Product development and portfolio management processes at LEGO

Revision as of 17:16, 24 September 2015

Overview

LEGO as a well-known company has a great challenge to keep their role on the rapidly variable market, as the developer of one of the most innovative toy world-wide. The name of the company, LEGO was adopted from the Danish phrase “leg godt”, meaning “play well” in 1934. The main product from 1949 is their interconnected plastic bricks and brick sets, which are sold in more than 130 countries ^[1]. Throughout of these decades LEGO released a wide-range of different brick sets and made an extremely large product portfolio within this type of toy. In the meantime, a unique product development process and organization of the project teams has developed, which is also called as the LEGO model. Moreover, the extensive product portfolio is around 250 different brick sets which are continuously optimized and renewed, as LEGO`s initiative is 60% novelty in their portfolio year by year.

Therefore, in the frame of this study the focus is on these special processes and models regarding the product development progress, the decision making process in the frame of portfolio management and also the design for manufacturability at LEGO. The relation of the organizational structure and the product development is also analysed in order to define how the different projects are relating to the existing and new product platforms.

The so called Stage-Gate Model is also an important part of the study, which is used by LEGO to ensure the process of ideation until its project implementation and the commercialization of the product. This portfolio management approach is a significant tool to support the project prioritization and early key decisions. Within this process the manufacturability will be also examined as one of the major requirements of the product development.

In addition, the portfolio management and its alignment of the LEGO main strategy is investigated regarding the product variety, market trends, expectations of retailers and customer satisfaction as significant aspects.

Keywords: Portfolio management; LEGO; Product development; Platform production; Manufacturability; Product portfolio; Stage-Gate model;

The LEGO model and the development process

As it was mentioned above the requirement of a renewable, optimized portfolio year by year means a huge challenge for LEGO in case of product development and portfolio management. To understand how the LEGO model works and answer to this challenge the understanding of their organization in relation of project management and development process is indispensable.

In general, LEGO has a matrix organization profile as it is illustrated in Figure 1.

Figure 1. – Heavyweight project matrix organisation ^[2]

This organization structure means, that employee are grouped in teams relating to those projects that are involved. In the meantime, because LEGO develops platform products, thus these teams are also organized around these various platforms. Therefore, this structure defines that the project and portfolio management is highly relating to these platforms and the incorporation of these platforms is a key issue to ensure the appropriate performance of a project.

Usually there are several problems due to different platforms in the production development process, like communication issues, existence of portfolios and timing challenges ^[3], ^[4].

The existence of different portfolios always raises challenges for an organisation across different product programs, which is the case at LEGO. However, this might be motivated by the possible economic advantages in production ^[5]. Timing also can be crucial, namely because of the dilemma between developing a solution by a particular platform team or waiting for the other platforms. Therefore LEGO applies a highly synchronized development process through the different projects to avoid the above detailed problems. Between the different platforms the developers are shuffled and changed, thus employees can gain various experiences from different projects and platform. This ensure an integrated knowledge about the different platforms and their tasks for every developers, which helps to design suitable products and prioritize the possible projects.

At the beginning of each projects there are different core roles, namely the designer, the project manager and the marketing participant. The objectives and goals are developed along these key roles and their perspectives. The conflicts, which may can arise are also a chance for a better solution and to take into consideration different solutions. However, the marketing department has the main influence whether to initiate a solution or project.

In connection of Wheelwright and Clark work ^[6] (Figure 2.) LEGO`s heavyweight matrix organisation is appropriate regarding their platform projects.

Figure 2. – Connection between team and project type ^[6]

This matrix organisation ensure to LEGO to be faster and more flexible in case of information sharing and handling different conflicts. The performance is mostly based on the overall success of the project, than the individual participants ^[5]. However, the influence of the project manager is significant. A possible challenge within this organization is the information sharing between different projects. In one hand, this learning process on the employees’ level is ensure by the shuffling of the developers between the different platforms. On the other hand, the appropriate documentation of the particular project can grant the relevant know-how for the next projects.

The highly synchronized and centralized development process of LEGO is supported by the fact, that the development is located in Billund. Therefore the above detailed allocation of teams and advantageous interactions of the platforms are easily performed. This local development means that LEGO can avoid problems from global development, such us cultural differences and communication problems.

Stage-Gate Model and its application

LEGO uses the Stage-Gate Model (or Phase-Gate Model) as strong tool of the portfolio management in order to identify relevant ideas, development processes and prioritize the possible projects until production ^[7].

Mainly, this model is a product development process ^[8], which can be divided into different phases separated by, so called, gates. In case of the LEGO practice the model includes 5 phases and the whole duration is two years, in which one year is dedicated for development and the other one is for production (Figure 3.).

Figure 3. - Stage-Gate Model of LEGO based on Cooper R. G. ^[9]

Phase 0 is the planning phase or the so called scoping which stage includes the first strategic meetings with the management teams and board to identify the overall goals and directions with the necessary resources and demands.

