david-robertsonLego is one of the most popular toy brands on earth, but in the early 2000s, the company almost went bankrupt. What happened?

Lego went through a crisis of confidence in the late 1990s. They were convinced their traditional business model was getting disrupted, that kids were going to choose Xbox, PlayStation and multiplayer games and leave traditional toys behind.

So they started innovating and tried to create all kinds of wonderful new play experiences, and they ended up getting themselves into businesses they didn’t understand. They made some toys that didn’t sell well and they lost a lot of money.

The brand never came up with a revolutionary product or business model, so how did they come back from the edge?

Now everything is focused around the brick, but they’re innovating everything but the brick. They’re doing all these little innovations: coming up with a game, creating a story around it, coming up with a cartoon, an event strategy.

I think Lego thinks of itself as a company that offers play experiences, not boxes of bricks.

You can go after the big, industry-changing, disruptive innovation, but that’s risky and usually fails. Or you can do lots of little innovations, none of which are especially risky, but which require coordination and timing.

Lego has been really bad at the innovations that we tend to glorify in the press. But they’ve been really good at the little innovations that together make a really powerful offering. So it’s a wonderful example of strategy.

When Lego was going through hard times in the early 2000s, management was forced to “innovate inside the box.” Any examples?

When they came back to the brick in 2003, one of the things management learned was that kids get engrossed in stories. They learned this from Lego Star Wars, which was a huge hit for them. They also created their own story with a toy called Bionicle, which was also really successful.

So how do you innovate around a story?

Take The Lego Movie. It isn’t just a movie. The characters in the movie are for sale. You can buy the minifigures. There will be play sets around it, there are going to be some stories around the movie that will continue to play out in comic books or a follow-up cartoon series.

It’s going to be the start of something that will make kids want to buy more bricks. The movie is just one piece of a larger set.

It sounds like what you’re describing is a content marketing strategy. Lego has microsites, a social network, theme parks, and now a film. How important is content for its business?

I think Lego thinks of itself as a company that offers play experiences, not boxes of bricks.

They develop stories that are told in bricked worlds, and games that are constructed, and then played with. Parents buy bricks, but kids get involved with stories, and Lego sells to both.

Lego Land brings the stories in Lego sets to life. Image by Ayleen Gaspar via Flickr.

Legoland brings the stories in Lego sets to life. Image by Ayleen Gaspar via Flickr.

Why is management so important when it comes to facilitating innovations in the workplace?

Say you’re at Apple in 2001, and you have different parts of the company developing the iPod. One is working on iTunes, one is working on the partnerships with the music companies, one is working on the business model.

All those different parts of the company are probably in different departments and they have their own rewards systems.

The Lego Movie play set capitalizes on the film's success and broad audience reach.

The Lego Movie play set capitalizes on the film’s success and broad audience reach.

If you made the iTunes division focus on generating profit, then you can end up breaking down and not getting that many music companies signed up, which ends up hurting iTunes, which ends up hurting the iPod, which ends up hurting Apple.

If what you want are lots of different types of innovation, coordinating it and incentivizing it well is really hard. How do you motivate those people to do what’s best for the overall revenue of the company and the individual revenue of the departments?

A lot of companies do that wrong. They get the incentives wrong, they get the structure wrong, they get the process wrong – it’s hard to make all those different types of innovation happen in the same company at the same time, with the same goals in mind.

Management also imposed a lot of limits at Lego, which is a big departure from what you normally hear these days regarding the value of creativity in the workplace. How can limitations lead to innovations?

brick-by-brickIt’s about giving your team the space to be creative but the direction to deliver. It’s so easy to go too far one way or the other.

I have a great deal of respect for Apple as an innovator, but as a model for information management, they’re terrible! Let’s take a guy who’s difficult to work with, Steve Jobs, let’s promote him to the top of the company, let’s run all of our innovations through him and let’s hope that he doesn’t quit, get fired or get sick.

That worked for Apple at least for a while, but it’s a really difficult model to make work in any company.

So it’s about creating a system where the people inside have a bounded, constrained space but within that space have a lot of freedom to do interesting and creative things.

Lego creates lots of smaller spaces where people can be innovation stars. Creating lots of little stars instead of creating one big star is a much better strategy.