Chips and Blocks: A Tale of Two Category Leaders

….And Why Ecosystem Strategy is at the Heart of Their Success

Visiting a friend with younger children, I had the excruciating moment to re-discover stepping on a LEGO block. As I gouged out this little red block of sharp angles and contemplated it, I realized this toy and brand has been with me my entire life and it looks exactly the same as when I played with it (which is definitely a few years ago).

It is such a simple design, and idea, and yet it has persisted as one of largest toy companies in the world. As I googled, I saw this Danish company’s USD 9.7 bill revenue had “outpaced” the toy industry, I also realized it has been around since the 1930’s. The actual patent expired in 1989.

So how has such a simple, aged, toy maintained such a dominant position in the “Plastic Construction Toy” category? And how has a Danish company with a small domestic market driven this global success?

Take a step back and ask where have you seen LEGO recently? As a Star Wars kit? As an amusement park experience (LEGOLAND)? At the Levi’s store, embedded into a jean jacket? At a retail mall with models on display? As a combined online / offline interaction? The answer is correct for all. And it is only the tip of iceberg of where and how LEGO shows up in its ecosystem.

LEGO is not just plastic construction toy, it is an entire experience around their key sub-brand “Bricks World”, enabled primarily via a clear and compelling Ecosystem Strategy.

Think about the LEGO joint branding and marketing deals with the biggest brands out there. They don’t go small with their marketing alliances. It’s Disney (including Star Wars, and Marvel Comics); it’s Warner Studio (also includes DC comics); Adidas; IKEA; or Levi’s. They do deals with governments for LEGOLAND (Malaysia, Dubai, USA, Germany, Japan….). It’s education-oriented with NASA, or Museum Of Modern Art (MOMA).

But it’s also the huge digital component to the experience. It’s offline but online as well, with over 180 videogames released. It’s “LEGO Star Wars: The Video Game”, but also the fluid experience across physical (retail, community, leisure park), online, and physical home-play.

“The entire Lego ecosystem is actually, I think, only at the beginning. So, it’s less about just creating an e-commerce store or an online store. It is really about this entire digital ecosystem and creating that future.” Lego CEO Niels B. Christiansen

It is clear that this is an Experience Ecosystem strategy that LEGO is executing on. They are the orchestrator for this and have a clear strategic intent to continue to evolve this experience and ecosystem and to continue to dominate the Plastic Construction Toy category.

From Blocks to Chips

Let’s shift our thinking from plastic interconnecting blocks to the more complex semiconductor chip. Whether you know it or not, the smartphone device you currently have in your hand, or beside you, invariably has most of its chips linked to the company ARM. In fact, 90 per cent of smartphones produced globally have ARM designs in them (and thus pay royalties to ARM). For “higher-end smartphones”, the market penetration and share are an astounding 99 per cent.  

As a global success story, driven by a UK based company, it has been largely driven by an ecosystem strategy, but one with a very different nuance than LEGO’s.

This category and ecosystem of “Processor IP” has brought together silicon, system and software companies to ship more than 250 billion ARM-based chips to date.  These players are often ruthless competitors (Apple and Samsung for example), but participation in the ecosystem means “the sum is greater than the parts” and specific benefits arise.  Joint research into chip design benefits all players involved even though they also compete with each other.   This is a Design Ecosystem that has been built by ARM and continues to dominate.

“Ecosystem Strategy” is Eclipsing “Platform as a Strategy”

The above ecosystem examples go beyond the traditional model of a business network of suppliers, partners and customers. But it also goes beyond the more recent models around a managed platform of products and services.  In both the LEGO and ARM cases, the domestic market and country of origin has not held back the success of the company, but has in fact induced a “think different” approach around their category and ecosystem.

“Don’t Find Your Tribe, Build It”

So how do I get started with this design thinking and strategy?

Start with the category you are in, or want to be in. What problem are we solving? What entire experience are we delivering? How can we tell a great Point of View that leads with this perspective (and doesn’t immediately lead with your product or company)?

A category (or ecosystem) cannot exist as one company. Categories and ecosystems feed off of each other. Visualise (draw) the ecosystem with your company as one slice of it, but what other players / components / influencers are there? Does this visualisation truly describe both the category and ecosystem?

What role will you play in the ecosystem? Will you be the instigator? Or do you believe you can be the orchestrator? Think carefully – the resourcing to truly be the orchestrator and to maintain that role is substantial.

How will information and knowledge sharing occur and be managed across the ecosystem? Can you add this to the visualization?

How do data, transactions, or the experience flow? Will there be transaction and data sharing?

How will business and technology innovation occur via the ecosystem?

By designing and catalysing this category and symbiotic ecosystem, how big does it get? What new economics are created (beyond the basic TAM of the existing market)? How do participants in the ecosystem benefit?

Admittedly these are rudimentary questions for very complex issues to think through and deliver on. But start there and do not let your geo, market, or thinking hold you back. It is about designing at category, ecosystem, and global levels!

Lead, Don’t Follow!

It has been my privilege to work in, and with, companies who are truly designing and dominating their category, with the ecosystem strategy at its very heart. Carpe Diem.