiosity and boldness to keep reinventing themselves, decade after decade.
We want to know how they do it.
There’s gotta be some combination of leadership, culture, insight, skill, and luck that keeps these companies focused and helps them pick themselves up after the occasional stumble.
That’s what we’re looking to understand.
And it strikes me that if you compare LEGO with the companies we’ve already talked about, Apple and Disney, they all have at least one thing in common.
It’s that all these companies have an identity that’s grounded in the physical things they make—but they also have a belief system about why and how those things should be made.
So, Apple makes laptops, phones, and other computing devices.
But Apple believes that those devices should help its customers be more creative and that therefore they should be beautifully designed and easy to use.
Disney makes stories, in the form of animated features, live-action movies, TV shows, and theme park rides.
But Disney believes that those stories should speak to the hopes and dreams of average people, and that there’s always room to use technology to make those stories more compelling.
So, what about LEGO?
Well, LEGO makes little bricks out of a form of injection-molded plastic called acrylonitrile butadiene styrene, or ABS.
But LEGO believes that these bricks can unlock endless play and creativity.
It’s right there in the name LEGO.
It’s a contraction of the Danish phrase leg godt, which means play well.
LEGO sees itself not just as a manufacturer of construction toys, but as a facilitator of learning and exploration for kids everywhere.
And even for some adults.
As we dive into the history of LEGO over the past 30 years or so, I think the story is going to drive home a lesson that started to peek through in our previous episodes.
We saw how even persistent innovators like Apple and Disney can go through dry spells or creative crises when it seems like they’ve lost their way.
And I have a hunch that when this happens, it’s usually because what the company makes and what the company believes have drifted out of alignment.
Part our story today is about a slice of LEGO’s history from the late 1990s into the early 2000s when the company made a drastic pivot away from the bricks and the classic LEGO system of play.
That pivot brought LEGO to the very edge of bankruptcy in 2003.
LEGO stepped back from the brink thanks to new leaders who saw what was wrong and were smart enough to refocus on the basics.
They made sure LEGO’s products were actually consistent with LEGO’s original philosophy of play.
They innovated inside the box.
And ever since then, LEGO’s been on a path of steady growth.
The pivot and the pullback are the stories Bill Breen and David Robertson told in Brick By Brick.
Today Breen is going to retell parts of it for us. And we’ll also hear from two former LEGO executives about how the company rediscovered its purpose.
But before we do that, a word about our sponsor.
[musical interval]
Wade Roush: The Persistent Innovators is sponsored by Patsnap, the connected innovation intelligence company, and their online courseware site Innovation Academy.
Coming up in the final episode of the series I’ll talk with Sam Wiley, head of thought leadership and customer advocacy at Patsnap, about how the company can help innovative organizations understand the R&D and intellectual property landscapes in their fields. And I’ll ask Sam how he sees the challenges of persistent innovation.
But for now I just want to say thank you to Patsnap for their support throughout the miniseries. You can learn more at www.patsnap.com and academy.patsnap.com.
[musical interval]
Around 2009 Bill Breen got a call from a book agent.
This agent knew that Breen was on the founding team at Fast Company and that he’d started a series for the magazine called Masters of Design.
And she explained that she had a client named David Robertson, who was a business professor at IMD in Switzerland.
Robertson had written a case study about the troubles at LEGO in the early 2000s.
And now he was looking for a writing partner who could help him turn the idea into a book.
Breen was intrigued.
Bill Breen: There are several things that attracted me. But first of all, LEGO is such a great brand. It is also a brand that a lot of people know about, but they really don't know the company behind it because it's privately held, you know, of course, Wall Street doesn't follow it. And also there, there have been some pieces written about it. Of course, the toy industry trade writes about and follows it. My colleague Charles Fishman, at Fast Company, did an article about Lego, but there hadn't really been a significant piece of work done on the company that stands behind this beloved toy. And that, to me, was just amazing because since the brick, you know, the Lego brick was patented in 1958, like Lego had decades of unbroken sales growth. And so it was it was a sales and profit machine. And then starting in the late 1990s, it hit a real plateau and then it spiraled. And the family that owns the company almost lost control of it. It got so bad that Lego was almost broken up into pieces and sold off. So that's a beloved brand that has this amazing sort of transformation or turnaround story behind it. And also, you know, there was the part that, speaks to innovation. both product innovation in terms of what LEGO did with its product innovation to become LEGO and also, within its management systems what it had to do to reinvent itself in order to transform itself into a company that really was fit for the 21st century. And so all of those things really combined to to pique my interest in this project, even though I only really knew Lego from stepping on it barefoot when my kids were playing on it with it. And like a lot of parents, suffer from Lego Ouch.
