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Introduction

The Lego Group, founded in 1932 in Denmark, is a world-renowned manufacturer of toys, particularly known for its iconic interlocking plastic bricks (Wired, 2014). Over the decades, the company has evolved and expanded its product lines, ranging from sets inspired by popular movies to educational tools for children. However, the early 2000s posed significant challenges for the company, which required transformational changes to be made to remain successful and competitive in the global toy market.

It was during this critical period that The Lego Group appointed Jorgen Vig Knudstorp as CEO in 2004 (Bloomberg, 2021). Knudstorp, previously the head of strategy, embarked on a mission to revitalize the business and steer it back towards profitability (Jones, McCormick, & Dewing, 2012). Under his leadership, The Lego Group made substantial changes across different aspects of the organization and managed to turn its fortunes around. A thorough understanding of these leadership and change management methodologies will enable the provision of well-informed recommendations for the successful future of the organization.



Contextual Analysis: STEEPLE on The Lego Group

Social factors
The Lego Group, with its emphasis on promoting creativity, learning, and social interaction among children, has seen success in adapting its products to cater to the tastes and preferences of different cultural contexts. The company has also taken steps to respond to the growing awareness of gender equality by developing gender-neutral toys and marketing strategies (Roos et al., 2014). Additionally, the increasing interest in STEM (Science, Technology, Engineering, and Math) education provides an opportunity for the Lego Group to incorporate technological and educational elements into their products (Hsu et al., 2017).

Technological factors
Technology plays a significant role in the toy industry, with advancements enabling the development of innovative and interactive products. The Lego Group has embraced this trend by integrating digital elements, such as Lego Digital Designer tools, apps, and video games into their core product offerings (Mayrhofer, 2018). The rapid growth of e-commerce has also impacted the company, requiring the expansion of the company’s online sales channels.

Economic factors
The financial crisis and subsequent economic downturn in the early 2000s led to a decline in sales for luxury and non-essential items, including toys (Thomas et al., 2018). The company responded to these challenges by reducing costs, streamlining business operations, and focusing on their core product lines (Andersen, 2011). Furthermore, fluctuations in currency exchange rates may also impact the cost of raw materials and the price of products in different markets.

Environmental factors

Environmental sustainability has become an important concern for businesses and consumers. The Lego Group has acknowledged this by introducing several sustainability initiatives, such as reducing plastic waste and committing to responsible sourcing of materials (CSRWire, 2018). The company is also working towards utilizing 100% sustainable materials in its packaging and product lineup by 2030 (Lego, 2020).

Political factors
As a global company, the Lego Group has to navigate the various political environments in which it operates. Political instability, trade restrictions, and regulatory changes may influence the company’s supply chain and distribution networks. For example, Brexit has created uncertainties surrounding trade and investment between the UK and the European Union, affecting the company’s operations and strategic plans (BBC News, 2018).

Legal factors
Compliance with regulations and legal requirements is crucial for the Lego Group. These may include tightening privacy regulations, particularly in the context of digital offerings and data collection (Nilsson, 2016). The company must also address intellectual property rights issues to protect its product designs and branding in the face of counterfeits and knock-off products.

Ethical factors
Ensuring ethical practices across the organization is of vital importance for the Lego Group. The company has committed to upholding high standards in corporate governance and social responsibility, including maintaining a safe and positive working environment, promoting diversity and inclusion, and practicing responsible sourcing (Lego, 2019). Moreover, its focus on producing toys that promote a constructive and educational experience aligns with ethical principles in marketing to children.





Kotter’s 8 Step Change Management Model and The Lego Group’s Changes

Kotter’s 8 Step Change Management Model (Kotter, 1995) provides a systematic and structured framework for organizations to manage change effectively. The model consists of eight sequential stages that guide change initiatives, ensuring the successful implementation and alignment of change with organizational goals (Kotter, 1995). The following section will discuss the changes made at The Lego Group since Jorgen Vig Knudstorp took over as CEO in 2004 and their alignment with Kotter’s 8 step model.

1. Establishing a sense of urgency
When Jorgen Vig Knudstorp took over as CEO of The Lego Group, the company was facing significant financial challenges. With mounting debt and declining sales, a sense of urgency was needed for the organization to survive (Robertson, 2013). Knudstorp communicated these challenges with stakeholders and emphasized the need for immediate action, thus setting the stage for change (Hansen, 2017).

