POV

The LEGO Group’s digital transformation journey started with a fundamental question: How can we secure the legacy of one of the world’s most-loved brands in an increasingly digital era? This is the future of play.

With children increasingly turning to screens, shopping behavior becoming digital, and logistics dependent on technology, the LEGO Group developed a vision to own the future of play. That required becoming a digital to the core and tech leader.

Becoming a digitally enabled consumer goods company

The first stage of the journey was focused on technology. The IT function upgraded their systems to allow technologies to work better together, implemented agile programs for their tech teams, and started migrating workloads to the cloud. But the CEO and top team knew they needed a more radical and fundamental change – technology was crucial but alone wouldn’t deliver on their vision. They needed to use technology to reshape everything from customer experience to global supply chain management. This more extensive goal required the LEGO Group to change their architecture, operating model, talent profile, and tech and analytics competences to become a tech leader.

An important early realization was that a vision this fundamental couldn’t be outsourced or handed to an executive as a project. The LEGO Group’s leadership decided they needed to collectively own their digital transformation from the start. In an intense period, almost 100 business leaders and the entire management group formulated a five-year aspiration to become a truly digitally-enabled consumer goods company.

Developing a roadmap

To begin to translate that aspiration into a roadmap, the leadership group identified the business capabilities that are fundamentally dependent on technology, data, and analytics and that could be improved by investing in over 90 identified initiatives. For each, they sized the potential impact, how to measure that impact, and what investment was needed to get that impact.

To help get their arms around these opportunities, LEGO leadership grouped these business capabilities into a set of 10 domains based on relevancy (e.g., capabilities related to consumer experience were grouped in the consumer domain). With this in hand, leadership mapped out the underlying solutions and the corresponding technology, data, and talent needs for each.

This process had a number of benefits. One is that it helped align leadership by providing them with a shared understanding of the opportunities and the requirements to deliver them. Another is that it generated real excitement and conviction among leadership to see how much was possible.

The team determined the priority domains where they first wanted to create great digital experiences: consumers (those who played with LEGO products, mostly children); shoppers (those who bought LEGO products directly from LEGO); customers (those who sold products for LEGO, i.e., retail partners); and colleagues (those who worked at the LEGO Group).

They worked those priorities into a comprehensive roadmap that prioritized and sequenced the key digital solutions for each user group or domain. This included the identification of technology, data, and team resource needs for each solution, as well as the estimated investments and required returns for each. The company’s Board agreed to make a significant investment over a five-year period to build out the necessary digital solutions and supporting technology and analytics capabilities.

Finding the right leadership team

To execute this plan, leadership knew they needed a leader with real experience with the complexities of a digital transformation. So, they hired a chief digital and technology officer (CDTO), Atul Bhardwaj, who had led digital transformations at Tesco and MediaMarktSaturn. One of the most important decisions he made was to adopt an operating model where teams were assigned to, and had responsibility for, each product needed to deliver a specific solution (a variation of the product and platform model).

Some product teams focused on delivering user-facing solutions and the underlying applications and workflows, such as optimizing the website experience. Others focused on data and technology systems to support these development teams, such as migrating applications to the cloud to help speed up application development. Another set of product teams focused on developing data products that were shared across multiple domains, such as customer and identity data, and product master data.

A critical component of this operating model was having clear ownership. Each domain had a sponsor from the executive team and a leader from both the business and IT who jointly had responsibility for delivering the outcomes in their domain. Working in partnership with these leaders, the sponsor created roadmaps, and aligned on both solution sequencing and solution design.

At the product team, or pod, level, a business lead assumed the product manager role, and, working closely with an engineer, had responsibility for managing and prioritizing the backlog to deliver on their specific KPIs. This focus on integrating the business into the product management structure was critical for ensuring that the business adopted the solutions that product teams would develop.

Product managers from the business worked in cross-functional teams with a lead engineer and a team that had about 8 to 10 people including, engineers, agile coaches, technical program managers, data scientists, designers, and analytics experts. The ultimate goal of this structure was to erase the distinction between “business” and “tech.” All members of the product teams shared KPIs and incentives, but technical roles reported to the CDTO ultimately, who managed their career development, training, and growth.

