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 . 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 . 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 . This same trend is visible at Mattel, which has struggled for the past five years as it continued to rely on “traditional toys” . 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 . 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 . 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 . 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” . 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” . 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 . 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 .
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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