The Missing Piece: How Lego Found Open Innovation at a Critical Time
Lego was facing financial distress in the mid-2000s. In this time of turmoil, it turned to open innovation to restart its business.
Society tends to view open innovation as a novel tool to create incremental value specifically for growing organizations. Although this is often the case, open innovation, and crowdsourcing specifically, can also be used to turnaround organizations under financial and strategic distress. Since the 1930s, Lego has captured the hearts and minds of children and teenagers across the world with its unique building blocks. As the company grew, it expanded its operations and entered the theme park and video game industries [1]. By the mid-2000s, these initiatives were largely unsuccessful, and the company was left grappling with its precarious financial position [1]. Since then, the company has reversed course, in large part due to two open innovation programs: Mindstorms and Lego Ideas. This paper will focus on Lego Ideas as it is the most recent and current iteration of the company’s crowdsourcing strategy.
Lego Ideas is a program that invites users to interface with an online, proprietary Lego software platform to submit product design ideas to Lego [2]. These ideas are then voted on by the Lego user community. If a design reaches the threshold of 10,000 community votes, Lego initiates its internal processes of design evaluation and potentially product development. One design per year is selected for production, and the original user designer receives 1% of sales as a royalty. Lego Ideas, like many corporate crowdsourcing initiatives, directly connects with the customer, providing entertainment value and learning opportunities for children and adolescents. It uses information technology to augment the company’s fundamental value proposition. Customers continue to build and learn, but also gain access to a community of fellow Lego builders which enhances the platform’s attractiveness. Consumer products companies must understand the critical importance of being socially driven [3], and Lego Ideas is predicated on this strategy. Instead of conducting a market test after the product has been developed and introduced to consumers, the demand hypothesis is partially validated by the user voting system prior to product development. This reverses the typical process of toy-making at Lego.
The Lego Ideas platform faces issues with regards to its internal processes that take place after the users have evaluated their peers’ designs. Prior to any involvement by the Lego team, users move through the generate, organize, clarify, and evaluate crowdsourcing collaboration patterns [4] by generating product designs, commenting on these, and finally voting on the best concepts. Only after this external process does Lego management begin reviewing the top community designs and communicating to the users whether a concept was greenlit. It is this internal process that leaves the company vulnerable to product development and customer satisfaction challenges.
Crowdsourcing at Lego need not be a purely sequential process in which the company is at the mercy of the rate of outside innovation. Lego can start implementing certain stages of product development prior to the full review process of user designs has been completed. One of the first greenlit Lego Ideas concepts, a Minecraft toy, required Lego to haphazardly form a partnership with Mojang to use its Minecraft intellectual property [2]. This caused issues internally with the launch timeline. In the short term, the company should be more facile in using intelligence from voting trends to be ahead of potential required partnerships. Given its reliance on strategic partnerships, Lego must start conversations with outside firms before an idea is fully approved.
By welcoming the Lego fan into the process of innovation, the Lego Ideas team must weigh the medium-term customer relationship implications of open innovation. Given that free labor is being provided by open innovation [5], it is plausible that customers could demand insight into the company’s evaluation process. Management at Lego must find the appropriate balance between guarding trade secrets and inviting customers into the internal process. Perhaps this is done in a public forum after an idea is greenlit, with executives detailing the factors that went into the decision at a high level. Regardless of its execution, Lego needs to be balanced when responding to consumer requests given the sensitivity of its internal processes and the sanctity of its relationship with customers.
The combination of social media, powerful IT design tools, and a passionate fanbase created a truly unique opportunity for Lego to turnaround its fortunes. Beyond the primary concerns of process improvement and customer relationships, the company must also reflect on how the dynamic has changed within its own organization. Having historically been both a design and engineering focused firm, its recent embrace of open innovation has relegated the design teams. How does Lego plan to deal with potential dissent from its own designers? As the company moves forward with crowdsourcing, it must be cognizant of this and several other unintended consequences.
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Endnotes:
- Johnny Davis, “How Lego clicked: the super brand that reinvented itself,” The Guardian (June 2017), 2, https://www.theguardian.com/lifeandstyle/2017/jun/04/how-lego-clicked-the-super-brand-that-reinvented-itself
- Daniel Schlagwein, “Organizational Learning with Crowdsourcing: The Revelatory Case of LEGO,” Journal of the Association for Information Systems: Vol. 15 : Iss. 11 , Article 3 (2014), 9-12.
- Charlene Chu, “Lego Ideas: A Good Crowdsourcing Idea,” Social Media for Business Performance at The University of Waterloo (February 2016), http://smbp.uwaterloo.ca/2016/02/lego-has-the-right-idea-when-it-comes-to-crowdsourcing/.
