Author/Li Zubin Chairman of DeRui Consulting, Du Ruoyun Consulting Consultant of DeRui

Source/DeRui Consulting

Serious strategic mistakes often involve failure to Be aggressive and win consistently. The reason some managers make this mistake is because they are obsessed with constantly looking for new hits.

——"The Flywheel Effect", written by Jim Collins

The COVID-19 epidemic has accelerated the world's entry into the U.K. era, and various geopolitical conflicts, economic and trade frictions have become A frequent guest in news reports, a new round of technological innovation represented by 5G, the Internet of Things, and artificial intelligence is heralding the arrival of a new economic era. There is no doubt that all people, all companies, and all countries are facing unprecedented unknowns and challenges together.

Jim Collins repeatedly emphasized in "The Flywheel Effect": "If you truly build your flywheel and keep focusing on updating and extending it, your flywheel will last for a long time and even ensure that you Organizations that successfully overcome major strategic inflection points or turbulence and chaos ”

Those enterprises that understand their core competencies and the underlying structure of the flywheel, the transformation under every crisis is an extension and expansion of the core of the flywheel. .

Imagine that a well-known international brand that once promoted the industry and had products all over the world, after its glorious peak period, is faced with the expiration of core technology patents, price competition from competitors, and the entire industry. Three major dilemmas impacted by the tide of the times. How does it allow its ship, laden with past glory, to sail to a new channel?

This company is the widely popular Lego.

Today, we can see various "Lego towers" built by children in the most conspicuous locations in most toy malls. However, in the 1990s, the confused Lego was in crisis. It struggled hard until it recognized the core of its own flywheel.

What did Lego do wrong in the crisis? How do you find the right direction? The story of this company can give some inspiration to many companies in crisis.

Past

Past

Glory

Glory

LEGO, which was born in 1932, first relied on making wood. Started making toys. LEGO produced its first plastic bricks shortly after the end of World War II and put plastic toys on the market a few years later. However, due to the immature technology in the early stage, plastic toys were not favored by the market. Lego, which invested a lot of money and time in research and development, did not give up.

After more than ten years of repeated research and development and testing, a plastic building block with convex and concave holes that can be spliced ??was born. Children can use their imagination to build their own world. . With the launch of a variety of LEGO building models and building block sets, the territory of the LEGO world has rapidly expanded in both games and reality, and has quickly developed from Europe to the United States, Japan, and Australia, becoming one of the most coveted Christmas gifts for children.

Lego’s successful transformation did not stop there. With Christiansen, who is only 31 years old, becoming the new successor of Lego, Lego has expanded its product line for children aged 2-5 and teenagers over 12 years old, and also launched Lego's classic product-Lego themed minifigures. These Disney Lego minifigures, Barbie dolls, and Transformers fully satisfy children's psychological needs for role-playing in animations. Children like to use them to play "play house" and trigger a buying craze every time they are released.

In the 15 years since Christiansen took over Lego, Lego's sales have increased eightfold, and it has grown into a large toy group with 45 branches and more than 9,000 employees around the world.

Wolf

Smoke

Four

Starting

However, after entering the 1990s, Lego's halo gradually began to dim.

First, as the patent of Lego bricks officially expired, Canadian, Chinese and other manufacturers that had been ready to take action began to mass-produce various styles of building block toys and quickly eroded the original Lego market by relying on lower prices. Although Lego filed a lawsuit on the grounds that other companies violated trademark laws, it ultimately failed to obtain support from the court and could only watch the market being continuously eroded by competitors and being dragged into a price war.

What’s even worse is that since the 1990s, the electronic game market has begun to grow rapidly and entered a period of prosperity. Construction simulation electronic games have replaced the old building block toys, allowing children to experience The fun of building a city, raising pets, and playing family. In contrast, Lego bricks not only take up a lot of space and are troublesome to store, but also require children to spend a long time and patiently put them together one by one. Naturally, it is difficult to attract more excitement and "cool" video games. Children's eyeballs.

In the face of trendy electronic games, Lego bricks have become outdated and childish toys. It must be said that the era of plastic building blocks has passed.

Lego, which has keen market insights, is not indifferent to its situation. Senior executives quickly realized the crisis facing Lego. For this reason, Lego began various "self-rescue attempts." They first developed a baby toy product line and a robot set product line, but there was no obvious effect. Later, the radical Lego directly poached a well-known designer from the Danish national treasure audio brand B&O, planning to subvert itself. It launched the video game "Lego 3D Factory" based on toy building blocks, and even invested heavily in the development of a 3D digital building block game. .

At that time, Lego was experimenting everywhere under the wave of the Internet bubble. It tried educational services, TV series, department stores, theme parks, tablet computers, and tried the core businesses of Google, Disney, and NETFLIX. . All of these moves looked like they would open up new markets for Lego, but without exception these projects came to nothing.

Jim Collins has repeatedly reminded in "The Flywheel Effect": "Serious strategic mistakes are often the failure to win aggressively and sustainably. The reason why some managers make this mistake is because It’s because they are obsessed with constantly looking for new hits. ”

Lego at this time is a typical example. During the years of blindly trying to innovate, Lego launched an average of three times the number of new products per year, while maintaining an average of five new themes per year. Some of these products have achieved good sales results, but most of them not only received mediocre response, but also had a greater impact on the sales of original classic products.

Lego's various innovations are to push a flywheel that has finally turned in one direction to another direction quickly, and continue to repeat this behavior of interrupting the flywheel, which makes the flywheel always lack continuity. Rotational inertia.

This huge toy empire is like a blindfolded giant beast. Although it is vigorously driving every part of its body forward, to outsiders, it just spins in place with its teeth and claws. By 2003, Lego's cash flow became negative $180 million, and the reason for all this was that Lego mistakenly regarded the underlying structure of the flywheel as a new product and business.

