Did you know the biggest toymaker in the world almost went broke?
From their inception in 1932, till the end of the 20th century, Danish toy manufacturer Lego never once posted a loss. From the beginning of the 2000s however, they began to notice a marked downturn in income. “We’re on a burning platform,” said newly appointed CEO Jorgen Vig Knudstorp, speaking to colleagues at the time, “We’re running out of cash… [and] likely won’t survive.” An internal audit revealed that the company had failed to make any significant innovations for over a decade and that sales were falling by 30% every year. By 2003 they were $800 million in debt, and fresh out of ideas.
What Lego badly needed was an inspired new direction that could change the company’s trajectory. A new product that would revive its fortunes. But how would Lego develop this new product, if they had failed to make any significant innovations since the early 90s? Turns out they didn’t just need a new product; they had a bigger problem.
There is more to work, than just work
One of the biggest obstacles to innovation is time. Or rather, the lack of it. We have all heard that old yarn about, “I would have done XYZ, if only I could find the time…”. We operate on the assumption that innovation is something that happens outside of regular workings hours, an extra-curricular activity.
But successful organizations today have realized that innovation can and should be made a part of the daily routine. It is difficult to allocate headspace to come up with new ideas and finding creative solutions to problems when all our energies are dedicated to dealing with the day-to-day. This is why companies like Google, 3M, Ericsson, and others, encourage employees to spend a part of their day away from daily responsibilities, learning something new and working on their own ideas.
Surfing with Patagonia
California-based outdoor clothing company Patagonia has found a unique strategy for fostering innovation at work. Sometimes described as founder Yvon Chouinard’s Let My People Go Surfing policy (the title of his memoir), Patagonia actively encourages its employees to set aside time every week and indulge in outdoor activities such as surfing, cycling, or hiking. The logic behind the move is two-fold—first, as a retailer of outdoor clothing, this gives employees a chance to test products and generate quality control feedback; second, by setting aside time, Patagonia is helping employees think about their primary business and how customers use their products. Taking time away from the desk to think about the product from new perspectives drives innovation.
The Patagonia way of doing business has worked wonders for the company, reflected both in the bottom line and in job satisfaction. In the period between 2008- 2012, Patagonia tripled its profits, declaring an income of $600 million in 2013. By 2019, this had almost doubled once again and they were making roughly $1 billion in sales per annum. Patagonia also has some of the lowest employee turnover rates in the U.S, less than 4%, which is remarkable when you consider that the national average is above 20%.
Stop, collaborate, and listen
Most recent literature about innovation highlights collaboration as a key. Why? Because bringing together employees with varied specializations, and encouraging them to collaborate, leads to innovation. If employees are too siloed in their function, they won’t have access to perspectives that other members of the organization might have. Collaboration can advance innovation by:
- Increasing the likelihood of associations between ideas. Diversity of perspectives will lead to a diversity in ideas.
- Speeding up feedback, and refining ideas. You can have people attacking the same problem from different angles.
- Expanding your network. You meet a more diverse group of people to seek advice from.
Collaboration does not require you to make big changes in your organizational structure. You can create an atmosphere of collaboration by encouraging your employees to accept input from diverse sources. Communicating with colleagues from different teams, sharing your ideas with them, asking for feedback, can all lead to collaboration.
For example, Swedish creative agency B-Reel has a policy that requires team members from their five global offices to spend time at their research and development office in Barcelona. During their time there, they work on a custom brief designed to address any challenges that their teams back home face.
The Three Teams Approach
One of the fastest-growing companies in the U.S. today is 3M. A multi-national, conglomerate, 3M has a hand in everything from home improvement to healthcare and more. They have in the past received the National Medal of Technology (the highest recognition of innovation in the US), they regularly feature in the top 100 ranks of Fortune 500 companies and average a gross margin return of over 50%, most years. What is their secret? A strong policy of collaboration, also known as the three teams approach.
3M divides its development divisions into three teams—scouts, entrepreneurs, and implementers. Every member of the team (separate from their formal job) adopts a secondary role, relating to their strengths or interests. Scouts study the marketplace to understand where a need can be addressed. Entrepreneurs come up with product prototypes to address this need. And implementers, test the product and make it ready for commercialization. Temporary teams are then created where a scout, an entrepreneur, and an implementer, come together to work on a specific product, taking ownership of everything from ideation to delivery. At the end of the project, the team disbands and its members are redistributed to other projects.
In the words of Matt Scholz, corporate scientist and Scout at 3M, the genius of the three teams approach
“…lies in its simplicity. Bring smart people together, with diverse backgrounds and areas of expertise, and let them play to their strengths and passions. You are not forcing everybody to do the same thing.”
Curiosity Didn’t Kill the Cat
When Lego CEO Vig Knudstorp confessed to his colleagues that Lego was a “burning platform,” they were desperate for ideas. They attempted to diversify their portfolio by investing in theme parks, jewelry, a clothing line, and almost went bankrupt in the process. In their time of desperation, Lego did what they should have been doing all along. They began to ask questions.