- Cuong Nguyen, “Crowdsourcing as lego: Unpacking the building blocks of crowdsourcing collaboration processes,” (January 2013), 8, https://www.researchgate.net/publication/286349887_Crowdsourcing_as_lego_Unpacking_the_building_blocks_of_crowdsourcing_collaboration_processes.
- K. Lakhani and J. Panetta, “The principles of distributed innovation,” Innovations: Technology, Governance, Globalization 2, no. 3 (Summer 2007),” 97–112.
The inner kid in me loves this idea from Lego, but I also share many of your concerns about the product development process and timeline. I see that Lego only produces one project per year right now, but what if multiple projects warrant development – can Lego do this? I fear that the more that they open themselves up to crowdsourced innovation, the more that they are restricting their design team, shrinking the potential “greenspace” for new design, and providing opportunities for people to sue them for “stealing their ideas” if it is used in any potential shape or form. I wonder if it would be valuable for Lego to separate out the crowdsourced designs into a different brand or workstream so that people can keep those product ideas separate from the traditional Lego products. Another option could be to offer less of a reward for good ideas and just provide a social reinforcement system which enables Lego to move forward with more than one product a year but without sacrificing 1% of royalties per product. Moreover, should there be restrictions on what ideas people can put forward – what if a product moves far within the process but it has no potential real viability or feasibility or legal rights? I appreciate Lego changing with the times, but I am not sure if the open innovation will be its ultimate savior in the long run.
Very cool to see this from Lego! In principle, it makes a ton of sense – what better way to engage an eager and creative customer base than to involve them in the very development of the products they will use. To the point regarding potential dissent from the company’s design team, I think I’m not quite so worried. Given that only 1 idea is brought to market each year, it’s not as though designers are competing for work with the broader public. Further, I would think a tremendous amount of design and engineering occurs between the steps of conceptualization and market launch. That said, I do agree that running an open innovation funnel such as this does command certain degree of transparency, as to avoid the problem mentioned above of Lego potentially receiving criticism for stealing ideas from the public.
This is so cool. As a Lego lover, I would have loved to have the opportunity to present the ideas I had as a kid to them. Anyway, I see this type of initiatives (at least in this case) as a marketing strategy to attract more kids into Lego, given that the effort to design and manufacture different sets is probably difficult. I wonder if this initiative could be complemented with 3D printing technologies, automating the process even more.
On balancing external vs. internal product ideation, I do think that if the open innovation process proves fruitful and effective, there is space for Lego to reduce the size of its in-house design team. However, once the redundancy is removed, Lego should put the remaining inhouse team in charge of evaluating externally sourced ideas and overseeing the production process. This arrangement could help ensure 1) seamless transition between open innovation and inhouse processes, 2) buy-in from inhouse design team, and 3) ownership of follow-up steps.
Regarding your concern of dissent from Lego’s internal designers, I fully agree that it is ludicrous to only allow the R&D process to begin after 10,000 votes are received. There must be other options to keep everyone engaged while continuing to benefit from open innovation.
For example, designers can be given more freedom prior to the 10,000 vote threshold. Only one design per year is being selected for production; this should not take too much time in aggregate. Why not allow designers to browse the concepts at an earlier stage, find some which they like, and advocate for production while completing some of the groundwork? Self-managed teams could even be introduced for this fun, extracurricular process, in order to empower employees. Other options are surely available and would add value to the current structure.
Thank you for a really interesting article! It is very exciting to see Lego, a company that many of us grew up with, still being successful in the market through continuing to innovate in such a creative way through crowdsourcing.
However, I think you are very right in many of the potential risks that you assert the company should be aware of. The example that you provide about Lego having trouble partnering with Mojang in order to create a Minecraft toy and its implications on the timeline of the product made me also think about the strategically vulnerable position that Lego is putting itself in through the way that this program is set up. When Lego goes to Mojang after already having raised customer expectations that a Minecraft toy would be produced (after communicating to users that the project received the green-light), Lego is in a much weaker contractual negotiating position than had they approached Mojang with the potential desire of considering a partnership given Lego’s increased need to consummate the partnership or else disappoint, and potentially alienate, the many customers following Lego Ideas.
This is illustrative of the lesson that empowering the consumer can make them feel more connected and engaged with your brand, a generally positive result; however, if consumer expectations are built up too high and too specifically through this empowerment, a company can be placed in a difficult spot strategically given the subsequent pressures on the company to deliver on its promises.
This is a really great article – thanks! Open innovation at Lego makes a huge amount of sense, both from the perspective of reducing internal R&D costs as well as increasing customer engagement. I would view the open innovation platform as a kind of inbound marketing, building customer interest in the product, which should eventually lead to sales. I suspect that the issue of public disclosure of decision-making process will only become important when teen and adult submitters of ideas are involved – children may be happy to just send their ideas in.
