How Lego rebuilt its business, brick by brick

Brick by Brick

How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry

By David C. Robertson, with Bill Breen

Crown Business. 320 pp. $26

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Reviewed by Jane M. Von Bergen

In the spoonful-of-sugar-helps-the-medicine-go-down school of education, Wharton professor David C. Robertson uses the fond nostalgia many have for a favorite childhood construction toy, Legos, to teach a tough lesson about managing innovation and creativity in business.

Innovation requires focus, budgets, rules, numbers, parameters. In other words, innovators and their managers need the discipline and willingness to climb right back into that box we're always trying to think outside of, Robertson writes in his book, Brick by Brick: How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry.

People can be creative all day and all night - playing pool in the conference room, wearing flip-flops, taking their iPads to Starbucks, tapping the office keg planted in a corner of a converted former factory - but in the end, if their products aren't attractive to customers and if they aren't profitable to make, it's a lot of wasted lagers and lattes.

Or the company can go broke, which is what almost happened to Lego.

How Lego got into trouble and how it got out of it is Robertson's story, co-written with Bill Breen. Robertson had excellent access to the Danish company, its records, and executives.

From the start, when the company abandoned its money-earning line of wooden toys to move into the plastic brick that became its mainstay, Lego executives have shown courage. They had the courage to allow Robertson the kind of access that permits him to present an unvarnished look at the company's nearly fatal experimentation with out-of-control innovation. It's a safe bet this book is required reading for new hires at Lego, as the company's motivation in allowing Robertson so much access was to make sure Lego never makes the same mistake again.

In 1988, the patent on the Lego brick expired, but sales continued to grow as the company expanded into new areas. Positive results masked an underlying weakness. Children were moving into video games and had less time for the free-form play Legos embodied. In 1998, the company lost money, $48 million, for the first time. In 1999, it laid off 1,000 workers.

Was that the crisis? Definitely, but it was the solution that nearly put the company out of business in 2003.

Desperate to conquer the modern world of play, the company moved in too many directions too quickly, expanding its theme parks, moving into retail with its own stores, offering a clothing line, developing television productions, all while grappling with creating a digital version of the Lego experience. Development costs soared. Profits did not. By 2003, analysts were forecasting the company would not survive.

The heart of Lego's journey to survival and now growth (24 percent sales growth and 40 percent profit annually over the last few years) lies in the book's fourth and most interesting chapter, "Building an Innovation Culture."

Having canned the turnaround guru who was supposed to bring the company into the modern age of play, the new leadership team (which included the grandson of the company's founder) took a hard look at the realities. Yes, children played with Legos, but the buyers of the product were retailers and the retailers weren't happy. The company resolved to see retailers as the prime customer, matching their products and timing to the retailers' needs.

Simply returning to the "brick," the core product would not be enough, even though it would form the "box" within which company designers would work. New products had to be developed to keep the line fresh yet Lego-esque.

Another part of the box was a number, 13.5 percent. To make it to market, any product would have to prove that it would have a 13.5 percent return on sales. That required designers to keep a lid - a box lid, perhaps - on development and productions costs. For example, the cost to develop the mold for any single plastic piece runs $50,000 to $80,000. If the mold produces 60 million pieces, each piece is essentially free. But if only 50,000 pieces are produced for a specialized set, each costs a dollar. The designer, disciplined by the box, must now evaluate cost versus coolness. Could another mold in the archives be reconfigured?

As interesting as the ideas are, sometimes the book drags. It might have been helpful to have a cheat sheet with the names of the toys, the years of development and a comment or two about them in a reference grid. But Robertson's focus on the management of innovation and the very practical strategies to achieve it based on Lego's experiences make this book worth reading.