Jim Collins emphasized: "Organizational managers need to clearly understand that the underlying structure of the flywheel is not a single business production line or business activity."

Obviously, LEGO at this time Management doesn't realize this.

Review

Vision

Core

Heart

Fortunately, Lego, which was on the verge of bankruptcy, ushered in There is a new leader, Jürgen Knudstorp.

This young man from McKinsey pointed out the new direction of Lego's rebirth after taking office. He once said: "For Lego or other such companies, we can enter an innovative peripheral area every five years. But unfortunately, in the past few years, Lego has actually entered 5 companies every year. This rhythm and pace cannot allow the organization to truly digest these innovations and bring benefits. Instead, cost and management problems have arisen, which eventually almost brought down the company. .So what LEGO needs to do most now is to return to the core.

”

Under the premise of returning to the core, Lego has finally found the real flywheel – not new products, not following the Internet trend, but a unique game system and a powerful supply chain all over the world. Management capabilities.

Can those toy manufacturers that are cheaper than Lego produce tens of billions of toy bricks each year while ensuring consistent quality?

Can’t they? Can Lego's younger toy brands ensure that when a hot-selling set appears, there will be sufficient supply of products in local supermarkets in Europe, the United States, Asia, and Oceania?

Those Lego products can't. Can imitators invest enough R&D enthusiasm like Lego and try for more than ten years just to ensure millimeter-level friction at the joints of building blocks so that children can join them easily and comfortably?

Can't? Can video games create a simple, hands-on, and fun game system that any child between the ages of 2 and 14 can easily understand and play?

And these are the things. LEGO's enduring source of vitality

Bath

Fire

Re

Life

Back to the core. Lego began to drastically cut off product lines that had no development potential, and also discontinued those building block parts that only satisfied the artistic imagination of designers but were not really loved by children.

Innovative thinking before. Under the influence, Lego's building block parts continued to expand to about 13,000 types. Many of the parts seemed exquisite, but they were completely inconsistent with children's thinking logic. In the end, only about 7,000 types of parts were retained.

Constantly. Lego, which is "slimming down", also sold the theme park that the founder liked very much, changed from direct product sales to IP licensing, solicited opinions from downstream dealers, and conducted a large number of behavioral tests and user opinions collection on children of all ages. Observe and record which aspects children are excited about and which aspects they find boring when assembling Lego toys.

Not only that, Lego has original requirements for the quality of building blocks and the development cycle. Strict control was carried out, forcing designers who were accustomed to "freedom and undisciplined" to ensure that the design was completed on schedule through the cooperation of the entire project team and the mobilization of project resources.

With unremitting promotion, the product was improved. The research and development cycle has been shortened from the previous 3 years to 6 months, which greatly ensures that LEGO's new products can cater to the latest trends of the year and increase the probability of producing hit products.

In addition to the quality of the building blocks. In addition to investing a lot in research and development, the LEGO design team also went to fire stations, prisons, and city halls for on-site inspections, adding many interesting and vivid details to these themed set building blocks to restore the realistic scenes to the maximum extent, which made LEGO's The City series has gone from being a new product to a timeless classic, and is still one of the preferred LEGO starter sets for parents to this day.

While carrying out large-scale updates to its products and game systems, Lego has also begun to upgrade its supply chain, adjusting the inventory proportions of various products in its warehouses to ensure that it has a strong presence in Wal-Mart, Toys R Us, etc. The right to speak among dealers.

At the same time, in order to ensure Lego’s product profits, Jürgen Knudstorp proposed the famous “13.5% principle”: that is, from now on, the sales profit margin of each Lego product cannot be Lower than 13.5%, otherwise this product will be eliminated.

Such a simple, clear, executable and measurable standard is more effective than dozens of rules and incentive plans, and prevents the company's strategy from being deformed in top-down transmission. Under this principle, when designing each product, the costs of production, warehousing and transportation must be considered to ensure that the final sales profit margin exceeds 13.5%. This approach helps Lego continuously upgrade its supply chain level and cut more unnecessary costs.

Today, LEGO can earn hundreds of millions of euros in revenue every year just relying on IP licensing. The new era of programmable building blocks NXT is also loved by children and has been launched in its second generation.

The new brand LEGO NINJAGO launched in 2011 not only helped LEGO achieve substantial growth in profits and sales that year, but also boosted LEGO's reputation and product popularity among post-millennial children. LEGO, which has been among the world's top 500 companies for many years, surpassed Mattel in 2012 to become the world's largest toy company. It is still exuding vitality even when it is nearly 100 years old.

Looking back at the history of Lego, it has experienced the turbulent World War II, the rapid development of science and technology since the 1960s, the Internet bubble in the 1990s and the decline of traditional physical industries. After experiencing the global financial crisis in 2008... Lego's customers have ranged from children from standard middle-class families in the 1960s and 1970s, to Generation XYZ in the 1980s and 1990s, to the Millennials who have long become natives of the Internet.

Technology is changing, concepts are changing, and the economic environment is changing. The only thing that remains unchanged is LEGO’s deep understanding of the core of the flywheel, and its determination and persistence to promote the flywheel over and over again.

For those companies that are chasing the trend and blindly believe in the miracle of new products and new businesses, Lego's development history may help the company understand the core and essence of the flywheel from the other side.

Even in the face of a turbulent external environment, don’t forget what Jim Collins often emphasized behind the flywheel case: “Before you decide to eliminate the existing flywheel, you need to understand its deep logic. Don’t give up on an effective flywheel that is sustainable, renewable, and scalable.”