lego sustainability case study

Lego’s ESG dilemma: Why an abandoned plan to use recycled plastic bottles is a wake-up call for supply chain sustainability

Professor of Operations Management & Business Analytics, Carey Business School, Johns Hopkins University

Professor of Supply Chain Management, University of California, Los Angeles

Professor of Operations, Information & Technology, Stanford University

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Lego, the world’s largest toy manufacturer , has built a reputation not only for the durability of its bricks , designed to last for decades , but also for its substantial investment in sustainability. The company has pledged US$1.4 billion to reduce carbon emissions by 2025, despite netting annual profits of just over $2 billion in 2022.

This commitment isn’t just for show. Lego sees its core customers as children and their parents, and sustainability is fundamentally about ensuring that future generations inherit a planet as hospitable as the one we enjoy today.

So it was surprising when the Financial Times reported on Sept. 25, 2023 , that Lego had pulled out of its widely publicized “ Bottles to Bricks ” initiative.

This ambitious project aimed to replace traditional Lego plastic with a new material made from recycled plastic bottles. However, when Lego assessed the project’s environmental impact throughout its supply chain, it found that producing bricks with the recycled plastic would require extra materials and energy to make them durable enough. Because this conversion process would result in higher carbon emissions, the company decided to stick with its current fossil fuel-based materials while continuing to search for more sustainable alternatives.

As experts in global supply chains and sustainability , we believe Lego’s pivot is the beginning of a larger trend toward developing sustainable solutions for entire supply chains in a circular economy. New regulations in the European Union – and expected in California – are about to speed things up.

Examining all the emissions, cradle to grave

Business leaders are increasingly integrating environmental, social and governance factors , commonly known as ESG, into their operational and strategic frameworks. But the pursuit of sustainability requires attention to the entire life cycle of a product, from its materials and manufacturing processes to its use and ultimate disposal.

The results can lead to counterintuitive outcomes, as Lego discovered.

Understanding a company’s entire carbon footprint requires looking at three types of emissions : Scope 1 emissions are generated directly by a company’s internal operations. Scope 2 emissions are caused by generating the electricity, steam, heat or cooling a company consumes. And scope 3 emissions are generated by a company’s supply chain, from upstream suppliers to downstream distributors and end customers.

Currently, fewer than 30% of companies report meaningful scope 3 emissions, in part because these emissions are difficult to track. Yet, companies’ scope 3 emissions are on average 11.4 times greater than their scope 1 emissions, data from corporate disclosures reported to the nonprofit CDP show.

Lego is a case study of this lopsided distribution and the importance of tracking scope 3 emissions. A staggering 98% of Lego’s carbon emissions are categorized as scope 3.

From 2020 to 2021, the company’s total emissions increased by 30%, amid surging demand for Lego sets during the COVID-19 lockdowns – even though the company’s scope 2 emissions related to purchased energy such as electricity decreased by 40%. The increase was almost entirely in its scope 3 emissions.

As more companies follow in Lego’s footsteps and begin reporting scope 3 emissions, they will likely find themselves in the same position, realizing that efforts to reduce carbon emissions often boil down to supply chain and consumer-use emissions. And the results may force them to make some tough choices.

Policy and disclosure: The next frontier

New regulations in the European Union and pending in California are designed to increase corporate emissions transparency by including supply chain emissions.

The EU in June 2023 adopted the first set of European Sustainability Reporting Standards, which will require publicly traded companies in the EU to disclose their scope 3 emissions , starting in their reports for fiscal year 2024.

California’s legislature passed similar legislation requiring companies with revenues of more than $1 billion to disclose their scope 3 emissions. California’s governor has until Oct. 14, 2023, to consider the bill and is expected to sign it .

At the federal level, the U.S. Securities and Exchange Commission released a proposal in March 2022 that, if finalized, would require all public companies to report climate-related risk and emissions data, including scope 3 emissions. After receiving significant pushback , the SEC began reconsidering the scope 3 reporting rule. But SEC Chairman Gary Gensler suggested during a congressional hearing in late September 2023 that California’s move could influence federal regulators’ decision .

This increased focus on disclosure of scope 3 emissions will undoubtedly increase pressure on companies.

Because scope 3 emissions are significant, yet often not measured or reported, consumers are rightly concerned that companies that claim to have low emissions may be greenwashing without taking action to reduce emissions in their supply chains to combat climate change.

At the same time, we suspect that as more investors support sustainable investing, they may prefer to invest in companies that are transparent in disclosing all areas of emissions. Ultimately, we believe consumers, investors and governments will demand more than lip service from companies. Instead, they’ll expect companies to take actionable steps to reduce the most significant part of a company’s carbon footprint – scope 3 emissions.

A journey, not a destination

The Lego example serves as a cautionary tale in the complex ESG landscape for which most companies are not well prepared . As more companies come under scrutiny for their entire carbon footprint, we may see more instances where well-intentioned sustainability efforts run into uncomfortable truths.

This calls for a nuanced understanding of sustainability, not as a checklist of good deeds, but as a complex, ongoing process that requires vigilance, transparency and, above all, a commitment to the benefit of future generations.

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Case study: How the LEGO Group promotes integrity in its operations

As a family-owned, values-based company, with products sold in more than 140 countries around the globe and over 19,000 employees, the LEGO Group aims to have a positive impact on children, society and the planet, not least by operating according to the highest ethical standards.

This case study is based on the 2016 Responsibility Report b y the LEGO Group published on the Global Reporting Initiative Sustainability Disclosure Database  that can be found at this link . Through all case studies we aim to demonstrate what CSR/ sustainability reporting done responsibly means. Essentially, it means: a) identifying a company’s most important impacts on the environment, economy and society, and b) measuring, managing and changing.

With 131 LEGO Brand Retail Stores and sales offices in 37 countries, the LEGO Group is the world’s largest toy company. Operating ethically is, thus, a top priority. In order to promote integrity in its operations the LEGO Group took action to:

• promote compliance through the Corporate Compliance Board
• provide ethics training
• enhance third party due diligence

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What are the material issues the company has identified?

In its 2016 Responsibility Report the LEGO Group identified a range of material issues, such as product safety, climate change, waste, employee safety, the play and learning experience children get from products. Among these, promoting integrity in its operations stands out as a key material issue for the LEGO Group.

Stakeholder engagement in accordance with the GRI Standards

The Global Reporting Initiative (GRI) defines the Principle of Stakeholder Inclusiveness when identifying material issues (or a company’s most important impacts) as follows:

“The organization should identify its stakeholders, and explain how it has responded to their reasonable expectations.”

Stakeholders must be consulted in the process s of identifying a company’s most important impacts and their reasonable expectations and interests must be taken into account. This is an important cornerstone for CSR / sustainability reporting done responsibly.

Key stakeholder groups the LEGO Group engages with:   

How stakeholder engagement was made to identify material issues

To identify and prioritize material issues, the LEGO Group engaged with a wide range of stakeholders. They included consumers, customers, employees, NGOs, interest groups and industry associations. To achieve engagement, the LEGO Group conducted an online survey among over 1,500 respondents. Moreover, it carried out interviews with 1,500 additional participants, to identify stakeholders’ top priorities.

What actions were taken by the LEGO Group to   promote integrity in its operations?

In its 2016 Responsibility Report the LEGO Group reports that it took the following actions to promote integrity in its operations:

• Promoting compliance through the Corporate Compliance Board
• The Corporate Compliance Board (CCB) is the highest decision authority regarding non-compliance issues in the LEGO Group. The CCB promotes the proper handling of ethical issues and compliance with external regulations. The CCB is also responsible for providing relevant operational guidance and reviewing policies. In 2016, the CCB reviewed the updated Responsible Marketing to Children Policy and the Digital Child Safety Policy.
• Providing ethics training
• [tweetthis] All LEGO employees participate in mandatory training on the importance of operating ethically. [/tweetthis] More specifically, the LEGO Group offers training on the LEGO Code of Ethical Business Conduct and Corruption Awareness and Competition Law e-learning programmes. Moreover, the LEGO Group reached the target of training 100% of senior business leaders bi-annually on the LEGO Code of Ethical Business Conduct. Additionally, more than 98% of salaried employees have received bi-annual training on ethical business conduct and anti-corruption principles.
• Enhancing third party due diligence
• The LEGO Group carries out integrity due diligence screenings of third parties and continually improves its third party due diligence process. The LEGO Group addresses risks holistically, including issues concerning anti-bribery and corruption, social responsibility, human rights and environmental sustainability.

Which GRI indicators/Standards have been addressed?

The GRI indicator addressed in this case is: G4-SO4: Communication and training on anti-corruption policies and procedures and the updated GRI Standard is: Disclosure 205-2 Communication and training about anti-corruption policies and procedures

78% of the world’s 250 largest companies report in accordance with the GRI Standards

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References:

1) This case study is based on published information by the LEGO Group, located at the link below. For the sake of readability, we did not use brackets or ellipses. However, we made sure that the extra or missing words did not change the report’s meaning.  If you would like to quote these written sources from the original, please revert to the original on the Global Reporting Initiative’s Sustainability Disclosure Database at the link:

http://database.globalreporting.org/

2)  http://www.fbrh.co.uk/en/global-reporting-initiative-gri-g4-guidelines-download-page

3) https://g4.globalreporting.org/Pages/default.aspx

4) https://www.globalreporting.org/standards/gri-standards-download-center/

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Lego’s sustainability setback highlights the complexity of cutting scope-three emissions

Lego has scrapped plans to make bricks from recycled PET bottles after discovering that the move would increase its total carbon footprint. Its experience offers useful lessons for any business

Lego recently revealed that it had abandoned a scheme to make its bricks out of recycled plastic bottles. The Danish toy maker had hoped to start using the supposedly more sustainable raw material this year, but it found from its experiments that the modified production process would have emitted more carbon dioxide than it would have saved.

Speaking to the FT , Lego’s head of sustainability, Tim Brooks, explained that “the level of disruption to the manufacturing environment was such that we needed to change everything in our factories. After all that, the carbon footprint would have been higher. It was disappointing.”

Some of the firm’s other attempts to adopt greener materials in recent years have proved successful. It has begun replacing plastic packaging with paper, for instance, and it’s been using a bioplastic sourced from sugar cane in certain bricks since 2018 . Yet its “bottles to bricks” initiative may well live longer in the memory for being abortive. 

“This is the nature of innovation, especially when it comes to something as complex and ambitious as our sustainable materials programme,” Lego said in a statement. “Some things will work, others won’t.”

What can businesses learn from Lego’s experience?

Other companies would do well to view the failed scheme as a case study. Lego’s experience shows that, although certain changes might seem more sustainable at first sight, the complex nature of supply chains can obscure their true impact.

Mauro Cozzi is the co-founder and CEO of carbon footprinting platform Emitwise. He points out that “what sometimes sounds like the more sustainable option is not always one that reduces emissions. That’s because carbon footprints are inherently convoluted, with several factors at play. The tiniest changes in one of these factors can tip the entire outcome in a different direction.”

It’s important to conduct a full impact assessment of any planned sustainability initiative to assess its potential negative effects. While many companies have a good grasp of their direct impact on the environment, their scope-three greenhouse gas emissions , which include those generated by suppliers and consumers, are harder to measure. 

What sometimes sounds like the more sustainable option is not always one that reduces emissions

This is problematic, because the lion’s share of most firms’ emissions falls under scope three. Take Lego, for instance: 98% of its total attributable emissions are generated in the supply chain .

Jose Arturo Garza-Reyes is professor of operations management and head of the University of Derby’s Centre for Supply Chain Improvement. He believes “it’s important that businesses take a holistic view of sustainability, just as Lego is doing. Sustainability and the reduction of carbon emissions don‘t always have a direct and positive correlation.”

Garza-Reyes continues: “Various factors – including rebound effects (increased consumption resulting from actions that increase efficiency and reduce consumer costs), technological limitations, supply chain complexities, indirect emissions and regional differences – may mean that ‘sustainable alternatives’ don’t have the desired impact.”

Given that a company tends to have little direct control over its scope-three emissions, it can find them difficult to reduce. This factor can also make it harder for a firm to gauge which operational changes would have the most beneficial effect overall. 

“To build more environmentally friendly products, companies should factor in supply chain and consumer use emissions,” Garza-Reyes says. “These span the entire product lifecycle, including processes such as the extraction of raw material, customer use and disposal.”

Changes to sustainability legislation

From next year, amendments to the EU’s corporate sustainability reporting directive (CSRD) will start requiring certain businesses to disclose their scope-three emissions. The new obligation is set to apply to more than 50,000 companies, including some British firms operating in the single market. 

“Adding supply chain and consumer use emissions helps businesses to recognise their true carbon impact, which allows them to make more accurate representations of their progress in carbon reduction,” Cozzi says. “This is exactly why regulations such as the CSRD require businesses like Lego to disclose these emissions.”

Updates to the UK Competition and Markets Authority’s rules concerning greenwashing add to the complexity that businesses must handle as they strive to become more sustainable. 

“Having the right data to make informed, practical decisions is crucial,” Cozzi notes. “Such data has enabled Lego to avoid becoming a victim of greenhushing .”

As Lego’s experience shows, businesses must understand their products‘ lifetime impact on the environment if they‘re to achieve meaningful progress towards sustainability. 

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The LEGO Group

• First Online: 30 April 2023

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• Paolo Taticchi   ORCID: orcid.org/0000-0002-5884-2062 9 ,
• Melissa Demartini   ORCID: orcid.org/0000-0003-3181-953X 10 &
• Melina Corvaglia-Charrey 9  

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Lego and the toy makers: How sustainability comes to play land

In this report, we aim to research LEGO’s ESG performance when compared with other toy makers in the industry by examining their environmental (including carbon emissions), social and governance initiatives.

We evaluated LEGO’s ESG performance by referring to our ESG framework, which covers 18 initiatives of ESG reporting.

