LEGO CEO Bali Padda explains why going digital is important, and how they try to maximize product versatility through greater compatibility between individual sets
For the first time in seven years, Head Office promises to take me on a “pilgrimage". I am scheduled to meet Bali Padda, the Indian-born, 61-year-old chief executive officer (CEO) of iconic toy-maker LEGO, at his office in Billund, Denmark. Three generations of my family have been committed devotees of the plastic LEGO brick and its infinite creative possibilities.
Unfortunately, the pilgrimage didn’t happen. A family emergency prevented me from flying to Denmark, and I had to settle for a phone conversation with Padda, supplemented with detailed photographs of his workspace. A few weeks after our conversation, the company announced, earlier this month, that Padda will make way for a successor in October after eight months of being CEO. He will take on a role with the LEGO Brand group, the entity that manages its other interests. Both are significant impediments to a story, but not enough to deter a true devotee.
3D workplace branding
The photographs portray an office drenched in the LEGO brand. Across Padda’s desk is a retail-like display of dozens of LEGO sets, bursting with colour and playful energy. “Sixty per cent of our portfolio is renewed every year. So I display the new models in front of me so I can touch and feel the product," Padda explains. He also likes to build LEGO sets himself in the evenings, he says, pointing to a Batman set in progress.
The brand manifests itself in furniture too. A coffee table placed next to the product display is composed of a large black LEGO seal, which acts as a base for the table. On its nose it balances a blue LEGO globe, encircled by a glass top. Padda’s chair, the classic Aeron task chair from American manufacturer Herman Miller, sports a LEGO logo on its back. For employees in an external-facing role, business cards are crafted with a uniquely LEGO twist. Instead of a piece of paper, visitors are presented with a customized mini-figure, with each employee’s name, email address and phone number.
The mini-figure is not the only piece of customized brand memorabilia in Padda’s office. “On my desk is a miniature steel mould, which is an exact scale replica of the LEGO brick mould. My background is operations and the engineers in Denmark actually built a mould for me for my 60th birthday," says Padda. The mould is engraved with trademark Padda catchphrases, including “scalability, quality is non-negotiable, deliver what we promise, simplicity and platforms".
Getting serious about play
Born in Punjab, Padda’s family moved to Mumbai when he was very young, and then to the UK when he was 11. He left school at 16, “without any qualifications, to start my own business. So I started working a blue-collar job, built up some capital, started a business, but it didn’t go very well. Then it was time to rethink, so I did my degree part-time, through evening classes. It took me nine years to get my bachelor’s degree in business studies," he says.
Trying to break out of blue-collar roles, Padda worked with the Wellcome Foundation, a pharmaceutical company which eventually became part of the pharma firm GlaxoSmithKline. This was followed by a role with outdoor apparel and shoe company Timberland, and finally, an opportunity as head of a LEGO packing operation in the US in 2002.
This relatively modest assignment proved to be the stepping stone for a senior and strategic role, as the vice-president of manufacturing, in 2005. Padda was part of a core team tasked by then chief executive officer Jørgen Vig Knudstorp to turn around a business that was ailing. “At that point, the company was losing Danish kroner 30 million (Rs30.3 crore) a month. We were fortunate that we are privately owned, so the owners were helping, but the cohesion in the company was very poor. It was like many different silos around the company. It becomes especially critical for a single-brand business to remain cohesive. The way we were behaving was as if we were a divisionalized company, which we are not," Padda recalls.
Knudstorp and his core team, of which Padda was a part, went on to stage one of the most successful comebacks in recent corporate history. Although sales growth slowed more to 6% in 2016, the company experienced 15-18% compounded annual revenue growth rates in the preceding decade.
The mould in Padda’s office represents LEGO’s comeback—in two important ways. First, it served as a strategic reminder that the company should remain true to the brick-based system of play. “If you look at LEGO themes such as Batman, Star Wars, Ninjago or LEGO City, they all contain a core of the LEGO building platform, which means that the pieces are compatible with each other. We had deviated too much from that for a while, with the result that pieces sometimes didn’t fit with each other," says Padda. Today, despite the fact that the company has more sub-brands than ever before, there are fewer stock-keeping units (SKUs) than earlier, says Padda—a supply-chain axiom that reinforces the importance of maximizing product versatility through greater compatibility between individual LEGO sets.
