Interview with David C Robertson, author of BRICK BY BRICK

Interview with David C Robertson, author of BRICK BY BRICK (How Lego rewrote the rules of innovation and conquered the global toy industry)

Jon: David, the first thing I’d like to know is did you play with Lego as a kid, and do you still play with Lego?

David: I did have LEGO as a kid, although it wasn’t my favorite toy. My two favorite toys were Hot Wheels and slot cars.
One thing I learned during my book research is how much LEGO changed in the late 1970s. In 1978, LEGO came out with the first minifigure, and the first fantasy sets. They rescaled most of the creations around the minifigure, and introduced the Space and Castle lines. This made LEGO a lot more fun, and boosted their sales tremendously.
My family and I do play with LEGO still, even though my kids are now 13 and 15. When I was growing up a family tradition was to have a picture puzzle out on a card table, and we’d all spend time doing it. It was a very social thing – I remember sitting with my Grandmother or some other relative and talking while we did the puzzle. During holidays we get one of the more complicated LEGO sets and use it the same way. Whenever someone’s looking for something to do, they do a few pages of the instructions, adding another layer to the model.

Jon: Lego is such a well-known name, it is interesting to me that they were so open about their business. What kind of access did you get from them?

David: I was the LEGO Professor of Innovation and Technology Management at IMD, so I was chosen as a key partner for the company. They were very open with me about all aspects of their business.

Jon: Is the business model Lego uses something that would help other businesses?

David: What I found interesting about LEGO was that they took a very traditional business and put in place a management model that struck just the right balance between letting creativity flourish and providing direction and control so that their products were profitable and aligned with the brand. That’s really hard to do.

Jon: The history of the Lego company is interesting in that they had a number of setbacks but through sheer determination they kept the company moving forward. Do you think the family still being involved in the business helped that? From what I’ve read they seem very open to new ideas.

David: I asked the CEO that question, and he was very clear. He thought the family structure was a large barrier to their success when he took over in 2003. But he and his team have worked a lot with the family to restructure the management system and decision structure, and he now says its a source of their success.

I’m going to say something now that might sound political, but it’s not: our tax laws would prevent a company like LEGO from surviving. Our inheritance taxes would require a family-held business to be liquidated or sold off to pay the inheritance taxes. Other countries, like Denmark, have tax structures that allow family businesses to stay in the family for generations. The fact that LEGO was a family business allowed them the freedom to take their time rebuilding the company and restructuring its management. The pressures would have been much different if LEGO had been publicly held (or a division of a publicly held company), and I don’t think the turnaround would have been as successful. Again – I don’t want that statement to be interpreted politically (e.g., that I’m saying we should reduce taxes on wealthy Americans), but I am saying that family businesses can be very important drivers of jobs and growth, and the way we tax wealthy people makes it difficult to pass ownership of a family business to the next generation.

Jon: Traditional business approaches didn’t seem to work at Lego. Yet when they started to cater to the people who love Lego things seemed to click just right. Isn’t that kind of a no brainer, give the customer what they want?
David: Yes, but which customer? One of the mistakes they made was to listen to market research that said that 3/4 of kids don’t like construction toys. So they built Galidor and Jack Stone toys, toys which had very little construction as part of the play experience. While those toys did attract some new fans, they alienated the traditional customer base.

And, the advice that we also give companies is that we should watch out for “disruption” – for new technologies or business models that will cause our products to become obsolete. LEGO got into trouble because they believed in 1999 that new virtual experiences like the Xbox or Nintendo would disrupt their business. It was a trap that many well-managed companies fell into. Some of their biggest, most expensive failures were their attempts to create virtual building experiences that would attract kids.

They’re still experimenting with online play, but they’ve found that there wasn’t any disruption at all – kids building and playing online only caused them to want more plastic bricks, not fewer. As the online experience gets better and better, that may change, but for now there’s lots of room in the world for more LEGO bricks.

Jon: Even with all the cheaper knock off plastic brick toys Lego still out sells them all. I think it’s because of the quality of the product and the fact that there is such a variety to choose from. Is there something I may be missing that also explains this?

David: I agree with both those points and would add a third: LEGO is really good at telling stories around their toys. Parents buy bricks, but kids buy stories. Next time you’re in a toy store, look at the cover of the box. You’ll see a little drama being played out – a bad buy escaping from a police station, or firemen racing to put out a fire. Kids are excited about building the model so they can play out the drama.

This is something that LEGO learned from Star Wars. When they brought out the LEGO Star Wars toys, they found that the rich story drew kids in and made the toys very exciting. Since then, they’ve become very good at creating dramas around their toys.