Source/Derui Consulting
Serious strategic mistakes are often the failure to win positive and sustained victories. Some managers make this mistake because they are addicted to constantly looking for new explosions.
-The Flywheel Effect, by Jim Collins.
The COVID-19 epidemic has accelerated the pace of the world entering the Uka era. Various geopolitical conflicts and economic and trade frictions have become frequent visitors in news reports. A new round of technological innovation represented by 5G, Internet of Things and artificial intelligence is heralding the arrival of a new economic era. Undoubtedly, all people, all enterprises and all countries are facing unprecedented unknowns and challenges together.
Jim Collins repeatedly emphasized in "The Flywheel Effect": "If you really build your flywheel and have been focusing on renewal and extension, then your flywheel will last for a long time, even ensuring that your organization can successfully cross a major strategic turning point or turmoil."
For those enterprises that understand their core competitiveness and the underlying structure of the flywheel, every transformation under the crisis is an extension and expansion of the flywheel core.
Imagine that there is an internationally renowned brand that has promoted the process of the industry and its products are all over the world. After its glorious peak, it faces three dilemmas: the expiration of core technology patents, the price competition of competitors and the impact of the tide of the times on the whole industry. How can it make its own ship full of past glory sail to a new channel?
This company is the well-known Lego.
Nowadays, we can see all kinds of "Lego towers" built by children in the most eye-catching position of most toy malls, but in the 1990s, the confused Lego struggled in the crisis until it recognized the core of its flywheel.
What did Lego do wrong in the crisis? How did you find the right direction? The story of this enterprise can give some enlightenment to many enterprises in crisis.
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Lego was born in 1932. It started as a wooden toy. As early as shortly after the end of World War II, Lego produced the first plastic building block and put plastic toys on the market a few years later. However, due to the immature early technology, plastic toys have not been favored by the market. Lego, which has invested a lot of money and time in research and development, has not given up.
After more than ten years of repeated research and development and experiments, a plastic building block with convex and concave holes was born, and children can build their favorite world through imagination. With the introduction of various Lego building block models and blocks, the territory of Lego World expanded rapidly in synchronization with games and reality, and soon developed from Europe to the United States, Japan and Australia, becoming one of the most coveted Christmas gifts for children.
Lego, which successfully transformed, did not stop there. With christiansen, who is only 365,438+0 years old, becoming the new successor of Lego, Lego has expanded its product line for children aged 2-5 and teenagers aged over 65,438+02, and launched a classic product of Lego-Lego themed villain. These Disney Lego characters, Barbie dolls and Transformers fully meet the psychological needs of children for role-playing with animation. Children like to play "play house" with them, and every time they are launched, they can trigger a buying craze.
During the 15 years when christiansen took over Lego, Lego's sales increased eightfold, and it grew into a large toy group with 45 branches and more than 9,000 employees around the world.
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However, after entering the 1990s, the aura of Lego gradually began to dim. First, with the official expiration of the patent of Lego building blocks, manufacturers such as Canadian and China, which have long been eager to move, began to mass-produce various styles of Lego toys, and quickly eroded the original market of Lego by relying on lower prices. Although Lego filed a lawsuit on the grounds that other companies violated the trademark law, it failed to get the support of the court. It can only watch helplessly as the market is eroded by competitors and dragged into the price war.
To make matters worse, since the 1990s, the video game market has started to grow at a high speed and entered a prosperous period. People have made simulated video games to replace old building blocks and toys, so that children can experience the fun of building cities, keeping pets and playing at home. In contrast, Lego bricks not only take up a lot of space, but also require children to spend a long time patiently splicing one by one. Naturally, it is difficult to attract children's attention more than more exciting and "cool" video games.
In the face of trendy video games, Lego's building blocks have become outdated and childish toys. I have to say that the era of plastic building blocks has passed.
With its keen market insight, Lego was not indifferent to its own situation, and the top management quickly realized the crisis faced by Lego. To this end, Lego began various "self-help attempts". First of all, they opened up baby toy product lines and robot suit product lines, but there was no obvious effect. Later, the radical Lego directly dug up the Danish national treasure audio B&B&; O's well-known designer, who intends to subvert himself, launched the video game Lego 3D Factory on the basis of toy building blocks, and even invested heavily in developing 3D digital building block games.
At that time, Lego explored everywhere under the wave of Internet bubble, and tried educational services, TV series, department stores, theme parks and tablet computers, and tried the core businesses of Google, Disney and Netflix. All these actions seem to have opened up new markets for Lego, but all these projects ended in failure without exception.
Jim Collins repeatedly reminded in The Flywheel Effect: "A serious strategic mistake is often the failure to win actively and continuously. Some managers make this mistake because they are addicted to constantly looking for new explosions. "
Lego at this time is a typical representative. In the years of blindly trying to innovate, the number of new products launched by Lego has tripled on average every year, while maintaining the average speed of adding five new themes every year. Some of these products have achieved good sales performance, but most of them not only have a mediocre response, but also have a great impact on the sales of the original classic products.
Lego's innovation lies in rapidly pushing a flywheel that has been rotating in one direction to another direction, and repeatedly interrupting the flywheel, which makes the flywheel always lack the inertia of continuous rotation.
