When Your Core Isn’t What You Do Anymore

LEGO nearly went bankrupt confusing what it could do with what it existed to do. Professional services firms are about to face the same test.

Last year, I wrote about Southwest Airlines as an example of a company whose innovation was the company itself. Its open seating wasn’t just a quirky boarding policy; it was one choice in an operating model designed around simplicity and speed. Southwest has since moved to assigned seating, and I’m less interested in declaring that decision right or wrong than in the question it raises: how does a company know when a practice that helped make it successful has become something it needs to reconsider?

We often talk about the official future: the version of tomorrow an organization behaves as though it already knows. It lives in strategic plans, budgets, hiring decisions, product roadmaps, and the assumptions leaders rarely feel the need to say aloud. Often it looks remarkably like today, with the numbers adjusted upward and the company’s existing strengths projected forward. That makes it useful for coordinating action, but it can also make a particular way of doing business feel inseparable from the business itself.

LEGO offers a fascinating example of what happens when a company has to revisit that distinction.

By the 1990s, LEGO was one of the world’s most recognizable brands, and its leaders saw opportunities well beyond the brick. The company expanded into clothing, watches, video games, media, and theme parks while also introducing more specialized pieces and product lines. Each move had a plausible rationale: children’s interests were changing, the brand was valuable, and growth seemed to be available in all directions. Taken together, though, those decisions created a much more complicated company, while the growth they intended to produce failed to materialize.

The HBS case study on LEGO describes a particularly revealing detail: between 1993 and 2004, the number of distinct components in its assortment more than doubled. A new piece might look like a small creative decision on a designer’s desk, but across thousands of products, those decisions affected manufacturing, forecasting, inventory, and the ability to get complete sets onto store shelves. Complexity had become so distributed through the business that leaders struggled to see its full cost.

When Jørgen Vig Knudstorp became CEO in 2004, with LEGO close to bankruptcy, the company could not solve its problem simply by making fewer things. It had to reconsider the future it had been building toward. Knudstorp asked what was central to LEGO’s identity and to the value customers actually experienced. His team’s answer brought the focus back to the brand, the brick, the system of play, and the community around it. LEGO sold its controlling stake in the theme parks, shut down its video games unit, reduced the number of components, and rebuilt around the parts of the business that made the whole system work.

It would be easy to read that story as an argument for sticking to what you know, but I take something different from it. LEGO did not discover that it should never change; it discovered that it had confused the many things it could do with the particular value it existed to create. The brick was not merely a product category to defend, it was the foundation of a system that let children create something new.

I’ve been thinking about that distinction in conversations across fintech and professional services. A growing number of tech companies are moving beyond tools that help professionals perform their work, and into products that perform meaningful portions of the work themselves (delivered direct to the customer).

I find myself often posing the question to professional services leaders: what happens to the firm’s identity when the work, and who does it, completely changes?

I hear plenty of discussion about making existing services more efficient, and that makes sense as an immediate response. But efficiency can leave the official future largely intact: the same firm, selling the same work, delivered faster and at a lower cost. And it’s assumes the firm will still be the one delivering the work.

That is where the official future becomes dangerous. It encourages leaders to plan for a world in which their organization remains central to creating and delivering value, even as the capabilities underneath that value move elsewhere. The question is whether they can recognize that shift while the current business is still working, when changing course feels optional and the evidence is easier to explain away.

LEGO had to discover what made its system valuable beneath all the products it had accumulated around it. Every leader should be asking a version of that question now: which parts of our business would customers miss if they disappeared, and which exist because there has never been another way to deliver the value?

The point is not to abandon what made you successful at the first sign of change, any more than it is to preserve every defining practice indefinitely. It is to understand why it made you successful, deeply enough to recognize when the way you deliver that value needs to change. If a company can answer that question honestly, it has a far better chance of carrying its core into a future that looks very different from its past.

@Kacee