Temple University McDonald Financial Growth Strategy Memorandum

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Briefly, strategy is both an analytic and synthetic thinking process. Analysis is the taking apart of things to see how they work, whereas synthesis (integration) is the putting together of parts to make a whole: one that works. In your papers, I assume professional quality critical thinking and argument presentation skills, including proper in-text referencing of all sources (no plagiarism) AND an ability to analyze a case, find those aspects that you want to focus on (theme), choose the methods, concepts, data and references that help you illuminate your theme, and the synthetic ability to put the pieces (insights, trends, patterns, etc.) together to form a defensible strategy.

Your format of paper is up to your team, but in general there is a six-page limit (excluding bibliography and appendix). Strategy is a defensible and empirically supported storyline about what and why an organization (or person) is going to do this or that in this or that way in the future; not another.

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Memorandum Will The Blocks that Built Lego Crumble, or Stay Together in the Future? To: Niels B. Christiansen, CEO, Lego From: Alex Kwok, Jiayi Fang, Shenlong Chen, Chang Zhu, Xue Ao, Ziyu Lu Mondays 6:00pm - 8:30pm Date: March 25, 2019 Executive Summary Since 2004, LEGO’s has faced certain financial dilemmas, mainly because of low differentiation between the rivals. The positioning of LEGO was to extend the business market by coming up with new product R&D. If LEGO continues to lose market share, the low entry level would take over more sales, decreasing the profit potential for Lego. This analysis explains LEGO’s current situation with the corporation’s advantages and challenges, and also provides an implementation plan. We suggest that Lego launch new products with lower costs to regain lost market share. In order to save on costs, we also recommend that the corporation begin outsourcing the production of its products to third-party manufacturers. Company Overview LEGO Group is a toy manufacturing, family-owned enterprise that was established in 1916 and began making products in 1932. Since then, the company specializes in the manufacture and sale of toys that targeted children as primary customers. Initially, the company was highly profitable but later suffered plummeting earnings on account of the shift in industry trends and high costs of operation. The emergence of new trends in the market whereby children had little time to play affected the company's sales directly. The advent of technology was another challenge that the firm had to counter in the wake of emanating online games and trends that utilized the new technical knowledge to provide leisure for children. General Environment Analysis To grasp a better understanding of the overall industry environment of the Lego Corporation, an analysis of the toy industry for kids aged 3+ has been conducted, highlighting main threats and foreign opportunities stemming from demographic, economic, political/legal, social cultural and technological standpoints. Starting at a demographic standpoint, birth rates across the United States as well as the world have been declining. As a result, there are more and more families without children. Since the 1950s, the global population is continually decreasing, leading to a smaller customer base for Lego. Although sales within the toy industry have grown over the past year, the growth rate is also expected to plateau due to stagnation. Drifting towards an economic standpoint, according to the International Monetary Fund, the global economy will increase together which creates more public wealth. With more public wealth, there is more disposable income, allowing consumers to purchase products for their children. However, the Euro, one of the major markets, is still under debt crisis, which can cause an adversely adverse effect on Lego’s sales. In the political and legal sector, Lego is an international organization, so this company has to face different political decisions at various locations across the globe. For example, the United States has regulations for promoting safer toys for kids, and Lego has to follow those regulations to ensure the safety of the children. Moving onto a socio-cultural aspect, there are increasingly more women in the workforce. There is an inverse relationship between the number of women in the workforce and childbirths. As more women increase to enter into traditional workplaces dominated by men, birth rates inversely decrease. In order to combat an increasing gender-neutral society, Lego has begun to market towards both genders, rather than catering to just one specific gender. This eliminates gender bias and increases gender neutrality. On a technological standpoint, digital games are taking over the market of traditional toys. In order to attract customers and streamline their manufacturing process, Lego implemented innovative manufacturing processes such as 3D printed toys. While Lego has based their entire product line on physical toys, Lego struggles to enter into the video game category and diversify their products. Shifting towards a more global perspective, Lego is one of the biggest toy manufacturers, providing its products in more than 130 countries with approximately 10,000 employees worldwide. The critical markets that Lego deas with are Asia, Western Europe, and North America. The growth rates in those areas are steadily increasing. However, there have been market sales decreases in southern Europe. In addition, more and more people