Innovation Diagnostics - Lego
Context
Read the case study before answering the questions that follow.
-
Among the many successful product ranges launched by LEGO, its DUPLO, Architecture, and Mindstorms products are notable. The LEGO DUPLO range, launched in 1969, consists of extra-large bricks that are more easily manipulated by smaller hands, making it an ideal fit for children aged five and below (Rivkin, Thomke & Beyersdorfer, 2012). This market, however, was not uncontested and other brands like Mega Bloks competed with DUPLO to create more user-friendly products for children. The product development process of using smaller LEGO bricks to inform the design of larger DUPLO bricks would not have been a substantially challenging undertaking for the organisation. LEGO simply used its existing knowledge and capabilities to create larger moulds based on the design of its smaller bricks.
LEGO Architecture allows customers to reconstruct famous landmarks such as the Empire State Building (LEGO, n.d.). These products are particularly alluring to older children and the Adult Fans of LEGO (AFOL) community – inviting the older market to re-engage with their nostalgic childhood experiences (Needham, 2018). This novel product range, which was introduced in the late 2000s, was the first of its kind and allowed the organisation to capitalise on adult customers who would no longer consider toys as a purchase for themselves, but who saw LEGO Architecture as hugely appealing home decor. Unlike prior LEGO products, Architecture needed designers to learn how to mirror landmarks and possibly reorganise the layout of work around production. That said, the components themselves could leverage existing component designs and request new components while adhering to existing R&D guidelines.
The LEGO Mindstorms range features programmable bricks that are primarily used to play with robotics and computer coding. This new range was competing in an established electronic toy market when it launched in 1998. Compared to the LEGO DUPLO and Architecture products, the Mindstorms range was rather different. The programmable bricks’ development required an advanced understanding of electronics and was created in collaboration with Professor Seymour Papert and the MIT Media Lab (Watters, 2015).
Context - Question from the LSE
Use what you have learnt about the three diagnostics to populate the following table of innovations for LEGO. Populate each cell with an evaluation of the state of the three diagnostics for each of LEGO’s innovations mentioned in the case study:
In the first column, “Change in competitive positioning”, decide whether each of LEGOs innovations are a cost leadership and/or differentiation, focus or Blue Ocean Strategy.
In the second column, “Change in product performance trajectory”, decide whether each innovation is either sustaining or disruptive.
In the final column, “Change in resources”, rate the three LEGO innovations in terms of their level of competence destruction (i.e. lowest, low, and higher).
Lastly, include a brief explanation for why you believe that the innovation merits the evaluations you have made.
Answers Table
| Change in Competitive Positioning | Change in Product Performance Trajectory | Change in Resources | |
|---|---|---|---|
| Lego DUPLO | A focused strategy incorporating differentiation, customised to the under 5s. It limited retaliation of core competitors such as Mattel. New target group within market boundary. | Sustaining innovation as larger brick. Created value by enhancing same product features (not a choking hazard) to target under 5s. | Incremental innovation, zero-level capability. Lego design has not experienced competence destruction vs Duplo. New mould not a substantial challenge. New competences are not VRI. An external partnership, easily imitated by enthusiasts. |
| LEGO Architecture | Focused strategy incorporating differentiation. Targeted and customised for nostalgic AFOL community. It had unique appeal (home décor). Capturing customers within the catchment, low chance of retaliation. | Knudstorp describes it as ‘incremental innovation.’ It is sustaining as it is a ‘architecture through the brick.’ A high quality, high profit innovation with clear target audience. | New resources (designers) required for mirroring landmarks and new layouts. Minimal impact on manufacturing, new components meeting R&D guidelines. This is an architectural innovation. |
| LEGO Mindstorms | Programmable brick; didn’t require a computer to operate. This was an educational flagship for age 11+ children within the market boundary. Lego attempted to make up for this with additional sources of demand (adult hobbyists). | This was a disruptive innovation. Kristiansen called it ‘a new generation of learning.’ It was a disruption to the product performance trajectory. It created an educational robotics movement (i.e. leagues) and a school range. | A radical innovation. Ideas came from customers and suppliers. In terms of competitive advantage, it helped improve sales and margin. The unique R&D partnership with MIT made the combined resources VRI. This was a second-level capability. |
Context - Question from the LSE
Some user groups consider LEGO Mindstorms expensive and have tried to propose alternatives. UK-based non-profit organisation, Raspberry Pi Foundation, offers free software, opportunities to join clubs and events, and other resources to engage young people in learning coding. Some bloggers propose that young people can combine the Raspberry Pi Foundation’s resources with cheap materials and put together a “Raspberry-Pi-based alternative toy”, lowering the cost incurred by these young users below the price of LEGO Mindstorms products. A cheaper alternative with similar product performance could lower LEGO’s profits from LEFO Mindstorms.
Assume LEGO’s complementary assets are more value adding than the complementary assets that competitors can deploy to distribute the materials to build Raspberry-Pi-based alternative toys. Is that reason enough to predict that LEGO will protect its LEGO Mindstorms’ profits from the rise of this competing product? Explain your rationale.
My thoughts - Answer for the LSE
To understand whether LEGO will protect profits we must assess whether Raspberry Pi (RP) based toys devalue Lego’s resources and what this means for competitive advantage. If RP is a competence destroying innovation, then Lego lose market leadership (Tushman & Anderson).
Considering Teece, RP introduced a more powerful SBC at $35 vs $350 for Mindstorms. The R&D resources were devalued and disrupted. Considering Henderson & Clark, we can conclude high level of competence destruction. RP was a component innovation that destroyed the value of the resources supporting the NXT/EV3 (‘brain’) due to better performance. The resources supporting architecture faced high competence destruction as RP facilitated innovations such as Python and BrickPi.
Despite Lego’s complementary assets (i.e. distribution) being more value adding, this was not reason enough to predict profit protection. The RP caused a change in competitive positioning (made ‘the brain’ seem replaceable), in value proposition (from Lego enthusiasts to robotics enthusiasts) and in resources (R&D of RP was VRI and more value-adding due to multiple partnerships).
Given RP was launched 2012 and even in 2011 forums were discussing it is a substitutable value proposition, the threat of RP is based on resources whose additional value were a competitive concern at that time.