Innovation is usually a good thing.
In the family-owned Lego toymaker, innovation over time had brought on way too much complexity.
A mere 30 products generated 80% of sales. Two-thirds of Lego’s 1,500 stock keeping units (SKUs) were for products it no longer made. The company dealt with an astonishing 11,000 suppliers—almost twice as many as Boeing uses to build airplanes.
Enough was enough. First, leaders discussed the mess with workers. Then they set up a war room, where they drew up hundreds of lists tracking backlogs and inventory.
And then, still consulting with workers and customers, they simplified.
- They cut in half the roughly 100 colors of resin for plastic building blocks.
- They narrowed the number of vendors to stabilize pricing.
- They standardized the production cycle and reduced changes.
- They set basic rules for creating new colors and shapes, and for ordering new materials. Basically, Lego urged designers to use existing molds and colors in new ways.
“The best cooks are not the ones who have all the ingredients in front of them,” wrote one senior manager. “They’re the ones who go into whatever kitchen and work with whatever they have.”
Bottom line: Lego’s profits have soared, due in part to simplification and in part to big bets on digitization and girls’ toys. In 2012, the company took $980 million in profits on revenue of $4 billion.
— Adapted from “Rebuilding Lego, Brick by Brick,” Keith Oliver, Edouard Samakh, Peter Heckmann, strategy + business.