‘Keep it simple, stupid’ – The US Navy principle from the 1960s reaffirms its relevance, as CEOs no longer have the option to avoid managing complexity.
The world has become more complex and so has business. In pursuit of double-digit growth, they have accelerated their pace of innovation, launching new products or entering new markets without realizing that they are creating an almost unmanageable state of complexity for their organizations and that the cost of managing such complexity is eroding their profitability. This was the case with the Lego Group, the creator of the eponymous eight-stud building block, whose return to success was fueled by the reestablishment of simplicity at the core of its business model.
There are several nuances of complexity for businesses. At the lower end of the manageability spectrum is “imposed complexity,” such as laws or industry regulation. The next level would be “institutional complexity,” such as the number of countries in which a company operates, what it sells, to whom, and how. This can only be eliminated by abandoning a part of the business or by simplifying the business model itself. The most manageable complexity is related to the “organizational complexity” that arises from a growing misalignment between the needs of the organization and the processes that support it. It can be more easily addressed, for example, by fixing poor processes (such as the time it takes to do something like product development), eliminating confusing role definitions and any duplication, or clarifying responsibilities (for example, between headquarters and the offices of country in a region). ).
Managing complexity involves keeping simplicity at the core of a business model that focuses on a few simple things that provide focus and direction internally and are easily recognized by customers. But it also implies the continuous reduction of any progressive complexity without added value. Ultimately, it helps eliminate unnecessary costs and organizational friction and produces continuous improvement. It can also generate new sources of profit and competitive advantage by boosting a company’s resilience and its ability to rapidly adapt to change.
Denmark’s family-owned Lego Group successfully lived through the peaks of simplicity (which drove 15 years of double-digit growth through 1993), but then succumbed to the blows of complexity by feverishly expanding and losing its focus as result (hurtling toward bankruptcy with US $ 370 million loss in 2004).
By the end of the 1990s, Lego had moved away from its simple core (the brick) to a development binge (tripling the number of new toys between 1994 and 1998), moving into every new market imaginable, looking for new channels, new customer segments, new businesses, and becoming a “lifestyle” brand by putting your stamp on clothing, watches, software, theme parks, retail stores, TV series, and more.
The return to profitable growth, under a new management team led by Jorgen Vig Knudstorp since 2004, took seven years to renew the company’s focus on the eponymous eight-stud building block.
Lego reduced institutional complexity as it refocused on its distinctive core products and core customers, reducing the number of different parts it produced from 12,900 to 7,000, eliminating resource drain lines, and selling non-essential assets like theme parks. It also reduced organizational complexity by reviewing some of its processes, such as product development, cutting the time required to develop an idea and bring it to market in half.
However, the shift in focus did not prevent disciplined and focused innovation to create an “obviously Lego, but never seen before” gaming experience in an attempt to tap into wider markets and reinvigorate the Lego brand. This led to the introduction of computer games with their building block characters playing heroes and villains, as well as construction games based on licensed themes from Hollywood titles such as James Bond, Star Wars, and Pirates of Caribbean. . “The Lego Movie”, portrayed as “a truly groundbreaking medium for the first time” appears to be another brick in this successful revitalization effort, as it remained number one at the US box office for the three consecutive weeks following its release in February 2014. .
After a near-death experience in the mid-2000s, Lego’s finances are thriving. Lego’s sales increased 24% annually between 2007 and 2011 (compared to 1% and 3% for competitors such as Mattel and Hasbro). In 2013, it became the world’s second-largest toy maker (after Mattel) with an 8.8% market share after reporting a 13% increase in sales.