Second, the engraved dictums on the mould represent the strategic importance of manufacturing and supply chain in a logistics-intensive business like LEGO. Despite being a core competence for many years, in recent times “the supply chain was broken. I would say I brought about the discipline of execution," says Padda, who was the chief operating officer before becoming CEO.
Supply-chain discipline meant that customer-responsiveness, agility and speed became immediate priorities. “In a silo-driven company, people start trying to become more and more efficient and the service level goes down. But I am saying to my people, I do not want operations to be efficient, I want it to be very effective, and I measure effectiveness by the availability of the product on the shelf, the inventory with the customer. So it’s a twofold thing, one is capability and two is the culture of decision-making speed, agility, and this is what I am focusing upon," Padda says.
Manufacturing leaders, however successful, do not often find themselves chief executives of consumer-led companies. Candidates with backgrounds in sales, marketing or finance tend to be more popular choices. Perhaps this is the reason that executive chairman Knudstorp said, in a recent article in the UK’s Financial Times, that Padda was intended to be interim CEO, until a suitable successor was found. On email, Padda says, “It was abundantly clear when I took on the CEO role that a search for a new full-time CEO was ongoing." He adds that his top priority will be to ensure a smooth transition for Niels Christiansen, his successor, an external hire. As the brick mould suggests, he will leave behind a solid supply-chain base, with the right building blocks in place, in more ways than one.
On Mission: We need to ensure that whatever we are doing is providing benefit to children, to inspire and develop the builders of tomorrow.
On India: At the moment we have prioritized China, and we are focusing on that. India is a massive market with huge geography. We need to continue to build our capabilities, to break into these new markets.
On Creativity: Creativity should sit everywhere in the business. In supply chain, in marketing.
Aparna Piramal Raje meets heads of organizations every month to investigate the connections between their workspace design and working styles. She is the author of Working Out Of The Box: 40 Stories Of Leading CEOs.
When creativity meets commerce
With a carefully crafted range of over a dozen sub-brands, LEGO has seamless offerings for every age group, from toddlers to teenagers. Product tie-ins with popular entertainment franchises (such as the feature films Star Wars and Batman, and the video game Minecraft) are a company staple. Physical LEGO products are garnished with a range of complements—LEGO movies, books and theme parks. In other words, for most parents anywhere in the world, it is hard to avoid running into the LEGO universe.
Across the globe, companies struggle to retain margins when offering such mass-produced products, but LEGO seems immune to such economics. Its operating profit margin has hovered in excess of 30% of revenue over the last five years. Net profit margin thrived too, at over 20% in the same period.
For Padda, brand ubiquity reflects strategic intent in two ways. First, to maximize product reach, without brand dilution. “The definition of the business model was a big part of our turnaround. The driving mantra behind this fantastic product was, how do we get it into the hands of as many children as possible?" he says.
Digitization was the second goal. “We firmly believe that physical play will continue to be relevant, but are also looking to see how we can envelop digital around the physical as well. We have got a new product called LEGO Boost that is around coding. We have Mindstorms (robotics) already; we have the Nexo Knights that has elements of digital in it. We are trying to bring as much of that to get the kids’ attention, to spark their imagination and creativity," he says.
Padda also defends the premium pricing. “When you are buying a LEGO set, you are buying a much bigger proposition. We believe that from a design perspective, from an experience and quality perspective, we are bringing in a lot of the value that is ongoing. Think of the longevity versus another toy."
The product pricing is debatable, but the superior design is indisputable. LEGO’s product design department employs more than 250 people, across 35 nationalities. Each product takes about 12 months to launch, from start to finish. The design team is complemented by a research-based “insights department" which tries to understand and conceive the future of play to stay ahead of the curve, says Padda. The intersection of commerce and creativity can be a fortunate place for a company that knows how to strike the right balance.
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