Overall, we found LEGO takes the lead in ESG reporting. In particular, LEGO has voluntarily published its sustainability since 2007 and started following GRI (Global Reporting Initiative) and assured its reports by a third party since 2009. We also found LEGO has an ambitious goal of reducing GHG emissions and controlling landfills. However, we do find that its disclosure on pollutants and risk management is missing, and overall disclosures on corporate governance are weaker than other sections.

On balance, we think LEGO’s ESG performance has the room of improvement in three areas: Consistency and comparability of disclosures, Comprehensiveness of disclosures, and Balancing attention.

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LEGO Group Ties Bonuses for All Employees to Emissions Reduction Goals

The LEGO Group announced that it will begin tying a portion of bonuses for all salaried employees to emissions reduction goals starting this year, as part of the company’s strategy to meet its climate targets.

The announcement follows the launch by the LEGO Group last year of a  series of climate-related commitments , including a pledge to achieve net zero emissions by 2050, to work with the Science Based Targets initiative (SBTi) to develop emissions reduction targets covering Scope 1 and 2 emissions, as well as Scope 3 supply chain emissions, and to invest over $1.4 billion in environmental sustainability initiatives over the next three years. The company also pledged at the time to add a carbon KPI to executive remuneration in 2024, as well as to pursue responsible travel policies to reduce employee travel, with a particular focus on international air travel.

Under the company’s updated performance management programme, LEGO Group introduced a new KPI measuring carbon from its factories, stores and offices, as well as its Scope 3 business travel emissions. The emissions are measured against the number of bricks manufactured, to provide an intensity metric.

The company said that it aims to expand the KPI to cover Scope 3 emissions. Scope 3 emissions, or those originating in the value chain outside of the company’s direct control, account for approximately 98% of the LEGO Group’s carbon footprint.

In a social media post announcing the new KPI, LEGO Group said:

“We have an ambitious target to reduce our emissions by 37% by 2032 and achieve net zero by 2050. “To help keep us on track, from 2024, a percentage of our performance management programme for colleague bonuses will be tied to annual emissions as we take steps to reduce environmental impact across all areas of our business.”

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Aligning Values to CSR: A LEGO Case Study

• July 17, 2020

The role of business in society is evolving – and was evolving even before COVID-19 forced companies to pivot how they engage with customers, employees and other stakeholders. How people view their relationships with work and the brands they support is changing. Sustainable Brands’ recent report, Enabling the Good Life , found that across generations people are looking for simple, more balanced lives with meaningful connections to people, communities and the environment. 

Having a business model that prioritizes social responsibility, equity and inclusion, and sustainability will win favor with prospective customers and employees alike. So how should a company start to implement these programs and policies when there are so many worthwhile causes? By starting with their core values. ✨

Let’s look at LEGO as an example. LEGO’s mission is to “inspire and develop the builders of tomorrow,” which is guided by values like imagination, creativity, fun, learning, caring, and quality. 

Having a well-articulated mission and set of values gives LEGO the ability to assess what sort of commitments it can and should make as a brand. In this case, LEGO has made four key promises:

People Promise 🧑🏽‍🤝‍🧑🏽 LEGO cares deeply about the people who are part of making LEGO possible, and is committed to upholding human rights and ensuring safe, healthy and respectful workplaces for our employees. This is huge – people who view their employers as good corporate citizens feel a higher sense of engagement and are more committed to their employer . 

Play Promise 🧰 The company recognizes the vital role of play in a child’s development. LEGO has a unique opportunity to help children problem solve, be creative and develop resilience. 

Planet Promise 🌎 LEGO is designed for children – children who will one day inherit the planet. LEGO’s promise to minimize the environmental impact of its operations not only demonstrates caring for children who love LEGO, but also the core values of creativity and quality by implementing more sustainable practices. 

Partner Promise 🤝🏼 A critical component of any corporate social responsibility strategy is thinking about stakeholders beyond shareholders or investors. LEGO understands the importance of building partnerships with stakeholders like customers and suppliers in being a better corporate citizen.

These promises are embodiments of LEGO’s core values and offer a framework for how LEGO engages with stakeholders from employees and customers to the environment. This is also reflected in the three pillars of LEGO’s corporate social responsibility: children , environment and people . It’s easy to see the connection between these pillars and the brand promises LEGO has made. 

Focusing on core values also gives companies the ability to evolve what CSR looks like over time. As employee and customer needs and expectations change, taking a values-based leadership approach offers greater ability to respond. LEGO’s core products are the classic bricks many of us know and love, but LEGO has more recently ventured into digital play offerings. While digital play offers children new ways to engage with the LEGO brand, there are also risks with giving children access to mobile devices. LEGO responded to this risk by taking a values-led approach – the brand’s digital experience prioritizes child safety . Beyond that, LEGO joined forces with UNICEF to develop an industry-first Digital Child Safety Policy. LEGO even helped create a tool called the ‘Child Safety Online Assessment’ to help other companies understand and address children’s rights online. 

For any corporate social responsibility program to be successful, it has to be authentic to the business’ culture and principles. LEGO is just one example of walking the talk of values-aligned corporate social responsibility. We’re excited to see how even more businesses implement these types of initiatives!

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Innovating a Turnaround at LEGO

• David Robertson and Per Hjuler

Five years ago, the LEGO Group was near bankruptcy. Many of its innovation efforts—theme parks, Clikits craft sets (marketed to girls), an action figure called Galidor supported by a television show—were unprofitable or had failed outright. Today, as the overall toy market declines, LEGO’s revenues and profits are climbing, up 19% and 30% respectively in […]

Reprint: F0909B

Though the overall toy market is declining, LEGO’s revenues and profits are climbing—largely because the company revamped its innovation efforts to align with strategy.

Five years ago, the LEGO Group was near bankruptcy. Many of its innovation efforts—theme parks, Clikits craft sets (marketed to girls), an action figure called Galidor supported by a television show—were unprofitable or had failed outright. Today, as the overall toy market declines, LEGO’s revenues and profits are climbing, up 19% and 30% respectively in 2008.

• DR David Robertson ( [email protected] ) is a professor of innovation and technology management at IMD. Per Hjuler ( [email protected] ) is the LEGO Group vice president of product and marketing development. For more, visit www.innovationgovernance.net.

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Quality, resilience, sustainability and excellence: understanding LEGO’s journey towards organisational excellence

International Journal of Quality and Service Sciences

ISSN : 1756-669X

Article publication date: 12 April 2022

Issue publication date: 10 August 2022

This study aims to reflect on quality, sustainability and resilience as emerging organisational priorities within total quality management (TQM) and organisational excellence.

Design/methodology/approach

The paper uses a conceptual approach based on reflection and theoretical studies on the philosophical foundations of quality, excellence, resilience and sustainability as cornerstones for organisational excellence. Bearing in mind that sustainable excellence rests upon a combination of systemic and soft issues that define organisational ability for resilience and sustainability, there is a need to analyse and reflect on short business cases from world-leading companies and further reflect on the fundamental principles, which have helped such companies to survive, grow and sustain. This study includes such a business case – the LEGO case. In addition, a Japanese case has been included. Japanese training material on human motivation developed in the 1980s exemplifies how company managers were trained, at that time, to understand and practice human motivation, excellence principles and tools.

Organisational excellence constitutes an evolving concept as the world becomes more chaotic and interconnected with multiple disruptive shocks. Organisational excellence challenges the inflexibilities of Newtonian mindsets, recognising the paramount importance of interactions and further underlining the significance of invisible elements such as human potentiality, motivation and values that formulate the principles of organisational excellence.

Originality/value

The paper investigates the notions of quality, resilience and sustainability and their relation to motivation and organisational excellence within the framework of business management and TQM. A world-leading company – LEGO – will be used to exemplify the theoretical findings together with the Japanese Motivation Training Programme case.

• Sustainability

Dahlgaard, J.J. and Anninos, L.N. (2022), "Quality, resilience, sustainability and excellence: understanding LEGO’s journey towards organisational excellence", International Journal of Quality and Service Sciences , Vol. 14 No. 3, pp. 465-485. https://doi.org/10.1108/IJQSS-12-2021-0183

Emerald Publishing Limited

Copyright © 2022, Jens Jörn Dahlgaard and Loukas N. Anninos.

Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Since the 1980s and the rebirth of management through the prism of quality, total quality and total quality management (TQM) ( Dahlgaard et al. , 1998 ), excellence has been recognised as a primary challenge for organisations following an increasing adoption of quality management systems and approaches at a global scale ( Oakland, 1999 ; Dahlgaard-Park and Dahlgaard, 2007 ; Kanji, 2008 ; Dahlgaard et al. , 2013 ).

Nowadays, in the dawn of the fourth industrial revolution, the quest for excellence continues through inspiring novel approaches that unveil new performance pillars ( Dahlgaard-Park and Dahlgaard, 2021 ) but, at the same time, it is also reminiscent of ideals or higher purposes often found in philosophical reflections of the past (coexistence, resilience and constant reconfiguration, sustainability). The so-called Quality 4.0 (aligning quality management and Industry 4.0 requirements) is about strengthening organisational capabilities with the use of technology to produce high performing products and service experiences, something that calls for new ways of managing organisations. Thriving in this brave new world demands not only the adoption of alluring technological innovations but also integration with quality teachings/theories combined with creative leadership to support innovation and agility.

More specifically, apart from focusing on a broader organisational perspective and recognising the importance of interactions (both internally and externally), the pursuit of superior performance manifests organisational resilience (the ability to recover from unexpected events and reconfigure the organisation’s business model) and orientation to sustainability (often presented as a higher purpose), as neuralgic for sustainable organisational excellence. Hence, sustainable organisational excellence refers to the capacity of organisations to maintain their outstanding performance (resulting from people doing their best and realising their full potential) and attain long-term success by taking into consideration a balanced approach on the interests of all stakeholders – customers, suppliers, employees, shareholders, the society and the environment.

In the path of its evolution, the quality philosophy has given birth to the development of several conceptual, measurement and assessment models for excellence ( Molina-Azorin et al. , 2009 ) (called Business Excellence Models ) with critical parameters and criteria for achieving and maintaining superior performance (both financial and non-financial benefits) ( Boulter et al. , 2013 ). Among the essential observations reported in some review studies on excellence models is the need to incorporate criteria for agility ( Metaxas and Koulouriotis, 2019 ), resilience and sustainability ( Asif et al. , 2011 ).

Hence, excellence models should guide organisations towards improving the performance of a current way of doing things in a given context and document, measure and evaluate organisational dynamism and resilience potential for surviving in changing circumstances and allowing the continuation of their operation in a dynamic context. Characterisations of resilient organisations include a relevant ethos, good situational awareness, commitment to identifying vulnerability sources and a culture that promotes flexibility, continuous improvements and steady innovations. In addition, sustainability concerns call for expanding the traditional notion of business excellence and a reorientation towards its philosophical essence.

This study aims to reflect on quality and excellence and investigate sustainability and resilience as emerging organisational priorities highlighted in recent Business Excellence Models (for example, the new EFQM Excellence Model) for achieving sustainable organisational excellence. A world-leading toy company – LEGO – will be used to exemplify some of our theoretical findings together with a Japanese Motivation Training Programme case.

2. The meaning of excellence and quality

The meaning of excellence has been at the cornerstone of philosophical ventures by Eastern and Western minds of the ancient world. As a word, it stems from the Latin “ Excellentia ”, a word also found in the poem Troilus and Criseyde by G. Chaucer (late 14th century) as a synonym for superiority, merit and worth .

Long time before, in the first book of the Christian Bible’s Old Testament ( Genesis 1 ), we can read how God, in six days, created our planet with all its invaluable attractive characteristics, such as light, sky, water, sea, dry ground, plants, day, night, fish, birds, animals and man . We can also read that God, after each “daily creation”, looked at it and saw that it was good (meaning that God was satisfied with all the creations). We call God’s creations excellent , namely, outstanding or extremely good , because we cannot find any better example where the word excellence can be used.

It is well known that the concept of “satisfaction” is closely related to the concept of “quality”, but how is the concept “excellence” related to “quality”? The answer to that question is, in principle, straightforward, and most people will come up with the same response as found in the Oxford Dictionary, which considers excellence synonymous with being outstanding, extremely good.

A more precise or more down to earth description/definition of excellence is not an easy task; nevertheless, it is desirable for knowing the degree of its attainment ( Dahlgaard-Park, 2009 ). However, there can only be a general description of the term as an attempt for a thorough definition would be unwise due to the nature of the human mind. The challenge is the perception of “Good”, which is the core of excellence, the spirit of quality and the evolution of life ( Anninos, 2019 ). Hence, a comprehensive general understanding of the meaning of excellence is neither a simple nor a straightforward task. It presupposes intellectual whereabouts, namely, contemplating and reflecting on the meaning of quality, which refers to attractive characteristics that define value.

A draft definition of quality (most probably the first time that quality as a term appears in ancient Greek literature) is present in Plato’s dialogue “Theaetetus”, in which Socrates (470–399 BC) discusses with Theodore (a mathematician) and his student (Theaetetus) the nature of knowledge (see Plato: Theaetetus 182a,b; Hamilton and Cairns, 1961 ). Socrates describes quality as an extraordinary word that someone cannot understand when it is used generally . He makes a distinction between the active and the passive elements of things, the union of which gives birth to perceptions and the perceived things; thus, the one acquires some quality (a property) while the other element becomes percipient.

Regarding the meaning and definition of quality in the context of quality management, we can now look back on almost 100 years of evolution, starting in 1924 were the father of modern quality control , Walther A. Shewhart (1891–1967), had developed the so-called Statistical Control Charts , the theory of which became the main contribution for understanding, measuring and controlling product quality .

Walther A. Shewhart discussed and defined quality in his doctoral thesis from 1931 as follows ( Shewhart, 1931 , chapter 6, pp. 37–54) and at the beginning (p. 37), we can read about a Popular Conception of Quality :

Dating at least from the time of Aristotle (384-323 BC), there has been a tendency to conceive of quality as indicating the goodness of an object. The majority of advertisers appeal to the public on the basis of the quality of product. In so doing, they implicitly assume that there is a measure of goodness which can be applied to all kinds of products whether it be vacuum tubes, sewing machines, automobiles, grape nuts, books, cypress flooring, Indiana limestone, or correspondence school courses. Such a concept, is, however, too indefinite for practical purposes.

