The new red Duplo train does not look like a revolutionary product. Designed for toddlers aged two and up, the train can be pushed back and forth on its track.
But for Lego, the Danish family-owned company that is the world’s most profitable toymaker, it is a pivotal product. The €60 set is its attempt to build a bridge between its traditional world of physical play and the digital sphere of iPads and smartphones. The train can be started with a push of a hand but also by a flick on a mobile app, where youngsters can move and even tickle a cartoon train driver and play mini-games.
“I don’t think digital is very different from other stuff, in that we still think the brick and the play system is at the core of what we do,” says Niels Christiansen, who became Lego’s chief executive in October 2017. “But digital is an opportunity for us to enhance that.
“We would like to be in between, and ideally my vision would be that the kids, they don’t think about ‘now I need to do digital’ or ‘now I need to do physical’.”
It is a critical time for both the toymaker and its chief. More than a decade of stellar growth ended last year as sales and profits fell for the first time since 2004. Some question whether Lego’s business model of favouring one toy — the plastic brick — can survive in a world of Fortnite and Minecraft.
Mr. Christiansen, 52, a former McKinsey consultant and ex-chief executive of Danfoss, one of Denmark’s largest industrial groups, must help Lego navigate its way through the most perilous waters since its brush with financial collapse nearly 15 years ago.
While working at a hearing-aid manufacturer in his early career, the engineering graduate says he helped design what he claims was the first product to use Bluetooth technology. He is now betting that adding a digital layer to Lego will help revive growth.
He fiddles with two red bricks throughout our interview in Lego House, the toymaker’s new temple to its wares in its central Jutland hometown of Billund. “This is an amazing play system with the physical bricks, but on top of that we can layer even bigger experiences with digital of different kinds,” Mr Christiansen says.
The Duplo train is typical of Lego’s efforts. A team of four toy engineers, two element designers and a digital designer worked for two years developing the product, talking to Danish psychologists about how children play. “It’s important for the parents that the kids don’t get lost in the digital,” says Elisabeth Kahl-Backes, one of the designers. So the app has time limits built into it, and the train works without it.
Mr Christiansen says a big challenge is to make sure Lego as an organisation has the right capabilities to incorporate digital as just another way to play. “The biggest difficulty is the mindset you go in with. If you had asked people back when they had horses what they wanted, they wanted faster horses, not cars. So sometimes these changes need to be driven by the company being visionary,” he adds.
That means not taking as long with digital product development as its notoriously perfectionist approach to physical toys — a problem it ran into with the flopped Lego Universe, a multiplayer online game that shut in 2012.
But Lego’s boss is also clear that the toymaker should not just copy others’ digital ideas. Instead, it should add a layer of technology to already modular toys, such as the Duplo train. Mr Christiansen is the first outsider to be chief executive, although his McKinsey background is similar to that of his predecessor and current chairman, Jorgen Vig Knudstorp.
At Danfoss, he turned the family company round by plumping for globalisation and aiming to use digital solutions to help its customers, after it hit financial difficulties.
He is trying a similar approach at Lego, although he stresses that the toymaker is in a very different position, merely taking a pause for breath after more than quintupling its revenues since 2004, rather than being in a crisis.
Mr Christiansen describes his approach to leadership as “not so high-flying” and almost deceptively straightforward. “It has always been to try to be as honest and as simple in the language as possible. Say what you’re going to do . . . and stick at it; live it yourself as leaders,” he says.
Lego is owned by a foundation controlled by its founding family — the Kristiansens — just as Danfoss is, and their shared long-term view and culture made it easier for Mr Christiansen to start at the toymaker. The family’s focus on a 50-year horizon for Lego creates an opportunity to beat the next-quarter focus of listed companies, according to Mr Christiansen.
But he adds that it is a myth that not having to deal with analysts and shareholder roadshows means that chief executives of family companies have it easy.
“You always have to pay attention to your owners, and you have to be in good sync and understand what is the ambition and vision of the owner. That probably takes as much time as running around for roadshows does,” he says.
Mr Christiansen is clear that for Lego, which reports first-half results in September, 2018 is a year of “stabilisation”. Next year sees the release of Lego Movie 2: The Second Part, as well as more digital products and a renewed focus on international growth, particularly in Asia.
Mr Christiansen is a less extroverted manager than his chairman. Do not expect good results to be celebrated with singing and dancing to “Everything is Awesome”, the theme song to the first Lego film, as Mr Knudstorp did. “Different CEOs, different ways,” he says.
That might be a sensible approach. Last year Lego cut jobs for the first time in more than a decade, as well as taking out a layer of management as it tried to get back on track. Mr Christiansen says there is a subtle balance to be made between ensuring sufficient change takes place and not unnerving employees. “This year is really about stabilising the business and getting this new organisation to work well and . . . build the right foundation going forward,” he says, before adding: “There’s no quick fix.”
Source: Financial Times, August 20, 2018 | Richard Milne