Lego: The Crisis Harvard Case Solution & Analysis

Internal Analysis

The internal analysis will discuss the strategies the company is following and the value proposition of the company along with the financial progress and performance of the company. Lastly, the value chain analysis will give an insight of the core values of differentiation for Lego.

Strategy and Value Proposition

The company has followed a differentiation strategy as a business competitive strategy since the company aims at becoming the best player in the market through delivering quality rather than focusing on gaining more revenues and becoming the biggest company in numbers only. The company has shifted its focus on adopting innovation in order to take an edge in new product development and gaining hold of the market despite the threats present in the market.

As the company is facing threat from players like Sony and Nintendo, it needs an approach for synergizing physical and digital play to cope up with the growing indirect threat and introducing a new concept in the market. The company’s target audience of the company has been families as parents play a key role in choosing and selecting the source of entertainment for their children especially in toys.

The value proposition of Lego has always been directed towards children and families or parents through communicating the message that toys are not just toys but can be a source of learning. Lego emphasizes on the learning aspect of toys that enables children to learn something new every time and provokes their imaginative thinking (Bak, 2009).

Performance Analysis

The performance of the company is analyzed using the financial ratios to get a deeper view of the financial performance of the company. Gross margin ratio suggests the percentage contribution of gross profit towards the cost of goods sold. Data from 2001 to 2004 shows that the cost of goods is continuously exceeding the revenue of LEGO. Gross margin continuously decreased except in 2002. The LEGO Group should take some decisions regarding costs and revenue perspective to increase the margin of gross profit against cost of goods sold.

Operating margin is often a measurement of what proportion of the company's revenue is left after paying the variable costs of production, for example, wages, raw materials, etc. A healthy operating margin is essential for a company so that you can pay for the fixed costs, for example, interest on debts. The LEGO Group has some negative operating margins for the year 2003 and 2004 that are 23.0% and 18.4%.

The company needs some extra funding to recover operating expenses. LEGO GROUP is facing cash flows difficulties because they are not earning enough to cover their expenses as the values in 2003 and 2004 have negative Net profit margins showing that the company is making losses.. LEGO should revise the pricing strategy for their products and services and make some solid strategies and evaluation of the forecast that provides a positive impact on operating profit.

LEGO group’s net profit margin for the year 2003 and 2004 is 19.1% and 65.5 this states that losses are more difficult to value than the ones that report steady profits. Any metric which uses net income is nullified each time the company makes losses. Return upon equity (ROE) is one metric.

Nonetheless, not all companies which have negative ROEs are always bad investments. LEGO Group should make some solid investment opportunities to generate some healthy profit in the future and avoid those investments which result in losses and deteriorates the company’s overall performance profits.

Value Chain Analysis

Primary Activities

Inbound Logistics: The inbound logistics of the company include effective use of standard commodities and is dependent on one main supplier.

Operations: Operations will focus on meeting future demands and shaping the production capacity according to that.

Outbound Logistics: The sales are mostly seasonal in the industry, and the peak season comes during festive seasons. Therefore, the company has focused on using superior services for delivery through DHL.

Marketing and Sales: The company has a strong brand name and an  established reputation in the industry. A strong brand name is highly attributed to the strong brand value which the company has created during the recent years. On the other hand, the company has strong strategic partners and is easily available in the market.

Support Activities

Firm Infrastructure: The activities that are carried are very delegated and highly cost effective giving an advantage to the company in the long run.................................

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