After this warning to use popular conceptions of quality for all practical purposes Shewhart comes up with his definition of quality comprising its two dimensions – objective quality (properties or attributes of the product, independent of what the consumer wants) and subjective (customers` requirements, expectations, experiences, etc.) quality .

Because a product, according to Shewhart, has an infinite number of attributes, then it is impossible to have expectations and experiences with all product attributes. In practice, the customer will only look at the most important ones or they will only look at the whole product without specifying too much in advance what kind of expectations they have when buying the product.

So, quality may have different expressions, meanings and importance for different people/customers depending on which product’s attributes are most important for each specific customer, and also because, even if two customers may declare that the same attributes are essential for both of them, it is unlikely that different customers will rate the same attributes in the same way.

Shewhart`s pioneering work laid the foundation for the new science about quality, Quality Sciences , and during the following 90 years, many researchers and consultants came up with new definitions of quality based more or less on Shewhart’s pioneering work.

W. Edwards Deming (1900–1993) discussed the definition of quality as follows ( Dahlgaard and Dahlgaard-Park, 2015 ):

The difficulty in defining quality is to translate future needs of the user into measurable characteristics, so that a product can be designed and turned out to give satisfaction at a price that the user will pay. This is not easy, and as soon as one feels successful in the endeavour, he finds that the needs of the consumer have changed, competitors have moved in, there are new materials to work with, some better than the old ones, some worse; some cheaper than the old ones, some dearer […].

Deming did not come up with a clear quality definition, but instead, he focused on the dynamics of quality, meaning that what is good quality today will, in most cases, not be good quality tomorrow. With that background, it is easy to understand that the first of Deming’s 14 Points ( Deming, 1986 ; Dahlgaard and Kristensen, 1992 ; Dahlgaard et al. ,1994 ) is about the continuous product and service improvements ensuring quality and minimising loss of business to competitors. Deming always said that: “the consumer is the most important part of the production line” ( Deming, 1986 ), meaning that without understanding customers` and/or consumers’ needs, expectations, requirements and experiences, then it is impossible to understand what is quality for a specific consumer, and hence it is difficult to produce and deliver high-quality products and services. By saying that “quality can be defined only in terms of the agent”, Deming also stressed that quality has many definitions and expressions depending on the context.

the product features that meet customer needs; and

freedom from deficiencies ( Dahlgaard and Dahlgaard-Park, 2015 ).

According to Juran, this dual meaning of quality helps us to explain why so many meetings to discuss managing for quality have ended in confusion.

Kaoru Ishikawa (1915–1989), a Japanese Professor and quality expert, discussed the definitions of quality in a way that is related to everything (e.g. quality of work, quality of the process and quality of people) in a company setting ( Dahlgaard and Dahlgaard-Park, 2015 ). Company-Wide Quality Control (CWQC), which was developed and became successful in Japan during the 1960s, 1970s and 1980s, illuminates Ishikawa’s thoughts on the Japanese way of quality management.

So, as said above, quality has many expressions, meanings and definitions depending on the context or reference level, and the above quality pioneers’ definitions vary because their reference levels were not the same.

Hence, excellence also has multiple expressions and meanings according to different reference levels (e.g. science, philosophy) and specialization levels (e.g. individual, organisational), while it mainly emphasizes perfection and human enlightenment ( Anninos, 2007 ).

Approaching the term or concept of excellence from a teleological perspective, it refers to an intended situation achieved by the degree of a subject’s or an object’s quality that determines its capacity to fulfil its role. The core of quality is “Good”, while quality itself is the heart of excellence (left part of Figure 1 ). Thus, the more a subject’s quality improves, the closer excellence approaches, which then again leads to higher quality ( Anninos, 2007 ). Hence, we have chosen to portray the interrelationship of these two concepts with two circles side by side, forming the symbol of infinity (right part of Figure 1 ), indicating that The Quality Journey is a Journey without an End ( Dahlgaard et al. , 1994 ).

Thus, according to Figure 1 , excellence presupposes quality and quality presupposes excellence in a dynamic interrelationship. People cannot realise their full potential (excellence) without doing their best (quality), and for this to happen (quality), they need a particular state of mind (excellence) ( Dahlgaard-Park et al. , 2013 ).

To complement Figure 1 , we have taken as an example the old Chinese/Japanese written expression of Kaizen , which means a change for the good (Kai = change, Zen = Good). The left kanji symbol of Kaizen symbolises the struggle for changing oneself, and the right Kanji symbol represents the necessary sacrifices that are needed for improvement ( Figure 2 ).

The concept of Kaizen became well known worldwide because the Japanese companies used that concept, especially from the beginning of the 1960s, to conquer the world markets by using the concept of CWQC . The best Japanese companies showed, especially during the 1980s, the importance of using the strategy of continuous quality improvements literally company-wide. This strategy became synonymous with the Japanese Way to Excellence . However, before the success of Kaizen in Japanese companies, there were also some examples in the West, companies that experienced steady progress when building up a culture based on continuous improvements (Kaizen). Such a company is the Danish toy company LEGO.

3. LEGO case: Part 1

3.1 methodology.

All references/quotations to LEGO in this article can be found on LEGO’s website, where key milestones of LEGO History have been told. We will not in this article evaluate the LEGO History seen with the traditional scientific glasses, which we normally do when writing research articles with one or more case studies included. We will only focus on what the founder and his successors have agreed on that has worked very well during LEGO’s History and which they implicitly agreed on as so important principles that they can be regarded as key building blocks to explain and hence understand the LEGO History from LEGO’s foundation until today. What we found on the LEGO website was then analysed carefully to identify an unknown number of excellence principles, which we regard as important to understand the history and also for running the company today. However, we could not find anything on the LEGO website to understand why LEGO had a severe economic crisis from about 1997 to 2005. When we digged deeper into the literature and the yearly financial reports, we could identify an 11th excellence principle important to understand the economic crisis and also important for preventing or reducing the risks that unexpected events may happen in the future – clearly a resilience principle.

We have, as an important check, shared our evaluations and findings with the owner and previous CEO of LEGO, Kjeld Kirk Kristiansen, who is the top leader and stakeholder who directly and indirectly has experienced most of the analysed LEGO’s History. We are happy that the feedback through his secretary was positive, as there were no objections to go further with publishing our article in a research journal. With this explanation on how we worked with the LEGO History, we will now go through the parts of the LEGO History which we found important for identifying 10 + 1 excellence principles.

3.2 LEGO’s first excellence principles

The LEGO Group was founded in 1932 by Ole Kirk Christiansen, whose personality, character and decisions have considerably impacted LEGO History. The name “LEGO” is an abbreviation of the two Danish words LEG GODT, which mean play well , and LEGO employees are proud to say, “It is our name, and it’s our ideal”.

LEGO decided, in 1935, on the company name without knowing that in Latin, the word LEGO means “I put together”. Therefore, LEGO’s success rests on two simple, ingenious product development principles or aims signalling to all concerned that the development of the toy should allow children to play well by putting bricks together . The LEGO plastic brick is by LEGO regarded as the company’s most important product.

The company has passed from father to son and is now (2022) owned by Kjeld Kirk Kristiansen, a grandchild of the founder. Today the company has become the world’s biggest toy producer, so it is easy for us to conclude that LEGO is an example of an excellent company .

How can a small company established in 1932 in a very small town (Billund) in a very small country (Denmark) develop into the world’s biggest toy producer?

What are the secrets behind this success?

To answer this question simply is not easy because the answer will require a book or several books, which have already been written and published. However, in this article, we only have the space to come up with simple answers. Hence, we tried to find some of the basic principles, which were important for the founder and his few employees from the very start in 1932 and which are still excellence principles or core values or commands in the LEGO Company.

So far, we have identified the first two excellent product development principles ( play well by putting bricks together ), which since the 1930s have laid the foundation for what LEGO should develop and produce.

The third excellence principle we found when we studied the LEGO History website was

“DET BEDSTE ER IKKE FOR GODT”

“Only the Best is Good Enough”.

This essential and also simple principle was carved in wood back in the 1930s (see Figure 3 ) and put on a central place in the very small company so that everybody did not forget it and maybe reflected on it day by day during their operational tasks. Perhaps some of the employees discussed the deep meaning with their colleagues and, of course, also with the founder Ole Kirk Christiansen.

The meaning of LEGO’s third excellence principle was and still is that you should always strive to produce and deliver “the best”, even if some people may say that the best is too good for the specific market/customer.

Another and complementary meaning is that when you have found “a best solution” to a design problem, a process problem, a marketing problem, etc., then people should understand that what is the best today will not be the best tomorrow or the best for new markets. So, employees should always try to look for better solutions relative to the expected future challenges related to competition, cost-effectiveness, new products, etc. This second meaning was revolutionary at that time at the end of the big world economic crisis in 1932. It was, in fact, an argument to immediately start and continue with improvements in the quality of products and the related production processes.

About this third excellence principle, we found the following details behind on the LEGO history website:

Ole Kirk Christiansen has always guaranteed the quality of his work, something he continues to do in his work with wooden toys. He is convinced that children deserve toys of high quality, made of the finest materials, so that they will last for many years of play. He uses beech wood, which is first air-dried for two years, then kiln-dried for three weeks. It is then cut, sanded, polished and given three coats of varnish or paint. Just like real furniture. Ole Kirk Christiansen demands quality at every stage of the process, especially from his own children.

Son Godtfred Kirk Christiansen once took a consignment of painted wooden ducks to the railway station. Back at the factory, he proudly tells his father he's done something really clever and saved the company money. “How did you manage that?” asks Ole Kirk Christiansen. “I gave the ducks just two coats of varnish, not three as we usually do!” Back comes his father’s prompt response: “You’ll immediately fetch those ducks back, give them the last coat of varnish, pack them and return them to the station! AND you’ll do it on your own - even if it takes you all night!”. “That taught me a lesson about quality,” says Godtfred Kirk Christiansen on a later occasion.

After the lesson, Godtfred carves out wooden signs of the company motto “Only the best is good enough” and hangs them on the wall of the factory to remind employees of the company's attitude to quality.

In the preface of his book from 1996 about Godtfred Kirk Christiansen, Jan Cortzen calls him one of the greatest entrepreneurs in Denmark during the 20th century.

From the start in 1932 until today, 90 years after the company’s foundation, we can understand that quality became one of the LEGO Group’s principles/values, as we can read on the LEGO History website:

Quality in every detail:

Quality is and has always been one of LEGO Group’s values. It permeates everything we do and shines through in the company motto: Only the best is good enough.

Hence, we have identified the fourth excellence principle:

Quality should be part of every detail.

Consequently, we can say that the founder of LEGO, Ole Kirk Christiansen, showed in the early years of LEGO strong leadership capabilities related to all forms of improvements, and he also expected “his” employees to participate in Continuous Improvement Processes maybe 30 years before the Japanese companies, such as TOYOTA, decided to invite employees company-wide to participate with Kaizen ideas and improvements.

LEGO gradually set up the continuous improvement processes in the LEGO way based on the humble, respectful and also open culture which characterised people in and around the small town of Billund. Ole Kirk Christiansen and his employees had never heard about Kaizen, but they did use the Kaizen principles in the LEGO Way.

4. Excellence as “quality ad infinitum” and managerial pursuit

The concept of Kaizen became well known in the West during the 1980s when western companies tried to find the secret(s) of the leading Japanese companies such as Toyota, Sony, Matsushita and Sumitomo Electric Industries, and where Toyota especially was studied heavily. Initially, the studies focused on understanding the concept of Kaizen, and gradually, the studies extended into much broader frameworks such as CWQC, TQM and Business Excellence principles and models ( Deming, 1986 ; Imai , 1986, 1997 ; Ishikawa, 1989 ; Kondo , 1989, 1993 ; Womack et al. , 1990 ; Liker, 2004 ; Liker and Hoseus, 2008 ; Dahlgaard et al. , 1998 ). The broadening of the Business Excellence Models/Frameworks had an indirect assumption and a shared principle/criteria built-in, that continuous quality improvements everywhere inside the company as well as outside in all stakeholder relations was the gate and road to excellence ; or said in another way, “Quality ad Infinitum” leads to excellence .

The concept of excellence in management has been introduced (in an indirect way) by Peters and Waterman (1982) , with the publication of their book “In search of excellence – lessons from America’s best-run companies”. They offered evidence of the best results achieved based on the specific “7S managerial parameters” grouped into hardware parameters: structure; strategy; and software parameters: systems; shared values; skills; staff; style . During their study, Peters and Waterman observed that ( Dahlgaard-Park and Dahlgaard, 2007 , pp. 371–372):

Managers are getting more done if they pay attention with seven S's instead of just two (the hardware criteria), and real change in large institutions is a function of how management understand and handle the complexities of the 7- S model. Peters and Waterman also reminded the world of professional managers that soft is hard meaning that it is the software criteria of the model which often are overlooked and which should have the highest focus when embarking on the journey to excellence.

The excellent companies were, above all, brilliant on the basics. Tools didn’t substitute for thinking […].

Rather, these companies worked hard to keep things simple in a complex world.

They persisted. They insisted on top quality. They fawned their customers. They listened to their employees and treated them like adults.

Dahlgaard-Park and Dahlgaard commented on the above observations (op cit. p. 372):

We know today that many of the excellent companies (US Best-Run Companies) identified in the studies by Peters and Waterman later on became un-successful. This observation tells us what should be obvious that any model and/or lists of attributes have limitations, because they are always simplifications of reality (the context) in which the companies are operating. Hence, the observation also tells us that there is a need to analyze Peters and Waterman's findings and to compare with later excellence models which may have been designed in response to the problems and new knowledge acquired when companies have struggled to adopt or adapt early versions of excellence models and/or lists of excellence attributes.

