History Of The Establishment And Development Of LEGO Company
The LEGO company is nowadays known to millions of people around the world mostly for its plastic bricks that for many generations have inspired the imagination of children and adults. The development of LEGO is universally recognized as one of the greatest Danish management successes transforming and realizing an idea until it becomes a contemporary icon. The idea and the essence of LEGO are represented by the notion of good play aiming to create toys that stimulates as much as possible the imagination, the creativity and the desire to build of children. Yet the idea was born, out of pure necessity, in the mind of a master carpenter in a village in Billund, during the agricultural crisis of the early thirties.
Ole Kirk Kristiansen was one of ten children of a poor family born in a small village in the south of Jutland. Soon after finishing school, as many other boys of his age he started working as a carpenter apprentice for his older brother. At the time he obtained his certificate, the carpentry sector was saturated and Ole Kirk was obliged to move abroad to find a job, first in Germany and later in Norway. In 1916 after his marriage with Kirstine Sorensen, they decided to move back to Billund and thanks to its savings he bought the Billund Maskinsnedkeri og TOmreforretning, the Billund Carpentry Shop and Lumberyard that he used as home and place of work.
Billund is located in the centre of the Jutland Peninsula, a small village populated with big and medium agricultural farms for which Ole Kirk used to build houses and furniture. Soon after his return to the region, Europe and in particular Denmark were hit by the bank crisis of 1929, provoking a collapse in the agricultural production that obliged farmers to sell their products at unreasonable prices. The crisis caused serious repercussions on Ole Kirk’s business since farmers represented his main customers. Therefore, he had cope with a slow-down in the demand of furniture and building of houses that almost cost him bankruptcy and eventually in 1932 to save what was remaining of its company he had to fire all his employees.
At that time the country was guided by a social democratic government that imposed bans and raised customs barriers on a number of products in order to protect Danish industry and to save jobs. To help boosting production in Denmark new associations started to raise such as the Danish Workers' Association; precisely one of them advised Kristiansen to start a production of wooden toys, since the largest European manufacturer of toys, Germany was experiencing difficulties to export. The carpenter began to build dressers, cabinets, tables, stools and many other pieces of furniture in wood but this time in miniature. In addition to these, he produced little cars, wheeled ducks, baby carriages and so on. The first customers were his neighbours, therefore the quality of his craftsmanship must had been excellent. He uses knotless beech wood, air-dried for two years, and the furniture was milled, sanded, polished and painted 3 times, as if they were real pieces of furniture. As Ole Kirk use to say, the children deserved the best and he was guided by the principle that “every detail matters and only the best is good enough. ” To this day, this motto is a still a guiding value for LEGO and the promise was kept the toys were produced in large quantities for a distant clientele.
In the first year, Ole Kirk was able to collect only 4, 000 kronor, which was far from the amount needed to keep the business going. Suddenly on the brink of bankruptcy and unable to pay his bills, he kept going around Jutland to sell the toys to traders in the region. In those early years, he was paid with butter, eggs, cheese and flour. In 1932 the yo-yo had become a very popular toy, Ole Kirk began to produce thousands of them. They sold well and this allowed him to give work to the unemployed around Billund. In 1934 the production of toys started to expand and Kristiansen felt the need to give a name to the business. He thought that the name should be linked to the idea of good play, leg gotd in Danish means play well, furthermore lego in Latin means assemble, put together. Although the production of brick did not start yet, Ole Kirk found the perfect name for its company.
One of Ole Kirk Kristiansen's most important collaborators was his son, Godtfred Kirk Christiansen, who devote himself completely into toy production. By the age of sixteen he was responsible for keeping the accounts and contributed to the manufacture development. While the business started growing fast and the company was making profit for the first time, once again, the political situation in Europe had a great impact on the Kristiansen family. The German invasion of Poland in 1939 tuned out to be, commercially speaking, a very good news for the small factory in Billund, all of a sudden, the large toy manufacturers in Germany stopped operating, and LEGO could take a larger share of the market. Unfortunately, in March 1942, the LEGO factory was destroyed by a fire, probably caused by a short circuit. Only the warehouse was saved, in addition to the family's private home. From one day to the next, production stopped and the insurance did not cover even half of the damage. Godtfred and Ole Kirk began to travel around Denmark in search of a new factory, but the founder was reluctant to move from Billund. Finally, he persuaded the bank to grant him a loan to build a new, larger plant in Billund.
By the end of the year the factory was ready, and production began again. The reopening of toy sales was surprisingly quick, certainly also thanks to the fact that at this point the German competitors were out of the game, and that after so many years of activity, relations had become established with sellers from all over Denmark. In the year following the fire, forty employees worked at the Billund plant. When the war ended, it became difficult to get wood from Sweden, so Ole Kirk started looking for other raw materials to use for production. In 1947, a representative of Windsor, a British mechanical engineering company came to Copenhagen to demonstrate a plastic moulding machine. To explain the advantages of this new material to those present, he had carried in his pocket some plastic bricks produced by the English company Kiddicraft.