In phase 1 the build business case, which is at LEGO more likely an opportunity phase. At this stage all the different teams from the various platforms share their ideas and suggestions. The selection of the relevant and valuable concepts are further developed by the teams. The main stakeholder`s requirements and perspectives are also taken into consideration, which an important part of the portfolio compilation. At this step the main selection and strategically alignment of the possible projects and portfolio is performed.

Phase 2 is the product development stage, where the final selection of the projects is made, which are included in the portfolio. The relevant platforms and competent teams are involved here for the further development. At this step all the different requirements, namely the manufacturability, design, different production requirements are taken into account to ensure the most suitable product with less cost.

Phase 3 is the stage of the testing and validation, in which the prototypes are tested in case of assembling and also tested by the possible customers with the pre-defined age range. At the end of this phase, the gate 5 means the end of the product development.

At phase 5 the production and the market launch take place. After the positive validation the production starts immediately and the market launch with the new portfolio as well usually on 1st of January ^[10].

As it is represented above the development process at LEGO is structured and routinized. The platform production type is highly standardized, which routine gives flexibility and quick adaptability for the different product portfolios. Also this standardization of the production is a great requirement for the product development.

The Stage-Gate model, which integrate different product development groups is not a usual model. With this process the portfolio management of platforms during the development process is highly efficient. LEGO can quickly identify problems at an early stage, the prioritization of projects also well established in its practice. A possible disadvantage of such a well-structured schema is the limitation of innovation and flexibility. But the shuffling of the developer participants between the teams and within the particular project helps to reduce this drawback. In the meantime, this model exclude most of the internal iteration processes, which are mostly time and resource consuming parts of the development progress ^[8].

Within the frame of this integrated model, LEGO profit from both methods, which leads a healthy portfolio composition.

Portfolio management and arrangement

Portfolio management in general is a methodology to identify, evaluate and prioritize projects and opportunities and/ or to propose valuable upcoming product development tasks. Thus the major role is to coordinate the main strategic processes and decisions to achieve an effective business balance ^[11].

In case of new product development, which is the scope of this study in relation of portfolio management, the projects can be decided based on the commercial value, the business strategy or to gain a balanced portfolio. With the right combination between derivative and breakthrough products can ensure competitive advantages and to satisfy a wide range of customers with goods ^[12]. Because of that, to develop a valuable, renewable portfolio is the matter of balance.

In addition, the appropriate product portfolio is crucial to achieve not just the customer needs, but also the expectations of stakeholders and the product retailers as well. Which requirements appear in the product development as well.

Portfolio management of LEGO

In case of the portfolio management of LEGO it is very much likely that it is based on not just alone the commercial value, the business strategy or to gain a balanced portfolio, but on all these three together.

The alignment of the core strategy with the portfolio takes place in a quite early stage of the product development (Figure 3.), which ensure the key values to be presented in every product and keep the reputation of the LEGO brand as well.

Moreover, there is a key strategy at LEGO, namely to increase and to achieve around 60% of new product in their portfolio ^[10]. The main reason of such a requirement is to match the portfolio with the current trends and through this way with the expectations of the customers as well.

In the meantime, to achieve the best profit, during the product development phase (Figure 3.) the expectations of the stakeholders and retailers are also significant parameters of the decision making and project prioritizing for the portfolio management board. However, these new products have great influence on the whole portfolio based on the new and current trends of the market ^[11], which describes how LEGO implements new products with commercial value.

As it is recognized the current trends and timing to launch the product is major parameter of the balanced portfolio. As it was mentioned previously, marketing representatives have significant influence during product initializing. The main reason behind is the fact, that at LEGO the evaluation and mapping of the new trends and market changes is the responsibility of their own marketing team. LEGO uses their own score chart and special workshops in order to identify projects which can be prioritized for production. Through this process LEGO can facilitate a balanced portfolio, which corresponds to the actual trends ^[13].

Portfolio optimizing and risk

The usual portfolio of LEGO includes around 250 different brick sets ^[10] and as it was mentioned above it is continuously renewed and optimized year by year. The proposed novelty of 60% near by the great product development challenge also means a large risk of which products should be replaced and kept in the overall portfolio. This selection process is also a significant part of LEGO`s portfolio management. The identification of the risk of a radically changed portfolio is always a key issue and it should be considered upon the market launch regarding the different expectations of customers and retailers.

The other part of the optimization and risk management of the portfolio is to ensure a balanced range of product complexity to satisfy all the gender and age of the customers. The defined risk in this process to keep the developed product suitable for the production and make it still complex for the assembling, which is a part of the game.

Manufacturability

In case of production, regarding the theory of product variety ^[8] LEGO uses a modular architecture to enable high variety manufacturing. Therefore, their portfolio is developed around product architecture, which allows large product variety without large changing in the production complexity or in the manufacturing system.

