Letting Go at LEGO: How Open Innovation Reinforces Product Creativity and Design
Since 1998, LEGO has been leading the way in Open Innovation – finding success in sourcing new ideas from an active online community of dedicated LEGO fans. Twenty years later, how can the iconic brick behemoth continue to harness the excitement of their passionate consumers to stay successful in the competitive and challenging toy and games arena?
In 2003, LEGO CEO Jørgen Vig Knudstorp declared that the company was “on a burning platform, losing money with negative cashflow,” after years of losing touch with their core market [1]. Their product lineup had shifted from their core offering to an expansive push into branded apparel, theme parks, and adjacent products. By chance, only a few years earlier, Lego had launched a new product in 1998 called “Mindstorms” that uncovered a new target market who would become critical to their new product innovation process – so called “AFOLs,” or Adult Fans of LEGO [2]. By shifting creation of ideals in part to AFOLs through crowdsourcing and contests, Lego built an expanded pipeline of new products and created an active online community that encouraged further engagement with the brand.
In the competitive toy industry, innovation remains critical to success. Both Hasbro and Mattel, leaders in the global toy market, have faced declining sales recently in part due to poor product development choices. Hasbro, for example, blamed cooling interest in its Star Wars product line as a key driver in their revenue decline; with limited an additional new product in their pipeline, this decreased interest translated into a 21% sales drop [3]. This same trend is visible at Mattel, which has struggled for the past five years as it continued to rely on “traditional toys” [4]. After 13 years of growth, LEGO must continue to drive open innovation to stay relevant to its customers.
Today, LEGO runs an online community called “LEGO Ideas,” the successor to LEGO Cuusoo, a platform on which users submit ideas for new products, on which other users vote. This crowdsourcing and contest platform was LEGO’s answer to the “deep knowledge and specialization issue,” ensuring that products suggested by a dedicated set of users would still have mass appeal [5]. A total of 10,000 users must support a project within two years of submissions for it to be formally reviewed by the Lego Company [6]. The most recent product to be announced from this open innovation pipeline was a “Pop-Up Book,” released in stores on November 1, 2018. In the short-term, Lego will likely continue to rely on this crowd-sourcing platform to generate new ideas to feed the top of their innovation funnel.
In the medium-term, however, LEGO faces a significantly larger challenge. In March 2018, the company reported a 17% decline in operating profit. This signaled a need to begin rethinking how it interacts with users, especially as the traditional AFOL population begins to drop-off [7]. As such, LEGO has turned its eyes toward China, teaming up with Tencent to release new games targeted again at children. The first of these games, “LEGO Cube” is built on a “sandbox” platform in which users have an opportunity to “develop skills including: 3D design, construction, building, and coding” [8]. By focusing on games rather than pure submission contest platforms like LEGO Ideas, LEGO is turning towards a “complementor” approach to open innovation rather than “contests” or “collaborative communities” [9]. Utilizing a core gaming product, LEGO hopes to harness the creative concepts of their young users to inspire the next generation of product ideas.
Moving forward, LEGO should aim to target its open innovation practices not only at AFOLs and end-users, but also at parents. According to the Toy Industry Association, only one in ten toys is purchased by the child, making parents the ultimate decision makers [10]. Further, 40% of toy purchases involve both parents and children being equally enthusiastic about toy purchase. By sourcing new product ideas from parents, LEGO may be able to further expand the top of their product innovation funnel to better understand what products interest both parent and child. Further, the Toy Industry Association named “Millennial Nostalgia” among its 2018 trends, highlighting parents desire to engage with “retro brands,” signaling further parental interest in making the beloved LEGO relevant [11].
Additionally, LEGO might consider capitalizing upon it’s significant brick and mortar footprint to drive additional open innovation. While most energy and efforts are currently spent expanding digital engagement, LEGO can also utilize its nearly 150 retail stores and 8 LEGOLAND theme parks to create additional opportunities for creative input from its customer base. Through live contests, in-store customer surveys, and perhaps “build-a-thons,” LEGO can ensure that it is capturing data not only from its most active online users, but also from its more passive retail visitors to maximize innovation opportunities.