start to prefer modern products for traditional products. So the sales of traditional toys decreased in 2011 in total which affected Lego’s global sales as well. External Environment- Porter’s Five Forces Based on Porter’s Five Forces, the competition is low within the building blocks toy industry. Lego faces little to no competition due to their strong brand image that is synonymous with the quality and durability of their products. However, there is high pressure stemming from substitutes. Substitutes include anything from traditional children playtime activities to toys, computer games, and smartphones. In traditional toy substitutes, there are the Mattel Corporation and the Hasbro Corporations, which earned $5.1 and $3.0 billion in revenue respectively. The Mattel Corporation has product lines such as Fisher-Price, Barbie, Hot Wheels, and American Girl dolls. They are also quoted as the “favored creator of toys based on Disney and Pixar Characters. Hasbro Corporation has product lines that include the Transformers series, Monopoly, GI Joe, Play-Doh, and Playskool. With both corporations, there is more room for diversity as the brand is not tied to the single functional use of their products, such as Lego’s brand image is tied to the act of building on top of blocks. In the way of more modern-day children’s playtime activities, more and more children are beginning to shift towards computerbased games. There is an absence of physical toys in the current market. Last year, toy sales fell 2%, from the $22 billion in the year prior (Ruff). While there is high pressure within the substitutes portion of Porter’s Five Forces, there is also high pressure coming from suppliers as well. Most of Lego’s products are made from plastic. The polyethylene required to produce the plastic requires a huge amount of oil, which is traditionally extremely difficult to bargain. The high pressure continues into the customer base, where more and more of traditional retail space is moving towards an online market, resulting in the consumer have a higher bargaining power due to their ease of accessibility of lower prices through retailers such as Walmart, Amazon, and Target. Although there is little to no competition within the Lego market space, the barrier to new market entrants is low. Lego’s patents have expired, and the resources needed to produce the product itself are easily accessible to anyone who would wish to enter into the market. Internal Analysis LEGO has taken significant steps to increase the sale of toys in the midst of decreasing sales. LEGO is noted to have become the leading producer toys for all categories of children including boys, girls, and gender neutral. The company has been the lead producer of such toys with a market share of more than 60% where most of the children have had an interactional experience with the brick toys (Digital initiative, 2017). The company growth is associated with the CEO’s constant overseeing and individual decision making. The company is also trying to focus on constant creativity for its brick products to keep with changes in trends. Some examples include the corporation expanding into media with their Lego Movie franchise, as well as several digital games centered around Legos. VRIS analysis Value: LEGO’s value is associated with a constant approach to coming up with new products. This can be noted when the founder of Lego, Ole Kirk Kristiansen came up with new products since he became the owner of the company. Since operations in LEGO were critically evaluated throughout the hierarchical structure. The leader who is the owner had to confirm anything regarding certain decisions. This brought about the strict nature instilled in product designs (Andersen, & Ross, 2016). Rareness: The brand loyalty associated with the bricks is one of the rare aspects with regards to the LEGO Company. It is evident that since the company commenced the production of such products, it has created a lasting influence on their target consumers. The company ensured that toy products are an essential memory and implements essential life skills to the users. Imitability: Brick is one of the most critical products for LEGO since it has been produced for a considerably longer time. The company invested a considerable amount in coming up with brick designs. Although there has been a significant investment made in the manufacturing process of the blocks, the patent has since then expired, thus allowing new entrants into the market easily. Substitute: Since LEGO has been in operation for a considerably longer time, the possibility of a substitute coming into the market is minimal. The cost effects associated would directly challenge any company attempting to make a market entry. LEGO has created a lasting impression about its products at a lower cost. Key Issue and Problem The significant problems affecting LEGO is regarding the manufacturing costs. Since operations associated with manufacturing have risen, the company faces higher costs to meet as it manufactures its toy products (Mudambi, & Puck, 2016). When it comes to the unveiling of its new toy products, LEGO is challenged since the new products have not gained a significant market share to earn considerable profits. For this reason, the company would have to adjust its operations to avoid increased production costs. Another issue is the reduction in products popularity for LEGO products. This has negatively affected levels of sales in the market hence resulting in a drop in sales. LEGO is also facing another issue with regards to children loyalty. Since children are the primary target in the toy industry, these companies are competing to produce toys that