How Innovation Almost Bankrupted LEGO – Until It Rebuilt with a Better Blueprint

The story of toymaker LEGO is a cautionary tale for innovation practitioners. After years of producing snap-together toys with little product innovation for many years, the company went on an innovation binge in the early 2000s that nearly bankrupted it.

The LEGO story lies at the heart of why companies should not blindly follow the typical mantras of innovation. Management and evaluation must be at the heart of any innovation strategy, he noted, and although it is generally not good for a firm to remain stagnant, the reality is that unbridled innovation in the vein of LEGO may not be the answer, either.

LEGO’s leadership team adhered to nearly every one of the major principles that are widely prescribed by experts in launching its spate of innovation in 2000: The firm found relatively competition-free markets where LEGO could dominate. Management sought the participation of a number of different constituencies from both inside and outside the firm and hired a diverse and creative staff. It tried to create new products that disrupted existing markets, and it listened to customer feedback. Innovation became a focus of every aspect of the company, with the goal of turning it into the world’s strongest brand among families by 2005.

But by trying to do too much at once, with mixed sales results from new product launches, the company soon found itself out of cash. It lost $300 million in 2003. The solution? A more organized approach to innovation.

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