[Audio: The Wilhelm Scream]
Wade Roush: Despite the agony of the ouch, Breen took on the book project.
And over the next couple of years he and Robertson made several pilgrimages to Billund.
That’s the little town three hours west of Copenhagen where LEGO was founded in 1932 and where it’s still based today.
Bill Breen: Arriving in Billund, I will say, was a little bit shocking. You get into Billund and there's the Legoland Hotel and of course the biggest features of the whole soundscape are the Legoland theme park with the castle turrets. But it's small, the town looks like a little Lego streetscape with all these, you know, the houses are all basically the same and they look all look very orderly. And then there's the Lego headquarters there, which is very colorful, as you would imagine. And so the contrast between just the brand's name and the size of the town was just kind of stunning. And then, of course, on the outskirts were all the factories that churn out millions and millions of bricks every year and they are very impressive. They're like airline hangars. I mean, they're just gigantic and you've got to take, you know, these carts, these powered scooters and stuff to get around because it's just so, so big and they’re so sprawling.
Wade Roush: Once Breen and Robertson arrived in Billund, something that happened to them that, I’ve gotta tell you, speaking as a fellow journalist, almost never happens.
Lego’s executives knew that after the missteps of the early 2000s, the company had barely escaped destruction.
And rather than clamming up out of fear or embarrassment, they actually wanted to talk about it.
Bill Breen: At the point at which we started this work on this book, Lego had already done the turnaround. It was quite successful at that point. And yet the scars were very fresh from what it had endured. And I think they wanted to really capture that and chronicle it so that it would be kind of a warning to future years, you know, the future Lego, to try to avoid something like this at all cost.
Wade Roush: So what had actually gone wrong at LEGO?
Well, to understand that, first you need to know a little more about what had been going right at LEGO for decades before the crisis hit.
The story of the LEGO we know today really starts in the late 1950s.
Bill Breen: The brick just didn't magically happen overnight. I think there was a lot of persistence and grit around that, starting with the fact that they did a lot of experiments and when they would click the two bricks together, it used to sort of spring apart. It wouldn't click. The thing that really brings it together, hey call it clutch power. That’s what LEGO calls it. And it's that clicking feeling that you get, which is very satisfying, but it's also the tug that you feel when you pull it apart. And that's a tangible thing that it was just such a turn on for kids and it was such a great invention.
Bill Breen: And the second great invention is this insight that Lego had that of creating a system of play, a holistic system with the brick as the centerpiece. So the genius of the brick is partly that Lego, long before software came into being, figured out backward compatibility. So a brick from a new Lego set would work with a brick from a set five years old.…It was endlessly playable. And what also meant it was endlessly profitable because it didn't cost a lot. I mean, the molding machine. In the early 2000s, they cost around $50,000 to make a molding machine. But when you spread that across millions and millions of bricks that bricks, that almost amounts to zero. And so it was this notion of backward compatibility and the idea of a system of play where it just wasn't a one off product, but that it was a holistic system that you could build out from the brick. And I think those two things really sort of powered Lego and its sales.
Bill Breen: But there's also a third thing, and it gets back to the point I was trying to make about innovating inside the brick or thinking inside the box, and that is the sort of discipline that Lego brought to it. So there's endless creative possibilities within playing within the brick itself. But Lego was very disciplined about protecting its system of play and not letting it get too out of hand. Lego was owned by three generations of leaders. And the second generation owner, Godtfred, the CEO, would personally review every new Lego kit to ensure that there was a limited number of colors and there are a limited number of shapes so that there wasn't too much expansion and the system would be itself tightly bounded.
Wade Roush: The Godtfred that Breen is talking about was Godtfred Christiansen, the son of LEGO’s founder, Ole Kirk Christiansen.
It was on Godtfred’s watch that LEGO had discovered how to make ABS bricks with high clutch power in the 1950s, and then went on to develop the whole LEGO system of play in the 1960s.
In 1979 the presidency of the company passed to Godtfred’s son, Kjeld Kirk Kristiansen.
And Kjeld added something important of his own.
