IN an age of Nintendo consoles and electronic games, the simple Lego brick has been named 'Toy of the Century' - twice - beating out the teddy bear, Action Man and Barbie.
And if you ask Jorgen Vig Knudstorp, CEO and president of the Lego Group, the colourful plastic interlocking building block - which turns 50 this year - can remain contemporary and engaging for the next 50 years.
For a start, the legions of Lego fans worldwide include a core of Lego Certified Professionals and Ambassadors - who aren't employees, just big-time enthusiasts who take it upon themselves to share their brick-building expertise and inspire other fans, not least kids, to imagine, create and build. And Lego fans play a big part in its product design and development.
Mr Knudstorp himself might be called something of a top-tier fan, and certainly has the verve, the vision and the drive to lead the company that has become one of Denmark's most iconic names, and to keep its place in the diverse fast-changing toy industry.
Only the second outsider to run the family-owned business in its 76-year history (the first was a CEO in the early-1970s), the 39-year-old Dane was a McKinsey consultant before he joined Lego in 2001 as director of strategy development, just before the company hit a rough patch that left it bruised and bleeding.
Lego owner Kjeld Kirk Kristiansen - whose grandfather founded the company in 1932, and who had himself been president and CEO since 1979 - handed over the reins in 2004 to Mr Knudstorp. And the young 'strategist', an MIT graduate, has not only turned Lego around but also pretty much upside down. He has reshaped its corporate culture, even values, and fairly revamped altogether its approach to doing business. That he could do all that right under the big boss' nose, with his blessings, reflects Mr Kristiansen's qualities as an entrepreneur, says Mr Knudstorp.
Spiritual alignment
'We have quite a strong board but, at the end of the day, the owner is the most important person. It's a very special situation, something I have often discussed with the media - how is it to be managing someone else's business when they have been running it themselves for 30 years? And he just turned 60, and obviously he grew up with the Lego brick, he was part of the product development ever since he was five years old. But I think the reason why he picked me and why this continues to work very well is - we have a very good understanding. I think we share the same values and I find him incredibly inspiring to work with, a person who is able to uphold very high values and responsibilities. He, as an owner, is quite happy to let somebody else come in and run the business as long as he feels there is almost a mental or spiritual alignment around why we are here and what we're trying to achieve.'
Mr Kristiansen has all the votes on the board, but appointed himself deputy chairman and someone else as chairman, because he wants someone to check on him and tell him off, says Mr Knudstorp. 'Because sometimes you can be so infatuated with yourself and your company and products, you need somebody who will say: 'Stop! Be a professional!' It's a wonderful, inspiring idea because not many people have that label of, I'd almost call it, humility. And it's not that he's a new business person; he and his family today rank among the 250 richest families in the world, according to Forbes magazine. So, I mean, they have done tremendously, they have made a lot of money from the Lego business and they have invested in other businesses that are larger than Lego today, (though) in the portfolio of businesses, this is the jewel in the crown.' And through it all, the Kristiansens have remained good businesspeople, Mr Knudstorp points out.
Lego founder Ole Kirk Christiansen (the spelling of the family name changed over the years) was a carpenter who started out making wooden toys in the Danish village of Billund, where the head office still sits today. The name Lego comes from the Danish words leg godt, meaning 'play well', and it was learnt later that in Latin, the word means 'I put together'.
Says Mr Knudstorp, who was in Singapore earlier this year for a creativity conference: 'One of the things that fascinated me about him (Christiansen) is he spent 30 years in the business without it really growing, but he was a real entrepreneur, very inventive and very funny, I'm told. And he had some incredibly strong values. One of the things he founded is what we today call Net Promoter Score, NPS. It is a measure of how likely it is that you would recommend a product to somebody else. Now that was invented by Harvard Business School in the US five years ago, but I think he invented that very early because he said - I hate selling, I hate being a marketeer, I as a craftsman just want to make a product that's so good that people will talk about it. And he came up with a motto for the company, which was Only the Best is Good Enough, and I think it's wonderful because in there is almost a creative notion.
'What that says to me is - you can always do better, and you should do continuous improvement and always strive to become better all the time. It's a wonderful notion that captures the essence of what the company is all about, and that is about delivering excellence. Our owner family has always said - We don't want to be the biggest, we just want to be the best. And so there's a culture of excellence in Lego that I really like, and it was started by the founder.'
Mr Knudstorp cites another example of the company's commitment and resolve: After its wooden toys warehouse was destroyed by fire in 1960, it decided to move entirely into plastics, even though plastics accounted for less than half of its manufacturing at the time. 'But still they had the courage to say - let's bet on plastics. And, of course, they made the brick and all that followed. But later, people said - ok, now that we've gone to plastics, why don't we do all the plastic toys, the world is full of plastic toys. But they stayed with the Lego brick and the building system. And I think that is another classic commitment choice. They said, no, if you stay with what you have and focus on being creative with that, you can develop something that's really unique.'
Over the years, the Lego group has diversified into various businesses: Legoland theme parks, apparel, watches, books and movies. Since becoming CEO, Mr Knudstorp has basically cut back on these side businesses, and in the process slashed Lego's global workforce by half, to some 4,500 today.
