Rebuilding LEGO | A Burning Platform | 1

0:08It's early 1997, and at the LEGO headquarters in Billund, Denmark. Peter Io has a big idea. He stands in a darkened conference room in front of the LEGO executive team, the controls of a slide projector in his hand. Io is the head of LEGO's operations in the Americas. His large frame, affable manner, and well-schooled British accent belie a sharp business-savvy mind. And today, he's presenting the project he has spent over a year pouring all his energy into. Io clicks the projector, and his final slide moves into focus. It's a mock-up drawing of a Lego character, or minifig. The yellow plastic and broad smile of these tiny Lego figures are famous around the world.

0:55They've charmed generations of children and their parents. But this smiling minifig is unlike any that the Lego execs have seen before. because this one is dressed in the black robes of Darth Vader, the iconic villain of the Star Wars films, and carries a tiny lightsaber. EO brings his presentation to a close as the lights fade up in the room. So, in conclusion, I see this Star Wars licensing deal not just as a way for Lego to make a great series of toys, but as a way to connect with a whole new generation of children. EO scans the faces of the executive team. But instead of the enthusiastic smiles he's expecting, there's a stony wall of grim scowls.

1:42Finally, one of the executives speaks up. Peter, in more than 65 years of making toys, Lego has never had to license someone else's idea. We've always encouraged children to create their own worlds, not just to play within existing stories. A partnership like this is just not the Lego way. Well, times do change. Perhaps being over in the States, I'm more in touch with this trend. But the kids of today really like toys that are drawn from creative worlds they know. They connect with stories. Eos spent countless hours negotiating a licensing deal with Lucasfilm. His plan is for Lego to create a line of Star Wars Lego sets to coincide with the release of The Phantom Menace, the first new Star Wars movie in 16 years.

2:31But now, he can see his visions of Lego X-Wings and Star Cruisers vanishing before his eyes. Another executive pipes up in horror. Just look at the names of these products. Death Star, Laser Blaster, Storm Trooper. These aren't toys, these are weapons. The outraged executive turns to the company's CEO, K.L. Kirk Christiansen. Kjeld, your grandfather swore we would never make modern weapons a subject for children's play. Is this what he founded Lego for? Kjeld Chris Johnson looks thoughtful but unreadable as he stares up at the Lego Darth Vader still on the screen. Meanwhile, Eo struggles to contain himself at this line of attack on his grand plan.

3:20Well, come on now, this is hardly realistic violence. Star Wars is not the Terminator or G.I. Joe. Star Wars is all about teaching kids the difference between good and evil. EO hopes this appeal might have registered with the inner children of the executive team members. But instead, the same exec who objected to the weapons brings his hand crashing down on the table. It's literally got the word war in the title. This is not the Lego way. We do this deal over my dead body. Io feels his body slump. The largely Danish executive team are usually polite and measured. This outburst means resistance to his vision runs deep.

4:08Io believes that this could be not just a missed opportunity for Lego, but a danger to the company. Half of the toys sold in the U.S. during the past year were based on already existing intellectual property. And Lego's bigger American rivals, Mattel and Hasbro, are already forging ahead in this field, bringing shiny plastic versions of Disney princesses and DC Comics superheroes to kids' playrooms across America. But EO has encountered this attitude at Lego before. Decades of strong sales have bred a form of complacency at the company, a Lego-knows-best attitude that makes it resistant to change or ideas from the outside.

4:52And that Lego-knows-best attitude will soon bring the company to the brink of oblivion, a crisis that threatens to send the Danish toy giant straight into the reject bin of bankruptcy. But how will it get out of this jam and rebuild itself into the world's biggest toy company?

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7:22From Wondery, I'm David Brown and this is Business Wars.