Ultimately, LEGO will be forced to answer the same questions facing many toy-makers. How will they remain relevant in a world so focused on technology and media? Who is LEGO’s core customer – the child, the parent, or the adult enthusiast? And ultimately, how can LEGO’s legacy of open innovation help them to answer these questions?
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Endnotes
[1] Martin Lindstrom, “Here’s How an Old Pair of Sneakers Saved Lego,” Forbes, March 13, 2016 [http://fortune.com/2016/03/13/heres-how-an-old-pair-of-sneakers-saved-lego/], accessed November 12, 2018.
[2] Nicolas Ind, “How participation is changing the practice of managing brands,” Journal of Brand Management, Vol 21, 9, 734-732.
[3] Paul Ziobro and Cara Lombardo, “Hasbro’s Sales Fall as Star Wars Craze Cools,” Wall Street Journal, February 7, 2018 [https://www.wsj.com/articles/hasbros-sales-top-mattels-for-the-first-time-in-more-than-two-decades-1518007982], accessed November 12, 2018.
[4] Tonya Garcia, “Mattel earnings: Kids are turning away from traditional toys,” MarketWatch, April 20, 2017 [https://www.marketwatch.com/story/mattel-earnings-kids-are-turning-away-from-traditional-toys-2017-04-18], accessed November 12, 2018.
[5] Yun Mi Antorini, Albert M. Muñiz, Jr. “The Benefits and Challenges of Collaborating with User Communities,” Research Technology Management (May-June 2013).
[6] “Lego Ideas: How It Works” [https://ideas.lego.com/howitworks], accessed November 12, 2018.
[7] Dominic Chopping and Saabira Chaudhuri, “Lego Struggles to Pick Itself Up,” Wall Street Journal, March 6, 2018 [https://www.wsj.com/articles/lego-struggles-to-pick-itself-up-1520326252], accessed November 12, 2018.
[8] “LEGO Cube – The First LEGO Branded Mobile Game in China, Developed by Tencent Games,” September 19, 2018 [https://www.lego.com/en-gb/aboutus/news-room/2018/september/lego-cube-tencent-2018], accessed November 12, 2018.
[9] Kevin Boudreau and Karim Lakhani, “Using the crowd as an innovation partner,” Harvard Business Review 91, no. 4 (April 2013).
[10] “Toy & Game Family and Decision Making Study,” Toy Industry Association, July 2013.
[11] “The Toy Association: Trend Spotting – 2018 Trends,” [https://www.toyassociation.org/ta/research/reports/trends/toys/research-and-data/reports/trend-spotting.aspx], accessed November 12, 2018.
Great read, thanks for posing for some important questions. I also wonder how Lego will remain relevant in the toy business with the entire industry facing this identity crisis of sorts. I think Legos move into Hollywood, and augmented reality, bringing toys to life with keep the company afloat. They have been good at adapting their brand with changing times and staying relevant, while still remaining true to their identity. In 2003, hasty innovation and moving into markets with poor research or customer base approval drove them to bankruptcy and so the question you pose, on who is their customer is crucial. I think it is the adult population who is their core customer, especially since implementing ideas from these adults got the company out of its rut, shows that the ones who recommended changes were also the right audience. Legos idea of getting an idea accepted by “10,000 users must within two years of submissions for it to be formally reviewed by the Lego Company” however seems very modest. 2 years is a long time frame and 10,000 users is not critical mass. i wonder if there is a way for lego to go out and seek innovation by launching challenges and contests and getting people to contribute to new ideas actively rather than passively?
My answer is no, Lego cannot stay relevant in the age of AI. Children are increasingly being exposed to digital platforms earlier and earlier on, and the new forthcoming generation of parents hasn’t been exposed to LEGO in their childhood. Unfortunately, children born in 2030 will not receive LEGOs, they’ll receive tablets.
