Analyzing The Case Of Lego: Impact Of Smart Connected Products On Business Models. (70 Characters)

Introduction to Business Models

What Is The Challenges Research Ongoing Opportunities?

According to Chesbrough (2010), business models cannot be considered as a static business approach but it is actually less durable and it is often found to change with the changing technology. Considering the increasing impact of artificial intelligence and better communication network, the business models are found to suffer from a worse situation. Many companies have to re-think about their business model and re-design it in order to meet the ever changing market situation and also to comply with the advancing technology.

The aim of this essay is to analyse the situation that lead to the toy manufacturing company Lego, Denmark to re-think about its business model. It has been noted that in the past few years the revenue of the company decreased by 5% because of the decreasing demand of the toys over the globe (Foss & Saebi, 2017). However, in the market of United States and Europe, the sales have been found to increase a bit. The major reason behind the declining business can be easily regarded as the increasing impact of the technology and development of the smart connected products.

In the view point of de Jong and van Dijk (2015), business model has been referred as a plan that is focused on generating revenues and making a profit. The business model actually defines and explains what particular products and services the particular business plans in order to manufacture and market its products, how the planning is done for the business calculating the expenses to be incurred in doing so. Disruption in the business is the term used to refer to the innovative approach that a business proposes in order to create a new market and increase the value of the products that it sells. According to Johnson, Christensen and Kagermann (2008), disruption innovation has been termed as the most effective business idea that creates the most influential impact on the business in the recent century.

The toy and play set manufacturer, Lego, aims at providing an innovative and enjoyable experience through the toys that they manufacture. In the early days, the company used to create wooden and simple toys for the children. With the evolution in time and technology, Lego started manufacturing automatic toys as well and the company expanded becoming one of the largest toy manufacturers in the world (Lego.com, 2018). Considering the increased demand of the products, the company decided upon change in its business model and pursued such paths that could easily leverage its brand names. In fact, it has also been seen that Lego was associated with various television channels, theme parks, motion pictures as well as video games (Lego.com, 2018). The target market of the toy manufacturer has always been the children and thus the business model has been aimed to target the children. Lego’s direct physical consumers are both the retailers and the online sellers (Aversa & Haefkiger, 2016). The products are sold in chain stores, online stores, supermarket and departmental stores and also in independent toy shops. US being the largest market for the toy manufacturer, it has a long lasting relationship with the large retail chains like Wal-Mart, Toys R US and Target to be specific. Considering the change in the pattern of preferences and increasing demand of innovative products, this brand has also been found to include a set of its own third party franchise in order to diversify its product portfolio (Zhang et al., 2014).

Re-thinking Business Models: Lego Case Study

Reading Zhang et al., (2014), it has been found that the advancement of the information technology has revolutionised the business models of various products. The mechanical, electrical or other such complex products are being connected with smart connected products like sensors, data storage, microprocessors that actually benefitted the wireless connectivity (Tan et al., 2017). These features have definitely created an exponential opportunity for new functionality.

Considering the increased impact of technology and innovation in every field, Lego has been found to re-build its business model because the company has been found to reach near bankruptcy. The company has been found to try to improve its business by adding new toys to its list and focusing on the online content and film franchise. However, the approaches made by the company did not result in effective outcome and that the company faced a high level of bankruptcy in 2004 by considering the new ventures like the films and the new toy lines (Aversa & Haefliger, 2016). The drastic changes in the business situation have resulted in falling of the business first time in 13 years and thus, an approach to simply its business operation. This situation eventually leaded to cutting of around 1,400 jobs that is almost 8% of the entire work force of the company globally.

The changing nature of the products due to the advent of the smart connected products has definitely disrupted the value chain proposition of the business as well. This made the existing companies to re-think and design their business models as well as the products because there has been a creation of completely new industry due to this nature of the product manufacturing (Dong et al., 2015). This is turn has also resulted in a transformation of the traditional business partners and the suppliers.

The challenges related to the increased demand of the consumers with respect to the change in the demand and preferences can be overcome by the set of capabilities. The engineers and the graphic designers at Lego have the capability of improving the business model. In addition to this, the availability of the resources required for the manufacturing of product is also required for the betterment of the business model (Zott, Amit & Massa, 2011). By this means the company can be able to meet the demand of the market and fight against the increasing competition in the market.

Smart Connected Products and Disruptive Innovation

Conclusion

A detailed analysis of the impact of smart connected products on the business models of an organisation has been carried on in this study. It has been found that the Lego, the toy manufacturer failing at providing smart connected product has resulted in the decline of the sales of the product. This is a clear indication that the company should be considering a change in their current business model in order to support the changing preference of the consumers. With the overall analysis, it can be easily recommended that Lego can easily include the concept of smart connected accessories in its products. Thus, product differentiation and product development is the only means of fighting against the increased competition in the market.

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