The house Kirk built

THERE is a strange machine in Denmark: it has a pneumatic steel jaw and its job is to bite plastic bricks. It belongs to Lego, which reckons that if children are going to bite its products, it had better do so first. As the Lego motto has it, Det bedste er ikke for godt - only the best is good enough.

Next week Legoland Windsor opens. It has cost pounds 85m, absorbed 25 million plastic bricks, and Kjell Kirk Kristiansen hopes that it will be det bedste, or at least better than Disneyland Paris. Mr Kirk Kristiansen has an interest in its success - not only is he president of Lego, he (with his mum, his sister and his children) owns it.

This is only the second Legoland - the first opened in Jutland 28 years ago, and the Kristiansen family is not known for rushing into decisions. But now it has decided to move, it is doing so with the long-term confidence that only a giant, privately held company can. Between now and 2050, it says, it will spend pounds 1.3bn on another 14 theme parks around the globe.

Everything about Lego smacks of steady Scandinavian progress. "It is a dominant force - the only European-based toy manufacturer in the world's top 10," says Oscar Henderson, assistant editor of Toy Trader magazine. The other nine are all American, and they spend their time merging, buying, selling, flitting from product to product, and from country to country in an effort to find ever lower manufacturing costs. Lego's main factories are in Denmark and Switzerland - it could hardly have chosen higher-wage countries if it had tried. Its basic product has remained the same since 1958, and the hesitation before it decided to build more Legolands shows just how reluctant it is to stray away from the areas it knows best.

It has also had astonishing management continuity. Mr Kirk Kristiansen is the grandson of Lego's founder, Ole Kirk Christiansen (the initial letters have mysteriously changed in the past 60 years). He runs his company as though it were his family, even though it has 9,000 employees and a turnover approaching pounds 1bn. He is described as friendly and intelligent, and is certainly fabulously wealthy. The family is worth at least pounds 1bn, making it one of the richest in Europe.

But the fact that the theme park programme has been launched shows the House of Lego knows that its foundations are not quite as solid as they might appear. Precise financial results are impossible to obtain because the company has two holding companies, one in Denmark and one in Switzerland. This last was set up to avoid Danish restrictions on capital movements, but it publishes no figures. However, the Danish company suffered a fall in pre-tax profits in 1994 from Dkr795m (pounds 91m) to Dkr697m (pounds 80m). The company admits that its pre-Christmas sales last year were not good either, so we can expect more gloom when the Danish part of the group reveals its 1995 figures next month.

A short-term drop in profits would not worry a company like Lego. But the some of the factors behind it are disturbing. Lego sells itself as an educational toy maker, and as such has managed to persuade parents to shell out even when times are tough. Now however it has a rival for the same parental wallets - electronic toys, CD Roms and even personal computers. Sales of PCs have been booming, and Lego knows they have diverted money from its more traditional pleasures.

No one could say the company was in crisis, or anywhere near it. Sales of construction toys in the UK grew by 5 per cent last year, and Lego has 70 per cent of that market. But the company's head-scratchers must have wondered what they would have been without electronic rivals. And it is possible to see the new Legoland as a sign that the company is not convinced that the little plastic bricks will continue to enchant children indefinitely.

The original park was built at the headquarters as a pragmatic solution to the problem of children besieging the factory. "It was starting to have an impact on production, so the company decided to build models on some spare ground," says Michael Moore, head of marketing for Lego UK. Legoland grew mighty, and has been visited by 25 million people. Many cities have written begging for their own Legoland but it is only recently that the Kristiansens have relented.

The Legoland programme is not exactly a diversification, but it is a new leg to a stool that has so far been held up by plastic bricks alone. It joins other less ostentatious new legs: Lego-branded clothes, books that have Duplo (baby Lego) pieces attached. And, most interestingly, a project to produce "virtual Lego" on a computer screen.

This last is key, because digital toys are the biggest threat to Lego and every other physical toy. Computer games may have come and gone while Lego has plodded on as ever. But they have had a long-term effect on the expectations of children. "Video games gave children a lot of power," says Mr Moore. "They expect us to deliver that power as well."

But Lego did not get where it has without understanding such changes and reacting to them. It has 60 people working on market research worldwide and another 300 in product development. Lego has an understanding of child psychology that universities would envy.

It is setting up two departments, one in Denmark and one in Britain, to develop software that will bridge the gap between the physical and computerised worlds. It is also preparing a CD Rom with the Californian software company Mindscape, owned by Pearson, that will enable children to build Lego toys "virtually". The aim is that they should design their models on screen, then sit down on the floor to build them out of plastic.

The toy industry (and parents) hope children will not abandon the physical world, and will settle down to a healthy mix of physical and computer- based play. But Mr Moore says that if the children want only virtual bricks, that is what Lego will offer. "Our mission is to produce creative play material, not to make bricks," Mr Moore says. "I couldn't imagine not producing them - but there is nothing in our philosophy that says that couldn't happen."