In regards to digitalgangsta’s point above and to one of the questions in your last paragraph, I think they challenge for LEGO will be to find a way to incorporate their standard bricks with new AI/VR/ in the same way that the incorporating their bricks with robotics with Mindstorms in 1998. Your essay does a good job of outlining some of the areas that LEGO has innovated so far, and you also bring up a good point that parents are an incredibly important target audience in the toy purchasing behavior. Likely LEGO will have to not only capture the excitement of children, but also show to parents that they are helpful in the growth of their children (dexterity, creativity, teamwork, etc) in order to show that there is value for both parties.
Out of curiosity, what have been traditional toy companies’ (Lego, Mattel, Hasbro) innovation process in the past? Understanding that Mattel and Hasbro made bad decisions that led to declining sales, in what ways (if any) were they being proactive or design-oriented?
In regards to the open innovation platforms, who is the typical user/contributor to Lego Ideas? Are these edge, super-users? Does Lego aid the discovery of their Ideas platform? (I.e. through advertising or inbound marketing?)
I think your mention of media is super interesting and relevant — what is the future of tactile toys and games, and what is Lego’s role in that world? Can Lego establish a competitive edge in a more digital/virtual world of toys, fun, and entertainment? They are clearly testing this with their movies, I wonder how successful it has been…
Agree with Mike’s comment above. A tablet alone can’t replace LEGOs…kids need to be hands-on. I think the opportunity is there to incorporate VR into their offerings, even in the form of a global “build-a-thon.” Overall, I really enjoyed this article. It’s very cool that a product as seemingly simple as LEGOs can gain so much value from an open innovation framework.
Great piece and a topic that is particularly dear to my heart! As an AFOL myself, I would truly hope LEGO can find ways to remain relevant in our increasingly digital world, and believe open innovation is key to their go-forward success. While I think LEGO Ideas is a fantastic vehicle to leverage the open source platform and engage the online community, LEGO should shorten the reaction to time to these ideas – the 2 year wait time is simply too long to keep a customer’s interest. I completely agree that bringing LEGO toys to life through interactive games will be an important lever for the company – I’d like to see them harness that avenue here in North America (could LEGO be the new SIMS?)
Excellent article – thank you Jake! One of the best articles I’ve read recently.
I am positive that LEGO will continue to stay relevant in the coming decades. Perhaps I am very naive, but I think that offline world will continue to play a role in our lives. I think that printed books, LEGO and board games can survive. Despite the increasing use of technology, our generation still tries to transmit to its children that there is a value in the offline world.
On another note, I am really intrigued by how LEGO has leveraged open innovation to drive sales growth and remain competitive. I wonder why don’t we see this more often in other B2C industries. I don’t recall having seen this in the food and beverage industry or in the fashion industry. What could be the reason?
This was a joy to read – thank you for writing on this topic! I agree with Mike’s point above: in order for LEGO to remain relevant, I think it, in part, needs to tap into the parent-child relationship. It should position itself as a toy that teaches kids creativity and design/building/dexterity skills, and its marketing strategy should focus on how LEGOs can strengthen the parent-child relationship. LEGOs represent nostalgia and are toys that parents can play together with their kids. I love how they crowdsource innovative product ideas and I think they really need to double down on this in their bricks-and-mortar stores and theme parks to enhance engagement. Perhaps they could even partner with public libraries or schools to really drive their message of innovation and creativity. For example, I can see them doing a campaign with public schools where kids imagine themselves and their surroundings in the future and the company highlights a few of the stories.
Interesting article juxtaposing an open innovation method we would expect in mostly software development in a tangible product business as Lego. I have been noticing more and more complex Lego products in the rare case I see them in a store. It’s a great way to involve consumers into product development; I can see a parallel in the way Snapchat allows users to design filters for the location they are in. Can open innovation go further than creating new toy designs and into new materials as well? Plastic building blocks are Lego’s trademark, but there may be a way to reinterpret this in an idea generation method as radical and divergent as open innovation.