Bill Breen: He came up with certainly Lego's third greatest innovation, which is the minifig and the minifigures. And that too was the product of a lot of experimentation…The first minifigs didn’t have any faces. You probably can go back and look at the original mini figs, they just have this sort of coal- black eyes and smiles and that was it. But they eventually brought in variations on that with all kinds of vampires and weightlifters and cheerleaders and all different kinds of expressions. But that …brought in this notion of storytelling that kids could do with the sets. And so LEGO expanded from just simply creating street scenes or tractors or gas stations or whatever or fire trucks to also telling stories around all those. And so that storytelling and narrative really also drove its sales as well. And Lego retained that discipline until we get to almost the late 1990s.
Wade Roush: One thing to understand is that by 1988, the last of LEGO’s patents on the interlocking brick concept had expired.
And suddenly there were lots of toy companies around the world making knockoff construction toys.
Up to that point, LEGO had been growing sales at double-digit rates every year.
But between 1988 and 1993, sales leveled off and profits went into free fall.
That led to a period of what you might call frantic experimentation.
Between 1994 and 1998, the company brought out almost 30 new product lines.
Almost all of them were expensive failures.
And in 1998, for the first time in its history, the company started losing money.
Inside LEGO there was a theory about what was going wrong.
Bill Breen: This is when digital gaming really came to the fore. We're talking about the late 1990s here. And you know, the humble brick wasn't so cool anymore. Kids were really flocking to new competitors were coming up like Leapfrog. And there was also this notion, for the American market, that American kids just didn't want to put a lot of time into building stuff. They were to time squeezed, and they had a lot of other distractions.
Wade Roush: LEGO was willing to try almost anything to become competitive again in this changing market.
So Kjeld, the grandson of the founder, voluntarily stepped aside as CEO.
And for the first time, LEGO brought in a leader from outside the Christiansen family.
The new CEO doubled down on the product experimentation strategy.
And he ended up pushing LEGO to build some products that were, to put it charitably, very un-LEGO-like.
Bill Breen: The gentleman's name was Paul Plougmann. They brought him in to sort of try to turn around the organization. And I'm very leery of doing sort of Monday morning quarterback, which a lot of business books tend to do, which is to look back and say all the things they did wrong and everything. And I really try to put myself in his shoes. So he was incentivized to innovate. His bonus structure was built around that. That was his charter, to innovate very quickly and to bring them back to profitable, and to double the sales growth, and they had very ambitious targets.
Bill Breen: And so they tried a lot of things, both product-wise, in terms of launching a lot of products that were radically redesigned—some of them didn't even have the brick as part of them—and a lot of sort of expensive ventures as well.
They invested heavily in launching new Legoland theme parks. Their ambition was to create one or two every year. And to try to create 300 Lego stores.
Another thing they did, they had this beloved subbrand for preschoolers called Duplo, and it was a powerhouse for Lego. And they did away with that brand and created something called Lego Explorer, some of which some of those lines of those toys had nothing to do with the brick at all. They look like more like something out of Fisher-Price.
Wade Roush: One thing Breen and Robertson make very clear in the book is that Plougmann wasn’t being reckless.
He was actually doing all the things that business schools teach leaders to do.
He was bringing in lots of new people from diverse backgrounds to foster more creativity.
He was exploring blue-ocean markets, and trying to extend the LEGO brand into new kinds of play experiences.
He greenlighted entirely non-brick-related toys like Galidor action figures, which it promoted through a live-action TV series called Galidor: Defenders of the Outer Dimension.
[Audio clip from “Galidor”]
He was willing to get behind innovations like a Galidor video game for the GameBoy Advance that would potentially disrupt LEGO’s traditional business selling physical toys.
The problem, as Breen sees it, was that Plougmann was in such a rush to return the company to profitability that he tried to do all of these things at once.
Bill Breen: They were a very busy company. But I don't know if it made for great business. And the result was sort of runaway, to a certain degree, uncontrolled innovation.
Wade Roush: Now, there was one thing that did go right very early in Plougmann’s tenure.
A couple of years before Plougmann took over, Kristiansen had okayed a licensing deal with Lucasfilm to create LEGO Star Wars, a line of LEGO kits based on the spaceships and characters in the movies.
In 1999 the studio released the first Star Wars prequel film, The Phantom Menace.
The LEGO Star Wars kits came out at the same time, and they were an instant and massive hit with kids.
They outpaced LEGO’s own sales forecasts by 500 percent.
Then the company repeated that success with a line of Harry Potter kits starting in 2001.
But those successes turned out to be both a blessing and a curse.
The revenue from the movie tie-ins was so extravagant that it wound up masking the fact that most of Plougmann’s other experiments were backfiring.