7:48Here's a sobering statistic for you. As few as 1 in 10 companies that go into freefall ever manage to fight their way out of it. When things go seriously wrong for a company, it's extremely hard to fix. Companies have a momentum that's hard to turn around. Corporate culture gets stuck in its ways. bureaucracies formed out of necessity become roadblocks to change. This is why the business graveyard is full of companies that seem to see the cliff edge coming but fail to avoid it anyway. But some do survive and one of those that did managed to turn things around before it was too late. The Lego Group.

8:33In fact, it didn't just get itself back on the right track. It went from facing oblivion to becoming the world's number one toy manufacturer in just 10 years. The problems started in the 1990s after decades of constant growth and profit made the company complacent. And by the time it realized just about everything was going wrong, it was almost too late. It had to adapt and then innovate its way out of the situation. But look, that's easy to say. Everyone claims their business is innovative, right? But making innovation work, I mean truly work, well that's hard. And that was a lesson Lego had to learn the hard way.

9:16This is the story of how Lego achieved something many thought impossible and how close it came to going bust along the way. This is episode one of Burning Platform.

9:34It's early 1997, and Lego's top executives have just rejected the plan to release Star Wars products. But the man behind the plan, Peter Eo, the head of Lego in the Americas, isn't ready to give up. He spent a year negotiating with Lucasfilm to get the license, and he knows U.S. toy retailers are excited at the idea of filling their stores with Star Wars-themed Lego. But he needs to overcome the stiff resistance of Lego's top executives. Here's the thing about legacy brands. They can get stuck worshipping their own myth. EO wasn't just pitching Star Wars. He was holding up a mirror to a company drifting out of step with the market.

10:17When you know the customer better than the conference room does, you're already holding the high ground. But EO still needs to back up his argument with evidence that those executives can't argue with. The parents who buy their kids Lego sets. He runs focus groups across the U.S. to find out if parents share the concerns of Lego's top executives. He then does the same in Germany, Lego's biggest market. He eventually returns to Denmark with clear evidence. Parents do not associate Star Wars with violence. The lightsabers, Jedi Knights, and cuddly Ewoks are far enough away from real world combat that parents are more than happy to let their kids build LEGO stormtroopers.

11:03The findings from the focus groups win over some executives, but not all. Eventually, the clash between EO and traditionalists in Denmark reaches a deadlock, and it comes down to Kjeld Kirk Kristiansen, LEGO's owner and CEO, and the grandson of the company's founder. Kristiansen weighs the choice carefully. He's a Star Wars fan, but he's also torn. This is a departure from the philosophy of play established by the company's founder, his own grandfather. But with parents, kids, and retailers clamoring for this tie-in, the commercial opportunity is hard to ignore. So, Christiansen breaks with decades of company tradition and strikes Lego's first ever licensing deal.

11:54Lego Star Wars is born. Lego and Star Wars join forces so you can build authentic Lego Episode 1 Podracers. Command Gungan Sons. Sometimes the boldest business move is letting go of your founder's ghosts. Kristiansen didn't just sign a licensing deal. He broke one of the company's commandments. That's a tightrope. Honor your roots, but don't let them strangle your growth. But even as Lego prepares to get Jedis and land speeders rolling off the production line and onto the shelves, the company begins to feel its own disturbances in the force. For decades, Lego has been incredibly successful. It turned huge profits.

12:39Forbes declared its signature plastic bricks the toy of the century. And over the past 15 years, under Christiansen's leadership, the company has quadrupled in size. But since 1993, that growth has stalled. And in 1998, the company posts its first-ever annual loss, going$48 million into the red. The setback shocks the company to its core, and the leadership snaps into drastic action. A thousand workers are laid off, and cost-cutting initiatives are implemented across the entire company. Then, in a shocking move, Christiansen announces he's stepping back. He'll take on the title of company president, but will hand the running of day-to-day operations over to Paul Plaugman.