Peters and Waterman were accused by many that their findings and recommendations in their 1982 book were oversimplified, but the answer to those accusations came in their 1985 book ( Peters and Austin, 1985 ):

“Many accused ‘In Search of Excellence’ of oversimplifying. After hundreds of post-In Search of Excellence seminars, we have reached the opposite conclusion: ‘In Search of Excellence’ didn’t simplify enough!”

PEOPLE who practice;

Care of CUSTOMERS;

Constant INNOVATION; and

LEADERSHIP, which binds together the first three factors by using MBWA (Management by Wandering Around) at all levels of organisations.

Based on the four critical success factors of excellence, the authors simplified further with the following model of excellence ( Figure 4 ).

We accept that this model is a simplification, but we have also to admit that we like it because the model signals in a powerful way that excellence is impossible to attain without committed leadership with a high focus on the critical factors of motivation, training, educating and involving employees in continuous improvements related to care of customers and constant innovation.

The idea that quality forms the foundation for excellence in management can be ascribed to Deming (1986 ), and this presupposes a systemic view of the organisation, a set of values that develops and supports highly engaged people and a constant orientation to continuous improvement and learning. Based on that, we may theorise excellence , as quality (as a dominating value), in a present quality level , for (better) quality (higher level of quality) ( Anninos, 2007 ), while viewed through twin lenses, namely, activity and results ( Hermel and Ramis-Pujol, 2003 ). In other words, excellence is a corporate value, a purpose, a mindset of doing business aiming at the highest performance in predefined dimensions.

As it has been suggested by Dahlgaard and Dahlgaard-Park, organisational excellence comes as a logical consequence of people’s (individual and collective) attempts for excellence ( Dahlgaard-Park, 2009 ; Dahlgaard-Park and Dahlgaard, 2007 ), which has its mental (e.g. core values), managerial (e.g. practices) and technical (e.g. process, systemic) prerequisites ( Dahlgaard-Park and Dahlgaard, 2010 ).

5. Excellence, sustainability and resilience

The achievement of excellence relies on crafting a suitable organisational reality through the combination and interactions of certain constituents in a given context. Structures (dynamic interrelationships among processes and factors) are flexible and constantly evolving, serving the achievement of specific goals and outcomes. After achieving these goals and results, structures may transform. Within these structures, organisational interactions facilitate the enrichment and pursuit of excellence even when unexpected events appear. Based on the description of excellence, one understands that excellence can only be sustainable because excellence will, per definition, maintain a balance among its various constituents in time while evolving; otherwise, the state of excellence cannot be attained.

Managers have the know-how, quality tools and resources for crafting and fine-tuning efficient and waste-free systems, developing and implementing an agile strategy for directing the operation of organic structures based on a purpose encompassing vision. It is also important to suggest that it is impossible to solve sustainability problems or resilience issues through a monocular/unilateral organisational approach that places the economic/business interests above all.

The ability of organisations to continuously search and exploit business opportunities and translate them into sustainable competitive advantages for long-term value is consistent with the excellence idea and is corroborated by evidence that proves that strategic orientation has a positive impact on performance ( Rauch et al. , 2009 ).

According to Lengnick-Hall et al. (2011) , a resilient organisation is recognised by its capacity to rebound from disruptive and unprecedented events and develop new capabilities (e.g. situational awareness, low vulnerability to systematic risks ( Burnard and Bhamra, 2011 ) to keep pace with changes and create new opportunities ( Hamel and Valikangas, 2003 ; Jamrog et al. , 2006 ). Otherwise stated, it is an organisation that can productively respond to the changes that disrupt the expected pattern of events without engaging in harmful behaviours ( Horne and Orr, 1998 ).

Expectations on resilient organisations include adequate and timely resources to support new strategic directions . These resources often presuppose alliances or other types of strategic partnerships. Still, irrespectively of their source, they allow some kind of safety against disruptive events and possible formation of alternative responses. By systemic thinking, an organisation may predict its likely future, transforming its people into learners who continuously scan the environment to track signs for change.

the cognitive challenge (awareness and understanding of change and the need for transformation);

the strategic challenge (formulating alternatives);

the political challenge (focusing on future needs for products/services and using resources); and

the ideological challenge (thinking beyond the current state/model of operational excellence).

Such a fluid or agile strategy complements flexibility in systemic operation, thus creating stronger foundations for resilience and sustainability. At the same time, it requires disentanglement from past solutions, best practices and deliverance from the disorders of complacency often combined with a delusion of invincibility and perpetual excellence.

Moreover, strategic human resource management should build trust, empowerment, a climate of positive psychology and support for personal growth, which will serve as an alignment mechanism of people to organisational resilience ( Mitsakis, 2019 ). A people-centred culture should unite everyone under the shared vision for excellence.

Andersson et al. (2019) , in their Handelsbanken case study, concluded that among preparations for disruptive events, the issues of power distribution and collective leadership have been highly significant. The diffusion of power, the replacement of traditional hierarchical control from self-organisation combined with individual accountability, is associated with the creation of resilience ( Lengnick-Hall et al. , 2011 ), but at the same time, constitute core elements of quality management. Leaders are expected to be adaptive, design organisational mechanisms for assuring adaptation of people and, of course, undertake the task of cultivating the appropriate culture (collaboration built around trust and sharing, partnerships, flexibility and strategic intelligence) ( Grote, 2019 ). Hence, the importance of leaders, their behavioural patterns for influencing followers, their understanding of each person’s uniqueness, learning abilities and motivation are of utmost importance for creating working environments that will allow people to optimise their contributions for excellence.

Management is generally not regulated by foreordained laws, but it is precisely its relationship with philosophical thinking that emphatically underlines that there is no excellence without resilience and sustainability orientation , simply because excellence entails balance, harmony and long-term survival. It is not possible for an organization to be excellent and neglect corporate responsibility issues and/or business ethics or even be unable to discern the factors that will grant it resilience.

The most crucial requirement for business in a globalised volatile context is sustainable excellence . Excellence cannot be restrained strictly into the frontiers of an organisation. Still, it relates largely with the organisational impact on society, as it is impossible to be excellent and at the same time disregard possible externalities and ethical misconduct in business practice. In that sense, we can say that “we have a DREAM ”, which accentuate Daring, Responsible, Ethical, Agile and Mindful academics and practitioners to reinvigorate excellence, bearing in mind the Aristotelian eudaimonia (the highest and noblest human purpose that presupposes virtuous living) and the Japanese kyosei philosophy (a spirit of cooperation among people in organisations working towards the common good).

Regarding the importance of dreaming, caring, risking, dreaming and expecting , we also refer to the following perspective on the meaning of excellence ( Dahlgaard-Park, 2009 ):

Excellence may be attained if one: Cares more than others think is wise; Risks more than others think is safe; Dreams more than others think is practical; and Expects more than others think is possible.

The author concludes that attaining and sustaining excellence is a never-ending journey, a way of doing, a form of living, a process of becoming that has meaning in personal, organisational as well as in global settings.

6. Human motivation training, excellence and resilience

Regarding the handling of unexpected problems that companies often encounter, we will primarily refer to Kondo (1989 , p. 177) and Dahlgaard-Park (2002) , where the authors present and discuss a human motivation study course developed in Japan in the 1980s by the Japanese Standards Association’s Motivation Research Group which was led by the late Professor Yoshio Kondo. The research group studied motivation both theoretically and in several practical cases, for instance , the case of the Wright brothers’ experiences with inventing the airplane, and the explorer Roald Amundsen and his team’s experiences during the competition to become the first man to conquer the Antarctic and to reach the South Pole. By studying such cases and by comparing them with the new challenges of business corporations, they could conclude that:

In times of great change, the people who matter will not be those who search for stability, but those who can accept instability and are flexible enough to find their balance (Kondo, op cit. p. 171).

By comparing their findings with Japanese companies’ new challenges and motivation needs, the motivation study group developed the human motivation study course as an intensive training programme for top and middle managers. The training course material was later translated into Danish and tested in a number of Danish companies as well as tested by TQM master students at the Aarhus School of Business from 1992 to 2000 ( Dahlgaard-Park, 2002 ) where Professor Yoshio Kondo supervised the course to ensure consistent methodology with Japanese classes.

The overall aim of this course was to prepare managers and their employees to be able to respond to change . The more detailed aims were (Kondo, op cit. p. 175) “to help people study motivation through on-the-job training and find out what they must do in order to practice it more effectively”.

Figure 5 below describes The Human Motivation Training course structure.

Motivation rests on three pillars mounted on a solid base, which represents self-development. Self-motivation should always come first before motivating subordinates, team members, superiors and senior colleagues.

The first pillar is “getting the job done” (thinking about completing a large/difficult task).

The second pillar is “building teamwork” (team working is vital), and the third pillar is “rousing the will to work” (making people desire to do something). The pillars support the roof representing motivation.

Decide to do the project.

Create a sense of urgency – the project must be accomplished.

Think positively – be convinced of success.

Investigate and prepare thoroughly.

Draw on people’s inner resources and give freedom in methods.

Be prepared for the unexpected to happen.

Reflect on progress and turn disasters into successes.

In this article, we will only show and discuss the first pillar shortly because the seven tools of this pillar were most challenging for the Danish managers as well as the master students, and also because some tools in the first pillar were highly relevant to discuss, understand, and hence practice (meaning for building resilient, sustainable and excellent organisations). Primarily tool number six (“be prepared for the unexpected to happen”) opened the eyes for managers as well as for the master’s students that building resilient and sustainable organisations is not a problematic theoretical issue but a rather practical down-to-earth challenge which all participants actively could discuss after the course instructor had presented the tool.

In the next section, we will discuss tool six further concerning LEGO’s economic crisis at the beginning of the 2000s.

7. LEGO case: Part 2

7.1 lego’s excellence principles for achieving and sustaining excellence.

The previous section A above about LEGO’s foundation and the excellence principles identified from LEGO history (1932 to 1957) identified four excellence principles. The first two ( play well, put bricks together ) refer to the product; hence we call them LEGO’s two excellent product development principles. The third and fourth principles (only the best is good enough, quality is in all details) are related to product development, design and production. They have close relations to the KAIZEN philosophy, meaning that everything can and should change for the better .

When employees gradually internalise the third and the fourth excellence principles concerning product and product development, after a while, people realise the broader value of these principles in other processes. The result is that employees begin to practice those principles wider in the company and ultimately in external processes.

Create a creative organisation; and

Everybody’s creative ideas are necessary for continuous improvement processes.

After a “crucial decision” only to develop, produce and sell products based on the LEGO Brick, the company began to grow. This decision emphasised the company rules and values. Following the crucial decision to concentrate all efforts on the LEGO System in Play in 1960, Godtfred Kirk Christiansen laid down a company rule that:

No one must be able to do this better than us.

In addition, he outlines developments so far:

We know our idea is a good one. We want only the best, and we must make better bricks from even better material on even better machinery. We must get the best people that money can buy for our company.

We aspire to become the best in all we do; and

We must hire, develop and keep the best people that money can buy.

From the early 2000, the LEGO Group moved closer to its customers by developing new ways of communicating and engaging with them. It moreover used the value of crowdsourcing when the company partnered with the Japanese platform CUUSOO, and in 2008, developed the LEGO CUUSOO initiative and invited its fan designers to submit their ideas for new products. The LEGO CUUSOO platform has been successful and expanded globally. It resulted in the birth of LEGO Ideas in 2014 (a community-based innovation initiative). However, both of them were not the first examples used by LEGO to engage customers in product development. Tormod Askildsen (Head of AFOL Engagement) said that “The LEGO brick is a language to express ideas and tell stories, and there are billions of ideas to be shared and stories to be told” and recognised the importance of crowdsourcing.

Invite consumers through crowdsourcing to come up with ideas for new products.

In the mid-2000, however, LEGO was also in a deep economic crisis, searching for ways to face its difficulties. This financial crisis led the company to outsource a substantial part of LEGO’s production to Flextronics, but problems soon arose concerning meeting the increasing customer demand. Hence, after a while, the company decided to terminate the partnership. Bali Padda, LEGO’s Group Chief Operating Officer, said in 2012 that:

The all-important thing we learned is that one should know what is the core competence of a company. The molding of bricks is a core competence, and that we should not hand over.

It seems that outsourcing was not the solution to the serious economic difficulties and outsourcing had to be followed by insourcing.

Don’t outsource a core competence; it is the company’s most valuable asset!

The reason for the argument that core competencies are the most valuable assets of the company is simple. Any core competence results from excellent people’s hard work and creativity and is, therefore, invaluable, unlike other assets such as machines, buildings, tools, etc. Continuous improvement of core competencies is important in order not to become obsolete. Outsourcing of a core competence will eventually depreciate the core competence and gradually make the competence obsolete.

Put bricks together;

Only the Best is Good enough;

Quality is in all details;

Create a creative organization;

Everybody’s creative ideas are necessary for continuous improvement processes;

We aspire to become the best in all we do;

We must hire, develop and keep the best people that money can buy;

Invite consumers through crowdsourcing to come up with ideas for new products; and

Don’t outsource a core competence; it is the company's most valuable asset!

LEGO did not always follow the 10 excellence principles during the 90 years of its history, but they all came up after important learning experiences . Today, the 10 excellence principles (also considered LEGO’s 10 COMMANDMENTS) are alive and the leading cause why LEGO now is EXCELLENT!

In addition, LEGO’s approach to excellence includes several initiatives towards sustainability (e.g. materials used to manufacture bricks, recyclable packaging, zero waste orientation and use of renewable energy sources continuous strive to reduce CO 2 emissions, inclusive and diverse working environment, long-term partnerships with suppliers).