Bill Breen: Some of the products that they came out with, if they had just taken some more time with them, and thought them through some more, and tested more rigorously, they might have had successes with them. Some of them just were not suitable at all for the market. And so what happened was they alienated a lot of the kids who really love to build .
Robert Rasmussen: This is the company's crown jewel, the brick, and what you can do with the brick. And when they struggled, it was because they somehow tried to modify this crown jewel and tried to make this crown jewel something different.
Wade Roush: This is Robert Rasmussen.
He was at LEGO in the 1980s and 1990s and today he runs a training practice called LEGO Serious Play.
And we’re going to hear more from him toward the end of the episode.
But I want to bring him in here because he makes an important point.
Rasmussen thinks the main thing LEGO forgot during the Plougmann years is that playing with LEGO bricks is supposed to be fun, but it’s also supposed to be a little bit hard.
Robert Rasmussen: I don't know if you are familiar with the concept called Snap. They created a new construction system. The whole thing was that we need to make it faster for children to build. It was a disaster. And they also created an action figure called Galidor. It was terrible, right? And part of the point, and this comes back to Seymour Papert and his concept of hard fun. Some things are more enjoyable and more learning-rich when they're adequately difficult. Things are not fun if they're too easy. So, so finding this balance between, you know, it's not too easy, not too difficult, which Seymour called hard fun. It’s fun because it is hard. This this is what they kind of lost touch with.
Wade Roush: By 2003 the magnitude of LEGO’s mistakes was clear.
The new toy lines like Explore and Galidor were complete flops, leaving angry retailers with lots of unsold stock.
The crash project to build new theme parks and open hundreds of new retail stores had left the company’s cash reserves drained.
And in 2003 there was no new Star Wars or Harry Potter film that year, so there was no movie-tie-in revenue to prop up everything else.
It was like that moment in a Road Runner cartoon where Wile E. Coyote runs halfway across a chasm and then realizes there’s nothing below to hold him up.
[falling sound effect]
But throughout the Plougmann years, Kjeld Kirk Kristiansen had remained president of LEGO.
And in 2001 he’d made a key decision that turned out to be part of the company’s salvation.
He’d hired a former McKinsey consultant named Jørgen Vig Knudstorp to advise on strategy setting.
(And right here I just want to request a blanket pardon for slaughtering the pronunciation of all of the Danish names in this episode.)
But anyway, Knudstorp’s job as head of strategic development gave him a perch where he could see all the problems LEGO was running into.
And in 2003, as all of the key indicators at LEGO were heading south, Kristiansen asked Knudstorp to figure things out and present a plan to the board.
Bill Breen: And basically his message to the board was when he crunched all the numbers and figured out what LEGO was doing and wasn't doing and everything else, he told them “We are on a burning platform. We might not make it through next year.” And of course, the board was horrified to hear that. A lot of them didn't even believe it. And Jørgen did say to us that he walked out of that meeting thinking his future at Lego might be over. But then they brought in a very experienced CFO to also look at the numbers, and after he got done with them, it was really irrefutable. Lego was in a very, very bad way and was heading towards very dire straits if it didn't find a way to sort of to rescue its rescue itself.
Wade Roush: So, what was LEGO’s rescue plan?
Well, it was to fire Plougmann and make Knudstorp himself the CEO, so that he could begin the turnaround from the turnaround.
Wade Roush: Bill, I think your final chapter sums it all up in a really fun way, where you kind of using this rocket ship analogy. Like, when he came on board, he was on on a on a flaming rocket ship that was going down and they kind of had to rebuild it in the air, right? So…what wound up being the sort of the winning set of strategies that help to turn around this situation and get bring back financial stability and then restore LEGO to its heritage, really of being a truly innovative company that was actually continuing to kind of come up with cool new toys every year?
Bill Breen: I think the first thing was, and I'm talking about the survival stage initially, was to bring focus back to the company and to break that self-satisfied core. Even though the company was in really dire straits, there was still this this culture of very self-satisfied culture that “We know best. We know how to design for kids. We've been doing this for decades and we've just hit a rough patch.” There was no sense of the idea that, yeah, we want to value creativity, but also profitability. And so what they initially did was they created a 13 and a half percent sales target. In other words, no matter, you know, no matter what, whether it's a new product that you're proposing or if we're looking at an existing line, it had to demonstrate a return on sales that would meet or surpass 13 and a half percent. And that brought focus to the managers of the design teams, that number .