The bricks were developed by the Englishman Hilary Fisher Page, who founded the toy company in 1932. They were square, with protrusions on the upper face and recesses on the lower face, so that they could be mounted on top of each other much better than the old wooden bricks. Over the years, Fisher further developed the bricks by adding grooves on the sides, which offered more grip of the mounted structure and expanded the assortment. This improved product was patented in 1949 and sold in cardboard boxes with a drawn image of a child playing, so as to show how bricks were used. However, his efforts were not matched by a major commercial success in Great Britain. Ole Kirk bought the plastic processing machine although his son was very sceptical as he thought it was a very high-risk investment and no one could know if the plastic toys would be successful. The plant cost him SEK 30, 000, which was 50 per cent more than the company's total profit in 1946. Ole Kirk was convinced that the new material offered many opportunities and even though the building brick was invented by an Englishman the founder of LEGO had the ability to help children see in them a whole world of creative possibilities.
As the history will tell, the purchase of the plastic processing machine turned out to be a very good investment. The company produced, among other things, a model of the Ferguson tractor packaged in an assembly box. This new toy sold twenty thousand units in its first production, an absolute record for LEGO. Yet Godtfred was still not convinced about the future of plastic toys. In 1949, in an interview he said: “You can make pretty and chic things with plastic, but the safest material is still wood”. Ole Kirk reflected on the plastic bricks offered by Windsor's man and decided to start the production of a slightly modified version of the bricks: different thickness and flat protuberances, but otherwise identical to those of Kiddicraft. That same year, LEGO launched the so-called Automatic Binding Bricks offered in a plastic box with illustrations explaining how to use them for construction. Nevertheless, more than 90 percent of the sales were made up of the good old wooden toys of the past.
The company was doing very well, LEGO's turnover now stood at SEK 1. 2 million, and there were about eighty employees in the plant. In June 1950, Ole Kirk Kristiansen appointed his 31-year-old son Godtfred as Deputy Director of the LEGO. He, on the other hand, retained the role of administrative director and president. The following year, Ole Kirk had a cerebral haemorrhage, from which he would never recover completely, he lost his energy, often felt unwell and was absent from work. Godtfred took over the full direction of LEGO. To make the product more Danish and understandable, he changed its name to LEGO Mursten (“LEGO bricks”), selling them in a box with a photograph of his sons Kjeld and Gunhild playing with plastic bricks. But the product still didn't take off. Godtfred hired two sales representatives with the sole task of going around selling LEGO Mursten, explaining the potential of bricks to the shopkeepers. Their poor results convinced Godtfred to use part of his time to try and sell them in person to retailers, and this allowed him to see for himself the importance of the way the packaging was displayed in shops and department stores. So he came up with the idea of presenting the buildings already assembled, so that the public could see what could be done with the bricks. In 1952, Ole Kirk Kristiansen suddenly intervened in the management, deciding that the Billund plants should be expanded again to further increase production capacity. But liquidity was scarce, and according to Godtfred's calculations the investment was greater than LEGO could afford. “I said to Dad, let's start with a third of the sum”. But shortly afterwards, he raised his head and said: “Here I decide what you build; you take care of finding the money !”. Godtfred, resentful, resigned, in protest at his father's decision. But his resignation did not last long. Back at LEGO, Godtfred went to Norway, where he had some contacts, and established production there for the Norwegian market. That foreign expansion was not planned, it was decided only in response to the need to sell more, so as to make cash and be able to afford the investment in new factories. This was the last major decision taken by Ole Kirk Kristiansen. In the years to come, the founder of LEGO would keep more and more to his side, weakened by other brain haemorrhages, one of which would then kill him, in 1958.
In the spring of 1954 Godtfred was increasingly concerned about the future, sales were going well, and there were now 140 employees at LEGO's plant, but German manufacturers had come back with new products at lower prices, thanks to mass production aimed at a much wider market. Before the war, German manufacturers covered 90% of the Danish toy market. At the same time, they continued to copy them, so that whatever new product LEGO developed, within a year the Germans launched an identical one on the market, but at a lower price, and often with a lower quality. Godtfred's concern was that if LEGO did not succeed in developing an international product which was difficult to copy and which lent itself to mass production, its competitors would sooner or later effectively drive it out of the market. On his way back from a toy fair in London he met Troels Petersen, who had just been appointed purchasing manager at the toy department of Magasin du Nord. Petersen made some reflections about the assortment: “There is not a single toy that is based on a real idea or a well-thought-out concept, not a single product that was centred on a gaming system”. Children are offered ready-made solutions but they need something different that could strengthen their imagination and creativity. That conversation prompted Godtfred to rethink what the ideal characteristics of a toy were for children all over the world. In the following months, he drew up a list of “LEGO requirements” that in his opinion the products of his company would have to present in order to have a future:
- The toy must be small in size, without restricting the free expression of fantasy.
- It must be affordable as far as the purchase price is concerned.
- It must be simple, durable and at the same time offer a wide range of variations.