As we draw to the end of the LEGO case, arguably the one missing excellence principle of the Japanese Motivation Training Structure (see Figure 5 above) is tool six of the first pillar. From an outsider, it looks as if the “deep economic crisis” referred to on the LEGO history website suddenly came as a thief coming at night-time to rob a family’s values. It looks as if LEGO was not prepared for the unexpected to happen . The company had punctually as a clock presented the financial results at the same time every year (during the 1990s) with almost the same results – a financial profit of about DKK 500m – but suddenly the year 1997 the financial result went down to DKK 62m and the year 1998 the financial result turned into a deficit of DKK 194m. The following years showed a turbulent period with ups and downs until 2005 when the deep crisis ended after eight years (see Table 1 below).

The deep economic crisis forced LEGO to sell the first LEGOLAND Park in the world situated in Billund and develop saving plans of different kinds to survive. Outsourcing was one of the planned savings, but as discussed above, this plan proved a poor strategy for survival, and LEGO had to cancel the outsourcing contract.

It is always easy to look into a back mirror and looking back in the mirror is what we do when we suggest that LEGO might have done better in that period if they had invested in planning and prevention of the unexpected to happen. At least we feel safe to suggest that LEGO has learned the lesson from this deep crisis and has, in the following years, prepared well for the unexpected to happen and hence to prevent that the company again will experience a deep economic crisis. A good indication of that is the impressive financial result for the following years, which gave LEGO the financial power to “buy-in” the LEGOLAND Parks, which they sold during the economic crisis. Another good indication is that LEGO has grown so much that from 2020 the company is the number one toy company in the world.

From now on, this Excellence Principle is an open principle that is free to copy and profitable to practice. We do not know how they learned from the deep economic crisis, but the following years showed a long period of continuous economic growth, as shown in Table 2 below.

With the above Excellent Results , it is no surprise that LEGO, step by step, succeeded in buying back the LEGOLAND Parks and also could announce in the Danish Business Journal Finans (22 November 2021) the decision to invest DKK 3.5bn in a new LEGOLAND Park in Shanghai. Also, we could read that for the first half-year of 2021, the financial result was all times high (DKK 6.3bn), which benefited not only the owners but also the employees, who for 2022 will get two weeks extra holidays at the end of the year plus additional bonuses paid out in April 2022. When we also read in the 2020 report that LEGO also plans to invest up to DKK 2.6bn over the next three years (= US$400m) to protect the environment, we can now conclude that LEGO has now grown into a Sustainable Excellent Company .

A piece of interesting information about LEGO’s future plans to assure that the company will stay excellent can be read from the 2020 yearly report: we will continue to invest in innovative ways to blend the power of physical play with the digital world .

8. Concluding remarks and recommendations

Excellence, as a management-related concept with deep philosophical foundations that has been exemplified by the quality movement, analysed and discussed throughout literature and among practitioners, is being described as the ultimate organizational quest and challenge in various fields. At the individual level , excellence is highly dependent on the cultivation of virtues, on knowing thyself and personal advancement through mental and spiritual evolution, broad perception through general education and dialogue, while the social/organisational level basis is balance and harmony among the multiple dimensions of its application, which include sustainability, learnability and innovation .

It is relatively common to have organisations marked with the seal of excellence; however, in today’s volatile and “technology amalgamated” world, it is sustainable excellence that matters.

Assurance that management serves a higher (socially important) goal;

Integration of the idea of collective effort and organisational citizenship behaviour in management systems. The interdependence of stakeholders should be reflected on processes and practices; and

Reconstruction of the philosophical foundations of management (focus not solely on efficiency).

Old business models for excellence should be redefined and recontextualized according to a theory that primarily recognises that we, as human beings, coexist and that we are outcomes of interactions (at the physical, spiritual and mental levels). Excellence should include not only tools and techniques but also methods to stimulate and improve interactions (inside and outside of organisations), reconsider and rebalance business priorities towards sustainability. Furthermore, because of increasing disruptive shocks, business leaders have now a stronger orientation on developing operating models that assure excellence in the long-term. This argument presupposes a focus on resilience, its dynamics and its relevant metrics that should examine the existence and the utilisation of competencies, interactions, resources, processes and structures with the final aim to create circumstances not only for recovery from these disruptive events but the dynamic reinvention of new business models.

The newly revised BEM models, for example, the new EFQM model (2019) and several related national revised BEM models like, for example, the Swedish Excellence Model is the first step towards a new generation of business excellence frameworks that highlight sustainability at the heart of the value chain(s) and/or new established business platforms, disruptive thinking and agility for building resilience while they embody the essential TQM principles ( Dahlgaard and Kristensen, 1992 ; Dahlgaard et al. , 1994 ) ( Figure 6 ).

These principles include the focus on customers` needs, everybody’s participation, a strong emphasis on evidence-based management (facts) and continuous improvement. The commitment of leadership to these principles and their integration into the organizational culture will drive business behaviour and, of course, should be present in any attempt to adapt a business excellence model with the final aim to experience/achieve sustainable excellence.

The above five TQM principles are still valid, but today, the Customer focus principle must be supplemented with a focus on other major stakeholders’ needs, expectations and experiences. By doing so, we have extended or changed the customer focus principle into a broader stakeholder focused principle and sustainability/environmental opportunities and improvements will be handled as the traditional quality improvement opportunities. The LEGO Company is an example of such an approach.

Excellence and quality

Kaizen (change for the good)

LEGO’s third excellence principle (1932–)

Peters and Austin's simplified Model of Excellence (1985)

Structure of motivation training

TQM pyramid showing the five basic TQM principles

LEGO’s financial results 1997 to 2005 (million DKK)

Source: LEGO’s website

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Further reading

Ancient Hellenic Literature ( 1975 ), “ Plato`s dialogues ”, Theaetetus , Papyros Publications , Athens .

Cortzen , J. ( 1996 ), LEGO Manden – The History about Godtfred Kirk Christiansen (Danish) , Børsens Forlag , Copenhagen .

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Acknowledgements

The authors are extremely grateful to LEGO’s Management Secretariat from where they got acceptance to publish the findings about identifying LEGO’s Excellence Principles. The authors are also grateful to the anonymous reviewer(s) of this paper who gave them valuable feedback.

Corresponding author

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HBS Cases: LEGO

Although it isn't part of the admissions criteria, experience playing with LEGOs can come in handy at Harvard Business School.

When Stefan H. Thomke teaches his new case about the iconic toy company, he gives students eight-studded LEGO building bricks to figure out how many different ways they can be combined. Thomke's experience goes back a long way—as a kid growing up in Germany he participated in a LEGO competition. As an adult, though, his interests lie more in the business behind the bricks. "When you've written many cases you have a gut feeling that one like this could be really great," he says.

Thomke, the William Barclay Harding Professor of Business Administration, wrote the case with Harvard Business School's Jan W. Rivkin, the Bruce V. Rauner Professor of Business Administration, and Daniela Beyersdorfer, associate director of the HBS Europe Research Center.

LEGO explores how the company-one of the most profitable toymakers in the world-grew to global dominance from humble beginnings; the mistakes that led it near bankruptcy; and why one turnaround attempt failed while a second succeeded. LEGO executives were unusually supportive about the case-writing process, Thomke says. "We had access to everybody; they wanted the story to be told truthfully, with all the good and the bad."

Building At The Start

Part of that access included a visit to a wood craftsman's workshop in the small town of Billund, Denmark, where LEGO began, in 1916. Carpenter Ole Kirk Kristiansen eventually shifted the business from making houses and furniture to crafting wooden toys. He based the name of his new venture on the Danish words for "play well" (and, as it turned out, the Latin words for "to assemble"). His motto "Only the best is good enough" would later be carved into a wooden plaque and hung in the workshop. These themes of good play and quality products were both bedrocks and touchstones for future generations of LEGO toy makers.

Godtfred Kirk Kristiansen represented the second generation, working alongside his father at age 12. The LEGO brick played with by kids and adults around the globe came into being during Godtfred's tenure. He considered it a unique, sturdy, simple product—a system—that offered endless opportunities for creative fun, and drew up a list of product characteristics including "long hours of play" and "quality in every detail" that was distributed to everyone in the company.

Like his father, Godtfred paid careful attention to every aspect of the business, applying, for example, his knowledge of material science and production technology to the brick-manufacturing process. It's because of these precise specifications that bricks made under his watch are interchangeable with those available today. Godtfred's cautious nature extended all the way to the profit margins: he championed slow, steady growth. Because of this, it could take years for a new product to go to market. Green bricks, for instance, appeared in play sets only after a decadelong decision-making process-and the idea to include them came from Godtfred's son (and third-generation toymaker), Kjeld.

The snail's pace served the company well, as did the grandson of its founder. Under Kjeld's management, product demand was so high at times that executives actually found themselves discussing ways to slow sales.

A Shock To The System

That all changed in the early 1990s as seismic shifts pounded the toy market. Big Box toy discounters trampled mom-and-pops and lowered prices dramatically. Meanwhile, birth rates declined, children had less time to play and not much interest in toys that didn't offer instant gratification. "These changes did not play well to our strengths," observed current CEO Jørgen Vig Knudstorp in the case.

Serious jolts were also taking place in the LEGO Group. Out of work for a year following a serious illness in 1993, Kjeld appointed a five-person management team to help him run the company when he returned. The group focused mainly on driving growth. When a benchmarking study revealed LEGO's global name recognition was on par with industry giants like Disney, the team started churning out new products and ideas to leverage the brand's untapped value. A line of LEGO-branded children's wear was created and a division of the LEGO Group was charged with pitching book, movie, and TV ideas. LEGO building sets became increasingly complex with more unique components.

While the number of LEGO-branded items grew, sales did not, and in 1998 the company suffered its first financial loss. "Their top-line growth was slowing down but their cost was accelerating, so they were starting to lose some significant money," says Thomke.

Danish turnaround expert Poul Plougmann was hired to reassemble LEGO and staunch the red ink. "He comes in and … does things by the book," says Thomke. "He lays people off, he streamlines some things, he globalizes." And yet the financial picture grew worse. "He's basically going by the turnaround book, but it doesn't work."

One continuing problem: the company's growing complexity was choking it. Adding more bricks made products harder to assemble, forecasts harder to determine, and inventory harder to manage. Depending on the kit, there was either too much inventory, or no inventory at all, and restocking could take months.

"You had this multiplier effect of added complexity that went through the entire supply chain," Thomke says.

The LEGO Group had also gotten too far away from the core values it had been building on for the better part of a century. The toymaker found itself needing to turn around its turnaround.

Outside The Family

Enter Jørgen Knudstorp. He was just 35 years old when Kjeld promoted him from director of strategic development to CEO in 2004. (Kjeld retired that same year.)

Like Plougmann, he had no family ties to the company. Unlike Plougmann, his turnaround attempt succeeded. Knudstorp's slow-it-down approach of careful cash management, focusing on core products, and reducing product complexity certainly contributed to that success. It would also take re-engaging with customers, many of whom passed a love of LEGOs to their children while still connecting with the toys themselves. "One of the insights Jørgen had when he became CEO was that he needed to reconnect with the community [of loyal LEGO fans], one of the most powerful assets the company had," says Thomke. "It was a huge part of the comeback."

Knudstorp worked hard to define the core business of the company. "How you work with, and experiment outside of, the core of your business is part of that balance," explains Thomke.

Knudstorp recognized that innovation was part of that core, but he'd also seen the result of unconstrained creativity, so new product design began to be informed by market research, user feedback, and how well the toys matched the vision of quality creative play laid out by its founding fathers. Putting parameters on how people innovate had the paradoxical effect of making them better at it.

Reining in the creative process was part of a larger push by Knudstorp to reduce overall complexity within the organization. On the supply chain side, he did away with many of the unique brick components added during Plougmann's tenure, and eventually decided to bring brick manufacturing back in-house to ensure quality control.

Finally, Knudstorp made big changes to the management team, firing five of seven manufacturing executives and appointing a new leader for the team. A psychoanalyst was brought in to teach the management team how to identify decision-making made by logic versus emotion.

Sustainable And Balanced

It turns out that LEGOs promote lifelong learning. While the bricks themselves teach children the fundamentals of construction and creativity, the company's almost century-old history of management change has important lessons for businesspeople. "Managing sustainable growth is also about managing a balanced business system," says Thomke. "Complexity is something you need to watch very closely."

Controlling complexity, clarifying the core of its business, and engaging the larger community helped save the LEGO Group. Although he was not a Kristiansen by birth, Knudstorp's management style and business ideals closely mirrored those of its founding fathers. Only the best was, and is, good enough.

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Embracing Customer-Centric Transformation – The Story of LEGO

Building beyond business: how lego’s meaning-driven model redefines success.

In the fast-paced world of business, companies often emphasize competitive edge and customer service. Yet, many fail to address a crucial question: why does their company truly matter? In a world teeming with options, what makes a business stand out isn’t just service quality, but its inherent meaning and relevance to its customers. This article explores how LEGO, a company renowned for its customer-centric approach and continuous transformation, has leveraged these qualities to create a business model that thrives even in challenging times.

The traditional view of business models focuses heavily on outperforming competitors and delivering value to customers. However, this perspective misses a critical element – the ‘why’ behind a company’s existence. The real challenge lies in identifying the unique meaning that makes a company indispensable to its customers, employees, and the broader community.

“We remain fully focused on our ambition to inspire and develop more children around the world. We are proud to be in a strong financial position to deliver on this mission today and invest to ensure we continue to deliver for many generations in the future”

— Niels B Christiansen, CEO of LEGO Group

The LEGO Paradigm:

LEGO’s journey offers a compelling case study in this context. Known for its plastic building blocks, LEGO has become more than just a toy manufacturer; it represents a hub for creativity and learning. This transformation didn’t happen overnight. It was the result of deeply understanding and empathizing with their customers’ desires – not just for toys, but for tools that stimulate imagination and learning.

LEGO’s success in continuously adapting to market demands illustrates the importance of listening to customers. In the late 1990s and early 2000s, LEGO faced a critical phase with declining sales and relevance. However, by re-engaging with its core audience and innovating based on customer feedback, LEGO transformed its business model. They expanded into video games, movies, and even theme parks, all the while staying true to their core value of fostering creativity.