2. Creating a guiding coalition
Knudstorp assembled a diverse team of leaders from various departments within the organization, forming a cross-functional coalition to guide the change process (Mortensen & Kielgast, 2015). This coalition brought together different viewpoints, expertise, and perspectives to drive the necessary changes (Hansen, 2017).

3. Developing a vision and strategy
Knudstorp and his team developed a vision for The Lego Group’s future, focusing on the core values of creativity, imagination, learning, and quality (Mortensen & Kielgast, 2015). The strategy for change revolved around streamlining the product portfolio, increasing efficiency, and enhancing the customer experience (Robertson, 2013). This vision and strategy provided a clear direction and purpose to guide change initiatives.

4. Communicating the change vision
The vision and strategy for change were clearly communicated to all stakeholders, including employees, suppliers, and customers. Open and transparent communication fostered a shared understanding of the need for change and encouraged employee buy-in and commitment (Hansen, 2017).

5. Empowering broad-based action
Knudstorp empowered employees to take action by providing autonomy, resources, and support for change initiatives (Mortensen & Kielgast, 2015). This enabled teams across the organization to drive change and contribute to the overall vision and strategy (Hansen, 2017).

6. Generating short-term wins
Recognizing the need for demonstrating progress, Knudstorp and his team implemented short-term wins, such as cost-cutting measures, process improvements, and product innovations (Robertson, 2013). These early successes signaled the positive impact of change initiatives and increased organizational confidence in the change process (Hansen, 2017).

7. Consolidating gains and producing more change
The Lego Group built on its early successes by implementing further changes, including the expansion of its global presence, investment in digital technology, and the launch of new product lines (Mortensen & Kielgast, 2015). By consolidating gains, the organization was able to sustain momentum and continue driving change (Kotter, 1995).

8. Anchoring new approaches in the organization culture
The changes implemented became embedded in The Lego Group’s organizational culture, as new values, behaviors, and practices were reinforced and rewarded (Mortensen & Kielgast, 2015). This cultural transformation was crucial in ensuring the long-term success and sustainability of the changes made (Hansen, 2017).

Kotter’s 8 Step Change Management Model has proven to be a useful framework for understanding the changes implemented at The Lego Group under Jorgen Vig Knudstorp’s leadership. The model’s emphasis on clear communication, vision, and stakeholder engagement aligns with the strategies employed by Knudstorp to facilitate organizational change effectively. Moreover, the model’s sequential stages have enabled a structured analysis of the different aspects of the change journey undertaken by The Lego Group, from establishing a sense of urgency to embedding new approaches into the organizational culture.

However, it should be noted that Kotter’s model may not be exhaustive in capturing all nuances of the change process, as each organization’s context and circumstances are unique (Cameron & Green, 2015). Nonetheless, the model provides a useful starting point for examining change management in this case study and serves as a valuable tool for understanding the changes that occurred at The Lego Group during Knudstorp’s tenure as CEO.



Transformational Leadership Theory and Jorgen Vig Knudstorp’s Leadership

The Transformational Leadership Theory, initially introduced by Burns (1978) and further developed by Bass and Avolio (1985), proposes that effective leaders possess the ability to inspire, motivate, and engage their followers, thereby enabling them to achieve outstanding performance beyond expectations. According to the theory, transformational leaders exemplify four key components, often referred to as the 4 Is: Idealized Influence, Inspirational Motivation, Intellectual Stimulation, and Individualized Consideration. These elements facilitate a strong leader-follower relationship and foster a conducive environment for change, innovation, and growth.

Idealized Influence : Idealized Influence is described by Bass and Avolio (1985) as the leaders’ ability to embody high ethical standards, act as role models, and gain trust and admiration from their followers. Jorgen Vig Knudstorp exemplified these characteristics by embracing The Lego Group’s core values: creativity, imagination, learning, and quality. Knudstorp’s transparent communication on the challenges faced by the company and his clear vision and strategy for the future established his credibility and integrity, crucial for inspiring confidence in employees and stakeholders (Mortensen & Kielgast, 2015). By earning their trust and respect, Knudstorp fostered an environment in which followers were willing to embark on the change journey. For example, when Knudstorp first took charge, he conducted a comprehensive analysis of the company’s financial situation and its core business, discovering a lack of focus on the company’s core values and an overextension into unprofitable ventures (Robertson, 2013). His honest and transparent communication of the company’s dire financial situation with stakeholders demonstrated his integrity and commitment to putting the organization back on track.

