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The FDA has approved Eisai and Biogen’s Alzheimer’s treatment Leqembi.
Medicare announced it will broadly cover Leqembi for patients enrolled in the program for older Americans, though several conditions apply.
Medicare coverage is a crucial step to help seniors with early Alzheimer’s disease pay for the treatment, which has a list price of $26,500 per year.
Leqembi slowed cognitive decline in a clinical trial, but the treatment is expensive and carries serious risks of brain swelling and bleeding.

The Food and Drug Administration on Thursday fully approved the Alzheimer’s treatment Leqembi, a pivotal decision that will expand access to the expensive drug for older Americans.
Medicare announced shortly after the FDA approval that it is now covering the antibody treatment for patients enrolled in the insurance program for seniors, though several conditions apply.

Leqembi is the first Alzheimer’s antibody treatment to receive full FDA approval. It is also the first such drug that to receive broad coverage through Medicare.
Leqembi is not a cure. The treatment slowed cognitive decline from early Alzheimer’s disease by 27% over 18 months during Eisai’s clinical trial. The antibody, administered twice monthly through intravenous infusion, targets a protein called amyloid that is associated with Alzheimer’s disease.
Medicare coverage is a crucial step to help older Americans with early Alzheimer’s disease pay for the treatment. With a median income of about $30,000, most people on Medicare cannot afford the $26,500 annual price of Leqembi set by Eisai without insurance coverage.
Medicare had previously only agreed to cover Leqembi for patients participating in clinical trials after the treatment received expedited approval in January. This policy had severely restricted access to the drug.
To be eligible for coverage, patients must be enrolled in Medicare, diagnosed with mild cognitive impairment or mild Alzheimer’s disease, and have a doctor who is participating in a data-collection system the federal government has established to monitor the treatment’s benefits and risks.

Eisai | via Reuters

Joanna Pike, president of the Alzheimer’s Association, the lobby group that advocates on behalf of people living with the disease, said although Leqembi is not a cure, it will help patients in the early stages of the disease maintain their independence, conduct their daily lives, and spend more time with their families.
“This gives people more months of recognizing their spouse, children and grandchildren,” Pike said in a statement Thursday. “This also means more time for a person to drive safely, accurately and promptly take care of family finances, and participate fully in hobbies and interests.”
But the treatment carries serious risks of brain swelling and bleeding. Three patients who participated in Eisai’s study died. FDA scientists have said it is unclear if Leqembi played a role in these deaths.
Alzheimer’s disease is the most common cause of dementia among older adults and the sixth leading cause of death in the U.S., according to the FDA.
Dr. David Knopman, a neurologist who specializes in Alzheimer’s disease at the Mayo Clinic in Minnesota, said Leqembi clearly demonstrated a benefit to patients in Eisai’s trial, though he cautioned the efficacy of the treatment was modest.
Knopman said appropriately diagnosed and informed patients should be able to decide for themselves whether they want to take Leqembi after weighing the benefits and risks of the treatment as well as the potential logistical challenges of finding a place to receive the twice-monthly infusions.

Medicare coverage

To receive coverage, Medicare is requiring patients to find a health-care provider participating in a registry system that collects real-world data on the drug’s benefits and risks. The system is controversial. The Alzheimer’s Association and some members of Congress are worried this requirement will create barriers to treatment.
There are concerns that the number of health-care providers participating in such registries will be limited, and that people in rural towns and other underserved communities will have to travel long hours to find such a provider.
The Centers for Medicare and Medicaid Services has set up a nationwide portal to make it easy for health-care providers to submit the required data on patients receiving Leqembi. The free-to-use portal went live moments after the FDA decision on Thursday.