Interesting read! Awesome that they’ve taken to using open innovation to design new products. I’m wondering how this move could be combined with machine learning down the road, to mitigate some of those risks of open innovation. For example, can Lego use data about the commonalities of the top-voted products over the years to be able to design new winners of its own again? I think those two tactics in combination could give Lego the advantage its again seeking. Thanks for sharing!
This is a very neat idea from Lego to reverse the typical product design process and to have partial market testing/data before it moves into the production phase. If Lego leans into this open innovation concept even further, I wonder what sort of organizational or cultural changes the company will need to make in order to fully support this process? One area of concern that I have is the ability for the company to manage the strategic partnerships while simultaneously progressing the design, which may not even be validated at all. How can the company balance between starting the conversation early with partners to minimize lead time versus starting conversations too early for products that end up failing?
I love Lego! It is interesting to see how a traditional company is embracing this new trend to deliver more value to customers.
Regarding your question, I think that several industries are perceiving this tension between its traditional workforce and the rising product development trends. However, I definitely believe this can be a win-win situation for the designers and for the company. The way I see it, Lego fans are contributing to the pipeline of ideas, giving more possibilities to de designers to develop. I believe this trend will allow designers to develop more successful products.
We have learned in marketing that customers often don’t know what they really want. Henry Ford is famous for saying that if he had asked his customers what they wanted, they would have said a faster horse. By inviting customers into the LEGO product development process and relying on their design votes, i wonder if the company risks missing true innovation that makes a difference.
Instead of creating an open source platform of ideas and an internal LEGO member choosing a winner, I think this competition would be best set up as a social media voting system. That way there is no one offering an idea and accusing LEGO of “stealing” it to make a bunch of money. People would be incentivized to present their ideas more clearly.
I actually think this use of open innovation may be more about launching a marketing campaign, than it is about gathering more “outside-the-box” ideas. There’s really no harm, no foul for LEGO to give this a try!
Thanks for the sharing — very cool topic.
I think Lego is very smart to take the move of collecting innovative ideas from their customers. First of all, the platform can be used as consumer research, giving the company the confidence that the product is worth investing in. Second, this is also a good way to strengthen customer relationship and build up higher customer loyalty as they feel like they are a part of the product development, and will be more related to the company. They have brought the meaning of open platform to a new level.
As for the concern over product design team, I believe that this is a good opportunity for them to stay close to the market and to get inspirations. Also, I believe that this is a good method to keep them alert, as now they need to compete with all kinds of people in the market. This might leads to better performance and better quality in internal innovation.
Very interesting read, and a cool foil to the Amazon Studios crowdsourcing story.
I love the idea of Lego using crowdsourced designs because the value proposition and use case of legos was to design and build your own creations, and this created a platform for users to share those creations. It’s interesting that they took the input from the community to drive partnerships with Minecraft and others – it sounds like a great way for them to create lasting bonds with those consumers while tapping deeper into pop culture.
Regarding the question around their design team, I think there’s still value they drive – they can create entire worlds around a single idea pitched from the crowd and still have the ability to develop their own ideas and pieces to be used in new creations.
Excellent article – very interesting read.
As a personal contributor to open innovation (LEGO Ideas) for LEGO [1], I dont think designers have a diminished role. In my mind, they serve a very complimentary role – that is, to ensure that ideas that are filtered and green lit, as you mention in your article, through the open innovation process. From my point of view, the designers role is really scaling an “idea” into a product – that is, making tweaks to the “buildability” and “marketability” of the product such that the end user will want to buy the product, will find it easy to use, and can enjoy it for a future period of time.
One of the biggest personal challenges I found as a crowd sourced innovator contributing to LEGO is that what I originally thought of as a good idea needed to go through several design changes through the process described above, before the end result was something that LEGO could market! However, the designer is uniquely qualified to do this within the organization, as they always have been.
[1] https://medhatch.org/pilot
As a Lego fan, this article is very interesting! I think it’s important for Lego to make open innovation into a way to help its designers team. The consumers ideas could be used as a source of inspiration for the designers, who still should have the freedom of creating new things and combining different ideas. The consumers ideas should not be the only source of innovation, but instead a complement to the designers’ job.
I loved Lego, and it was a crucial part of my childhood, so the article captured my attention immediately. I didn´t even know they struggled at some point, but the way they overcome that difficulty brought me back in time even more! I’d have loved to be able to comment on the ideas to be launched or to propose new ideas that i wanted to see in future Legos.
Still i’d love to know more about the process of how they captured those ideas and brought them to life, as not every famous character can easily be reproduced into a Lego.