To manage this product-oriented operating model, the CEO, the CDTO, and the domain “sponsors” allocated budgets and resources annually. Domain leads, however, reviewed progress of the product teams monthly, and later on a quarterly basis (or quarterly business reviews). The reviews were focused on tracking outcomes and well-articulated KPIs that drove those outcomes, such as changes in the implementation of technology enablers (e.g., the share of modern APIs implemented (per subdomain/product team) and the share of applications migrated to the cloud.

Developing data ownership

These product teams also held the key to what the CTDO calls the essence of digital transformation: data. That’s because it’s the data that is the key to delivering advanced user experiences, improve operations, and lower unit costs. Each domain owned its data and was accountable for both maintaining it and making it easily consumable by other domains.

In this way, the business eliminated data confusion and ensured that each data product was the single source of truth. This approach to data ownership also allowed the LEGO Group to build out their data platform, which both housed these objects and made them available to other teams through a self-serve model, including to data scientists who could run advanced analytics and AI against them.

Recruiting engineering talent

Delivering the digital solutions against the aggressive timeline defined in the roadmap required the LEGO Group to bring in engineering talent. This was particularly urgent because they had fewer than 30% of engineers on staff, and about 70% of their code was developed by external resources. A lack of senior engineers at the director/senior director level added to the challenge.

To attract talent, the LEGO Group attended developer conferences and launched a social media campaign to highlight the latest technologies developers used and the deep technical problems they were solving. They also opened a digital studio in Shanghai, which grew from seven to 75 digital and analytics experts, and one in Copenhagen, where 200 new digital and analytics experts work. In short order, they increased the number of systems and software engineer roles by 2.5´, most of them with cloud skills.

This infusion of engineering talent helped the LEGO Group meet two specific needs. One was an aggressive application and system modernization effort to create much more flexible, fast, and self-service capabilities. This included paying down their technical debt, automating infrastructure operations such as pipelines, migrating up to 80% of key workloads to the cloud, and developing platform-as-a-service and SaaS capabilities to radically reduce the use of monolithic applications. The second was the incorporation of advanced engineering practices, such as DevSecOps to integrate security into the development process from the beginning (with a continuously measured National Institute of Standards and Technology score), CI/CD practices to both accelerate and improve coding quality, and MLOps to develop and manage AI models.

Designing tech for global use

A core focus was to ensure that users would adopt the solutions the teams developed, and that those products could scale. So, the LEGO Group instituted a policy that all technology solutions should be designed and architected for global use from the start. That meant using prescribed API standards and a specific, company-wide data taxonomy that included clear definition of data domains and objects, clear relationship mapping and documentation, and clear accountability for these data domains. The CDTO had the authority, and often invoked it, to veto “local” efforts that did not meet these principles. This approach allowed teams to work in parallel without getting stuck or slowed down in regression testing and team-to-team communication.

Two years into this phase of their digital transformation the LEGO Group is seeing improvements and knows it’s on the right path. The LEGO Group cited strong e-commerce and omnichannel retailer partnerships as important contributing factors for their performance. Revenue grew 17% while operating profits grew 5% compared with the same period the previous year, according to the LEGO Group’s earnings report. It also noted that accelerated investments in its digital transformation have delivered wide ranging benefits, including improved online experiences for shoppers and partners and expanded building experiences for consumers. The website has been rebuilt to scale, while downloads of its LEGO Builder app increased 42% compared to 2021.

These new enterprise-wide digital capabilities that the LEGO Group has developed are opening new growth avenues for the company. The LEGO Group is expanding into new domains, including partnering with Epic Games to explore the future of play in the digital arena and the metaverse. This gaming ambition is paired with a willingness to create a virtuous ecosystem of touchpoints around the consumer, stretching from physical in-store experiences to active engagement on several social platforms where children are increasingly present. The LEGO group is investing in building an array of new capabilities, including game engineering and game design.

Excerpted with permission from the publisher, Wiley, from 'Rewired: The McKinsey Guide to Outcompeting in Digital and AI' by Eric Lamarre, Kate Smaje, Rodney Zemmel. Copyright © 2023 by McKinsey & Company. All rights reserved. This book is available wherever books and eBooks are sold.