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Rep. Anna Eshoo of California, the ranking Democrat on the House Subcommittee on Health, and Rep. Nanette Barragan, D-Calif., raised concerns in a letter to CMS last month that patients could struggle to find a doctor participating in the system.
Alzheimer’s is typically diagnosed with the help of a PET scan to detect the amyloid protein associated with the disease or in some cases with a spinal tap. Medicare currently only covers one PET scan per lifetime for dementia. It is unclear if the program plans to change that policy.
There’s also concern that there could be too few specialist physicians and locations to administer the infusions if Leqembi is broadly embraced as a treatment and patient demand for the antibody is high.
Some studies have estimated that wait times for antibody treatments like Leqembi could range from months to even years over the next decade depending on demand.
Tomas Philipson, who advised the FDA commissioner and CMS administrator during the second Bush administration, said the registry is an unnecessary hurdle and Medicare should drop it, but he doesn’t believe the requirement will create an insurmountable barrier to patients accessing Leqembi.
If demand for Leqembi is high, doctors will have an incentive to participate in the registry and the drug companies will want to help, said Philipson, an expert on health-care economics at the University of Chicago.
How high demand will be for Leqembi is uncertain, he said. Families worried about the serious side effects may opt not to take the treatment, while others will decide the benefits outweigh those risks, he said.

High cost

Leqembi’s price tag and the treatment’s benefit-risk profile are controversial.
Medicare patients treated with Leqembi will pay 20% of the medical bill after they meet their Part B deductible, according to CMS. Costs may vary depending on whether the patient has supplemental Medicare coverage or other secondary insurance, according to the agency.
Patients could face up to $6,600 in annual out-of-pocket costs for Leqembi even with Medicare coverage, according to a study published in the journal JAMA Internal Medicine. The treatment could cost Medicare up to $5 billion a year depending on how many people receive the infusions, the study estimated.
Sen. Bernie Sanders, I-Vt., chair of the Senate Health Committee, has called Leqembi’s price “unconscionable” and in a letter last month asked Health and Human Services Secretary Xavier Becerra to take action to reduce the cost.
Sanders said patient out-of-pocket costs for Leqembi would amount to a sixth of many seniors’ total annual income and noted the high cost of the treatment could increase premiums for everyone on Medicare.
Eisai says its $26,500 annual list price for Leqembi is lower than the company’s estimate of $37,600 for the total value of the treatment for each patient. The Institute for Clinical and Economic Review, a nonprofit that analyzes health-care costs, estimated in April it should be priced at $8,900 to $21,500 per year.
Though Leqembi could prove costly to Medicare, Philipson said delaying coverage of the treatment would result in significant increased health-care spending as people with mild Alzheimer’s disease, which can be managed at home, progress to more serious disease that requires expensive nursing home care.
Philipson and his colleagues at the University of Chicago estimated that delaying Medicare coverage of Alzheimer’s antibody treatments by one year would result in $6.8 billion in increased spending. By 2040, health-care spending would rise by $248 billion.

Clinical benefit

Thursday’s full FDA approval comes after a panel of six outside advisors voted unanimously in June in support of the drug’s clinical benefit to patients. The panel was unusually small because some members recused themselves due to conflicts of interest.
The American Academy of Neurology stated in a February letter to CMS that there is a consensus among its experts that Eisai’s clinical trial of Leqembi was well designed and the results were “clinically and statistically significant.”
Some nonprofit groups such as Public Citizen, a consumer advocacy organization, strongly opposed FDA approval of Leqembi. A representative from Public Citizen told the advisory panel that the evidence for the drug’s benefit does not outweigh significant risks of brain swelling and bleeding.
And representatives from the National Center for Health Research and Doctors for America, also nonprofits, told the panel that Eisai’s clinical trial did not include enough Black patients, who are at higher risk for Alzheimer’s disease.
Leqembi has technically been approved for the U.S. market since January, when the FDA cleared the treatment under an accelerated pathway. The FDA uses expedited approvals to save time and get drugs to patients suffering from serious diseases more quickly.
But Medicare refused to cover the Leqembi at that time, asking for more evidence that the expensive treatment had a real clinical benefit for patients that outweighed the risks.
The program’s cautious coverage policy stems from the FDA’s controversial 2021 approval of another Alzheimer’s antibody treatment called Aduhelm, also made by Eisai and Biogen.
The FDA’s advisory committee declined to endorse Aduhelm because the data did not support a clinical benefit to patients. Three advisors resigned after the agency’s decision to approve the treatment anyway.
Knopman is one of the advisors who resigned over the FDA’s decision on Aduhelm. He said the data for Leqembi is different. Eisai conducted a clean trial that showed the antibody had a modest clinical benefit for patients, Knopman said.
An investigation by Congress subsequently found that the FDA’s approval of Aduhelm was “rife with irregularities.”
Sanders, in his letter to Becerra, said the FDA “has a special responsibility to restore the public trust after its inappropriate relationship with Biogen during the agency’s review of a prior Alzheimer’s drug, Aduhelm.” More

Levi Strauss narrowly beat Wall Street’s estimates after reporting a steep drop in U.S. wholesale revenue.
The blue jean retailer slashed its profit outlook for the year and expects wholesale revenues in the U.S. to continue to fall as it shifts its business towards a direct-to-consumer model.
The apparel company now expects adjusted earnings per share of $1.10 to $1.20, compared to a previous range of $1.30 to $1.40.