13:26Plaugman is a tall, wiry troubleshooter with graying hair. He's just achieved a celebrated turnaround at Bang & Olufsen, a Danish maker of high-end hi-fi equipment. Now, Christiansen expects him to do the same at Lego. Plaugman immediately brings in an old Bang & Olufsen Collie, Italian marketing executive Francesco Ciolella, and together the two undertake an exhaustive top-to-bottom review of the company's situation, bringing in teams of consultants to diagnose the cause of LEGO's ongoing decline and to figure out a solution.

14:08It's mid-1999, and in Billund, Denmark, Plagman and Chicolela have gathered LEGO's leadership team. They're ready to share the results of their investigations and reset the company's future. Thank you. Ladies and gentlemen, we know it's been a challenging year, but we have a plan to fix this. But first, we have to recognize that the world is changing. It's not 1979 anymore. Children today are different. They have computer games, remote-controlled cars, Tamagotchi digital pets. They don't want to have to build their toys. They want to open the box and play. One of Lego's top managers leans forward in his chair and interrupts.

14:56But our mission is for children to learn through play. Are you saying that we throw away all of that because kids now like computer games? Plagman expected resistance from Lego's traditionalist leadership, and he knows just how to counter it. When old Kirk Christiansen founded Lego in 1932, all the toys were made of wood, right? Well, then in 1946, he saw where the world was going, and risked everything to invest into a plastic injection molding machine. A lot of people back then said he was crazy, that children would never choose plastic toys over wood. But he knew that innovation was the only way for the company to grow, and that is what we need to do now.

15:41Innovate. Ploughman feels the atmosphere in the room change. It was one thing when he was promising a plan for the future, but now he's demanding change and innovation. He suspects the leadership team are beginning to fear for their own status within the company, and maybe even their jobs. Francesco Ciccolella, Plagman's old buddy from Bang & Olufsen, now leans forward. If I may, Lego's original genius came down to one thing, the Lego brick. Almost every brick could fit in almost every toy set, so children always stayed within the Lego universe. But today, the strength of Lego isn't so much in the brick.

16:25It's in the name Lego itself. People love Lego as a brand. And that brand can be so much more. We don't need to be just a toy maker. We can make clothes, create video games, expand our theme parks. Lego is as well known as Disney. There's no reason we can't be a 360 degrees lifestyle brand in the same way. But to do that, we have to let go of the past. The Lego brick was our greatest strength, but now it's holding us back. We need to think beyond the brick. Plaugman smiles as Chico Leila's infectious energy brings some excitement back to the room. That's exactly it. We aim to make Lego the number one brand in the world for families with children.

17:18Plaugman looks over at Kristiansen. the man who brought him in to rescue the company. He can see Kristiansen's eyes shining, both at the invocation of his grandfather's legacy and at the scale of ambition that Plaugmann has just brought into the company. You know what they're chasing here? It's the holy grail of branding, stretching a name to something bigger than the product. But here's the rub. Just because people love your brand doesn't mean they want it on your sneakers, in theme parks, juice boxes. Stretch too far, and even a strong brand will snap. Can LEGO go beyond the toy box and transform itself into a lifestyle brand?

18:02We're about to find out.

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20:55In mid-1999, LEGO's new leader, Paul Plaugman, hits the ground running, unleashing a wave of new ideas and initiatives across the company. He opens a new Legoland theme park in California. Building it costs around$130 million, but Ploughman's convinced it's worth it. In fact, his plan is for Lego to open a new theme park every two years and start a global chain of Lego retail stores. The theme parks and stores tie in with Ploughman's vision of mimicking Disney and making Lego a lifestyle brand synonymous with childhood across the world. Some amusement parks are built on children's dreams but now there's one built out of children's toys.

