How LEGO Built the Foundations and Enterprise Capabilities

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership Based on the decade-long digitalization journey and experiences of the LEGO Group, this article provides insights on building the foundations for enhancing enterprise capabilities for digital leadership. Leveraging digitalization is one of the LEGO Group’s four strategic priorities and is fundamental to it being a world leader in its industry. Page 1/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Agenda Ø Defining Digital Leadership Ø LEGO Group Background Ø Digitalization at the LEGO Group Ø LEGO’s Journey Toward Digital Leadership Ø Lessons for Digital Leadership Page 2/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Defining Digital Leadership Ø Executives have very diverse perspectives as what “going digital” really means. ØThese perspectives range from a focus on technology, to digital customer engagement, to new digital business models and more. Ø The lack of clarity often results in piecemeal initiatives, missed opportunities and false starts in the digitalization of the enterprise. Page 3/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Defining Digital Leadership Ø The term digitalization goes beyond an organization taking advantage of digital platforms, but rather reflects the way that digital media and platforms influence the restructuring of the economy, society and culture. Ø We define digital leadership as “Doing the right things for the strategic success of digitalization for the enterprise and its business ecosystem. ” Page 4/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Building blocks of strategy and organization will have to change 1. A different kind of business strategy 2. Different kinds of business models 3. A different kind of enterprise platform integration 4. A different kind of people mindset and skill set 5. A different kind of corporate IT function 6. A different kind of workplace Page 5/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Agenda Ø Defining Digital Leadership Ø LEGO Group Background Ø Digitalization at the LEGO Group Ø LEGO’s Journey Toward Digital Leadership Ø Lessons for Digital Leadership Page 6/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 LEGO Group Background Ø Founded in 1932 by Ole Kirk Kristiansen the LEGO Group is a private company (still owned by the Kristiansen family) with headquarters in Billund, Denmark. Ø Renowned for the iconic LEGO brick, LEGO products are sold in more than 140 countries. It has more than 17, 000 employees worldwide. Ø To date, more than 760 billion LEGO elements have been manufactured. Page 7/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 The LEGO Group Organizational Wheel Page 8/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Near-Death Experience and the Start of the Transformation Journey Ø Although LEGO is now a thriving business, in the early 2000 s it verged on defaulting on its debt. Ø The toy market had become more fickle with the advent of new electronic games. Ø The starting point for the transformation was the replacement of the CEO in October 2004. Ø The emphasis in 2005 -2007 was on creating a defensible core of products. Ø In 2008, the strategy shifted from stability to growth and the focus was on building sustainable platforms for growth while continuing to improve the core business. Ø There was a realization of the growing importance of digital platforms for the LEGO Group. Page 9/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 The LEGO Strategy Expand global presence Leverage digitalization Sustain core commercial and operational momentum Create the organization of the future Page 10/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Agenda Ø Defining Digital Leadership Ø LEGO Group Background Ø Digitalization at the LEGO Group Ø LEGO’s Journey Toward Digital Leadership Ø Lessons for Digital Leadership Page 11/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Digitalization at the LEGO Group Ø LEGO used three lenses for leveraging digitalization: Øa “Products” lens, which centered around product innovation and the product ecosystem; Ø a “Marketing” lens for digital marketing; and Øan “Enterprise” lens, which centered around enterprise platforms and integration of the outside and the inside of the enterprise. Page 12/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Product Digitalization Moves Ø The first hybrid digital/physical LEGO experience was LEGO MINDSTORMS® Ø A month after its launch, LEGO discovered that the proprietary operating system had been hacked. Ø Instead of prosecuting the hackers, it talked to them and found they were LEGO fans who wanted to build their own creations. Ø Since then, LEGO has launched numerous digital platforms to strengthen its connections to the large communities of LEGO fans Page 13/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Marketing Digitalization Moves Ø There is a lot of overlap between marketing and managing the product experience in a digital environment, because the digital experience is part of the product. Ø LEGO divides its market constituencies into customers (retailers such as Target, Walmart and Amazon), shoppers (adults such as parents and grandparents who buy LEGO products for children), consumers (those who play and learn with LEGO products, mostly children), and fans (adult and teenage fans who are both shoppers and consumers). Page 14/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 The Affinity Pyramid Engagement Map Page 15/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 The Rise of Multiple Digital Officers across the LEGO Group Extraordinary user adoption User excitement of what IT can do for you Higher user and process efficiency No training and change management Fewer change requests Low support needs Page 16/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Enterprise and Engagement Platforms OUTSIDE FOCUS Digital Consumer / Shopper / Customers + - SPEED OF CHANGE (Interaction / Dialog) Enterprise Platform LEVEL OF GOVERNANCE Engagement Platform (Record / Transaction) - + INSIDE FOCUS Digital Workforce Page 17/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Benefits of Involving Users in Augmenting the Enterprise Platform through App Development Page 18/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Multiple Digital Officers Enable the Digital Innovation Process to be Distributed between Corporate IT and Business Units Page 19/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Agenda Ø Defining Digital Leadership Ø LEGO Group Background Ø Digitalization at the LEGO Group Ø LEGO’s Journey Toward Digital Leadership Ø Lessons for Digital Leadership Page 20/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 The Path to Enterprise Digital Leadership Page 21/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Agenda Ø Defining Digital Leadership Ø LEGO Group Background Ø Digitalization at the LEGO Group Ø LEGO’s Journey Toward Digital Leadership Ø Lessons for Digital Leadership Page 22/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Lessons for Digital Leadership 1/3 Ø New Ways of Thinking about Enterprise Digitalization Ø Lesson 1. Execute Business Strategy Digitally Ø Lesson 2. Use Digitalization to Bolster Business Strategy around Your Core Distinctive Competence. Ø Lesson 3. Position the Corporate IT Function Close to the Business to Enable Responsive Digitalization. Ø Lesson 4. Create Multiple Digital Officers to Distribute Digital Innovation across the Enterprise. Ø Lesson 5. Leverage the Ecosystem of Partners for Complementary Digitalization Competences. Ø Lesson 6. Iterate to Success in Digitalization. Page 23/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Lessons for Digital Leadership 2/3 Ø New Ways of Thinking about Digital Platforms Ø Lesson 7. Recognize that User Experience Drives IT Architecture, Not Vice Versa. Ø Lesson 8. Recognize that Dynamic Engagement Platforms for Digitalization Invert Business Priorities and Generate a New Level of Complexity. Ø Lesson 9. Collaborate with Technology Vendor Partners to Create Dynamic Digital Platforms. Ø Lesson 10. View SMAC Technologies Through a Digitalization Value Lens. Page 24/25

How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership El Sawy, Kræmmergaard, Amsinck & Lerbech Vinther – June 2016 Lessons for Digital Leadership 3/3 Ø New Ways of Thinking about the Digital Workforce ØLesson 11. Hire Digital Generalists Rather than Just Technical Specialists. ØLesson 12. Create an Attractive Workplace for Digitally Savvy People. ØLesson 13. Improve and Monitor the Digital Quotient of the Workforce. Page 25/25