A pair of Levi’s selvedge denim jeans arranged in Louisville, Kentucky.
Luke Sharrett | Bloomberg | Getty Images

Levi Strauss on Thursday drastically cut its profit outlook for the year after the apparel retailer reported a steep drop off in wholesale revenues and soft sales in the U.S., its largest market. 
The blue jean seller saw bright spots, however, in its direct-to-consumer sales and China market.

Shares dropped more than 6% in extended trading.
Here’s how the company did in its fiscal second quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

Earnings per share: 4 cents, adjusted, vs. 3 cents expected
Revenue: $1.34 billion vs. $1.34 billion expected

The company’s reported net loss for the three-month period that ended May 28 was $1.6 million, or 0 cents per share, compared with a net income $49.7 million, or 12 cents a share, a year earlier. During the quarter, Levi reported adjusted earnings of 4 cents per share.
Sales dropped to $1.34 billion, down 9% from $1.47 billion a year earlier. 
Halfway through its fiscal year, Levi slashed its full-year profit outlook. It now expects adjusted earnings per share of $1.10 to $1.20, compared to a previous range of $1.30 to $1.40. Analysts had expected adjusted earnings of $1.29 per share, according to Refinitiv.

Levi also tightened its revenue outlook for the year. The retailer now expects sales to grow between 1.5% to 2.5% compared to a prior range of 1.5% to 3%. Analysts had expected growth of 2.6%, according to Refinitiv.
The dismal outlook was attributed to a number of factors but was driven by an expected slowdown in U.S. wholesale revenues, which plunged 22% in the quarter, Levi’s chief financial and growth officer Harmit Singh told CNBC.
Wholesale revenue has fallen because of a consumer slowdown impacting the retail industry at large and internal issues at Levi that resulted in items being out of stock, said CEO Chip Bergh.
Bergh noted the company has grappled with high inventory levels, which created congestion at its distribution centers and made it harder to fill orders for wholesale partners.
“Now our inventory levels are improving significantly, that is improving our customer fill rates, which is improving our in stock position,” he said.
“We’re now partway into Q3 already, we are seeing our US wholesale sell out trends improve and a lot of that is simply due to the fact that we have better in-stock position today,” Bergh added.
The company is also planning on taking price reductions on about a half dozen of its more price sensitive items, such as its 502 and 512 jeans, moves that will cut into its margins in the quarters ahead. The jeans will drop in price from $79.50 to $69.50 but are still higher than their pre-pandemic price of $59.50, Bergh said.
He said the company raised prices relative to competitors past the point where it could continue to grow market share, “so we’re just narrowing that price gap versus competition back to the historical levels with this $10 rollback.”
Bergh noted the price reduction will only show at stores where Levi has wholesale partnerships, such as Macy’s, and won’t be seen at its owned stores or internationally.
Levi is also planning for a higher tax rate in the second half of the year, a trend it said contributed to the lower outlook. Levi’s effective tax rate during the quarter was 78.4%, compared to 36.1% in the year-ago period.
“Our outlook on U.S. wholesale, even with the pricing moves that we’re taking and everything else, we’re being cautious about it,” said Bergh. “Just in light of the recent performance, and the current macro headwinds, and just the consumer dynamics in this market.”
While the steep drop in wholesale revenue is hurting Levi in the short term, shifting sales away from wholesalers is part of the company’s larger strategy, said Bergh. The push is similar to Nike’s playbook.
“Our focus is to drive our direct-to-consumer business, including e-commerce, so our own stores, our franchise partner stores, which actually rolls up through wholesale globally, and our e-commerce business. That is our strategic priority,” said Bergh.
“It has better structural financials, higher gross margin, we’re in control of the consumer experience,” he said.
During the quarter, DTC revenues increased 13% and were driven by growth in both company-operated stores and online sales. E-commerce revenue increased 20% in the quarter.
When Bergh first joined Levi about 12 years ago, wholesale customers such as Macy’s and Kohls, accounted for more than 40% of Levi’s total business, but these days, it’s less than 30%, he said.
The slowdown in wholesale revenue contributed to a 22% sales drop in the Americas, where Levi saw $609 million in revenue, below estimates of $639.5 million, according to StreetAccount. Sales fell 2% in Europe, where the company reported $361 million in revenue, but they were higher than the $344 million analysts had expected, according to StreetAccount.
Sales were rosier in Asia, where revenue was up 18% in the quarter at $262 million, driven by strength in the company’s DTC channel. It beat Wall Street’s estimate of $230.2 million, according to StreetAccount.
Read the company’s full earnings release here. More

