“The management in a company doing Long Tail Innovation must change because it is not only about doing flexible manufacturing and having an online innovation toolkit. It is an entirely different business model. Implementing this on the fulfillment side nowadays is not so difficult. A lot of the standard offerings and the manufacturing is mastered quite well, but to really understand how to implement it in order to benefit from it and to reach a satisfactory level is very difficult to achieve.” (Frank Piller).
Operating a production with many parts makes automation a challenge, at the moment every single order at LEGO factory is packaged manually. Simultaneously LEGO does not have the same supply chain capabilities as Amazon; these must be fostered in order to be good at Long Tail Innovation. “LEGO factory deals with single bricks. In LEGO the box is the SKU, the brick does not have a SKU number, it has a brick ID but it does not travel around in the inventory management systems the same way as SKUs. Operating with brick ID is something entirely different than the rest of LEGO, which has been a huge challenge – nobody is going to create an entirely new SAP system just for us (LEGO factory) – it does not make financial sense.” (Helene Venge, LEGO)
The catch 22 is that investment in the necessary setup is high cost. In order to make a large investment the expected revenue must be high, but so far no data exists to support the Long Tail Innovation Model and assess rewards. “My problem is the volume. If I had a lot of people who ordered parts from let’s say 5mm thick aluminum I could run all of those parts at once and it would reduce cost a lot. At the moment I have orders in plastic, steel and other materials. If the volume got high enough and I could group the jobs for a lot of different customers together then in that case the cost would come down very significantly. For doing customized things it could definitely be feasible.” (Simon Arthur, Big Blue Saw)
Organizational structure Long Tail Innovation also has an impact on organizational structure. At present many companies have reorganized their structures to cross functional teams in order to focus on the customer. How to govern and exploit user innovation is an issue which companies struggle with today. Companies want to control – the difficulty is letting go. The openness which is necessary for Long Tail Innovation must be reflected in the organizational structure of the company and in the physical structures. LEGO factory has touch points with all parts of the LEGO organization and must educate them on their requirements, which are different to LEGO’s traditional offerings. Starting as a LTI business within an existing business is a challenge as the organizational setup is already set up and not necessarily geared towards Long Tail Innovation. “It is a big challenge to operate as a new business within an existing business. LEGO has one business model that works really well for LEGO. LEGO factory has an entirely different business model with different requirements, which we have to make work with the existing setup. If we
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