21:39That's right. Gail Anderson is at Legoland in Carlsbad with a first look at this unique new park. The theme parks, however, won't solve Lego's immediate crisis. With a company losing money, it needs a boost right now. But as 1999 continues, Lego's decision to break with tradition and sell Star Wars playsets pays off. The Star Wars tie-in is a massive hit. It exceeds the company's own forecasts by 500%, bringing in more than$200 million. It's enough to bring Lego narrowly back into annual profit. It's far from a bumper year, but it's a huge relief after the shock of 1998's loss. Encouraged, Plogman builds on that success by inking a major licensing deal with another magical universe beloved by kids around the world, Harry Potter.

22:35Then, Faugman shows what he means by making innovation the center of his strategy, with the development of another brand tie-in that reinvents what a Lego toy can be, the Steven Spielberg Lego Movie Maker set. The Spielberg set is like nothing else the company has ever released before. It comes with a digital camera that connects to a family's home computer, so that kids can make stop-motion short films using their Lego cities and minifigs. The set even comes with a green T-Rex so that kids can build Lego Jurassic Parks. But changing the toys isn't enough. To truly recreate Lego as an innovative global brand, Plaugman must also change the way its products are designed.

23:23But doing that means overcoming internal resistance. Lego is a global company with a small-town mindset. Traditionalism rules at LEGO's offices and factories in Billund, a small town on Denmark's remote Jutland Peninsula. Locals joke that it's three hours from anywhere. Plagmann believes that the world's most talented designers will never move to a place like this, so he will have to bring Billund to them. He opens research and design labs in London, New York, Milan, Barcelona, Tokyo, and Los Angeles. He also keeps their operations isolated from the Danish head office, so as not to impede their freewheeling creativity.

24:08Plaugman and Chicolela urge these design teams to go beyond the Lego brick play system that's defined the company for decades. Plaugman's aim is for Lego to seek out so-called blue oceans, which is management speak for markets that are so new and unexplored that the waters haven't been stained red with the blood of business rivalries. This was becoming a fashionable buzzword among business thought leaders as the world changed with the growth of the Internet, and innovation was seen as the be-all and end-all of all business strategy. Then, in the clearest signal yet that Lego is letting go of its past, Plaugmann kills Duplo, the oversized brick sets that Lego aims at preschoolers.

24:50Though its sales had somewhat plateaued in recent years, Duplo is hugely popular and the first step that millions of children take into the Lego universe. In Germany and the Netherlands, Duplo is nearly as big a brand as Lego itself. But Plaugmann is terrified that electronic gadgets are taking over from traditional toys, and he wants to show the world that when Lego says it's changing, it means business. He reworks Duplo as Lego Explorer. Duplo's familiar Rabbit logo is ditched, to the horror of Lego's veteran design team. The Lego Explorer line also radically moves away from brick building. The line adds toys like the Explorer Music Roller, a plastic stick with wheels that plays music when a child pulls it along the ground.

25:39These new toys aren't designed for kids to build themselves. They exist to compete directly with similar battery-powered playthings from Mattel's Fisher-Price brand. In their relentless pursuit of innovation, Plaugman and Chicolela adopt a forward-thinking, there's no such thing as failure, approach. Lego buys a tech startup to help it create a product called KidPad. It's a high-tech toy crossed with a video game where playing with the physical bricks changes what happens on screen. But after three years and millions of dollars of investment, that initiative is shut down without a single KidPad having made it to the shelves.

26:20In the fall of 2000, Chico Layla flies in to review the failed project. The executive in charge of KidPad is terrified he's about to lose his job. But instead, Chico Layla is relaxed about the losses. The way he sees it, innovation can't happen without making mistakes. He spends just 30 minutes reviewing what went wrong before declaring they're never going to talk about KidPad again. Fail fast. Learn faster. In startup land, that's the gospel. Of course, Lego's no mere startup. KidPad crashed, burned, and cost a fortune. But Chico Layla didn't flinch. No post-mortem, no blame game, just what's next?

27:06That's the real takeaway here, because that's how innovation works, right? Not every rocket makes orbit, but each one can be an important step when you're teaching yourself to fly. The emphasis is on moving forward to create the next great LEGO revolution.