Bill Breen: The other thing they did to restore a sense of discipline was they had this this thing called the Design L ab. They were a group of very experienced veteran Lego designers that did what Godtfred did back in the 1950s and 60s, which was review every single element and and in their inventory. Elements are the unique pieces of Lego, whether it's a two by two or Indiana Jones whip, anything outside of a brick that's a special color or design or different. And they found that when they were doing the review, that the number of elements had spiraled up to 14,000 elements in their inventory. And the elements are very expensive to produce. You have to get an injection molding machine for each one of those. Eight different minifig policemen, six different chefs, et cetera. So they really culled that. When I think about it, it's this this idea of bringing discipline to creativity, that I think will be sort of a recurring theme.
Bill Breen: They tried to carry that over into other areas as well. Becoming customer driven once again, really understanding your customer. And that's become such a cliché. But remember that Lego had lost sight of its core customer. It was chasing, during the late 1990s and early 2000s it was chasing the customer that had sort of abandoned it, the kids who were fascinated by digital games, et cetera. And so they did things which were sort of unheard of for Lego at the time, which is the CEO and the founder going out and meeting face to face with kids and also adult fans of Lego, which LEGO had always sort of kind of put down because of the only adult fans only accounted for about five percent of the company's market by the early 2000s. And yet, those adult fans also outspent the average family by twenty to one. So they were really adult fans that also turned on Lego because of the dumbed down products that LEGO was coming out with. So they really made a lot of efforts to get back and try to reconnect with those adult fans, including taking, for Lego, what was quite an unheard of step at the time: actually starting to crowdsource ideas from Lego fans.
Bill Breen: Another thing I think that was really funny was that LEGO did a survey of its customers, and one of the encouraging things that it found during those days was that LEGO kids were quote unquote “normal.” I mean, there was this worry that that LEGO kids were geeks and there were very few of them. And they found that, yeah, you know, LEGO kids like to build a little bit more. They like to read a few more books than the average kids, but they love music, they love sports. And importantly, they also love digital games as well. It wasn't an either/or thing.
Wade Roush: In other words, LEGO was learning that some of its fears about the changing desires of kids were overblown.
Just because electronic toys and video games were on the rise didn’t mean that kids had stopped wanting to build stuff with their hands.
And all of that validated Knudstorp’s driving instinct that LEGO needed to go back to the basics.
Here’s Knudstorp speaking with an interviewer from BCG in 2017.
Jørgen Vig Knudstorp: The company was struggling because it did too many things at the same time. So it lost its focus and its sense of its core, and what the capabilities were in that core. What was it, really, that this company did better than anybody else? And that really came down to a few things like creating this unique material that acts as if it was glued and yet is very easy to take apart.
Wade Roush: The company decided to bring back beloved old product lines like LEGO City, and they killed off a bunch of toys that weren’t authentic to the brand.
They repaired their relationships with retailers.
And they got a lot more disciplined about which new ideas they’d pursue.
Bill Breen: And as Steve Jobs famously said, you know, innovation is saying no to a thousand different ideas, and Lego has really exhibited this as well. I think where Lego got into trouble was, it was trying to chase a lot of ideas all at once, rather than figuring out a sequencing and a cadence to ideas, which is really important. So the long of the short of it is really it's this combination of building the core out, understanding the sequencing and cadence for innovations. And then once you build that back, that basic business, then trying sort of experiments so that you can winnow down a few things experiments that are worth investing in. And then figuring out whether any of those are actually going to turn out to be the hit that you’re hoping for.
Wade Roush: By 2006, the crisis was mostly over and LEGO had begun to reestablish itself as the world’s hottest toy company.
Between 2007 and 2011, the company grew at an average of 24 percent per year, compared to just 1, 2, or 3 percent per year for competitors like Mattel and Hasbro.
And LEGO’s rocket ship ride continued through the 2010s, boosted by LEGO’s hugely successful foray into Hollywood with The LEGO Movie in 2014, The LEGO Batman Movie in 2014, and The Lego Movie 2: The Second Part in 2019.
[Music: “Everything is Awesome”]
And in a way, everything is still awesome at LEGO, at least compared to 2003.
But the truth is that the company has worked pretty hard to make sure it stays that way.
It wasn’t just that they cooperated with Breen and Robertson to make sure the whole story of the company’s crisis and recovery came out in Brick by Brick.
They also set up some new structures to help the company be more disciplined about innovation.
I learned all about that phase of LEGO’s history from David Gram.
Today Gram runs a consulting company based in Copenhagen called Diplomatic Rebels.