Questions about their product, their market, their customers, and more. Brick by brick (pardon the pun), Vig Knudstorp began questioning the foundations on which Lego had built its business, and found that there were answers the company had never considered. The most significant of the questions Lego asked was—why does a product designed to be unisex, and marketed to all children, have so few female customers?
Boom. The lightbulb went on.
In 2011, Lego had a customer base that was 90% male. To address this imbalance Lego’s Global Insights group undertook one of the largest ethnographic studies of children around the world, ever conducted. The result of this study was a toy line called Lego Friends, which was designed specifically for girls. Lego Friends became a smashing success, expanding Lego’s market share and changing the company’s fortunes. Revenue began growing at 15% percent year, in no small part due to the popularity of this new line of toys, and Lego was able to escape being put into administration.
Asking questions leads to creativity and is essential for developing an innovative mindset. Disruptive solutions require a clear understanding of frustrations, gaps in knowledge, pain points, needs, and desires. You can only gain this understanding if you are unafraid to ask questions.
Foster Intrapreneurship
It has been observed that as companies grow, they begin to get set in their ways and deprioritize innovation. Regardless of whether innovation was core to the company’s DNA as a start-up, both investors and leaders will become more conservative and risk-averse as they expand. The thinking being that the bigger they are, the more they stand to lose.
Being cautious is good, but sacrificing innovation at the altar of safety will end with you losing your competitive edge. Pan Am, My Space, Blockbuster, and countless other bygone organizations stand testament to this fact. Lego came close to joining this corporate graveyard.
This is why companies today are looking for ways to invest in innovation, without taking big risks. One such solution is to encourage employees within the organization to flex their entrepreneurial skills, with managerial oversight, and let them take ownership of projects.
What is intrapreneurship?
Intrapreneurship develops an entrepreneurial environment from within an organization, allowing employees the freedom to experiment and innovate. Companies such as 3M, Virgin, and Intel are known for allowing their employees to spend time working independently on ideas and projects.
Such companies make it a point to let their employees play around with new ideas at work. They are encouraged to use some part of their workday to develop personal projects. Intrapreneurship embraces the idea of failure and understands that mistakes can lead to learning. They make it a point to hire people who show an entrepreneurial spirit and promote leaders who are not afraid to make decisions and take risks. The intrapreneurship model can also help large companies take localized risks, with minimal losses but potentially, large profits.
Google 20%
Have you ever seen an ad on Google Search for something related to your search query? Have you ever scrolled through Google News on your phone? Do you, like 1.5 billion other people, have a Gmail account? If you answered yes to any of those questions (and you almost certainly did), then you have Google’s 20% Project to thank.
At the turn of the 21st century, Google began an initiative called the 20% Project wherein employees were allocated twenty percent of their paid work time to pursue their own projects. In a letter to the New York Times, Google’s co-founders Sergey Brin and Larry Page explained this initiative saying,
“We encourage our employees, in addition to their regular projects, to spend 20 percent of their time working on what they think will most benefit Google. This empowers them to be more creative and innovative. Many of our significant advances happen in this manner.”
Gmail, AdSense, and Google News were all a result of the 20% initiative. In 2013, Google unofficially incorporated the 20% initiative into their daily processes across the organization.
Innovation needs Empathy
So far, we have discussed how innovation can be introduced to an organization. Before we conclude, however, let’s take a moment to understand the importance of empathy in innovation. Empathy here means finding out what matters to your employees and understanding their struggles. Or understanding your customers, and addressing their needs. Empathy in innovation is:
- Understanding that your employees need to feel healthy to work happily and empathizing with their needs, which led Patagonia to institute their ‘go surfing’ policy.
- Understanding that one person or team will not have all the solutions, creating successful collaborations at 3M.
- Being able to see the world through the eyes of their tiny customers, leading Lego to develop a successful new line of toys.
- Empathizing with employees who want the freedom to explore their ideas, and helping them achieve personal goals, which was the key to Google’s 20% initiative.
Conclusion
In 2015 the LEGO Group took over from Ferrari to become the world’s strongest brand. It announced huge profits, becoming the largest toymaker in Europe and Asia, and announcing $1 billion in profits. In the US too Lego sales topped $1 billion for the first time, making them the third-largest toy manufacturer in the country. In 2016, sold over 75 billion bricks, and the British Toy Retailers Association voted Lego Toy of the Century. Lego movies have gone on to become extremely successful and Lego video games regularly sell in the millions. Some call the story of Lego’s revival the greatest turnaround in corporate history.
The reason for Lego’s success was its willingness to embrace a culture of innovation. They may have done it differently to Google or 3M, but they committed to developing innovation within their organization and profited as a result. Not every organization is built the same and they don’t always find success in the same way. You need to decide for yourself what the best path to success is. Not every strategy presented here will be suitable for your company. But if you identify the ones that make sense, and commit to implementing them, your organization will begin to see positive changes without a doubt.
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About the Company:
Peterson Technology Partners (PTP) has partnered with some of the biggest Fortune brands to offer excellence of service and best-in-class team building for the last 25 years.
PTP’s diverse and global team of recruiting, consulting, and project development experts specialize in a variety of IT competencies which include:
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