LEGO: THE CRISIS Harvard Case Solution & Analysis

Answer 1:

The Lego group is on the verge of bankruptcy, and the newly appointed CEO is under consideration about the new moves that the company has to take in order to cope up with the situation. The CEO has to answer many questions and select the right and appropriate strategies that can take the company out of this situation by paying all the debts and help the company to move ahead towards the direction of growth. However the reason for this situation is the changing trends in the industry and the power of buyers that is increasing rapidly. In order to further evaluate these trends it is important to analyze the situation through conducting an industry analysis. One of the major reasons for the financial crisis of the company is lost the edge in manufacturing and supply chain. The company kept hold of these two activities, while the industry moved on towards outsourcing that gave them a cost advantage. The sales are also declining, which is a major factor because losing 29% in sales is a heavy blow for the company in a highly intense industry. Therefore, it is important to conduct an industry analysis to further investigate the reasons for the crisis and the chances of survival. The five forces defined by Porter that helps in shaping the industry will be used to analyze the factors that are leading the company towards this situation.

The major supplier of the company is a German company Bayer AG, which provides LEGO with the plastic ABS, which is considered as the main ingredient for LEGO’s brick. As ABS is produced from using petroleum and the by-products of it; the company Bayer AG holds the exclusivity for it that means that in this scenario the supplier has the power. The company can easily shape prices for the raw material provided by the company and any change in oil prices can also result in increased prices that may affect the profit margins of LEGO. Therefore, it is obvious that the suppliers bargaining power is quite high and the supplier can also threat Lego by doing business with Lego’s immediate competitor or rival in the industry.

Lego is using different retailers who are also the buyers of the company’s products as the major distributors for its products. The largest buyers include large retail outlets like Wal-Mart and Toys “R” Us, who are established players in the industry and have a well-reputed name. These retailers can easily shape and set the retail prices and delivery times as they are directly interacting with the consumer. Since they have a well-reputed brand name which gives them high power to bargain and can threaten the company by replacing the company with a competitor or can give way to new entrants. Losing the shelf space will be a great loss for the company and indicates that buyers in this industry have high power to bargain.

The company has lost its patents long time ago, which made the entry of new entrants in the market quite easy with almost zero barriers to entry. Although the initial cost requires setting the business and establishing as a brand is very high, but piracy is still causing a great damage. The threat of new entrants is getting intense with the passage of time as many small firms in developing countries are taking advantage of the low cost which led them to start manufacturing the replicas of Lego’s products. Although the company has an established brand name and positioning and is well established in the market, but this new threat has caused a great damage to the company in the form of loss in sales and profits. New entrants can also enter the market as direct competitors with new products and innovative strategies, and retailers can also start manufacturing toys in order to eliminate their dependency.


The major audience for toys is children who use toys as a source of entertainment and joy which can easily be replaced by many things. However, the consumers are becoming demanding and the changing trends refer that the industry requires constant innovation. The substitutes that can be used as a source of entertainment are readily available, whereas, toys are not readily available which increases the threat to some extent.On the other hand, the rivalry in the industry is also becoming intense due to low switching cost and minimal barriers for consumers to select the best possible alternative. The company is facing direct competition from competitors like Mattel and Hasbro while indirect competition from makers of console games like Sony and Nintendo..............

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