January 10, 2017, 01:18 / Business / Interviews and profiles

Jorgen Vig Knudstorp: “I have a family at home and a Lego family”

How Chairman of the Board of Directors of Lego Brand Group Jorgen Vig Knudstorp led Lego out of the crisis Anton Osipov

Chairman of the Board of Directors of Lego Brand Group Jorgen Vig Knudstorp / Chris Ratcliffe / Bloomberg

Jorgen Vig Knudstorp not only saved Lego from death, but also made it a dangerous rival to the largest toy company in the world - Mattel. Now he has resigned from the post of CEO of the Lego Group in order to solve strategic issues of developing the Lego brand at the head of a new company - the Lego Brand Group.

In 2004, the company was going through such difficult times that for the first time in more than 70 years, the founding family decided to make not one of their relatives, but an outsider, Knudstorp, the CEO. He shook up the very foundations of the firm's business. “The attitude [inside the company] was: We're making the greatest product for children here, so don't mess with us with your financial goals,” Knudstorp complained to Fortune magazine. Now, the magazine writes, the main goal of workers is to earn profit for the company. Previously, Lego had clearly neglected financial considerations in favor of pedagogical ones. For example, for a long time it did not produce weapons and military equipment, although they would obviously be in great demand among boys. When the release of construction kits based on the Star Wars franchise was discussed in 1999, the heated discussions among management were not caused by its financial conditions, but by the question of whether the company had the moral right to write the word “war” on the boxes.

As of January 2017, Knudstorp is no longer a director of the Lego Group. He headed the board of directors of the new company, Lego Brand Group. His task is to take the company’s business into new areas so that it does not lead to a crisis, as in 2004. “I will simultaneously protect and develop the brand,” he explained to The Wall Street Journal (WSJ). “Lego’s history is littered with mistakes, and we don’t plan to repeat them.”

Throwing of young Knudstorp

Knudstorp was born in 1968 in the Danish port city of Fredericia. He didn’t dream about Lego at all, writes FT. The boy asked to give him a racing car or a train. But he was born into the family of an engineer and a teacher. The parents consulted and decided: the best thing that can be invented for the development of a child is a Lego constructor. He really captivated the young Dane.

In his career, Knudstorp threw himself into one area and then into another. Throwing began in childhood, when he wanted to become an astronaut. The family still remembers the child declaring, “If I can be the first person to go to Jupiter and never come back, I will do it!” (quote from Focus magazine). Then he decided to become a director because he loved cinema. And as a result, he studied economics and specialized in East Asia at one of the largest universities in Denmark, Aarhus University. Having received his diploma, he decided to follow in the footsteps of his mother-teacher and worked as a teacher in a kindergarten for a year and a half. “My father noticed that I learned everything I needed to know about leadership there. “Whoever could manage kindergarten children can manage anywhere,” Knudstorp joked in a conversation with the FT.

And then the young man chose a quiet academic career and went to study for an MBA at the British Cranfield University, and then get a doctorate in the USA, at the Massachusetts Institute of Technology (MIT). “I loved learning, loved teaching and was intellectually curious. Students flocked to my lectures,” Knudstorp explained to Focus. At 30, he ran away from students to become a McKinsey consultant. And in 2001, he was lured to the Lego strategy department. In November 2003, he became senior vice president, and in 2004, at the age of 35, he became the company's CEO.

How to make $75 from $1

The secret of Lego's business model is simple, writes FT: take plastic that costs less than $1 per 1 kg, make a construction set out of it and sell it for $75 per 1 kg. How did the company manage to drive itself into a trap by 2004?

Homegrown heroes are cooler than Harry Potter

Lego produced about 72 billion different pieces, 725 million figures of people and animals and 675 million wheels in 2015, FT calculated. The company does not miss a single opportunity to increase sales through other people's hits. She made construction kits based on the Harry Potter films, Disney cartoons (with which she has a partnership) like Heart of Ice, the Angry Birds game, etc. Licensed construction kits account for about a third of Lego’s portfolio, Knudstorp admitted on CNBC in April 2016 But they have one drawback - the need to pay license fees. Therefore, Knudstorp is actively developing his own heroes like the ninja Ninjago or animals from the magical land of Chima. “Of the five best-selling Lego lines, only one is licensed, Star Wars,” he happily told NBC.

At the adult Lego conference AFOLCon two years ago, Lego's chief marketing officer Mads Nipper reflected on the company's life from 1999 to 2003. (quoted by Business Insider): “There was no idea how much it cost to produce most of the bricks and entire sets. The most shocking discovery was that the cost of electric motors and fiber optic parts turned out to be higher than the price at which kits with them were sold <...> It was also decided to fire many of the designers who had been working since the late 1970s and hire 30 innovators - the best graduates of the best design colleges in Europe. They were great designers, but unfortunately they knew little about the specifics of toy design and even less about Lego. The range of bricks quickly grew from 6,000 to over 12,000, creating a logistics and storage nightmare and additional infrastructure that did not benefit sales.” Business Insider claims that Lego survived all this chaos only thanks to the commercial success of the Star Wars (produced since 1999) and Bionicle series of construction kits (produced in 2001-2010 and 2015-2016).