Timeline of LEGO’s Transformation

1. Early Beginnings (1932-1958)

• 1932 : Ole Kirk Christiansen founded LEGO in Billund, Denmark.
• 1949 : Introduction of the Automatic Binding Bricks, the early version of LEGO bricks.
• 1958 : Patenting of the modern LEGO brick design.

2. Expansion and Innovation (1959-1990)

• 1960s : Expansion of LEGO product line with new sets and themes.
• 1978 : Introduction of the first LEGO Minifigures.
• 1980s : LEGO begins to diversify with the launch of themed sets like LEGO Space and LEGO Castle.

3. Financial Crisis and Near-Bankruptcy (1990s-2004)

• Late 1990s : Facing increasing competition, LEGO expands into markets like video games, movies, and theme parks, but struggles with financial losses.
• 2003-2004 : LEGO nears bankruptcy, with a reported loss of DKK 1.4 billion in 2003.

4. Restructuring and Refocusing (2005-2010)

• 2005 : Jørgen Vig Knudstorp becomes CEO, initiating major restructuring.
• 2005-2010 : LEGO refocuses on core products and reduces costs, leading to a dramatic turnaround in profitability.

5. Innovation and Growth (2011-Present)

• 2011 : Launch of LEGO Ninjago, a major success.
• 2014 : Release of “The LEGO Movie”, a blockbuster hit, revitalizing the brand.
• 2015-2020 : Continued expansion into digital platforms and educational products.
• 2023 : LEGO remains a leader in creativity and innovation, with a strong focus on educational and sustainable products.

This timeline encapsulates LEGO’s journey from a small Danish company to a global leader in creative play, highlighting its ability to adapt, innovate, and stay relevant in a constantly changing market.

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Beyond the Numbers: LEGO’s Holistic Business Approach

A. Customer-Centric Innovation

• Listening to the Audience : LEGO’s turnaround is largely attributed to its renewed focus on customer feedback. The company actively sought input from its core audience – children – and their parents, understanding their preferences and evolving interests.
• Product Evolution : Based on customer insights, LEGO continually evolved its product lines, introducing sets that catered to various interests, from traditional building blocks to themed sets like LEGO Harry Potter and LEGO Star Wars, appealing to both children and adults.
• Quality and Safety : Despite financial challenges, LEGO maintained its commitment to high-quality, safe products, understanding that trust and brand integrity were paramount in retaining customer loyalty.

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B. Strategic Brand Collaborations

• Partnerships : LEGO forged strategic partnerships with popular franchises, enhancing its market appeal. These collaborations, like those with Marvel and DC Comics, brought in new customers and re-engaged lapsed fans.
• Educational Alliances : Collaborations with educational institutions to promote STEM learning through LEGO products further expanded its market and reinforced its commitment to educational development.

C. Sustainable Practices

• Environmental Commitment : LEGO demonstrated a commitment to sustainability, aiming to reduce its carbon footprint and transitioning to renewable energy sources. This approach resonated with environmentally conscious consumers.
• Sustainable Materials : The company invested in research to replace traditional plastic with sustainable materials, aligning with global environmental concerns and adding a new dimension of corporate responsibility to its brand image.

D. Digital Transformation

• Video Games and Mobile Apps : LEGO ventured into digital spaces with video games and mobile apps, effectively connecting with the tech-savvy younger generation.
• LEGO Digital Designer : This tool allowed users to design their own LEGO sets virtually, fostering creativity and interaction with the brand beyond physical products.

E. Community Engagement and Brand Experience

• LEGO Clubs and Magazines : These platforms offered a way for fans to engage with each other and the brand, sharing creations and ideas, thus building a strong LEGO community.
• LEGOland Theme Parks : These parks provided an immersive brand experience, turning LEGO into a lifestyle choice, not just a product.

F. Financial Resilience and Long-term Vision

• Financial Strategy : Post-restructuring, LEGO focused on sustainable growth rather than short-term gains, ensuring financial stability and resilience.
• Continued Innovation and Expansion : LEGO’s investment in new product lines and experiences kept the brand relevant and competitive, ensuring its market position in the long term.

G. Employee Engagement and Corporate Culture

• Employee Involvement : LEGO fostered a culture of innovation among its employees, encouraging them to contribute ideas and be part of the brand’s evolution.
• Workplace Environment : By creating a positive and creative work environment, LEGO ensured a motivated workforce, which was crucial for its turnaround and ongoing success.

H. Broader Impact and Social Responsibility

• Community Initiatives : LEGO’s involvement in community projects and educational initiatives underscored its commitment to having a positive social impact.
• Promoting Creativity and Learning : Beyond just selling toys, LEGO positioned itself as a catalyst for creativity and learning, aligning with broader educational and developmental goals.

LEGO’s story demonstrates that a company’s success is not solely measured by financial metrics, but also by how it resonates with and contributes to the well-being of its customers, employees, and society at large. This holistic approach to business has not only helped LEGO survive but thrive, establishing it as a beloved and enduring brand.

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Implementing the Concept Essence: LEGO’s Strategic Execution and Performance

A. Clarifying the Concept Essence

• Defining Purpose : LEGO crystallized its concept essence around “inspiring and developing the builders of tomorrow.” This vision went beyond toy production to emphasize creativity, education, and personal development.
• Customer-Centricity : The essence was implemented through a deep understanding of customer needs, aspirations, and evolving trends, ensuring that LEGO’s products and experiences remained relevant and engaging.

B. Translating Essence into Action

• Product Design and Innovation : LEGO’s commitment to this essence was evident in its product lines, which were continuously innovated to encourage creativity, problem-solving, and storytelling.
• Brand Experiences : Through LEGOland theme parks and interactive exhibitions, the company offered immersive experiences that embodied its essence, enhancing its appeal to families and LEGO enthusiasts.

C. Key Performance Indicators (KPIs) Improvements

• Increased Sales and Market Share : Following its restructuring and refocusing on the concept essence, LEGO saw a significant increase in global sales, regaining and expanding its market share in the toy industry.
• Customer Satisfaction and Loyalty : Customer satisfaction metrics improved, as reflected in repeat purchases and positive reviews. LEGO’s engagement strategies, like interactive platforms and clubs, fostered a loyal customer base.
• Brand Recognition and Reputation : LEGO consistently ranked high in global brand recognition surveys, reflecting its strong positioning in the eyes of customers.

D. Positioning in the Eyes of the Customer

• Innovative and Educational Brand Image : Customers perceived LEGO as a brand that not only provided entertainment but also contributed to learning and development, aligning with modern educational values.
• Sustainable and Responsible Company : LEGO’s initiatives in sustainability and community engagement positively impacted its image, portraying it as a socially responsible brand.
• Culturally Relevant and Diverse Offerings : With its diverse product ranges and inclusive designs, LEGO appealed to a wide demographic, from children to adult collectors, enhancing its universal appeal.

E. Ongoing Adaptation and Evolution

• Responsive to Market Trends : LEGO’s agility in responding to market changes, such as the rise in digitalization and eco-consciousness, kept it ahead of industry trends.
• Employee Involvement in Innovation : The company encouraged a culture of innovation among its employees, who played a vital role in keeping the essence alive through new ideas and initiatives.

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F. Communication and Brand Messaging

• Consistent Brand Messaging : LEGO’s marketing and communication strategies consistently echoed its concept essence, reinforcing its commitment to creativity, education, and social responsibility.
• Engaging Storytelling : Through storytelling in its marketing campaigns, LEGO connected emotionally with its audience, making the brand more relatable and memorable.

G. Measuring Success Beyond Financials

• Impact on Education and Creativity : LEGO’s success was also measured by its impact on promoting creativity and education among children worldwide.
• Community and Environmental Contributions : The company’s efforts in sustainability and community projects added another layer to its success metrics, aligning with broader societal values.

By effectively implementing its concept essence, LEGO not only improved key performance indicators but also repositioned itself in the global market as a brand that stands for innovation, education, and social responsibility. This strategic approach enabled LEGO to resonate deeply with customers, creating a strong and enduring brand connection.

Where is LEGO now?

LEGO’s financial performance for the first half of 2023 shows a mix of challenges and strengths which reinforces the need to continuously improve and establish strategic resilience:

• Growth and Profitability : Compared to the previous two years, LEGO experienced a slowdown in growth and profitability. Consumer sales increased by 3% from the previous year, but revenue only grew by 1%, resulting in sales of 27.4 billion DKK (approximately US$3.99 billion). The net profit declined to 5.1 billion DKK (about US$0.74 billion), a decrease of 17.74% compared to 6.2 billion DKK (US$0.9 billion) in the previous year. The decline in net profit is attributed to rising costs and potentially increased discounts offered by LEGO​ ​​ ​.
• Investment and Strategy : Despite these challenges, LEGO continued to invest heavily, spending 3.6 billion DKK on property, plants, equipment, and intangible assets. These investments were likely for new manufacturing facilities in Virginia, USA, and Vietnam, and for expanding the capacity of existing factories. The company’s decision not to decrease investment or lay off staff highlights its operational strategy and long-term focus​ ​​ ​.
• Market Performance and Initiatives : LEGO’s market share grew significantly as it outperformed a declining toy market . The company’s portfolio in 2023 included more than 750 products, with top performing themes like LEGO® Icons, LEGO Star Wars™, and LEGO Technic™. LEGO also continued its partnership with Epic Games to create digital experiences for children. The brand was recognized as the most reputable brand in the world by RepTrak in April​ ​.
• Financial Overview : LEGO’s operating profit for the first half of 2023 was DKK 6.4 billion, down from DKK 7.9 billion in the previous year. The company’s free cash flow was DKK 1.1 billion, reflecting investments in global manufacturing capacity and technology upgrades. These financial results show LEGO’s commitment to long-term strategic initiatives, including manufacturing, digitalization, and sustainability​ ​.

We are satisfied with our performance; especially as it has been a challenging six months for the toy industry. Demand for our products saw us outpace the industry and significantly grow market share. Our strong financial position allows us to invest for the long term, particularly in areas such as digital, sustainability, and manufacturing. Overall, our performance is in line with expectations, after three consecutive years of extraordinary growth, and we are grateful for our great colleagues who work each day to inspire children through play”. Niels B Christiansen, CEO of LEGO Group :

Overall, LEGO’s financial performance in the first half of 2023 indicates a period of strategic investment and market strength, despite challenges in growth and profitability. The company’s focus on innovation, digital transformation, and sustainability positions it well for long-term success in the evolving toy industry.

CDO TIMES Bottom Line: LEGO’s Strategic Resilience and Market Success

1. Embracing a Holistic Business Philosophy:

• LEGO’s transformation showcases the power of a business model that goes beyond financial metrics. By integrating creativity, education, and social responsibility into its core philosophy, LEGO has established itself as a brand with a purpose, resonating deeply with consumers across various demographics.

2. Customer-Centric Approach as a Success Driver:

• The company’s customer-focused strategy, which involved actively listening to and incorporating feedback, has been instrumental in its turnaround. This approach not only revived its product lines but also fortified customer loyalty, proving that understanding and valuing customer needs are crucial for long-term success.

3. Innovation and Adaptability:

• LEGO’s continuous innovation, both in product development and digital transformation, has kept it at the forefront of the toy industry. Its ability to adapt to changing market trends and consumer preferences underscores the importance of agility and foresight in business strategy.

4. Sustainable Practices and Social Responsibility:

• LEGO’s commitment to sustainability and community engagement has not only improved its brand image but also aligned it with the growing global focus on environmental and social governance (ESG). This approach demonstrates how corporate responsibility can contribute to a company’s appeal and relevance in the modern market.

5. Financial Resilience Through Value Creation:

• The financial turnaround and growth of LEGO, following its strategic restructuring, highlight the effectiveness of a value-driven business model. LEGO’s focus on creating long-term value rather than short-term gains has ensured its financial resilience and market leadership.

6. Educational Impact and Community Engagement:

• LEGO’s impact extends beyond the realm of business into education and community development. By positioning itself as a tool for learning and creativity, LEGO has contributed significantly to the educational sector, enhancing its societal value.

7. The Role of Corporate Culture and Employee Engagement:

• The transformation journey of LEGO also emphasizes the role of a positive and innovative corporate culture. Employee engagement and involvement in the company’s vision have been key factors in driving its success and sustaining its innovative edge.

8. Building a Legacy and Setting Industry Standards:

• LEGO has not just survived market challenges; it has thrived and set new standards in the toy industry. Its journey from near bankruptcy to becoming a global leader is a testament to the power of a meaningful, customer-focused, and socially responsible business approach.

Final Analysis: LEGO’s story is a powerful example for C-level executives looking to steer their companies through challenging times and competitive markets. It illustrates that integrating purpose, customer-centricity, innovation, and social responsibility into the business model can lead to remarkable resilience, growth, and a lasting legacy. This approach can serve as a blueprint for businesses aiming to achieve not just financial success but also a meaningful and enduring impact in their industries and communities.

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• Deep Expertise : CDO TIMES has a team of experts with deep expertise in the field of Digital, Data and AI and its integration into business processes. This knowledge ensures that your organization can leverage digital and AI in the most optimal and innovative ways.
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• Competitive Advantage : Finally, by hiring CDO TIMES experts, you are investing in a competitive advantage. Their expertise can help you speed up your innovation processes, bring products to market faster, and stay ahead of your competitors.

By employing the expertise of CDO TIMES, organizations can navigate the complexities of digital innovation with greater confidence and foresight, setting themselves up for success in the rapidly evolving digital economy. The future is digital, and with CDO TIMES, you’ll be well-equipped to lead in this new frontier.

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Lego Case Study: The Lego Group Competitive Advantage & Strategy

Main feature of organization, strategic products and current mission, internal and external environments of the lego group, internal environment – swot value change of the company, external environment – pestel, porter five forces, power interest matrix of the lego group, new strategic directions for the organization, works cited.

The Lego Group is a toy-manufacturing company which is based in Billund, Denmark. The company was founded as a family organization in the year 1932, by Ole Kirk Christian. Today, the company stands high as a global player in the world of toys, among other strategic entertainment products (LeGoff 557).

