"And people continue to surprise us with their creations, especially if you think that the brick has been around for more than 50 years." When Danish carpenter Ole Kirk Christiansen made the first interlocking brick in 1949, he took the name from the Danish phrase "leg godt", meaning "play well".
Lego's knobbly plastic bricks and yellow figures are now known all over the world. The business has stayed in the family, based in Billund, Denmark, a village with a population of 10,000. About 4000 Lego staff are based there and at the first Legoland theme park.
Knudstorp, who has been Lego's chief executive for 10 years and was the first person outside the Kristiansen family to run the company, says: "People just love to make things. It's deep in every human being." But things haven't always been so clear-cut. A decade ago, the business almost went under amid competition from high-tech gadgets and fears people no longer wanted to play with plastic building bricks.
Lego faced competition from Mega Bloks, a Canadian company that exploited the expiry of Lego's patents in the mid-1990s, and had also made unsuccessful and costly forays into children's clothing, jewellery and computer games.
The Danish company reported record losses of £144 million ($287 million) in 2003 and breached covenants with its bankers. Private equity groups circled and there was speculation Lego would be gobbled up by rival toy giant Mattel.
Photos / Thinkstock
Knudstorp, a former management consultant at McKinsey, was brought in to rescue the company. After writing up a "back to basics" plan, he set in motion the biggest corporate turnaround in recent history. He shed products which were performing inadequately and cut costs dramatically.
His radical approach paid off. After 10 years of growth, Lego announced record results for 2013. Profits before tax were £800 million and revenues had quadrupled over the past decade. This year, there are signs that record will be broken again after net profit rose by 14 per cent and Lego overtook Mattel to become the world's largest toy manufacturer. In 2012, 45.7 billion Lego bricks were produced at a rate of 5.2 million per hour. Lego says that on average, every person in the world owns 94 Lego bricks.
Tie-ins with a Lego film, Star Wars and Harry Potter have helped Lego connect with a new generation of young builders, although the company does not make it a part of company strategy. "We've learnt the hard way. The Lego film is very successful and there's more to come there, but we only have a partial ownership in that movie," says Knudstorp.
"If people want to create theme parks, books or video games, it's great because it's a way to embed the child even more in Lego but we don't consider them new growth avenues for the company. We will focus on the brick and bringing it to more and more children."
He adds that traditionally it's mothers and grandparents who buy toys but in the case of Lego, fathers also get involved. However, questions about gender representation have arisen recently, with Lego at the centre of a furore over its portrayal of women. The company was criticised for its Lego Friends play set, which critics said reinforced stereotypes with its pink and purple building blocks and explicitly girly themes.
Earlier this year, 7-year-old Charlotte Benjamin's strongly-worded letter to the company criticising the lack of strong female characters went viral. When Lego released a range of women scientists this summer, they sold out, although Knudstorp says the move wasn't to mollify feminist critics.
"Since the 1950s, Lego has been equally for boys and girls. There's no reason boys and girls shouldn't be building the same things. It's a horrible thing to say 'this is a boy's toy, this is a girl's'. We try to make a great creative toy and then we have some themes more targeted towards the typical girl or boy." He adds that the female scientist range came about because an adult Lego female fan, who happened to be a scientist, thought it would be fun to make a set that displays her daily work life. It became a hit when she put the idea forward on the Lego Ideas Platform, which allows people to propose ideas to the company and, if successful, they get 1 per cent of the revenue in return.
Asked whether there is any truth in the statistic that Lego buys its plastic for less than $1 a kilogram and turns it into bricks that sell for more than $75 a kilogram, Knudstorp says it's not a relevant distinction. "When I pay for a newspaper, I pay for what is written on it. When you buy plastics from Lego, you're not buying kilos of plastic - you're buying a wonderful play experience."
Lego is now on a push to expand overseas. It has opened offices in Malaysia and Turkey and is expanding rapidly in China. As the middle class grows, Knudstorp says Lego will be the number one toy for children in emerging economies.
"The wealthier the country, there is more focus on learning and creativity. Therefore the willingness and ability to spend on Lego will increase. In the past 40 years, the price has been unchanged, although it has increased in nominal terms. That's how I intend to keep it." He says he's loved Lego since he was a child, although he takes an unsentimental view of the bricks.
"The play is in the building. After creating something wonderful, what you should do is tear it apart and make something else."
Photo / Getty Images
Lego by numbers
915m
The number of ways to combine six eight-stud Lego bricks
1,750
The number of Lego items made every second during 2013
$19,249
The most expensive Legoitem, a platinum Avohkii Mask of Light
$601 million
Lego's record net profit in its latest results, a rise of 14pc
