TEI 160: How LEGO and others use a low-risk, high-value approach to product management – with David Robertson, PhD

You don’t need to reinvent the wheel, just innovate around it. Fundamentally, product managers should be driving success for their organization. We do that by providing customers value. The source of that value may be, and perhaps should be, closer to our core capabilities than is often thought. The toy company LEGO found this to be true, only after being on the brink of bankruptcy. Other companies have also discovered this principle, which is something my guest calls innovating near the core. My guest this week, David Robertson, explored this in a book-long case study of LEGO, called Brick by Brick:  How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry. In his recent book, The Power of Little Ideas: A Low-Risk, High-Reward Approach to Innovation, he studies other companies who have won their market using a similar approach. David is a Senior Lecturer at the MIT Sloan School of Management, where he teaches Innovation and Product Design. He is also the host of the weekly radio show on SiriusXM called “Innovation Navigation,” where he interviews world-renowned thought leaders about the management of innovation. In the discussion, you’ll learn: * Why almost all of LEGO’s product innovation efforts resulted in millions of dollars lost. * What action turned LEGO around and produced growth. * How companies have innovated close to their core to create market success. Summary of some concepts discussed for product managers * [2:55] LEGO tried many different innovation approaches over the years, but none of them stuck. Why was that?  LEGO saw 14% annual growth for 15 years by making new boxes of bricks with different themes. Things started to change in the 1990s as video games came online. LEGO kept trying to put out more boxes of bricks throughout the 90s, but it only increased their costs and not their sales. At the same time, the idea of disruption was sweeping the business world and LEGO tried just about every way they could think of to disrupt themselves and failed at all of them. In the end, there’s a huge difference between sufficient and necessary. In LEGO’s case, it wasn’t sufficient to only sell boxes of bricks, but it was necessary and their business model couldn’t succeed without them. * [6:35] How did LEGO finally turn things around and what did they learn from it? Their success came when they started innovating games, stories, and events around the bricks. They began opening LEGO stores and indoor playgrounds where they could charge admission. They also realized that adding digital games don’t disrupt the bricks, they complement them. When kids play LEGO Star Wars or see a LEGO movie, they want to buy more boxes of bricks, not less. When they tried going purely digital, they turned customers away and created a major loss of revenue from LEGO’s main product, which is the plastic brick.   * [8:45] Was there a catalyst that helped LEGO realize that they needed to keep plastic bricks at the core of their business model? The only significant success from LEGO’s period of disruption was something called Bionicle, which was the first buildable action figure. It didn’t look like anything else LEGO had ever done. It was still a box of plastic pieces that you snapped together, but it came with a rich story of heroes and villains that changed from year to year with a new set of action figures. The combination of the story, the action figures, and the scarcity from the collectibles made it hugely popular. Not only did Bionicle save LEGO from bankruptcy, it taught them how powerful stories were to excite kids. They’ve been focused on telling stories ever since. They’ve learned that stories don’t disrupt demand, they increase it.