The standardized production of the bricks and different LEGO elements results a highly cost efficient production and also ensures to use the same brick within a wide range of products. These elements are mainly produced by injection molding.

Therefore, this production system requires an extremely integrated product development with the manufacturing system. The manufacturability of a product is such a key parameter, that it has to be considered as early stage of the development as possible ^[14], ^[11]. How the portfolio management practice of LEGO support the project selection process can be detected at the second phase of the Stage-Gate model in which stage the project is evaluated regarding the producibleness.

Product launch

After the carefully arranged development and production process the entering into the market with the new portfolio is the upcoming step.

The main part of LEGO`s portfolio is dedicated to global market, based on the actual trends and the previous successful portfolio ^[13]. Every brick sets has a specific story and main topic, which can correspond to a movie or book, etc. These stories can define and separate the particular brick sets within the large product portfolio of LEGO. In the meantime, it also helps in market launch and to target the adequate age range with the different brick sets.

Conclusion

Within this study the world leader brand of LEGO is analysed regarding the relationship of its product development and portfolio management practice. The company build up his own best practice based on its eighty years of experience.

The heavyweight organisational matrix of LEGO is examined relating to LEGO`s special platform product development practice. The development process is detailed within the frame of the Stage-Gate Model as a strong tool of LEGO`s portfolio management. The different phases and the role of these stages in the whole portfolio composition is also observed and explained.

The key strategy of a significant novelty within every new portfolio is described with the challenges of stakeholder, retailers and customer expectations. The demand of matching the product portfolio with the actual and future trends is a key parameter in LEGO`s portfolio management, which leads a well-structured project prioritizing and portfolio optimizing management. This practice is also detected in every stages of the product development process.

Within the performed study the role of manufacturability is highlighted also with the importance of integrated product design and development. This is concluded through the fact, that in LEGO`s product development process every stages is carefully treated and considered from the ideation through the project selection, development and production, until the market launch with the new product portfolio. In the meantime, assembling as a main factor of customer satisfaction is a key parameter equally like the unique stories, which are created for each products. These are the fundamental core features of LEGO`s management, brand and of course its portfolio.

The whole process is framed and supported through LEGO`s portfolio management practice, which is just as integrated and complex as the LEGO game itself.

References

1. ↑ Lego (2015) - The Lego history. [online] http://aboutus.lego.com/en-us/lego-group/the_lego_history. [Accessed 09. September 2015].
2. ↑ Ulrich, K. and Eppinger, S. (2012) - Product design and development. New York: McGraw-Hill.
3. ↑ Meyer, M. H.; Lehnerd, A. H. (1997) - The Power of Product Platforms. New York: The Free Press.
4. ↑ Mikkola, J. H. (2001) - Portfolio management of R&D projects: Implications for innovation management. Technovation, v. 21, n. 7, p. 423-435.
5. ↑ ^{5.0 5.1} Hsuan, J., & Hansen, P. K. (2007). - Platform development: implications for portfolio management. Gestão and Produção, Vol 14, Iss 3, Pp 453-461.
6. ↑ ^{6.0 6.1} Wheelwright, S.; K. Clark (1995). Leading Product Development, New York, The Free Press.
7. ↑ Dr. Cooper, R. G.; Dr. Edgett, S. J.; Dr. Kleinschmidt, E. J. (2001) - Portfolio Management for New Product Development: Results of an Industry Practices Study. R&D Management (Industrial Research Institute, Inc.) Volume 31, number 4.
8. ↑ Cite error: Invalid <ref> tag; no text was provided for refs named Ulrich
9. ↑ Cooper R. G., (2001). Winning at New Products, 3rd ed., New York: Basic Books.
10. ↑ ^{10.0 10.1 10.2} LEGO Group. (2013) - Annual Report 2013 (online) http://cache.lego.com/r/aboutus/-/media/about%20us/media%20assets%20library/progress%20report/lego_group_responsibility_report_2013.pdf?l.r=-468849679. [Accessed 09. September 2015].
11. ↑ ^{11.0 11.1 11.2} Jenner, S.; Cilford, K. (2011) – Management of Portfolios. Office of Government Commerce (OGC). The Stationary Office (TSO), ISBN: 978-0-11-331294-8.
12. ↑ Project Management Institute, PMI (2008) – The Standard for Portfolio Management. Project Management Institute, ISBN: 978-1-933890-53-1.
13. ↑ ^{13.0 13.1} Lindholm, M.; Stokholm, F.; Hildebrandt, S.; Schultz, M.; Klausen, K.; Nikolaj B., P; Jenster, P. (2011) - Lego: Globaliseringen af den gode ide. Gyldendal, København. Den danske ledelseskanon, nr. 3.
14. ↑ Boothroyd, G.; Dewhurst, P.; Knight, W. (1994) - Product design for manufacture and assembly. New York: M. Dekker.