Nikola asked its shareholders for approval to increase the total number of shares it can issue.
While a majority voted in favor, the total number of shares voted fell short of a legally-required threshold.
But Delaware may change that law shortly, and Nikola will try again in August.

Nikola TRE FCEV2
Courtesy: Nikola

Electric truck maker Nikola is still short of winning shareholder approval to issue new stock and has once again adjourned its annual meeting to try to win more support, the company said on Thursday.
Nikola had adjourned its June 6 annual meeting until Thursday to try to drum up more support for the proposal. Current law in Delaware, where Nikola is incorporated, requires approval from owners of at least 50% of the company’s outstanding shares to pass a share increase proposal.

However, that law may change on Aug. 1. Under amendments approved by Delaware’s state legislature and now awaiting signature by the state’s governor, a company incorporated in the state will need only a simple majority of shares voted to approve an increase in authorized shares.
Nikola’s meeting is now adjourned again until 4 p.m. ET on Aug. 3, when the new rule may be in effect. Nikola said that proposal would have passed on Thursday had the new rule been in place.
Nikola is asking its shareholders for approval to double its total shares authorized, to 1.6 billion from 800 million, to give it flexibility to raise cash by issuing new shares as needed.
The company is expected to launch the long-awaited hydrogen fuel cell version of its Tre electric semitruck later this month. As of May 9, it had 140 orders in hand for the new truck. Nikola is hoping to raise additional cash to help fund the new truck’s production ramp and to build out its hydrogen refueling network in the U.S. and Canada.
Nikola will report its second-quarter results before the U.S. markets open on Aug. 4. More

Shake Shack founder Danny Meyer said he doesn’t think customers need to tip when picking up takeout or a cup of coffee.
“If you’re just taking out food, and it was just a transaction — I give you money, you give me a cup of coffee — I don’t think there’s any obligation to tip whatsoever,” Meyer said on CNBC’s “Squawk Box.”

Restaurateur Danny Meyer doesn’t think customers need to tip when they pick up takeout or buy coffee.
“If you’re just taking out food, and it was just a transaction — I give you money, you give me a cup of coffee — I don’t think there’s any obligation to tip whatsoever,” Meyer said on CNBC’s “Squawk Box” on Thursday.

Meyer founded Shake Shack and serves as chair of its board. The burger chain added tipping to its restaurants last year. He also founded Union Square Hospitality Group, which mostly operates full-service restaurants. The company’s eateries include Union Square Cafe, Gramercy Tavern and fast-casual chain Daily Provisions.
As more businesses adopt Square’s and Toast’s point-of-sale systems, customers are getting more used to being prompted to tip as they pay. But some leave feeling overcharged or confused about how much they should tip.

CEO of Shake Shack Randy Garutti (Left) and founder and Chairman Danny Meyer are viewed on the floor of the New York Stock Exchange (NYSE) on January 30, 2015 in New York City.
Spencer Platt | Getty Images

At full-service restaurants, some advocacy groups like One Fair Wage are pushing to eliminate the tipped wage. Tipping opponents say that the practice results in unstable income for servers and can fuel sexual harassment and racial discrimination.
President Joe Biden pledged to end the tipped wage on the campaign trail in 2020. A handful of states, including California, have already banned the pay system.
Meyer has a complicated history with tipping. In 2015, he announced his restaurants would no longer accept tips in an effort to narrow the income gap between servers and cooks. Five years later, as many of Meyer’s restaurants reopened their doors during the Covid pandemic, he reversed the decision.
“It was inhumane to tell our servers that you can’t accept that expression of gratitude,” he said Thursday. More

Nikola is hoping to sell stock to raise additional cash.
Before it can sell new stock, it needs shareholder approval to increase its total shares outstanding.
The company will reveal Thursday whether it has secured enough votes to proceed.