would catch the child's attention. Without such capability then the company would be compelled to incur losses if it would not appeal to the target customers. The other issue is the constant market trends within the toy market industry. It would be challenging to consider the continuous changes to customer demands on products. This is the most critical issue especially for LEGO Toy Company while it tries to ensure that its customers remain loyal. Unfortunately, since the company faces critical challenges with regards to coming up with new products to keep their customers around, they simply have to keep struggling with other companies to win the available customers. Therefore the toy industry needs are constantly changing hence subjecting the companies to loyalty issues. Children who are the major target keep desiring new products that appeal to them. Once they have acquired a product, their desire for similar products would drop hence impacting on the sales trends for the toy companies. This hence places the toy companies in a critical position to keep inventing products with the aim of meeting customers’ needs. Available Strategic opinions Firstly, LEGO should consider lower the cost of products, which LEGO could find some manufacturer to produce its products. It will cut down the manufacturing cost if LEGO outsources the manufacturing process. LEGO can find a manufacturer which is qualified with LEGO’s standard. It will not destroy LEGO’s reputation; otherwise, this solution will make LEGO more profitable in the long run. Secondly, LEGO might target parents instead of children because parents afford the bills, and generally speaking, most parents decide if they make a purchase or not. Compared to market the shopping behavior of children, it is worthy of spending money studying parents at some points. We have to admit that most children’s behavior is not mature to make purchases at marketing. Even though some children may be interested in some new toys at toy’s marketing, most children do not decide which one to buy. Otherwise, their parents do make final decisions after all. Although some of LEGO’s competitors are doing some strategy to attract children instead of parents, LEGO does not have to compete with other companies in this way. Last, not the least, LEGO may discovery the certain educational toys with tech for kids, then, more parents realize its differences from most toys at popular toy’s market, which could arouse parents’ interests. Furthermore, LEGO may make their toys more creative than others and their previous products. It is admitted that an increasing number of young parents are accepting toys with tech and creativities, instead of older version ones. Afterward, they will make purchases for their children, which is good for their children develop. Moreover, it is beneficial for LEGO’s reputation, profits, and children. Recommendations Outsourcing production to another manufactory factory is highly recommended in LEGO’s case because of the cost and continuously increasing the complexity of LEGO. LEGO’s design is getting more and more complex because of the needs of customers and the standard of products, which means that LEGO is facing an increase in cost. ‘Lego went from having 675 pieces in 2001 to having over 3,560 different shapes, 157 colors, and 10,900 elements in their assortment (Rivkin 2013)’. For LEGO, it is essential to do a good job in every component’s production, which determines the final quality of the LEGO set. Otherwise, LEGO itself is not able to meet the needs of rising cost. To create each shape Lego needs to design a mold which on average costs between 50,000 and 300,000 Euros (Rivkin 2013). It means that LEGO is struggling with the price. Compared to the cost of loss by LEGO itself, outsourcing production is one of the best solutions. Another professional manufacture will help LEGO to produce better products effectively, which lowers the cost and controls the inventory well. References Mallari, Adrienne. “LEGO: A Marketing Analysis Presentation.” Jan.18, 2017. Rivkin, Jan et al. "LEGO (A): The Crisis." Hbs.Edu, 2013, http://www.hbs.edu/faculty/Pages/item.aspx?num=44124. Accessed May 17, 2017 Andersen, P., & Ross, J. W. (2016). Transforming the LEGO group for the digital economy. Digital initiative, (2017). LEGO: The missing bricks in their global supply chain? Retrieved from: https://rctom.hbs.org/submission/lego-the-missing-bricks-in-their-global-supply-chain/ Mudambi, R., & Puck, J. (2016). A global value chain analysis of the ‘regional strategy’ perspective. Journal of Management Studies, 53(6), 1076-1093.
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Financial Analysis Report

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Memorandum
Will MacDonald’s be able to sustain its financial growth strategy?
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Founded in the 1940s, California, MacDonald’s has been instrumental in the food and
beverage industry. The company’s main strategic strength is attributed to global expansion,
which involves taking operations into the global market and in foreign nations. In addition,
product diversification strategy has been vital in enhancing its growth (Gregory, 2017). The
company provides a wide range of products including snack rap, happy meal, Salad, Baked
Apple cake, cheeseburger among others. Customers acquire satisfaction and preference. The
strategy of franchising is also paramount in overall company prosperity, which is mainly used as
an operation technique in foreign nations. However, as much MacDonald’s performance is
instigated by strategic implementat...


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