And from 2010 to 2019 he was at LEGO, in a part of the company called the Future Lab, later renamed the Creative Play Lab.
David Gram: And so where I came into the company in 2010 was a time where now the company has really sort of become good at the existing business managing that really, really well. Now it was time again to start exploring new territory, but without losing focus on the existing core business. So the challenge here was really to how do we both explore new territory, let's say, for instance, digitalization and adopt new technologies and new type of experiences, but without leaving what is absolutely the core essence of the company, both in terms of its DNA and values, but also in terms of what their competencies are, you know what they're really good at.
Wade Roush: At the Future Lab Gram worked on pilot projects like, for example, a hybrid physical-digital game.
It involved building with real LEGO bricks and then scanning the bricks into a virtual environment on a smartphone or a computer. Gram says the lab worked sort of like a tech startup, in the sense that the mission was to generate and test lots of new product ideas without spending too much time or too much money.
But the big difference was that the Future Lab wasn’t trying to disrupt LEGO’s existing businesses.
If anything, it was just the opposite.
Gram says the lab was always trying to find the right balance between exploring new concepts and building on LEGO’s foundation in the bricks and the system of play.
Wade Roush: I think most companies that have a future lab or an innovation lab or a skunkworks or an R&D division, they sort of expect those divisions to be irritants to be always agitating for change and experimentation. And you're saying that that's not the only role. You're saying that those divisions, I think, can be even more effective if they are also aware of the legacy, the core business, the core commitments, and that they figure out how to balance the need for innovation and novelty with the need for continuity and respect for the past.
David Gram: Exactly, exactly. It's a huge blind spot, if you ask me and maybe one of the core reasons why so many labs, innovation labs and units get shut down again, because either they end up moving too far away from the existing core, they get alienated and they, you know, are perceived to be too far removed from what's going on, what’s strategically important and too far removed from the existing culture of the company. And so they get shut down. Or they end up being too close to the sun, where they where they sort of ending up just be incremental to the existing core and are not really able to move any boundaries for the company. In the Future Lab, we called ourselves LEGO fundamentalists, and we did that for a reason, because we knew that we had to know more about the legacy and the history and the values behind the company than anyone else, because we knew we were going to be constantly challenged on whether we were true to that and how we were true to that. You can only tell strong stories if you really understand the story, right?
Wade Roush: Another interesting thing about the Future Lab was that they didn’t really measure their success based on how many of their ideas resulted in actual products.
Gram says it was more about building up a kind of muscle memory inside LEGO for disciplined innovation.
David Gram: I've seen labs as well also being closed down because the KPIs and the measurement that was put on them was only looking at a sort of an end result… The first and foremost that you're doing is creating understanding and insights and data, and then you're creating new capabilities, new competencies that allows for the company more long term to become really skilled at this…So a lot of the stuff that we would launch did not go directly into becoming billion-dollar businesses for the company. They were rather sort of piloted small. The learning was pulled back. New iterations created. Insights from those iterations were then shared across the rest of the company that then slowly started to adopt some of those things into their regular core product lines. And this is how you create a solid transformation over many years, by constantly integrating what you are, what the new stuff you are learning, the new stuff you are understanding into the existing core. So it's back to you and you're getting the full supertanker to shift its course and not only a few speed boats that ends up being detached from the mothership.
Wade Roush: David, I'm wondering whether you can comment on to what extent were you consciously aware that there had been a period of great innovation at LEGO that actually perhaps was too radical, perhaps because some had forgotten the sort of core values of the company and had forgotten how to kind of balance radical innovation with true to the core vision.
David Gram: Sure. We were extremely aware of this past and also because, you know, initially it was what we were met with most often was that, “Well, this has already been tried and it nearly brought the company to its death.” So we quickly realized that we had to really understand what actually happened in those years and what had been tried and for what reasons…So, constantly understanding that past, that crisis, and being able to tell the story of why we're now doing things different, why this is not a repeat of the past, and how the past and what happened really has strengthened our approach now and our ability to succeed with these things.
Wade Roush: Eventually Gram felt like the Future Lab had built this practice of balancing innovation with tradition into a real art form.
And in 2019 he decided to go indie and start teaching that art through his consulting firm, Diplomatic Rebels.
Wade Roush: So what is a diplomatic rebel? How would you describe this as a type of person?
