Design July 23, 2010, 9:50PM EST

How LEGO Revived Its Brand

In an excerpt from Design Is How It Works, former BusinessWeek staff writer Jay Greene explores Lego's troubles and its comeback

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Paal Smith-Meyer is waving a BusinessWeek article in front of me about LEGO's resurgence. "The Brick is Back," reads the headline, and Smith-Meyer, who runs LEGO's New Business Group, is reveling in the positive press, particularly happy to share the story from the magazine for which I wrote for nearly a decade. LEGO, which struggled mightily in the early to mid-2000s, leaned heavily on design to turn its financial fortunes around. In the article, LEGO's executive vice-president for markets and products, Mads Nipper, says: "With our arrogance, we thought being LEGO allowed us to do anything." Great quote, I think.

But here's the odd thing: In all my days working for BusinessWeek, I can't for the life of me recall an article in the magazine about the revival of the Danish toy company. I'm a pretty avid BusinessWeek reader, and I'm certain I'd remember a piece, particularly one with juicy, self-effacing quotes from senior executives like this one.

As I look more closely, something seems off. The article is written by Patrick S. Mitchell. I know most of the writers at the magazine, and there has never been a journalist on the staff with that name. At least no one I can recall. A freelancer? The layout doesn't look quite right, either. The color of the border at the top of the page is pretty close. But there aren't any of the creative touches that my former colleagues in the graphics department used to make the articles more navigable.

And then I catch it. The issue date of the magazine is March 22/29, 2010. At the time, that was more than a year into the future. I look up at Smith-Meyer, who just smiles. Turns out he wrote the piece himself in 2005 and used a graphics program to mimic BusinessWeek's layout. He distributed it to LEGO's senior managers back then to tell the story of LEGO's turnaround—before it happened. He wanted to give the company's leaders a road map, albeit one that describes the route from the rearview mirror. And that byline? Smith-Meyer came up with what he thought was a BusinessWeek-y name, instead of his Norwegian one, using his initials.

The Galidor Disaster

The company's problems began in the late 1990s, when it stopped focusing on design. Back then, company executives wanted to extend the brand, venturing off on wild forays into new product development. The prototypical example: Galidor, a legendary bomb inside the walls of LEGO. The Galidor line, launched in 2002, was all about action figures, like the hero Nick Bluetooth. The figures could barely be taken apart and reassembled—arms, for example, could be interchanged. But the figures were little different than toys offered by scores of other manufacturers. They didn't require building skills or much in the way of imagination, the hallmark of the more traditional LEGO construction toys.

Worse still, LEGO branched into a whole new business about which it knew little. The company co-produced a kids' TV show called Galidor: Defenders of the Outer Dimension. The story line was meant to add detail to the action figures, giving kids more reason to buy them. But the shows sparked little interest. It was a Saturday morning cartoon cliché, a predictable action adventure story easily dismissable as a 30-minute advertisement for the toy line. The show, which ran in the U.S. on the Fox network, lasted two seasons. When it went off the air, sales of the action figures faded.

Even within its core construction toy business, LEGO was foundering. LEGO managers had given designers free rein to come up with ever more imaginative creations. And they took it. Left to their own devices, designers conjured up increasingly complex models, many of which required the company to make new components—the various bricks, doors, helmets, and heads that come in a rainbow of colors and fill every LEGO box. By 2004 the number of components had exploded, climbing from about 7,000 to 12,400 in just seven years. Of course, supply costs went through the roof, too.