Initially, Lego started as a manufacturer of ironing boards, toys, stepladders, and stools. Among these products, the wooden toys have been the best selling items, thus according the firm a strong reputation in the entertainment business. By the year 1949, the firm started manufacturing early versions of the popular LEGO plastic bricks and this was a strategic approach by the organisation, considering the fact that plastics had just greeted the markets as a new material (Simoes and Dibb 219).

However, the outcome was not what the company managers had anticipated, since the public was a bit hesitant in accepting the new material. The company would rapidly gain popularly in most parts of the world, as a result of progressive development of its products. For instance, the basic bricks were sustained with extra figures and features, in a manner that diversified the playing opportunities for children.

The company’s sales and profit scales were rapidly taking a positive charge between 1950 and 1970. However, the period between 1970 and 1990 proved to be a difficult moment for the company, owing to the serious economical implications that greeted the world then, following the oil crisis of the time.

In the course of this era and the period that followed afterwards, the Lego Group underwent serious fluctuations, due to a number of reasons which included; rapid change in the business environment witnessed at the time, complications in logistic matters and financial control, and the extended times that would be required to run into the future plans of the company.

Among the many problems which threatened to shake the firm’s potential, was the issue of the rising competition from much bigger companies such as Hasbro and Mattel (Hicks 41). Other new firms such as Sony, Activision, and Nintendo, who had just ventured the scene with more advanced electronic products, also posed great challenge to the productivity of the Group.

In this regard, the company’s only survival option in the competitive market was to adopt a strategic development plan that would see it come up with new and more exciting products. According to Claus, Riggs & Sekeran, the toy company enjoys a wide range of products that are fit for children of all ages (71).

These products are grouped in various categories, and some of the latest developments include video gaming, pre-school products, play themes, bricks, licensed products, and educational-based products for children, just to mention but a few. This is a clear indication of how the company has managed to remain high in the current competitive business of toy products.

The Lego Group was actively been involved in several turnaround attempts for the better part of 1990s and in the early 2000s, but with little success. No one could have foretold a possible solution to the progressive issues which appeared to claim the company, until towards the end of the year 2004, when a glimpse of hope shone onto the firm.

It was in the course of this period when the company’s serving CEO, Kjeld, took on more involvement in strategies that helped to identify the factors responsible for the company’s downsizing. This helped in the design of effective strategies that would eventually see the firm come back on track. The design and implementation of these strategies was based on the company’s organization, management and business expectation plans.

This involved the replacement of over three quarters of the senior management team with a new batch. Other strategies would be centered on the firm’s operational systems, among other key interventions.

For instance, a thorough revision was carried out on the cost and the supply chain operations of the company, and major changes were inflicted on the sectors right away. More importantly, the Lego Group had realized that working alone would not take them anywhere, and this would see them cooperate with licensing partners in the widely acclaimed gaming sector.

These interventions were sustained with a progressive development of the company’s products, to fit the demands of the modern era. The company has shown steady advancements lately, as a result of these interventions. The climax of this success was realized in the 2008-2009 financial year, which saw the company registering the biggest rate of growth in sales and profits, since the year 1981.

With these positive outcomes, there can’t be any doubts that the Lego Group is now back to its place in the development of children’s creativity, after several years of financial loss and failure (Irani, Sharif & Love 59). The objective of the company is to develop innovative products to meet the expansive consumer requirements, as they occur in the market.

As part of their recovery strength, the Group has reclaimed its position in the global listings, where it is ranked among the top five toy companies, with an approximate value of 4.8 percent in market shares. Lego’s success can also be associated with their mission, which aims at inspiring the current generation of children to be able to explore and challenge their own potential in creativity (Stacey 79).

This has been achieved through the group’s brand values, which are tailored on aspects meant to bring a significant impact on children. Some of these aspects would include things such as quality, imagination, fun, creativity, caring, and learning.

Lego group is a good example of the international companies that have managed to balance the nature and constraints of the internal and external environments, to make a notable difference in the current competitive world of business. From the perspective of various reports about the company, it is apparent how the toy company has reacted in adapting and utilizing the potential offered by its internal resources, in meeting the demands of its external environment.

According to Dyllick, Thomas & Hockerts, the company’s current strategic development has been achieved through the focused leadership of its former CEO, Kjeld Kirk (139). A better part of this success however, has been reached upon through the feedback which had been received regarding the internal competencies of the firm and its external operating systems.

A major tool that can be used to assess the overall potential of a firm is the SWOT analysis structure, which stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis basically considers two main parts; a company’s inward elements which normally constitutes of its strengths and weaknesses, and the attempts to consider the way these factors would come to fit against the external aspects of an organisation’s threats and opportunities.

The company’s key strengths are commonly associated with its constant ability to apply the concept of brand recognition in all its products and services, without having to compromise their core values. The company also maintains a close mutual relationship with its suppliers and retailers, and this gives it a powerful business advantage over its rivals in the industry.

The toy market is an industry bulging with a big number of competent players, but Lego’s products and services are the most preferred by majority of the people in the world (Oliver and Roos 911). This is due to their effective leadership in the development of a wide range of children products that have been praised for quality and originality. The newest products by the company are real manifestation of how the power of innovation applies, in meeting their goals and objectives in business.

Brand heritage is another strength which has succeeded at keeping the company ahead of its rivals in the industry (Hatch and Schultz 597). This is evident in how the company’s products are manufactured to fit in their brand values, which are aimed at making a significant impact on the lives of children all over the world.

Lego’s weaknesses in business can be observed through a number of ways. For instance, even though there have been serious attempts by the company to diversify its products, the company has been poor in technology and IT related matters compared to other competitors, who have fully embraced the power of technology in making their products more enticing to the users in the new media age (Schau 43). Lego Group has also been operating through large toy retailers, and this has been one of their biggest drawbacks in the market.

The large retailers are effective marketing outlets, but they normally operate on high costs and this is likely to deprive the company of substantial amounts of money in profits. More importantly, the company has failed to understand the marketing concepts which are in line with their consumers all over the world.

In other words, Lego group seems to be lacking full understanding of their consumer preferences in the market, and due to this lack of a strategic fit, they have often ended up losing more sales to their competitors in the market, who are well informed of the consumer needs regarding toys and gaming products.

It is also apparent that, Lego Group lacks the ability to effectively translate potential strengths into implemented strategies. This actually explains the company’s gradual response to financial and management issues, among other problems which have affected the company previously (Hölzl 39).

Opportunities & Threats

The company’s notable opportunities and threats can be linked together as key aspects which the company can utilize in achieving its goals and mission in the toy business. According to Schultz and Hatch, while the company has been widely acclaimed all over the world for its production of toys and other children products, there has been a decline in the sales of its traditional toys which constitutes the largest part of their products, due to the increasing attention of children on devices from other companies, that are more electronic (21).

The other biggest threat of the group is the growing number of giant competitors, who are utilizing every opportunity possible to thrive in the industry, thus making it one of the most competitive sectors in the world (Johnson 11). However, Lego Group has always seen these threats as opportunities for further developments in business.

New developments and increase on products has always remained the biggest opportunity to the company. More importantly, as a result of the rapid competition in the market, the company has managed to come up with numerous categories of products, a key strategy which has enabled it to be able to meet the needs of children in the modern era of technology.

Porter’s five forces analysis is observed to have a significant impact on a business, in relation to elements of the external environment (Michael 13). These forces include level of rivalry, power of suppliers, threat of entrants, power of buyers, and threat of substitutes. Each of these five forces is considered individually in assessing and analysing the external environment of the company in this case.

Level of rivalry

The level of rivalry is quite intense and strong for the Lego Group. While it is clear that the company enjoys a strong position in the industry, with relatively few giant competitors, it should be considered that they are taking part in a broader market of toy production, which also includes key players in the electronic sector, such as Sony and Nintendo, among others (Martin 84).

Power of suppliers

The company, whose main products are largely based on standardised inputs, has an average power of suppliers. However, it should be noted that, the power of suppliers is likely to go up, in case the company decides to major in more sophisticated areas of productions, such as games or films.

Power of buyers

The power of buyers is relatively high for the Lego Group, with minimal costs between alternative products.

Threat of entrants

As it would be expected, the toy product industry normally requires huge investments of time and money, in a number of ways that include things such as business capital, research funds, and development costs. All these serve as obstacles to entry in the industry, thus restricting the number of new entrants in the sector. In that case, there is a relatively low threat of new entrants in the wider entertainment market, and this offers the Lego Group a much stronger bargaining power over majority of its competitors in the market.

Threat of substitutes

This is arguably one of the biggest threats facing the entertainment product company today. Even though the company is said to have developed electronic products such as video and games, there is still evidence that some of the company’s products are still made in the traditional form. This has the meaning that, the company is faced by a big threat, given that users are likely to substitute between traditional toy and gaming products through to the ones that are made into electronic features.

It is also apparent that the Lego group has touched many people with its products and services in the entertainment sector. Through the engagement of the right people in its management and productivity systems, the company has made a big success in its mission and objectives in business (Beal 29).

As it would be observed in the above internal and external analyses, the company has tried to implement a number of strategies, in order to influence and attract people on their products. Through these interventions, the company has successfully managed to impact a large number of people from all over the world, with both electronic and alternative traditional products for children entertainment. Among other key players in the market, the company has a high interest on its stakeholders and the community.

The firm recognises these as the people who play the greatest role in helping them achieve their business goal and for that reason it treats them with much respect. Both the shareholders and the people from the diverse community have a positive impact to the company’s financial interest and what motivates them most is to get nothing less of the best from the company. In that respect, the Lego group is fully engaged in putting the necessary efforts which are needed to satisfy these significant groups.

The Lego group is arguably one of the most successful companies in the toy manufacturing industry. Through a wise interaction of its internal and external systems, sustained by the effective management, the company has gained a sustainable competitive advantage over many of its rivals in the market.

However, there are numerous strategic directions which the product company can utilize, to be able to maintain a more sustainable competitive advantage over its rivals.

The Lego Group may have amassed great reputation and success in the entertainment sector, but changing the company into an all-time winner in the global toy market is something that would require much effort, from the company (Schroeder 54). Some of these efforts would tend to involve numerous aspects of strategic management, whose significance in business has often been underestimated.

Some of the strategic directions which the company can incorporate in its operation systems would include; a focus on international opportunities, expansion of digital systems and strategies, constant focus on cost, expansion of target markets, widening of product range, and focus on effective online distribution strategies.

The Lego Group may have made significant attempts in trying to incorporate some of these strategies in their routine business operations, but there is still room for improvement which can be achieved by revising these strategies over and over, to eliminate all the problems which continue to pose a big challenge to the company’s productivity and accountability in children’s toy and entertainment products (Morgan 45).

For instance, the company should focus on the many opportunities provided by the international community and try to utilize them effectively. A good way of achieving this goal is by ensuring that the toy products are manufactured and distributed in all regions of the world, where they are needed most by families, as a key engagement for their little ones.

It should also be considered that, things are changing with the times nowadays and in that respect, expansion of digital systems and strategies is very crucial for the development of the company to fit in the demands of the modern era, which is defined by technology (Cooper 75). To be able to comply fully with this call of modernity, the company should try to ensure that all their products are made into electronic features, to fit the growing demands of technology (Laudon and Traver 18).

It is also necessary for the company to make a constant focus on cost matters, to ensure that there is a two-sided benefit between the producer and the consumers. More importantly, there is also the need for the Lego Group to conduct extensive research on new developments to widen its product range.

Through a corporate level strategy aimed at increasing international coverage and product diversity, the company would be certain to realize more sales and profits out of its toy products. The company should also consider the vast potential business opportunities that are offered by the upcoming trend of e-commerce, and try to utilise these online mediums as effective distribution channels for their wide range of products.

Apart from these strategies, the Lego Group should also try to make good use of other strategic tools in today’s dynamic business world, such as important business information that would provide them with good lessons on how to achieve and uphold a sustainable competitive advantage in business affairs. All these strategies, sustained with the magical touch of an effective organizational management style are likely to bear promising results in the future operations of the company.

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Schroeder, Jonathan. Brand culture . United Kingdom: Taylor & Francis Publishers, 2006. Print.

Schultz, Majken and Hatch, Mary. “A cultural perspective on corporate branding.” Brand culture 13. 5 (2006): 17-26. Print.

Simoes, Claudia and Dibb Sally. “Rethinking the brand concept: new brand orientation.” Corporate Communications: An International Journal 6. 4 (2001): 217-224. Print.

Stacey, Ralph. Strategic Management and Organisational Dynamics . London: Pitman Publishing, 1993. Print.

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IvyPanda. (2019, May 14). Lego Case Study: The Lego Group Competitive Advantage & Strategy. https://ivypanda.com/essays/case-study-the-lego-group-working-with-strategy-case-study/

"Lego Case Study: The Lego Group Competitive Advantage & Strategy." IvyPanda , 14 May 2019, ivypanda.com/essays/case-study-the-lego-group-working-with-strategy-case-study/.

IvyPanda . (2019) 'Lego Case Study: The Lego Group Competitive Advantage & Strategy'. 14 May.

IvyPanda . 2019. "Lego Case Study: The Lego Group Competitive Advantage & Strategy." May 14, 2019. https://ivypanda.com/essays/case-study-the-lego-group-working-with-strategy-case-study/.

1. IvyPanda . "Lego Case Study: The Lego Group Competitive Advantage & Strategy." May 14, 2019. https://ivypanda.com/essays/case-study-the-lego-group-working-with-strategy-case-study/.

Bibliography

IvyPanda . "Lego Case Study: The Lego Group Competitive Advantage & Strategy." May 14, 2019. https://ivypanda.com/essays/case-study-the-lego-group-working-with-strategy-case-study/.

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Gabriela Salinas and Jeeva Somasundaram

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

In April this year, Hein Schumacher, chief executive of Unilever, announced that the company was entering a “new era for sustainability leadership”, and signalled a shift from the central priority promoted under his predecessor , Alan Jope.