David Gram: Sure. A diplomatic rebel, well, it's a person, but more than anything, it's a mindset and a methodology, because you can even say a company could become a diplomatic rebel. And so just breaking it down, it basically means that you're mixing the rebel, which is, you know, which is creativity. It is curiosity. It is what challenges the status quo. It's the people asking the difficult questions in the meetings. You know, “Why are we doing this and why are we not looking at this?” You're mixing that with the skills of the diplomat, which is basically having empathy and understanding towards the existing system. Why is it acting the way that it is? Why were things built the way that it was? How to unbolt people to new realities and making sure that everyone eventually is pulled towards this new direction? And you need to find balance between those two, both as an individual, if you want to succeed as an intrapreneur, you have to manage that. But also, it's back to the ambidexterity of the company having to both manage the existing business and discipline, while at the same time being creative and exploring new territory.
Wade Roush: When Gram teaches the method to executives or their companies, he always emphasizes several principles or habits of diplomatic rebels.
Habit number one is to learn resilience, since innovation is always going to provoke some degree of pushback or resistance.
The second habit is something that came straight out of the history of the crisis at LEGO.
David Gram: Point number two, habit number two: they also need to learn how to play by the rules of the existing organization. Of course, they will also be breaking a lot of rules, but they need to only break the ones that is absolutely necessary and then they need to show a great respect towards that. “Those rules were there for a reason. But now we have to do things differently for these other reasons.” They have to be very good at telling that story.
Wade Roush: We talked earlier about the frenzy of experimentation at LEGO from the mid-90s through the end of the Plougmann years.
The main problem with that style of innovation, through the lens of the diplomatic rebels theory, was that product developers at LEGO were taking big risks and breaking all the rules at once, often for reasons that seemed willy-nilly.
But Gram thinks the company learned its lesson.
David Gram: I believe that a number of the executives at LEGO have been, through the years, really, really good at cultivating this balance between the rebel and the diplomat, between the discipline and creativity and having a playful culture.
Wade Roush: Now, that idea of a playful culture leads to one last question we haven’t really talked about yet. And that’s the huge influence LEGO has had on the way we think about creativity.
Not just kids, and not just adult fans of LEGO, but even businesses.
Earlier we met Robert Rasmussen.
He joined the company in 1988 as director of R&D for Lego Education.
And he led the team that developed the educational curriculum behind the LEGO Mindstorms series of programmable robots.
And Rasmussen says one day in the early 1990s Kjeld Kirk Kristiansen approach him and shared a confession.
Robert Rasmussen: He had this gut feeling: “Man, what if we hit hard times? What if this increasing sales curve doesn’t continue?”
Wade Roush: Remember, these were the years right after LEGO’s patents on the brick system had expired.
Kjeld was worried that the company had gotten lazy and that it wasn’t ready to start thinking differently about how to keep growing.
In retrospect, of course, we know he was right.
But at the time Kjeld felt like nobody was taking his fears seriously.
So he asked Rasmussen to help him explore ways to use LEGO bricks themselves to systematically boost creativity inside the company.
Robert Rasmussen: The thing was from Kjeld, “well, if we claim that the bricks are good to get children's imagination going, it should also apply to us, to ourselves and to adults.”
Wade Roush: Rasmussen took on the project.
And after a few years of experimenting, he discovered that in at least one way, LEGO bricks could make workplaces more effective, by functioning as a kind of democratizing force during meetings.
Now, let’s just acknowledge that most business meetings suck, and that’s been true since the beginning of time.
Rasmussen thinks it’s mainly because of the 20/80 problem.
Meaning, twenty percent of the people in a meeting typically use up eighty percent of the time.
And of course, it’s usually the twenty percent who already hold all the power.
So ideas from the other eighty percent never even get a hearing.
Rasmussen discovered that he could eliminate the 20/80 problem by dumping a bunch of LEGO bricks on the table.
He would ask an opening question, and then he would have everyone build their answer.
The he would go around the table and let every explain what their brick creation represented.
The act of building before talking somehow leveled the playing field.
It empowered people from all levels in a hierarchy to speak more openly.
Robert Rasmussen: I then got a prototype ready and tried it out on my own team. This was this eureka moment for me. “Wow. This is really, really, really good.” Because the best answers came from the people that never say anything. It came from administrative assistant Shannon and the designer called Anzie. “Why haven't you ever said these things before? Because this is the best thing we've heard for a long time.” “Well, you know, I'm never expected to contribute. I never expected to voice my opinion. I never expect to give my insight and stuff.” That, for me, was this tiny moment of Whoa, this is really, really, really good.
Wade Roush: That insight grew into a whole methodology called LEGO Serious Play.