Inspirational Motivation : Inspirational Motivation refers to leaders’ capacity to inspire and motivate followers towards a shared vision and common goals, instilling a sense of enthusiasm and commitment (Bass & Avolio, 1985). Knudstorp demonstrated exceptional ability in this regard, as he communicated a persuasive vision for The Lego Group’s future, focusing on rekindling the organization’s sense of purpose and passion for its products and core values (Robertson, 2013), directly addressing them through company meetings and internal communication platforms. Through his motivational leadership, Knudstorp instilled a sense of pride, dedication, and drive in employees to embrace change and strive for excellence. 

Intellectual Stimulation : Intellectual Stimulation, as outlined by Bass and Avolio (1985), involves encouraging followers to question assumptions, embrace creativity, and discover innovative solutions to problems. Knudstorp offered this form of stimulation at The Lego Group by cultivating an organizational culture that championed innovation, continuous improvement, and creative problem-solving. He challenged conventional wisdom, urged employees to think beyond existing boundaries and normal constraints, and emphasized the value of experimentation and learning from failures (Mortensen & Kielgast, 2015). By fostering an environment that embraces imagination, curiosity, and entrepreneurship, Knudstorp enabled The Lego Group to revitalize its product portfolio and operations.  For example, he introduced “The Future Lab,” an internal innovation team focused on long-term growth and cutting-edge technology research (Hansen, 2017). Furthermore, Knudstorp encouraged employees to not shy away from failure in pursuit of innovative solutions. This approach was exemplified when The Lego Group ventured into the digital realm with the launch of LEGO Life - a safe, digital platform for children that combined creative play using technology (Lego Group, 2017)

Individualized Consideration : Individualized Consideration emphasizes the leader’s ability to recognize and address the distinctive needs, aspirations, and abilities of their followers, offering personalized support, coaching, and mentoring (Bass & Avolio, 1985). Knudstorp illustrated this quality by empowering The Lego Group’s employees with the autonomy, resources, and support necessary to take on new challenges and contribute their strengths towards achieving the organization’s goals (Hansen, 2017). For instance, he introduced the “Lead Programme” in 2006, aimed at maintaining open channels of communication between employees and senior management (Hansen, 2017). By providing individualized attention to employees and supporting their growth and development, Knudstorp fostered a sense of job satisfaction, engagement, and dedication to the change process.

The Transformational Leadership Theory provides valuable insights into the leadership style adopted by Jorgen Vig Knudstorp and its impact on The Lego Group’s remarkable turnaround. By harnessing the 4 Is, Knudstorp successfully inspired, motivated, and engaged employees, resulting in a significant organizational transformation. The theory’s ongoing relevance and applicability in the contemporary business landscape can be attributed to its focus on adaptability, innovation, and flexibility – essential qualities required to navigate the increasingly dynamic and complex business environments encountered today (Bass et al., 2003).

However, it is essential to acknowledge the limitations of the Transformational Leadership Theory. While the 4 Is provide a comprehensive framework for understanding Knudstorp’s leadership, other factors may also play a crucial role in shaping and facilitating The Lego Group’s change journey. For instance, external environmental influences, stakeholder relationships, and organizational culture may contribute to the change process’s success or failure. Additionally, the Transformational Leadership Theory may not adequately capture the diverse range of leadership styles that can be effective under different organizational contexts (Higgs & Rowland, 2010).

Despite these limitations, the Transformational Leadership Theory remains a valuable tool for understanding the impact of effective leadership in driving organizational change and success, particularly within the context of The Lego Group.





Recommendations for The Lego Group’s Future Success

The Lego Group’s remarkable turnaround under Jorgen Vig Knudstorp’s leadership reflects the significance of effective leadership, decisive decision-making, and strategic vision. The company’s willingness to embrace change and adapt its product offerings, operations, and business models have positioned it well for long-term success. Based on the lessons learned from its past transformation and ongoing resilience during the COVID-19 pandemic, the following recommendations are proposed to ensure The Lego Group’s continued success in the future.