While Jope saw lack of social purpose or environmental sustainability as the way to prune brands from the portfolio, Schumacher has adopted a more balanced approach between purpose and profit. He stresses that Unilever should deliver on both sustainability commitments and financial goals. This approach, which we dub “realistic sustainability”, aims to balance long- and short-term environmental goals, ambition, and delivery.

As a result, Unilever’s refreshed sustainability agenda focuses harder on fewer commitments that the company says remain “very stretching”. In practice, this entails extending deadlines for taking action as well as reducing the scale of its targets for environmental, social and governance measures.

Such backpedalling is becoming widespread — with many companies retracting their commitments to climate targets , for example. According to FactSet, a US financial data and software provider, the number of US companies in the S&P 500 index mentioning “ESG” on their earnings calls has declined sharply : from a peak of 155 in the fourth quarter 2021 to just 29 two years later. This trend towards playing down a company’s ESG efforts, from fear of greater scrutiny or of accusations of empty claims, even has a name: “greenhushing”.

Test yourself

This is the fourth in a series of monthly business school-style teaching case studies devoted to the responsible business dilemmas faced by organisations. Read the piece and FT articles suggested at the end before considering the questions raised.

About the authors: Gabriela Salinas is an adjunct professor of marketing at IE University; Jeeva Somasundaram is an assistant professor of decision sciences in operations and technology at IE University.

The series forms part of a wider collection of FT ‘instant teaching case studies ’, featured across our Business Education publications, that explore management challenges.

The change in approach is not limited to regulatory compliance and corporate reporting; it also affects consumer communications. While Jope believed that brands sold more when “guided by a purpose”, Schumacher argues that “we don’t want to force fit [purpose] on brands unnecessarily”.

His more nuanced view aligns with evidence that consumers’ responses to the sustainability and purpose communication attached to brand names depend on two key variables: the type of industry in which the brand operates; and the specific aspect of sustainability being communicated.

In terms of the sustainability message, research in the Journal of Business Ethics found consumers can be less interested when product functionality is key. Furthermore, a UK survey in 2022 found that about 15 per cent of consumers believed brands should support social causes, but nearly 60 per cent said they would rather see brand owners pay taxes and treat people fairly.

Among investors, too, “anti-purpose” and “anti-ESG” sentiment is growing. One (unnamed) leading bond fund manager even suggested to the FT that “ESG will be dead in five years”.

Media reports on the adverse impact of ESG controversies on investment are certainly now more frequent. For example, while Jope was still at the helm, the FT reported criticism of Unilever by influential fund manager Terry Smith for displaying sustainability credentials at the expense of managing the business.

Yet some executives feel under pressure to take a stand on environmental and social issues — in many cases believing they are morally obliged to do so or through a desire to improve their own reputations. This pressure may lead to a conflict with shareholders if sustainability becomes a promotional tool for managers, or for their personal social responsibility agenda, rather than creating business value .

Such opportunistic behaviours may lead to a perception that corporate sustainability policies are pursued only because of public image concerns.

Alison Taylor, at NYU Stern School of Business, recently described Unilever’s old materiality map — a visual representation of how companies assess which social and environmental factors matter most to them — to Sustainability magazine. She depicted it as an example of “baggy, vague, overambitious goals and self-aggrandising commitments that make little sense and falsely suggest a mayonnaise and soap company can solve intractable societal problems”.

In contrast, the “realism” approach of Schumacher is being promulgated as both more honest and more feasible. Former investment banker Alex Edmans, at London Business School, has coined the term “rational sustainability” to describe an approach that integrates financial principles into decision-making, and avoids using sustainability primarily for enhancing social image and reputation.

Such “rational sustainability” encompasses any business activity that creates long-term value — including product innovation, productivity enhancements, or corporate culture initiatives, regardless of whether they fall under the traditional ESG framework.

Similarly, Schumacher’s approach aims for fewer targets with greater impact, all while keeping financial objectives in sight.

Complex objectives, such as having a positive impact on the world, may be best achieved indirectly, as expounded by economist John Kay in his book, Obliquity . Schumacher’s “realistic sustainability” approach means focusing on long-term value creation, placing customers and investors to the fore. Saving the planet begins with meaningfully helping a company’s consumers and investors. Without their support, broader sustainability efforts risk failure.

Questions for discussion

Read: Unilever has ‘lost the plot’ by fixating on sustainability, says Terry Smith

Companies take step back from making climate target promises

The real impact of the ESG backlash

Unilever’s new chief says corporate purpose can be ‘unwelcome distraction ’

Unilever says new laxer environmental targets aim for ‘realism’

How should business executives incorporate ESG criteria in their commercial, investor, internal, and external communications? How can they strike a balance between purpose and profits?

How does purpose affect business and brand value? Under what circumstances or conditions can the impact of purpose be positive, neutral, or negative?

Are brands vehicles by which to drive social or environmental change? Is this the primary role of brands in the 21st century or do profits and clients’ needs come first?

Which categories or sectors might benefit most from strongly articulating and communicating a corporate purpose? Are there instances in which it might backfire?

In your opinion, is it necessary for brands to take a stance on social issues? Why or why not, and when?

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Where climate change meets business, markets and politics. Explore the FT’s coverage here .

Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here

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International Edition

Vancouver Airport Authority: A Unity case study

Vancouver International Airport (YVR) is a diverse global hub that connects people, cargo, data and ideas. YVR has its own Innovation Hub that’s rethinking what digital transformation means for an airport by testing and trialing new processes and innovations, including real-time 3D technology. The airport’s vision to reimagine the passenger experience led YVR to leverage Unity to build the first-to-market real-time 3D digital twin of an airport in North America.

Creating an interactive representation of the airfield and terminal, connected to real-time operational data

Addressing facility challenges such as maintenance, sustainability, and safety while avoiding operational disruptions

200 airport operations staff using the runtime application

Operational situational awareness for over 600 airport staff

Musqueam Territory/Richmond, British Columbia, Canada

Driving digital transformation with a digital twin

Developed as a “people-first” technology aiming to create an engaging and informative experience for frontline workers, YVR’s digital twin uses historical and real-time data to enable data-driven decision making, streamline processes, and improve collaboration across the airport’s operations.

The results

• Increased confidence in resource planning due to better forecasting
• Reduced time to conduct root-cause analysis for disruptions
• Improved decision making through enhanced situational awareness with access to real-time information

YVR is leading with innovation to meet heightened passenger and community expectations at a time when travel and aviation are changing.

Their digital twin is poised to become a catalyst for change from an operational perspective, while also supporting the airport’s ambitious climate and Reconciliation goals. The airport is working across the industry’s ecosystem to enhance the overall travel experience for passengers.

“An airport is a city, a construction zone, a mall,” says Lynette DuJohn, CIO of the Vancouver Airport Authority. “But it’s also in a very controlled environment, so it’s the perfect platform for innovation.”

YVR utilized Unity to get started on the digital transformation of their terminal and airfield. The airport harnessed its extensive data and systems to create a dynamic, interconnected digital twin.

This system improves the comprehension of complex operational systems, enabling better decisions and allowing the team to explore hypothetical scenarios around climate impact, security, and more.

“I believe that the digital twin is an absolute game changer in the business of airports and will be a key enabler to our strategy,” says DuJohn.

The team started capturing image data of the airfield and YVR terminal interior and exterior using high-fidelity cameras and Lidar sensors attached to air and ground transportation.

YVR’s existing computer-aided design (CAD) drawings were then manually converted to Revit and imported into Unity. This allowed the team to layer on data and develop the key use cases identified in the design phase.

While 3D modeling firm GeoSims Cities refined the 3D model of the airport’s terminal and airfield, YVR worked to ensure that the digital twin would be intuitive, secure, and easy to use by YVR’s frontline workers.

“At YVR, we want our people to have the tools they need to succeed in a dynamic environment,” says DuJohn. “The digital twin technology solves many airport-related challenges and provides an incredible layer of situational awareness for our employees.”

“Our developers [originally] used a different platform, but switching them over to Unity was quite easy. They’re really loving it,” says DuJohn.

YVR integrated a tool into the digital twin to assist with situational awareness of operations and security, the project’s initial focus.

The situational awareness tool provides a birds-eye view of YVR’s terminal and summarizes information in real-time. Alerts are also built into the tool to notify the end user of any data anomalies or potential safety issues.

For example, YVR programmed their cameras to detect if a vehicle has been parked at the terminal curbside for an extended period of time. Once detected, an alert is generated, and a user can click into the signal to see a live feed of the situation. They can then work with the operations and security teams to address the issue.

As the largest building in British Columbia, YVR has a range of operational considerations to ensure continuous efficiencies including maintenance, safety and emergency planning. Two new tools were integrated into YVR’s digital twin, Maintenance and Test Equipment (MTE) and 3D Explorer, to ensure these teams have what they need to work.

The MTE tool works alongside YVR’s existing maintenance system, allowing the team to access, update, and view open work orders from a mobile device.

“The team loves this tool and has been instrumental in its development,” says DuJohn. “Users can view nearby work orders on the map, allowing them to avoid delays and work more efficiently.”

Built from CAD drawings and scans, the 3D Explorer tool models the interior and exterior of YVR’s terminal. The YVR team can now explore the airport from any vantage point and location and run simulations, such as preparing for disasters and better understanding the best ways to safely evacuate.

YVR has taken a leadership role in climate action with its commitment to net zero carbon emissions by 2030. To support this ambitious goal, the airport is using their digital twin to model aircraft movements on the airfield to reduce greenhouse gas (GHG) emissions as part of YVR’s initiative to become the world’s greenest airport.

Currently, more than 95% of Sea Island emissions are related to aircraft movements, traffic, and non-airport authority buildings. With its digital twin, YVR can measure GHG emissions in real-time to support its own net zero goals and those of its carrier partners.

“We’re going to be net zero by 2030 versus 2050, so we need to move our plan up by 20 years,” says DuJohn. “Being able to model all of those scenarios is going to be very powerful for us to really get our arms around efficiency and climate.”

Additionally, as part of YVR’s path to Reconciliation, the airport is advancing Indigenous participation and leadership in tech and innovation by delivering a Unity training program for Musqueam learners. The outcome of the course is for Musqueam participants to obtain a 3D foundational skill certificate to support future career placements within the digital twin and gaming industries.

Discover how you can leverage Unity’s digital twin solutions to unlock the full power of your data for better decision-making.

Together, we can rebuild the world

At the LEGO Group, we’re playing our part in building a sustainable future and creating a better world for our children to inherit. Find out how we’re joining forces with others to have a lasting impact and inspire the children of today to become the builders of tomorrow.

We believe every child should have an opportunity to achieve their potential. And learning through play is a powerful way to develop skills that will allow children to tackle challenges that lie ahead.

Environment

We are committed to protecting the environment and the planet our children will inherit. It’s not enough to just reduce our impact on the environment, we want to go further and have a positive impact.

We value the people, partners and suppliers who make LEGO® play experiences possible and we work hard to make our workplaces inclusive, safe and motivating.

Our 2023 sustainability progress

We’re joining forces with children and parents, our employees, partners, experts and non-governmental organisations (NGOs) to make a lasting impact and inspire the children of today to become the builders of tomorrow.

Sustainability news

RepTrak 2024

The LEGO Group has been ranked as the most reputable company in the world in the annual Global RepTrak®100 survey released by the RepTrak Company™.

We believe it’s important to be transparent about our sustainability efforts, including our ambition to make our products from more sustainable materials. Finding alternative materials to make our long-lasting, durable, safe LEGO bricks with is a significant challenge but one that we are more committed than ever to solving.

LEGO Build the change - LEGO House

LEGO House welcome the start of the 2024 season by working with the LEGO Group’s Build the Change initiative to introduce a new experience in the Blue Zone, championing cognitive Learning through Play. LEGO House opened in 2017 as the ultimate LEGO experience situated in Billund, Denmark, where the LEGO brick was invented more than 90 years ago.

Learn more about our sustainability ambitions

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RSB and To70 publish case study on the non-CO2 impact of sustainable aviation fuels

May 28th, 2024

The Roundtable on Sustainable Biomaterials (RSB) and To70 have published a case study, funded by The ClimateWorks Foundation , on the non-CO₂ impact of sustainable aviation fuels (SAF).

Read the case study here .

As airports aim to lead the aviation sector’s shift towards sustainability through collaboration with all stakeholders, it is crucial for them to address their emission footprint.

In addition to carbon dioxide (CO₂), aircraft engines emit a range of other pollutants, known as non-CO₂ emissions. These emission s include substances such as water vapour, sulphur dioxide (SO₂), soot particles, and nitrogen oxides (NOₓ). Non-CO₂ emissions significantly impact the environment, affecting both local air quality and contributing to global climate change. To effectively mitigate these impacts, airports can use SAF by integrating them into their operations. This is important for airports to reduce their full emission footprint, thereby aligning with evolving regulatory standards, enhancing local air quality, and fostering sustainable collaborations and partnerships within the industry.

According to the case study published by RSB and To70, the challenges that persist include SAF availability, SAF refuelling logistics, the measurement and impact assessment of non-CO₂ emissions on climate and health resulting from specific SAF blends, and the need for seamless coordination with relevant authorities. Despite these challenges, the case study provides best practices and insights from industry initiatives, such as SAF programmes at US West Coast Airports, the trial at Copenhagen airport within the ALIGHT project , the ECLIF Campaigns , as well as the EU non-CO₂ Monitoring, Reporting, and Verification (MRV) Framework .

Understanding the challenges and applying the best practices can help airports overcome obstacles and realise long-term benefits of integrating SAF into their operations to reduce CO₂ and non-CO₂.

Key findings:

• High-blend SAF scale up required
• Focus on fuel composition, not only SAF
• High SAF blends are required
• Non-CO₂ emissions impact conversion is needed
• Increased non-CO₂ awareness can be a SAF driver

We would like to acknowledge the generous support provided by The ClimateWorks Foundation , which has funded this report.

Click here to read the case study .