'Yeah, I have to some extent consolidated all that. It remains a very interesting diversification but the way it works today is a lot on the licence. I don't believe we are the best company at producing those sorts of things. It may work under the brand but we should not produce them so we license out the brand to other people, but we only do that in a very limited scope. The way we think about it is - we are a very particular brand that's associated with building and learning and creativity, and those three things we should not stray away from. You can get the T-shirt, that's fine. To me, that's like a fan product, like a Harley-Davidson T-shirt or something. Then there are products like software, and we're more particular about who gets a licence to do something like that because it's got to be a true Lego experience. So, there are two types of licensed products - those that are really toys, that are more central to the Lego concept, and those that are just more like fan merchandise.'
The group sold its four Legoland parks - built between 1968 and 2002, in Denmark, England, US and Germany - in 2005 to Blackstone Private Equity, and then bought 30 per cent of the new holding company, Merlin Entertainments Group. Merlin is today the world's second largest theme park operator, with attractions such as Madame Tussauds and Sea Life.
Says Mr Knudstorp: 'I think what we found is - these people who operate them (Legoland) now operate them better than we did because they are professional theme park operators. We are toymakers and it's two very different businesses.'
He has also made the organisation very open and transparent - probably a lot more so than public-listed companies with disclosure obligations.
Organisational change
'With that comes a focus on execution, getting things done,' he explains. 'And so we have moved from being very unprofitable to being the most profitable toy company in the world. And it's all about organisational change. I've changed the culture but I've kept the motto, and I've given the motto almost new meaning in the way I interpret it. So I think I've modernised the culture but done so with respect for the old culture. And I think that's an important change process - you don't destroy what you're building on but you adapt it.'
As a privately-held company, there's no need to disclose too much, if at all, but there you have it on the company website - elaborate details on its annual financial performance. Even more surprisingly, there is in its 'Press Room' archive of releases, not just positive or promotional corporate announcements like most companies' but also a December 2007 piece about Lego France being fined 1.5 million euros (S$3.2 million) by the French Competition Council for price fixing in collusion with certain retailers.
Asked about the unusual transparency, Mr Knudstorp almost dismisses it with: 'Yeah, yeah, we try to be quite balanced, honest and fair in our coverage.' His view is - such reports or information about related company matters hold lessons for employees too.
Not that it's always easy to be honest, especially about mistakes, he says.
'We just took back a factory. We had outsourced a factory in the Czech Republic - I went there 18 months ago, I told 900 employees, you know, thank you for being wonderful employees in the Lego Group, we're now going to hand you over to another company.
'Two days ago, I was back in the Czech Republic to speak to them about coming back into the Lego family, because we have found with our supplier that was the better solution for us. Hmm, where's the integrity in that? And obviously some people were looking at me and they're saying, 'Ok, should I really hang on to my Lego business card; will you come back one day and sell us again?' And I can understand that. They told me: 'It will take us two years to believe you're really bringing us back into the family again.' That's hard feedback!
'But I think my point should not be - whoa, that's hard feedback, I don't want to hear it. My point should be - what an honour and privilege for a CEO to have employees, ordinary employees in a Czech factory, who dare to speak up to their 'big boss' from Denmark and say - it will take me two years before I can trust you again. That's pretty extreme. You won't see that in a lot of companies. But it's great.'
Mr Knudstorp writes a blog on the Lego IntraWeb where he shares his views and thoughts, very informally, about all manner of things, within and outside the company. Employees see the CEO in a relaxed setting - there are pictures of his four kids playing with Lego bricks - and post their own comments. Actually, they go to the blog to 'get the real lowdown' on corporate happenings, 'because I tell them the truth in my personal words rather then the official company communication, and I express my feelings about it, you know, that I'm extremely disappointed or sad that this has happened, or this was very energising for me'.
In Lego, ultimately, it's all about 'playing well', as it believes that learning and developing through play enriches a child's life - and subsequent adulthood.
'Children will always be creative,' points out Mr Knudstorp. 'The urge to create is a universal urge. So the question is, can we remain on their agenda and can we move into the digital space that they are increasingly living in, the world of connectivity and digital assets. Yeah, it is a challenge. But the way I think about it is - I guess when silent movies came about 100 years ago, people said - whoa, nobody's ever gonna read a book any more; now people just want to watch a movie, or listen to the radio as it came about later, and later the TV. I think we were all concerned - will our kids ever read a book again or will they just watch TV all day? Now it's the Internet and DVDs and YouTube and so on.
Engaging experience
'But the fact of the matter is - I think last year was one of the best for book sales. So I think what we can learn from that is - books are 500 years old, and as long as we can keep writing very contemporary yet classic books, you can sell books. And as long as we can continue to produce very classic yet very contemporary Lego bricks, we can remain an engaging experience in the same way a wonderful book can be an engaging experience where you forget yourself for half a day reading that book. And of course, yes, do children live stressful lives where they lead very scheduled lives with very little time for free creative play? Yes, that's a fact. But still, I guess kids read good books. Uhm, not all kids, and I guess not all kids play with Lego. Some do, and when they do, they can't stop; it becomes a big part of their lives, and I think that's wonderful,' Mr Knudstorp notes.
'One might ask - are you sure you can stay fashionable 50 years from now? How about soccer? I mean, soccer is incredibly old-fashioned, it's just running after a ball. But I think that speaks to the physical element of Lego play - that you just can't stop yourself from physical play, and I think Lego has a physical dimension that's extremely appealing. So, yes, you can build it virtually in Second Life or on our online platform. But still it doesn't beat getting it out there on the table. So I believe, like books and like physical play will also remain 50, 100 years from now, I think Lego play will remain, if we can manage to keep it contemporary. Which is very important,' he adds.
This article was first published in The Business Times on June 7, 2008.