- It should appeal to children of all ages and of both sexes.
- It must be timeless, i. e. a classic, which does not require renewal.
- It must be easy to ship. Godtfred reviewed the LEGO product range, which included around two hundred products, and found that the only one who actually met them was the LEGO Mursten.
At that time, however, bricks accounted for only 5-10 percent of turnover. Godtfred therefore decided to find out how they could be developed. After almost a year of experimentation, they prepared a new assortment of bricks, which was launched under the name of LEGO System iLeg, twenty-eight different packages, eight cars, plus a series of other elements, to form an overall structure in the form of a city. To complete the work, a billboard to be laid out on the ground or on a table, on which children could place houses, trees, road signs and cars to be driven following the same traffic regulations decided by the Danish Road Safety Council. The novelty was received with suspicion by many toy dealers. The idea did not convince them. The largest retailer in the province, Holger Sørensen of Odense, said: “I don't believe in that stuff. These LEGO people are out of their minds. Nothing will ever come of it”.
But instead, the idea appealed to both children and their parents. The sale of bricks soon took off, and Godtfred introduced new system models with more variation possibilities, while marketing increased significantly. Godtfred, unlike his father, was convinced that marketing was a decisive factor. Ole Kirk, on the other hand, was of the opinion that the products would sell themselves, as long as they were good enough. This certainty was probably dictated by the fact that Ole Kirk was more of a craftsman than a seller, and therefore focused mainly on the quality of the product. Godtfred, on the other hand, firmly believed in the need to explain to the public all the possibilities of LEGO bricks and to get the message across to both children and their parents. That's why, in 1954, LEGO hired its first advertising manager, Henning Guld, who developed magazine advertising campaigns aimed at retailers.
The newfound success in Denmark prompted Godtfred to look to the German market. One of his acquaintances, Axel Thomsen, who owned a doll furniture factory, immediately welcomed the iLEG system with enthusiasm and was willing to sell it in his country. Only the bricks were introduced, but things did not prove to be easy as Germany was generally regarded as the home of toys. This was not enough to stop Godtfred from proclaiming that if we succeed in conquering Germany, we can conquer the world.
In 1956 Godtfred and Axel Thomsen left for Hamburg, taking LEGO to Germany. They made agreements with selected stores that accepeted to showcase the LEGO system. Godtfred wanted the product to be displayed only in specialist shops and department stores so that customers could see what it was about. The German campaign was so successful that within a couple of years LEGO started selling more in Germany than in Denmark. Soon, the LEGO system with its pedagogical aims and its many creative activities conquered part of the market in several European countries. In 1957 LEGO expanded in Switzerland, Austria, the Netherlands and Portugal with a turnover that doubled almost every year. This success was clearly partly due to the economic boom of those years. The Marshall Plan had contributed to the reconstruction of factories and industries after the Second World War and the new technology that had led to increased productivity. The wave of prosperity paved the way for new conceptions of life. In this context, LEGO offered the possibility of building new dreams in all their variations. When LEGO finally reached its great turning point of modular blocks, Hilary Fisher died, his company, Kiddicraft was sold several times and many years later it was bought by the American company Fisher-Price. Already at the end of the 50's LEGO contacted Kiddicraft to evaluate if the company had any objections to the LEGO bricks, contrary to any expectations Kiddicraft response was negative since it had not been very successful. Later, in 1981 LEGO bought from the Fisher family the rights to the Kiddicraft bricks.
LEGO was having an enormous success at the international level but an issue concerning the bricks remained open, they did not remain well fixed to each other and the creations continued falling apart and could not be lifted. To this end, a new working group in an attempt to devise a concept of systematic play with plastic bricks and they found that the bricks had a better clutch power with tubes inside that could entail a whole construction system with endless possibilities. In 1958 LEGO registered its basic patent and in the following months, further patents, trademark registrations and design protections were registered in 47 countries. The new international scenario urged a structural change. Godtfred understood that the organisation after the growth phase was becoming too large for him. Until then, many decisions had been made during informal meetings but now there was a need for external help. So an export manager, a marketing manager and a corporate lawyer to take care of many other legal aspects were hired.
This new presence within the company made it necessary to clarify the way in which the company's collaboration and culture functioned. Therefore, the 10 LEGO rules were drawn. In 1960 the company was still producing wooden toys, but a fire that destroyed the wooden warehouse convinced Godtfred to definitively stop the production of toys made of this material and focused exclusively on plastic bricks. His younger brothers strongly opposed to this choice, in result Godtfred decided to buy their shares of the company. The decision to produce exclusively plastic bricks resulted in an expenditure of SEK 5 million in advertising campaigns. Godtfred firmly believed in marketing and advertising as the means to share the idea and work of LEGO.
In 1961 LEGO expanded into the United States, initially through an agreement with Shwayder. Lego would supply the moulds, machinery and other equipment, while the America company would provide the production and sales. The Billund factory was finally expanded, Godtfred bought trucks and planes, and an airport was built to expand into new markets and to allow customers to visit the village.