“The real problem with Lego was that they did so many experiments in such a short period of time that their capabilities couldn’t keep up,” Knudstorp concluded in an interview with the FT. And in a conversation with The Independent, he reasoned: “When a company becomes huge, people in it begin to think that they are geniuses. And if so, we can get involved in any other business, because in the end we are geniuses!”

Lego diversified its business with all its might: it opened theme parks, made clothes, and produced computer games. This, writes WSJ, was the same trap that Puma fell into in the early 2000s, which decided to produce anything under its logo, from bicycles to perfume, but only received losses and concentrated on its core business.

Ordered to survive

It is felt that Knudstorp has experience as a McKinsey consultant, notes FT. He gives each of the five stages of the company’s development after taking over as CEO in 2004 a short and vivid name: “Survive”, “Strive for the goal”, “Unleash growth”, “Scale”, “Take the leap” (the latter is also a game words: leap - leap, abbreviation LEAP - increasing the effectiveness of leadership skills. - Vedomosti). And then he looks at the journalist and adds: “Excuse me for the managerial jargon,” writes FT.

Knudstorp devoted the first two years (“Survive”) to getting rid of non-core businesses. Legoland amusement parks were bought by the British Merlin Entertainments Group in 2005 for $430 million and 29.9% of its shares. The computer games division was closed. Some of his employees returned to the UK and began working for the company Travelers Tales (since 2005 - TT Games, producing franchise products), which, in partnership with Lego, is now producing games with its characters, writes Business Insider.

Some representative offices abroad were closed, and staff were cut in others. In 2004, the company employed 7,300 people, two years later - 5,300, writes Fortune. They began to recruit Lego fans as designers, selecting them since 2006 at competitions for talented young people from all over the world. Knudstorp ordered to reduce the time from the start of development to the launch of products into series by half, to 12 months.

Knudstorp also ordered a reduction in the variety of parts for designers. This attitude was especially evident when in 2014 Lego created a construction set based on the television series “The Simpsons,” writes FT. The main character's wife, Marge Simpson, has a high blue hairstyle. “It was a very expensive element to produce,” Knudstorp recalled. “So the designer was told that [the hair] could be made [as a separate piece], but the rest of the set wanted to be made from standard Lego elements.”

Difficult stages

In a conversation with FT, Knudstorp dates the second stage of reforms to 2006–2008. Changes affected production. The cubes were made in the Danish city of Billund, where the company's headquarters are located, in Switzerland, the USA and South Korea. With the help of partner companies, Flextronics and Sunoku, production was moved to countries with lower labor costs - Poland, the Czech Republic, Hungary, Mexico, leaving only the former plant in Billund. And even there they cut the staff and output by half, which outraged the local commune.

Real cubes

Lego was criticized for the fact that it could have made an Internet game itself, in which it would be necessary to build a world from cubes. However, Minecraft was invented in 2009 by Swede Markus Persson. “If you're very good at writing books, you won't necessarily be the best at turning a book into a great movie. You need someone to make a movie <...> And in our case, partners who can translate the physical Lego experience into a digital one,” Knudstorp told FT. So Lego capitalized on the popularity of Minecraft by releasing construction sets with figures from the game. But Knudstorp is confident that even if the whole world goes into virtual reality, Lego will not change the physical world: “We will never give up material Lego bricks. We believe that material play is extremely important. And I see digital as an additional experience <...> Maybe we'll be like Nike, which tries to sell very tangible products like running shoes or golf equipment, but might add an app to help improve your game."

Changes also affected sales markets. Lego began to actively work in markets where it was poorly represented - in Russia, the USA, China and Brazil.

At the third stage, in 2009–2011, there was confidence that the business had reached sustainable growth, Knudstorp told FT and complained: “But every time a business grows, hidden problems arise. Growth is the icing on the problems that arise.”

Gradually, Knudstorp’s earlier reforms began to wind down, the WSJ notes. The range of cubes began to expand again. In 2010, Lego re-entered computer gaming with the launch of the online multiplayer game Lego Universe. After 18 months, on January 31, 2012, it was closed, firing 115 people. The paid version of the game cost from $7.5 per month, which is normal for such games, explains the Gamer.ru portal, but the audience was children, for whom this is a huge amount of money. It is not surprising that the project brought only losses.