Nikola TRE FCEV2
Courtesy: Nikola

Electric heavy-truck maker Nikola will find out later Thursday whether its shareholders have approved its plan to raise money by selling more stock.
Nikola hopes to raise more capital to help ramp up production of its new fuel-cell-powered electric heavy truck, set to launch later this month. But before it can sell additional stock to raise money, it needs to increase the total number of shares it’s authorized to issue to 1.6 billion from 800 million. That move requires shareholder approval.

Nikola first put the plan to its shareholders at its annual meeting in June. While 77% of those who voted were in favor, there weren’t enough total shares voted to pass the proposal. Nikola is incorporated in Delaware, and under that state’s law, at least half of the total outstanding shares of a company’s common stock must be voted in favor for a share-increase proposal to pass.
The company adjourned its annual meeting for a month to try to get more of its shareholders to cast votes. The meeting will resume at 4:00 p.m. ET on Thursday, at which time Nikola will reveal whether the proposal passed – or if it will adjourn again to try to get more shareholders to vote.
This isn’t the first time that Nikola has had to adjourn a shareholder meeting to drum up more votes for a proposal to sell new stock. Last year’s annual meeting was adjourned three times before Nikola won enough votes to raise its total shares outstanding to 800 million from 600 million.
Nikola said Wednesday that it built 33 of its battery-electric Tre semitrucks in the second quarter and delivered 45 to its dealers. Its dealers sold 66 trucks to customers during the period, and a total of 99 since the beginning of 2023.
Nikola said on May 9 that it suspended production of the battery-electric Tre to focus on launching the fuel-cell version of the Tre, which has significantly longer range. At the time, it said that 12 fleet customers had ordered a total of 140 of the upcoming fuel-cell trucks.  

Nikola is working to build out a network of hydrogen refueling stations to support those upcoming fuel-cell trucks. It said on Tuesday that the California Transportation Commission had awarded it a $41.9 million grant to build six of those stations in southern California, in collaboration with the state’s department of transportation.
Nikola is expected to report its second-quarter results in early August. More

Ford Motor’s second-quarter sales increased 9.9% from a year earlier, spurred by significant sales gains of its F-Series trucks.
The Detroit automaker Thursday reported sales of 531,662 vehicles from April through June, up from subdued results a year ago.
Ford’s EV sales during the quarter declined 2.8%, to 14,843 vehicles, as supplies of the Mach-E were short.

Ford Motor Company’s electric F-150 Lightning on the production line at their Rouge Electric Vehicle Center in Dearborn, Michigan on September 8, 2022. 
Jeff Kowalsky | AFP | Getty Images

DETROIT – Ford Motor’s second-quarter sales increased 9.9% from a year earlier, spurred by significant sales gains of its F-Series trucks.
The Detroit automaker Thursday reported sales of 531,662 vehicles from April through June, up from subdued results of 483,688 cars and trucks that were weighed down by supply chain problems in the year-ago period.

Sales of Ford’s F-Series trucks jumped 34% during the second quarter compared with the prior year, including sales of an all-electric version of the F-150 that more than doubled to 4,466 units sold.
Ford’s overall truck sales, a key driver of the company’s profits, were up 23% in the first half of the year from the same period in 2022. All-new Super Duty trucks and higher production of other models helped drive the gain, the company said.
“Ford achieved both best-selling brand and truck for six consecutive months this year on the strength of F-Series, vans, our new Escape, and F-150 Lightning,” said Andrew Frick, Ford vice president of sales, distribution and trucks, in a statement. “Our EV sales continue to grow. Improved Mustang Mach-E inventory flow began to hit at the end of Q2 following the retooling of our plant earlier this year, which helped Mustang Mach-E sales climb 110% in June.”
However, Ford’s EV sales during the quarter declined 2.8%, to 14,843 vehicles, as supplies of the Mach-E were short amid an overhaul of the factory that makes the EV. Ford revamped that plant to increase production of the Mach-E during the quarter, part of a larger plan to significantly boost its electric vehicle production and turn a profit on its EV business by the end of 2026.
Ford’s electric vehicle sales remain small for now: EVs represented just 2.8% of the automaker’s total sales during the second quarter, while traditional internal combustion engines represented roughly 91% of sales. Hybrids represented 6.5% of sales. More

