Why Do You Think Lego’s Outsourcing Failed?
To answer this question, I want to state the fact that short-lived relationship between Lego and Flextronics was not a total failure. And to begin with, I want to list some of things that Lego learned through this outsourcing. From this list, we can also see why their relationship was short-lived. There is a need to monitor and coordinate the different production facilities roles, capacities, and responsibilities in relation to supply. Lego thought rapid cost-cutting in production and standardization would solve problem dramatically. However, this wasn’t the case, since each production facilities needed to be controlled and monitored periodically and strategically. This was more critical for Lego’s case, since it has production sites globally.
Also, building competencies, training and education of staff takes more time than merely moving technology. Therefore, outsourcing production to Flextronics couldn’t be successful unless Flextronics fully understood and appreciated the “LEGO DNA”. This fact is well quoted in the article by Lego’s vice president, “We have learned that we are more special than we expected to be” * Understanding one’s own processes and structures is a key to optimizing them in order to manage the constant change of market demands and attain competitive advantage.
Similar with the first pointed mentioned above, before proceeding too rapidly into the contract with Flextronics, Lego needed to have full understanding and analysis of its own “processes and structures”. Its management was blind-sighted with having rapid cost-cutting advantages, reducing in-house production capacity, and reducing complexity in its product variations. * Documentation of work processes, communication lines and interfaces between production activities is indispensable for the coordination, transparency and control of global operations.
It contributes to identifying strengths and weaknesses of the production network. Lucky for Lego, it learned this fact right after their relationship with Flextronics fell through. However, unlucky for Lego, it didn’t have chance to learn this fact when it was “in” the outsourcing phase with Flextronics, which was the critical reason why their relationship became so short-lived. Lego didn’t try to learn Flextronics’ processes and experiences, but it just tried to take advantage of them.