The global business environment is constantly evolving, and organizations need to be able to adapt and respond effectively to new challenges and opportunities (Burnes, 2017). The Covid-19 pandemic has demonstrated the importance of agility and flexibility, as businesses worldwide have faced unprecedented disruptions and shifting consumer demands. As The Lego Group moves forward, it should continue to develop its capabilities for flexible and agile decision-making, enabling it to respond to market trends, technological advancements, and socioeconomic shifts. This can be achieved by nurturing a culture of adaptability, providing necessary resources for innovation, and promoting collaboration across organizational functions (Alstete, 2018).

Technological advancements continue to drive change in the consumer and industrial markets, with digital innovations reshaping the way products are conceived, designed, manufactured, and marketed (Schwab, 2016). To stay ahead of the competition and capitalize on future growth opportunities, The Lego Group should continue to invest in its digital capabilities, including the integration of cutting-edge technologies such as artificial intelligence, virtual reality, and blockchain across its business operations (Porter & Heppelmann, 2014). These investments will enable the company to enhance its product offerings, optimize its supply chain and production processes, and create new customer experiences. Furthermore, adopting advanced technologies can also help The Lego Group address potential regulatory changes related to data protection and privacy, which are increasingly important aspects of the digital business landscape (Kuner, 2018).

To maintain its market leadership and drive growth, The Lego Group must continue fostering a culture of innovation and continuous improvement (Caldwell, 2018). This involves encouraging employees to think creatively, experiment with new ideas, and learn from failures. Establishing a dedicated innovation management system and providing employees with the necessary tools, training, and resources can help nurture a culture of creativity and learning (Bessant & Tidd, 2018). In addition, The Lego Group should continue to forge strategic partnerships and collaborations with businesses, academic institutions, and research organizations, as these alliances can facilitate the exchange of knowledge, expertise, and best practices, ultimately contributing to the company’s innovation potential (Chesbrough & Bogers, 2014).

As consumers and regulators around the world increasingly prioritize corporate social responsibility and sustainability, The Lego Group must continue to demonstrate its commitment to ethical and responsible business practices (Carroll & Shabana, 2010). This can be achieved by promoting transparency and accountability via regular sustainability reporting and communications, outlining the company’s initiatives, goals, and progress towards environmental, social, and governance (ESG) objectives (Crane et al., 2014). In addition, The Lego Group should continue investing in renewable energy and waste reduction technologies to minimize its environmental impact and work towards its goal of achieving zero waste in its production facilities. Furthermore, the company should actively engage with its suppliers and partners to ensure compliance with ethical and sustainable practices across its supply chain (Beske & Seuring, 2014).

The proposed recommendations are grounded in existing theories and research in the areas of change management, strategic planning, innovation, and corporate social responsibility. The Covid-19 pandemic has underscored the importance of adaptability, digitalization, innovation, and resilience, as businesses have faced unprecedented challenges and disruptions (Kuckertz et al., 2020). By embracing these concepts and integrating them into its future strategies, The Lego Group can continue building upon its past success and drive sustainable growth in an increasingly complex and uncertain global market.



Conclusion

This case study has provided an in-depth analysis of The Lego Group’s transformation and success under the leadership of Jorgen Vig Knudstorp since 2004. Through the application of Kotter’s 8 Step Change Management Model and the 4 Is of Transformational Leadership Theory, the study has highlighted the key changes and leadership practices that contributed to the company’s remarkable turnaround. Furthermore, a STEEPLE analysis helped contextualize the external factors influencing The Lego Group’s strategic decisions and operations during this period.

The Lego Group’s case demonstrates the critical role of effective leadership and change management in navigating the complex and rapidly evolving business landscape. As seen with The Lego Group, proactively addressing organizational challenges, embracing new technologies, and fostering a culture of innovation and continuous improvement are integral to achieving long-term success. As the Covid-19 pandemic continues to disrupt global markets and alter consumer behaviors, organizations must adopt agile and resilient strategies to adapt and thrive in these uncertain times.