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Lego A/S's top boss says he is eager to hear more business proposals when taking on a new assignment in January. He warns, however: his job will also be to say no.

After a 12-year tenure as chief executive of the Danish toy brick-maker, Jø rgen Vig Knudstorp has been appointed chairman of a new umbrella-entity, the Lego Brand Group, where he will be the chief custodian of the four-letter brand, from merchandising to charity.

His new role, he says, will be to expand Lego into uncharted business territory, while also avoiding putting the brand name in the wrong places.

"I'm going to do brand protection and development, in parallel," he said in an interview. "Our history is fraught with mistakes, and we don't plan to repeat them."

Mr. Knudstorp has firsthand experience of how botched diversification can hurt a company and its brand.

When he took office as Lego CEO in 2004, the family-owned company was in pieces, with dwindling sales and swelling losses. In a bid to generate new revenue streams, Lego had ventured into running theme parks, launching clothing lines, dolls, baby toys and numerous other products with little commercial success.

Many companies are grappling with how to harness a brand without harming it.

At the turn of the decade, Finnish mobile-game maker Rovio Entertainment Ltd. entered others activities like films, theme parks and various merchandises, hoping that its 'Angry Birds' game would help it become a Walt Disney Co.-style business. It worked for a while: In 2013, nongame activities brought in half of Rovio's revenue. But as interest in 'Angry Birds' games diminished, the brand lost some of its appeal, forcing Rovio to slash jobs.

German sporting goods firm Puma SE only recently recovered from years of terrible sales and uncontrolled diversification that tarnished its image. In the early 2000s, aiming to harvest the fruits of a well-recognized brand, Puma began putting its name on anything from bikes to perfumes and sunglasses. Not until it returned to its core, sportswear, have numbers again turned black.

During Mr. Knudstorp's time as CEO, Lego got rid of all noncore assets and took a cautious approach to investments. Films, videogames and theme parks are now largely handled by third-party companies.

"There may be a limit to how much Lego can really do outside of construction toys," said Matthew Hudak, an analyst at the Euromonitor consultancy, adding, "It may be that consumers interest in the Lego brand does not extend too far outside of the construction toy category."

Mr. Knudstorp has some ideas. The biggest untapped growth potential for Lego lies in the digital world, he says, adding that potential partners keep knocking on his door.

Lego has been approached to develop games similar to Sweden's Minecraft, now owned by Microsoft Corp., that would allow children to manipulate bricks to learn computer coding. Other proposals include different ways of combining phone scanning technology with children's bricks play.

"There is an endless range of opportunities," Mr. Knudstorp said.

While focusing on the brand, Mr. Knudstorp said he intends to retain some down-to-earth duties. These include meeting partners in countries like China to guide them in local business decisions and spending more time with retail and media associates like Toys-R-Us, Inc. and Walt Disney Co.

Lego Chief Operating Officer Bali Padda, who will take over as CEO from Jan. 1, said he wasn't worried about him and Mr. Knudstorp stepping on each other's toes.

"It's the brick-based business that I'm really wanting to drive," he said. "The other things, he can do."

Write to Ellen Emmerentze Jervell at ellen.jervell@wsj.com

(END) Dow Jones Newswires

December 08, 2016 05:45 ET (10:45 GMT)

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