Great article! I like the idea of using the in store experience as an opportunity to drive open innovation. Retailers are struggling more than ever and bringing this experiential component to the store would likely drive increased foot traffic (and in turn sales) in addition to open innovation.
That said, I tend to agree with some of the other comments that ultimately, the LEGO customer is the parent. I think that LEGO will need to create new ways to gather feedback with this in mind. Parents might be less likely to seek out LEGO directly, in which case the company will need to go where parents already are to source their ideas. They will also need to create different incentives for parents to participate in idea sharing. One thought is that they could solicit ideas in many of the parent facebook forums that already exist online and compensate parents for winning ideas with LEGO discounts.
I think this is a great topic that covers Open Innovation with exceptional detail. I fully understand how LEGO–unlike many of its peers–fully embraced the open innovation revolution and the impact it has had on its product line. I am less unsure of the negative aspects and the eventual impact of this decision. What risks do we further incur as a traditionally children’s toy company in outsourcing ideas to a largely adult class of people? Have any other competitors started to follow-suit?
Thanks, Jake! I think it’s so interesting to see the progression of Open Innovation over the course of LEGO’s history. For most companies, Open Innovation is a newly adopted practice, so it’s intriguing to see how it continues to add value over a longer period of time. In a sense, LEGO’s customers have become accustomed to LEGO’s use of it and have learned to expect this personal level of engagement with the brand. I’m really curious to see how that relationship will continue to evolve. Will this type of engagement still be interesting to consumers and a competitive advantage for LEGO? While it was once a differentiating new idea, now it’s essentially the baseline expectation. I liked your ideas about tailoring the platform to different types of consumers (i.e. parents and adult millennials), in order to best meet their specific needs. I’m interested to see where it all leads!
As someone who taught how to program Mindstorms Robotics to kids until 3 years ago, I am a huge fan of this topic and agree with many of the comments above. In particular, I do think the Lego Customer is primarily the parent and AFOLs who would be passionate enough to join the Lego Ideas forum to comment/submit entries in contests. I think another angle on open innovation which Lego could leverage is involving professional industrial design, fashion design and interior design students. I am imagining holding mini contests at the big institutes in these disciplines to see if these students can come up with some unexpected use cases / ideas for Legos.
The bottomline is, open innovation helps you get ahead of the problem ‘the customer does not always know what they want’. So, instead of asking the customer directly, Lego should go to peripheral creative disciplines to pre-empt ratchet effects in toy design preferences/trends.
Thanks for the article Jake! I love that LEGO is continuing to leverage open innovation in unique complementary ways. I think it is a way to really drive brand loyalty for the customers, as they will feel that they had a say in developing the project. I do agree with any of the other comments though, and I personally find it hard to imagine that physical LEGOs will be a large part of the business in the future. LEGO will have to continue to find new ways, such as VR like others mentioned, to attract a younger population that is more engaged with technology.
Thank you for writing about this. As an uncle with a 6-year old niece, I have experienced the toy purchasing decision multiple times every year. When I examine my own purchasing behavior, I see that I have been influenced by what my niece thinks is the “hottest”, most popular toys / brands out there, e.g. Hatchimals, Frozen, etc. I’ve realized that children are very impressionable by what’s popular in the media they consume and at school. The reservation I have with open innovation in toys is that it seems more geared towards the adult enthusiast who can appreciate newer more innovative toy ideas. I am curious what the market share % breakdown is in toys purchased for kids vs adult enthusiast. If there is a large enough market potential for adult enthusiasts, then I think open innovation can help LEGO grow.
Great read! With open innovation, I think that LEGO can position themselves beyond the toy category, and perhaps into the “creativity training”/prototyping category to remain relevant to both kids and adults. By moving some of their designs beyond physical blocks to the computer screen, LEGO is already allowing for less friction and more design options. Since they already have a “hero” product in their famous little building blocks, they can theoretically choose to move into any area they want (digital, 3D printing, etc) and take over the “physical open-innovation” space as a whole.