In 2009, production began to return from outsourcing to Lego control. “When you make a design decision, you want it to be quickly reflected in production,” Knudstorp explained to FT.

“We realized that we need more control <...> We produce about 95% of our products ourselves,” Knudstorp said in 2015 in an interview with RBC . – The experience with outsourcing turned out to be interesting and helped us organize production in countries where it is cheaper. We usually try to be located close to the factories of car manufacturers such as Audi and Mercedes-Benz. There are good technical planning and logistics capabilities there.”

New type of problems

After conflict with artist Ai Weiwei, Lego changed the rules of the game

Business / Trade and services

From the end of the “Survive” stage in 2007 to the end of the “Scale” stage in 2014, Lego’s revenue grew more than 3 times, and its net profit increased 7 times, FT calculated. By 2012, revenue began to grow by 17% per year. Lego began to seriously push out the leader of the toy market, the American Mattel, which produces many brands - from Barbie and My Little Pony to Transformers. In 2013, the Danes for the first time overtook the Americans in operating profit - $1.5 billion versus $1.2 billion, and the following year - in net profit ($950 million and $499 million, respectively). The struggle is still ongoing with varying success. Lego was even able to get ahead in terms of revenue, but only in the first half of 2014 ($2.03 billion versus $2 billion), thanks to the release of the cartoon “The Lego Movie.” And at the end of the year, the Americans unconditionally beat the Danes: $6 billion versus $3.85 billion.

As the company became more successful, the nature of the problems changed. In 2012, Lego released Lego Friends for girls and was surprised to find that it was accused of gender discrimination due to its use of the color pink. In 2014, the company paid a €130,000 fine for trying to stop German stores from discounting its products in the previous two years. And in 2015, the company refused to supply its cubes to the Chinese dissident artist Ai Weiwei, so as not to interfere in politics. Moreover, Lego was building a factory in China, which officially opened in November 2016. But a scandal broke out all over the world, and they had to explain: they say that the company’s principle of apoliticality was misinterpreted by top management.

So the last stage, “Take the Leap,” which began in 2015, Knudstorp, in a conversation with FT, characterizes the problems of growth - the larger the company, the less attention is paid to the things that made it successful: “We are talking about bureaucracy, about the difficulties of scaling, searching talent and how to maintain the entrepreneurial spirit while becoming a very large company." Apparently, this will be one of the topics to think about for Knudstorp in his new position.

Smartphones are killing Lego

But Lego’s main problem remains the same as before Knudstorp’s appointment as CEO: smartphones and tablets, into which children are increasingly withdrawing from the real world. “Will children play non-virtual games in the future? – Knudstorp reasoned on the pages of Focus. “I am 100% convinced that they will <...> Children cannot sit still in school because their minds tell them to move.”

“One of my biggest challenges over the next 20 years will be to adapt to the processes of globalization and digitalization, not to be captured by our past successes and not to be bound by premature decisions that limit the ability to adapt to what the future requires,” Knudstorp told the journalist. FT.

And he has a number of ideas. Lego is already trying to combine two worlds - virtual and real. For example, in the Lego Dimensions program you can load models that you actually built from bricks. In a month, on February 8, the sequel to “The Lego Movie” should be released. And on February 21, the official release of the Lego Worlds computer game, developed in partnership with Warner Bros., will take place. Interactive Entertainment. This is another attempt to play on the Minecraft field (a computer game in which you need to build objects from blocks) and get people interested in building a world from virtual cubes.

Lego Group

Toy manufacturer
Co-owners: Kirkbi A/S – investment company of the Kirk Christiansen family (75%), LEGO Foundation (25%).
Financial indicators (2015):
revenue – 35.8 billion Danish kroner ($5.2 billion),
net profit – 9.2 billion crowns ($1.3 billion).

Lego has the greatest potential in the digital sphere, Knudstorp assured the WSJ and hinted that the company has no end to those who want to work as a franchise. Meanwhile, Lego is seriously thinking about the development of educational toys, where programming would coexist with building with bricks.

By the way, by 2030, Lego must find an environmentally friendly replacement for plastic as a material for bricks.

Knudstorp still lives in the town of Fredericia, where he was born. Enjoys hiking and reading. His wife is a doctor, and they have four children - two boys and two girls. He calls them “my personal market research company.”

Summing up his 10th year as CEO in a conversation with Focus, Knudstorp recalled: “When I started working here, I thought it would be good to last three years, I would learn a lot, and then I would think about where to work for the rest of my life. Now work [at Lego] defines my whole life <...> I have a family at home and a Lego family, and these are all the places where my life takes place. Don't talk to me about football scores or golf - I have no hobbies outside these walls. I just don’t have time <...> I never thought that at 46 years old I would end up here.”

“I have a family at home and a Lego family.”