Volkswagen said on Thursday that it will begin testing self-driving electric vehicles in Austin, Texas, later this month.
It will deploy about 10 of its ID Buzz electric vans equipped with autonomous-driving systems developed with Mobileye by the end of 2023.
For now, all of its self-driving vehicles will have human safety drivers on board while testing.

Volkswagen Group of America (VWGoA) starting its first autonomous vehicle test program in Austin beginning in July 2023.
Courtesy: Vokswagen AG

Volkswagen said Thursday that it will begin testing self-driving electric vehicles in Austin, Texas, later this month.
The German auto giant said it will deploy about 10 of its ID Buzz electric vans equipped with autonomous driving systems developed with Mobileye by the end of 2023. The first two of those vans are already in the U.S. and will begin testing before the end of July, it said.

The self-driving ID Buzz vans are equipped with lidar, radar and camera systems. The vehicles are “geofenced,” meaning they will operate only in specific areas of the city that have been carefully mapped, Volkswagen said.
For now, all of its self-driving vehicles will have human safety drivers on board while testing.
“We selected Austin as the first U.S. hub, as the city has a track record for embracing innovation and offers a conducive climate for the testing of autonomous vehicles,” said Katrin Lohmann, the executive leading Volkswagen’s self-driving efforts in the U.S.
Lohmann said that the company expects to expand its Austin fleet and add testing operations in at least four more U.S. cities over the next three years.

Volkswagen Group of America (VWGoA) starting its first autonomous vehicle test program in Austin beginning in July 2023.
Courtesy: Vokswagen AG

The move is the latest in a series of steps the auto giant has taken to revamp its self-driving strategy in recent months, including a deeper partnership with Mobileye and new investments in MOIA, its Europe-based ride-sharing service.

While the company has been working toward a robotaxi service in Europe, it isn’t planning a ride-sharing service of its own in the U.S. as of now. Instead, it plans to offer autonomous ID Buzz vans and fleet management capabilities to other businesses offering ride-sharing or delivery services.
Along with Ford Motor, Volkswagen was an investor in the now-defunct Pittsburgh-based self-driving startup Argo AI. For a while, Argo was considered a leader in the race to develop fully autonomous vehicles – but Ford and Volkswagen decided to wind down the company in October of 2022, citing spiraling costs and differences around strategy.
Ford in March launched a new subsidiary, called Latitude AI, to expand on its BlueCruise hands-free highway driving system. That unit includes about 550 employees who previously worked for Argo AI.
Volkswagen has also hired some of Argo AI’s former employees for its U.S. self-driving effort, it said.

Volkswagen Group of America (VWGoA) starting its first autonomous vehicle test program in Austin beginning in July 2023.
Courtesy: Vokswagen AG More

