Expert Insights: Lessons From the LEGO Turnaround

Launching a successful business is one thing, but sustaining a large company over decades is a far more complex endeavor that requires resilience and strategic planning. Gaining valuable insights from industry leaders who have overcome growing pains and market challenges can help business owners avoid pitfalls that threaten the growth of many companies.

AlphaSense, a leading market intelligence platform, provides Expert Insights through its extensive expert transcript library to enhance your primary research with premium thought leadership and powerful artificial intelligence (AI) technology. Expert Insights equips research professionals with first-hand knowledge through structured interviews with business leaders and decision-makers across public and private sectors to enhance your business strategies.

One critical insight for businesses is understanding how to pivot when a business falters—something the company LEGO is well-versed in. In our exclusive interview with Jørgen Vig Knudstorp, Executive Chairman and former CEO of LEGO, we learn some of his key lessons on strategic planning and turning around growth for emerging companies.

This blog will explore key insights from our conversation with Knudstorp available in our expert transcript library, which features exclusive thought leadership interviews with prominent executives, technologies, and influencers across a range of industries.

Challenges Faced in LEGO’s Business

Founded in 1932, LEGO started in a Danish carpenter’s workshop as a family-owned toy production company. It produced wooden toys for twenty-five years before introducing the plastic brick, which became popular in the late 1970s. The company experienced steady growth until the early 1990s, when profits fell, putting it at a crossroads.

Knudstorp believes several factors contributed to the erosion of the core brand and financial decline. One was a shift from being a European mom-and-pop toy retailer to competing with more prominent global manufacturers, who moved their operations to more cost-effective countries like China.

“The whole industry here in the US as an example, moved to China to the Pearl Delta, and we were manufacturing in Northeastern US and Denmark and Switzerland. So the whole manufacturing base was maybe not really where it needed to be.

Then there was the advance of video gaming, which really happened in the 1990s. And of course then by the end of the nine nineties we had web.com, et cetera. So there were just fundamental shifts in the core business, but then an attempt to not deal with that and then go around and build theme parks and other things to find new sources of growth or new ways of building a very strong brand.”

– Former CEO, LEGO | Expert Transcript

Knudstorp explains that the major breakthrough in changing LEGO’s business strategy occurred when he was asked by the company owner to calculate the dividend capacity for future years:

“I grabbed out Tim Kohler’s book on valuation and I calculated how much dividend capacity would be looking at the growth in the equity and so on. And from that I calculated the economic profit of the business. And I had a stunning revelation.

The company had for more than ten years not produced any economic profit. That means its financial returns on its invested capital was below the weighted average cost of capital.

And so what I found when I really got my hands around, it was actually a company where that core business was broken, it was unprofitable, it lacked innovation, it lacked energy, and all the new stuff was never really a business.

– Former CEO, LEGO | Expert Transcript

The second issue was that LEGO had begun expanding its product line in non-core areas like apparel, video games, and theme parks without a clear strategy. Expending valuable funds, talent, and energy on new sources of growth without a clear plan had negatively impacted the core business—build-it-yourself LEGO kits— and jeopardized revenues. The company needed a new path forward.

Core Elements of the LEGO Turnaround

The former CEO attributes LEGO’s turnaround to a renewed focus on its core business and values, like quality, creativity, and delivering rich childhood-building experiences, to reinvent the brand promise and strategy.

Knudstorp believes LEGO had become too insular and needed to engage more with customers and a broader stakeholder base to spark creativity and build community.

“I think the company had become too isolated and too convinced of just coming up with ideas. I met very early with some of the fan user base, and it basically taught me that the answer is out there.

We involve thousands of children in the product development. We work with adult fans, we work with the customers, anybody basically who wants to contribute. And today, we’ve turned it into a product line called LEGO Ideas, where people propose products. And if the product gets 10,000 votes, we’ll actually put it into production, and we’ll give you a share of the revenue. That’s now one of the very biggest global product lines for us, and it’s amazing what people suggest.”

– Former CEO, LEGO | Expert Transcript

Evaluating a company’s strengths and weaknesses is essential to obtaining stakeholder alignment around a long-term strategy. The former CEO estimates it took about two years to stabilize LEGO and its cash flow issues. Unlike public companies, Knudstorp believes LEGO’s private family ownership enabled the patience to develop and execute a turnaround plan lasting about seven years.

“You’re not making a difference in two or three years. It takes five, seven years to create a lasting impact, at least in our business it does, to really change the culture, change the strategy, change the operating model, the fundamentals of the business, and get the product right.”

– Former CEO, LEGO | Expert Transcript

LEGO focused on restoring creativity and productivity by engaging with customers and employees and experimenting with manufacturing practices. These efforts have led LEGO to grow by nearly 20 percent, compounded over two decades.

Watch the full Q&A session now with Jørgen Vig Knudstorp to gain deeper insight on building a better business.

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Enhance Your Business Strategy with AlphaSense

In today’s rapidly evolving business landscape, companies must continually adapt and evolve to maintain their competitive edge. Through the lens of Jørgen Vig Knudstorp’s leadership at LEGO, we see how strategic pivots and informed decision-making can transform challenges into opportunities for growth. Knudstorp’s insights and LEGOLego‘s proactive strategy underscore the importance of resilience, flexibility, and foresight in steering a company toward long-term success.

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