Today Rasmussen is the co-director of the organization Kristiansen spun off from LEGO specifically to teach the approach.
It’s called the Association of Master Trainers in the LEGO Serious Play Method.
Rasmussen says the group’s training sessions bring in at least 10,000 people around the world every year—including some LEGO employees.
And naturally, LEGO sells sets of bricks specially designed for companies that want to try the Serious Play method.
The kits include thousands of pieces, and they’re expensive – the biggest one costs $790.
And they contain such a unique variety of pieces that there’s been a funny side effect.
Robert Rasmussen: The LEGO Serious Play products are often out of stock for US facilitators, because, I think, they are bought by many of the adult fans. Because the Lego Serious Play sets are really, really cool sets. There's a collection of pieces that you cannot get anywhere else.
Wade Roush: So do you feel like Kjeld Kirk Kristiansen was correct that there was something…fundamental about the value of imagination and creativity and that we can unlock it using these bricks, we ought to be able to apply that philosophy to ourselves here inside LEGO and unleash new, you know, undiscovered levels of creativity. Do you think he was right?
Robert Rasmussen: Oh, absolutely. I mean. Kjeld has always had this sort of intuitive sense of the power of the bricks. And I think my own discovery through the Lego Serious Play, it's been fascinating and there is something about our hands and there's something about our desire to make things which seems to be part of our genetic coding and stuff like that . Somehow the bricks, because they're systematic, which really gives you freedom. It's the fact that the system that gives you the freedom to create so many things really quickly.
Wade Roush: From your perspective, as a former insider, I'm wondering if you feel that Lego in some way rediscovered the essence of play and experimentation under Knudstorp, and that that's part of the reason the company has had such a successful comeback?
Robert Rasmussen: Oh, totally. Because what Jørgen did, he instilled faith in the brick. Because the prior to that that there was this doubt in the in the executive that Lego could not survive in the future by just being a brick company. He totally instilled faith. We make the crown jewel and the crown jewel is a brick and we will survive and we will we will prosper by focusing on the brick. Then we will get all of these other people, like Disney and others, to make movies to cartoons and so that it'll be even more enjoyable to play with the brick. He installed that fundamental faith in the entire organization, which I think is really, really critical to what happened.
[musical pause]
Wade Roush: We’ve got one more episode coming up in the miniseries, and it’s about the Swiss pharmaceutical giant Novartis. But if we want to step back and start asking what we’ve learned, I think we can already see a few themes emerging.
First off, there really is such a thing as a persistently innovative company.
Growing up, getting big, and even getting old as a company doesn’t have to mean that you stop reinventing yourself.
But there are almost always going to be rough patches.
The companies we’ve chronicled all weathered their crisis periods in different ways.
But in all three cases they had to find ways to bring their businesses back into alignment with their founding philosophies.
Apple got off track because during the years Steve Jobs was away, it stopped paying attention to its core customers, the creatives.
Management turned into an old boys’ club and focused on squeezing more profits out of existing product lines.
When Jobs came back, he blew all that up.
He brought in new people and built new structures that set the stage for Apple to re-enchant its customers through big leaps in technology and design.
The story at Disney was a little different.
In the 1990s and 2000s, they could see that computer graphics technology was changing what audiences expected from animated films.
And they could see that wireless technology was changing the way guests could experience their theme parks.
But it ended up taking the company a really long time to figure out how to absorb those new technologies and use them in a way that felt distinctively Disney.
In a way Disney had to remember that it wasn’t just a storytelling company or a technology company.
It was both, and it had been from the beginning.
LEGO got into trouble when it forgot that kids don’t just want to be entertained.
They want to be challenged.
A LEGO brick isn’t just a hunk of ABS plastic.
It’s a thing you invent with.
And when the company went back to thinking inside the box, that’s when everything finally started clicking again.
[sound effect of LEGO pieces clicking together]
[music: “Everything Is Awesome”]
[podcast theme]
Wade Roush: The Persistent Innovators is a miniseries from Innovation Answered, InnoLead’s podcast for corporate change makers.
It’s written and produced by me, Wade Roush, and edited by Scott Kirsner.
Music in this episode by Lee Rosevere.
I’d like to thank Kristen Krasinskas, and Collin Robisheaux over at InnoLead for all their help.
A special thank you to our sponsor PatSnap, and to my guests Robert Rasmussen, David Gram, and Bill Breen.
I’ll see you in two weeks for our fourth and final episode.
Until then, stay safe, and thanks for listening.