This flexibility has been at the root of Lego's success. Founder Ole Kirk Christiansen, an out-of-work carpenter from Billund in Jutland, started making wooden toys in 1932 and two years later called his little company Lego: leg godt means play well in Danish. The company was adaptable from the start - it made yo-yos when they were in fashion, but when the craze fizzled out it cut them in half to use as wheels on trucks.

After the Second World War, Ole's son Godtfred bought a plastic extrusion machine from England.

Kiddikraft, a British toy company, was making plastic blocks so the Kirk Christiansens modified the design just enough to avoid patent problems and started producing them in 1949. Lego's "Automatic Binding Bricks" had studs and were

hollow underneath. But the little plastic bricks did not set off on the road to real celebrity until the mid-Fifties. In 1955 Lego System was launched, converting them from frivolous playthings into desirable educational products. Then, three years later, Godtfred thought up the idea of putting tubes inside them, creating much greater rigidity. "The idea is essentially brilliant, because it is simplicity itself and it is eminently flexible," Mr Moore says. "The basic interlocking bricks can be used as a raw material like sand and water."

In 1960 Lego stopped making wooden toys when its factory burnt down. It also started selling in Britain. Aware that it had borrowed its original design from Kiddikraft, it asked that company if it minded. "Oh no," came the reply. "We gave up the bricks because they weren't selling."

In the Sixties children looked at Lego, all shiny and plastic, and at the then-dominant Meccano, which clung to its "clean-cut young men in shorts" image, and decided which they preferred. It was not long before Meccano was overhauled.

Lego has made 110 billion pieces since 1949. Apart from the introduction of tubes, there has been just one basic change in the product since 1958. Early Lego bricks were made of cellulose acetate, which had a habit of shrinking and discolouring. Since 1963, they have been made of acrylonitrile butadiene styrene, or ABS, which does neither of these things. It is heated to 450 degrees fahrenheit and then moulded with a pressure of between 24 and 150 tons.

Most of Lego's patents ran out about 10 years ago, so anyone who wants can clone a Lego brick. But, Mr Moore says: "We have had a number of direct copiers - most have come, lasted a year or two, and disappeared." This is largely because a Lego brick is not as easy to make as it might seem. "Because the studs have to fit precisely between the tubes, the tolerances need to be extremely good, or it won't work," Mr Moore says. The allowable error on a brick is eight ten-thousandths of an inch. And Lego takes no chances that its valuable moulds might be half-inched - worn ones are interred in the concrete of new buildings.

But it was the ability to move with the minds of children that really set Lego apart from other toy companies. It has always adapted, developed and repackaged - appealing to each generation of children.

The biggest shift in the past 30 years has been "age compression" - the trend among children to grow up, or think they have grown up, faster than their predecessors have. "In the 1960s we could sell our classic red and white blocks to children from four to 10," Mr Moore says. "Now we wouldn't sell them to children over six."

That is not because older kids would not enjoy them, but because they do not think they should enjoy them. "Eight- to 12-year-olds aspire to be adults but at the same time want to be children," he says. "What they say and what they do can be entirely different things." That is why new Lego products that are seen to be "cool", but which are in reality repackagings of the old favourites, are marketed every year.

The market is now carefully segmented, starting with Duplo, the giant bricks for small children, moving on to Play Trains and Farms, then on to the "classic" Lego, then on to themes such as Time Travel and Westerns, and on to Lego Technic. This "advanced engineering system" has parts with motors and silicon chips. And Lego now makes software that controls models by a remote control. The idea is that students learning computing can see their programmes having a physical effect - steering a caror controlling a robot.

Lego's head-scratchers have even developed a theory explaining why the product sells well in northern European countries, but not in the south. "There is a fit between Lego and the way the society is built," Mr Moore says. The idea of building a society gradually is a northern European one, which is why a toy that needs patience and puts a child under some pressure is popular. Of Latin countries, Mr Moore says: "Toys that do things immediately are better received in these countries." A Euromonitor survey shows that in Germany construction toys account for 8.8 per cent of the toy market, while in Spain they take only 1.5 per cent. The mixed culture UK's figure is 5 per cent, fitting Lego's theory neatly.

Does it matter that Lego is family-owned? Yes, Mr Moore says. There are the obvious advantages of being free of stock market pressures, but the structure also suits the culture. "You can tell a Lego man," he believes. "He will have a certain style that has a lot to do with the fact that his market is children. The company's beliefs are very much to do with doing the right thing for children."

But however hard Lego tries, it has never succeeded in giving children what they really want. "We've occasionally wondered if we could build deconstruction kits," Mr Moore says. "They would just be meant for knocking down."