This huge toy empire, like a blindfolded behemoth, is trying to drive every part of the body forward, but to outsiders, it is just spinning in the same place. By 2003, Lego's cash flow had become negative $654.38 +0.8 billion, and all this was because Lego mistakenly regarded the flying wheel structure as a new product and a new business.
Jim Collins emphasized: "Organization managers need to clearly understand that the underlying structure of flywheel is not a single business production line or business activity."
Obviously, Lego management at this time did not realize this.
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Fortunately, however, Lego, which was on the verge of bankruptcy, welcomed a new leader, Jorgen Knudsdorp.
The young man from McKinsey pointed out the new direction of Lego rebirth after taking office. He once said: "For Lego or other such companies, we can enter an innovative peripheral field every five years. But unfortunately, Lego has entered five stores every year in recent years. This rhythm and pace can't make the organization really digest these innovations, thus bringing benefits. On the contrary, cost and management problems emerged one after another, which almost dragged the company down. So what Lego has to do now is to return to the core. "
On the premise of returning to the core, Lego finally found a real flywheel-not a new product, not a follow-up internet, but a unique game system and a strong supply chain management capability all over the world.
Can toy manufacturers, which are cheaper than Lego, achieve an annual output of tens of billions of toy blocks while ensuring consistent quality? I can't.
Can a toy brand younger than Lego ensure that local supermarkets in Europe, America, Asia and Oceania have sufficient products when a hot suit appears? I can't.
Can those imitators of Lego devote enough enthusiasm for research and development like Lego, and try for more than ten years, just to ensure the friction of millimeter precision at the splicing of building blocks, so that children can easily and comfortably splice? I can't.
Can those video games build a simple, practical and fun game system that can be easily understood and used by any 2- 14-year-old child? I can't.
And these are the lasting vitality sources of Lego.
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Back to the core, Lego began to drastically reduce the product line with no development potential, and at the same time stopped producing building blocks that only satisfied the artistic imagination of designers, but were not really loved by children.
Under the influence of previous innovative thinking, Lego's building block parts have expanded to about10.3 million, many of which seem exquisite, but they are totally out of line with children's thinking logic. In the end, only about 7000 kinds of parts were retained.
Lego, which has been "slimming", has also sold the theme park that the founder likes very much, from product direct selling to IP licensing, collecting the opinions of downstream dealers, conducting a large number of behavior tests for children of all ages and collecting the opinions of users, observing and recording which links are exciting and which links are boring when children assemble Lego toys.
Not only that, Lego also strictly controls the research and development cycle on the original requirements of building block quality, forcing designers accustomed to "free and loose" to ensure that the design is completed on time through the cooperation of the whole project team and the mobilization of project resources.
Through unremitting efforts, the product development cycle has been shortened from the previous three years to half a year, which greatly ensures that Lego's new products can meet the latest trends of the year and improve the probability of explosive products.
The Lego design team not only invested a lot of money in R&D on the quality of building blocks, but also went to the fire station, prison and city hall for field visits, adding many interesting and vivid details to these theme building block sets, restoring the real scene to the maximum extent, and making Lego's urban series change from a new product to an eternal classic. Until now, it is still one of the first choice Lego startup disks for parents.
While updating its products and game systems on a large scale, Lego also began to upgrade its supply chain, adjust the inventory ratio of various products in the warehouse, and ensure the right to speak among dealers such as Wal-Mart and Toys R Us.
At the same time, in order to ensure the profit of Lego products, Jorgen Knuderstop put forward the famous "13.5% principle": from now on, the sales profit rate of each Lego product should not be lower than 13.5%, otherwise the product will be eliminated.
Such a simple, clear, executable and measurable standard is more effective than dozens of rules and incentive schemes, and avoids the deformation of the company's strategy in the top-down transmission. Under this principle, the cost of production, storage and transportation should be considered in designing each product to ensure that the final sales profit rate exceeds 13.5%. This approach will help Lego upgrade its supply chain and cut more unnecessary costs.
Today, Lego can earn hundreds of millions of euros a year only by relying on IP authorization. NXT, a programmable building block in the new era, is also deeply loved by children, and the second generation has been launched so far. 20 1 1 launched a new brand, Lego NINJAGO, which not only helped Lego achieve a substantial increase in profits and sales in that year, but also promoted the word-of-mouth and product popularization of Lego among post-millennial children. Lego, which ranks among the top 500 in the world all the year round, surpassed Mattel to become the largest toy company in the world in 20 12, and it is still full of vitality at the age of nearly 100.
Looking back on Lego's history, it has experienced turbulent World War II, rapid development of science and technology since the 1960s, the Internet bubble in the 1990s and the decline of traditional physical industries, and the global financial crisis in 2008 ... Lego's customers have gone from standard middle-class children in the 1960s and 1970s to XYZ generation in the 1980s and 1990s, and then to millennials who have already become Internet aborigines.
Technology is changing, ideas are changing, and the economic environment is also changing. The only constant is Lego's profound understanding of the flywheel core and its determination and persistence in pushing the flywheel again and again.
For those enterprises that are catching up with the market and blindly believe in new products and new business miracles, the development of Lego may help the company understand the core and essence of flywheel from another side.
Even in the face of turbulent external environment, don't forget what Jim Collins often emphasized behind the flywheel case: "Before deciding to eliminate the existing flywheel, you need to understand its deep logic. Never give up an effective flywheel that is sustainable, renewable and expandable. "