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Toy story: How family companies are bucking the trend

When Lego turned to Jorgen Vig Knudstorp as CEO in 2004 he became only the second non-family member to lead the company in its 77-year history. Third-generation Kirk Kjeld Kristiansen had been running the iconic toy giant for 25 years but acknowledged he had lost his way. The business was suffering under a weight of debt and stagnating with management that believed the company was in better shape than it actually was.

Knudstorp immediately implemented changes and by 2005 he was already making a significant impact. (Click here to read out previous interview with Jorgen Vig Knudstorp)Now it would appear the toy-master has succeeded once again as this week Lego announced half year results that show an increase in sales of 23% compared to the same period of 2008.

When assessing which areas proved most successful, traditional products are enduringly profitable for Lego. Knudstorp says: "The first half of 2009 produced a very satisfactory result. It is particularly pleasing to note the continued strong growth in our classic product lines." But this is not the only area that has seen growth, with several new brands also selling at better than expected levels.

Lego's performance is by no means a small feat. The global toy industry has been in decline throughout 2009, although regional differences did have an impact on the results. While English-speaking countries saw a decline, many European markets experienced growth during the period.

In comparison to other family-controlled toy businesses, Lego's growth is exceptional and testament to the skill of a non-family manager and the realism of the founding family. Instead of attempting to force the continuation of family management Kristiansen acknowledged the need for change and understood that the move was in the family's interest. Now both the company and the family are reaping the rewards as the business continues to grow despite a recession that has seen so many rival toy firms fail.

Hasbro cannot boast of the same levels of growth as Lego, but even the small growth it has seen (1% up on half year sales compared to 2008) is a positive sign in the current climate.

Although the global toy industry has been in decline, third-generation Alan Hassenfeld believes it is in better shape than other less enduring sectors. "Whether its grandparents or parents, people will give up things for themselves in a difficult time to continue to take care of children's birthdays and holidays. So the toy industry is not one that is the first to be hit in a recession," he exclusively tells Campden FB.

Not only is it not the first to be hit, there are opportunities created by a downturn that toy companies can benefit from. "A recession is not a time to put your head in the sand and pray it is going to end, this is the time when there are probably more opportunities if you have a decent balance sheet," says Hassenfeld.

"Whether the business is a family business or not, in good times it is harder to get market share but in a more difficult time there are niches you can enter. If you are capable of being able to invest in your business, even in a recession, it is a time when the rewards are much greater."

The downturn gave Hasbro, which also has non-family management, the opportunity to reassess some areas of the business in order to save on costs. However, Hassenfeld was eager to point out cost cutting is shared by employees and family alike. "In a family business what is good for the employees is good for the family too. If there is a mandate to fly economy then most of your people are flying economy including your CEO," he says.

Hasbro's performance is based on two principles, communication and innovation, and both come from the top. "We have weathered this so far quite well because we are communicating well and letting people know what is going on and if there are going to be changes," says Hassenfeld as he outlines the company's communication strategies.

Communication is vital to ensuring employees are happy, whereas innovation is about keeping the business successful and competitive, as Hassenfeld explains. "The number one way to get out of a recession, or remain competitive in a very competitive industry, is through innovation and creativity. I don't care if it is a huge downturn, if you have an innovative product that is competitively priced people will gravitate towards it," he concludes. 

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