In London’s Design Museum, an exhibition currently on display by Ai Weiwei, a Chinese artist, includes a 15-metre-long work called “Water Lilies #1” based on the triptych by Claude Monet. Look closely and it is made of 650,000 Lego bricks—which integrates Monet’s impressionism into what Mr Ai calls a “digitised and pixelated language”. That is a good analogy for Lego itself. The Danish toymaker is on a long-term mission to digitise and pixelate its own fount of human creativity: the plastic brick. Three digital experts from McKinsey, a management consultancy, profile Lego’s transformation as part of their new book, “Rewired”, which outlines the dos and don’ts for businesses rebuilding themselves for the age of digitisation. Beware: the language of digital transformation is treachery to common English. It sounds more like corporate yoga than a marathon of software development. Executives need to be aligned. Teams are pods. Be agile. Define your downward-facing domains. McKinsey, drawing lessons from 200 firms, provides clarity despite the mumbo jumbo. But to make it easier on the ear, Schumpeter will use Lego as a guide to help illustrate some of McKinsey’s insights. Call it the yellow-brick road to generative artificial intelligence (AI). First, it is a long hard road, littered with failures. Lego is a rare success story. Its journey started in 2003 with a near-death experience when, amid the rise of video-gaming, it panicked and went on a madcap innovation spree that almost bankrupted it. To fix one of the main problems, chaos in the supply chain, it introduced a single enterprise-software system globally. The system survives to this day, scaling up as Lego expands into new markets, such as China, new formats, such as e-commerce, and new factory locations, such as America and Vietnam. To prepare for a world of pixelated play, Lego launched digital games on the “Star Wars” theme and developed franchises of its own, such as Ninjago and Chima, with video games, films and TV shows that turned into hits.In 2019 Lego launched a new five-year transformation drive aimed at adapting to a world of direct-to-consumer sales, online versus big-box retailing, and digital play in the screen age. The timing was inspired. It started shortly before the world went into lockdown as a result of the covid-19 pandemic, when having a digital strategy became a matter of life and death. It quickly produced results. Although it is hard to strip out the exact contribution of digitisation, since 2018 Lego’s sales have almost doubled, to more than $9bn, outpacing those of Mattel and Hasbro, its main rivals. In 2022 visits to its online portal rose by 38%. It has teamed up with Epic, a video-gaming firm, to explore the metaverse. Yet the journey is still a hard one. The difficulties include moving from a system where success is measured by sales store-by-store to one judged by how good the company is at selling online across the globe, how it is ranked on Google and Amazon, and how effective its software is. The McKinsey authors emphasise such challenges on the first page. In a recent McKinsey survey, they say, about 90% of companies had some kind of digital strategy, but they captured less than a third of the revenue gains they had anticipated. Moreover, the success rate is more uneven within industries than it is between them. The best retailer may be more digitally productive than an average high-tech firm, and the worst retailer may be as bad as the worst government entity. To make a success of it requires learning the second lesson: what McKinsey calls having a top-down strategy and a road map (or in Lego terms, a clear instruction manual). For Lego, it helped that the family-owned business had long had a command-and-control approach to management. Its digital strategy involved a single plan, created by a 100-strong executive team and approved by the board, that encompassed the whole organisation. McKinsey notes that when transformations stall, it is often because executives talk past each other, have pet projects, spread investments too thin or have “more pilots than there are on an aircraft-carrier”, as Rodney Zemmel, one of the authors, puts it. It also needs to be ambitious enough to generate momentum, with financial results measured constantly. McKinsey’s rule of thumb is that a digital transformation should aim to increase earnings before interest, tax, depreciation and amortisation by 20% or more.Third comes the question of whether to build a new digital infrastructure or buy it. The answer is mostly to build. Rather like Lego’s eight-studded bricks—six of which can be combined 915m ways—there are many software applications on the market that can be combined to create proprietary systems. But the job of orchestrating them should not be outsourced. Take Lego: it started its latest digital transformation with engineers making up less than 30% of staff. Since then it has increased the number of systems and software engineers by 150%. Mr Zemmel notes that five years ago, the trend was to hire from Silicon Valley. That was “a good way to change the company dress code, but not a great way to change the company culture”. Since then more companies have been retraining their existing tech workers and embedding them throughout the organisations in more front-line roles. The gen-AI Weiwei way Some of these lessons apply to generative AI. Mr Zemmel says it is relatively easy to launch pilots with the technology, such as the humanlike ChatGPT. The problem is embedding the AI models across the organisation in a safe, unbiased way. It needs a top-down strategy. As for building or buying, Mr Zemmel says it may be a “waste of time” to build proprietary models when the software industry is doing that anyway. The key is to work in-house on the things that give you a decisive advantage in the market. For Lego, AI is still in the future, though some of its brick enthusiasts are already using ChatGPT-like programs to come up with new ways of building things. Mostly they fail, but one day anyone may be able to create a Monet. The yellow-brick road is unending. ■Read more from Schumpeter, our columnist on global business:Meet the world’s most flirtatious sovereign-wealth fund (Jun 29th)The new king of beers is a Mexican-American success story (Jun 20th)What Tesla and other carmakers can learn from Ford (Jun 13th)Also: If you want to write directly to Schumpeter, email him at [email protected]. And here is an explanation of how the Schumpeter column got its name. More