Mattel is the number one toy maker in the

world that has outsourced their production

to China like other major companies.
However, in 2007 Mattel recalled 967,000
of its Chinese manufactured toys due to
excess levels of lead found in on the surface
paint of their toys. This was caused by an
impossible to trace supply chain in China
which is costing Mattel its brand image and
a dramatic decline in consumer confidence.

Mattel and
the Toy
Recalls
CASE STUDY

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Table of Contents
Symptoms ............................................................................................................................................................................... 2
Problem Statement ................................................................................................................................................................. 2
PEST Analysis ........................................................................................................................................................................... 2
Recommendation.................................................................................................................................................................... 3
TOWS Analysis......................................................................................................................................................................... 4
GEs Nine Cell Business Screen ............................................................................................................................................... 5
PORTER Analysis...................................................................................................................................................................... 5
PORTER Internet Analysis ....................................................................................................................................................... 6
BEAM Analysis ......................................................................................................................................................................... 7
Mattels Vision ........................................................................................................................................................................ 7
Pre-Implementation: Similar Strategic Changes from other Companies ............................................................................... 8
Good Strategies................................................................................................................................................................... 8
Bad Strategies ..................................................................................................................................................................... 8
Implementation ...................................................................................................................................................................... 9
Gap Analysis ............................................................................................................................................................................ 9
Technological Gap ............................................................................................................................................................... 9
Organizational Gap ............................................................................................................................................................. 9
People Gap .......................................................................................................................................................................... 9
Model: Beatty and Ulrich: Re-energize the mature organization ......................................................................................... 10
Model: Disruptive Change by Christensen and Overdorf ..................................................................................................... 11
Model: Sawhney & Wolcott 12 Dimensions of Business Innovation ................................................................................. 12
Model: Spector Inspiring Change ....................................................................................................................................... 12
Model: Orlikowski & Hofman Improvisational................................................................................................................... 13
Model: McKinseys 7s .......................................................................................................................................................... 14
Action Worksheet: Anticipatory Change............................................................................................................................... 15
Final Thoughts and Summary................................................................................................................................................ 15
Appendix A: PEST Analysis .................................................................................................................................................... 16
Appendix B: TOWS Analysis .................................................................................................................................................. 17
Appendix C: PORTER Analysis ............................................................................................................................................... 18
Appendix D: PORTER Internet Analysis ................................................................................................................................. 20
Appendix D: BEAM Analysis .................................................................................................................................................. 21
Appendix E: Technological Gap ............................................................................................................................................. 22
Appendix E: Organizational Gap ........................................................................................................................................... 23
Appendix G: People Gap ....................................................................................................................................................... 24

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Symptoms

Conform to United States Standards as it is strictly governed by CPSC monitoring the safety of toys and other children
products. The reputation of a company can be destroyed if it violates the CPSC rules and can be closed by the CPSC for
producing unsafe products. As production standards are different between China and the United States it is important
that the standards are met to reduce recall on China produced toys.
Product Recalls has been a major issue with Chinese-made toys and children products. As Mattel recalls 967,000
Chinese-made children toys in 2007, it projects a poor image of the product thus decrease consumer confidence.
Mattels recall procedure was also long and inefficient. Mattel has discovered the defects in the products due to
excessive lead quantities and loose magnets after the sale of almost 1 million products.
Contractors and Suppliers in China are extremely hard to trace through the supply chain. Mattel has contracts with 37
principal vendors; however the suppliers and subcontractors are untraceable. This puts the quality of Mattels products
in jeopardy as they cannot properly manage the supply chain in the production country.
Organizational Values are low because Mattel has little control over its Chinese manufacturers. They care little about
the company standards and are little educated about the impact that uncertified parts can cause. In the United States,
the layoff of 24,900 employees in 12 years has driven down employee motives and Morales because they feel that they
may lose their jobs any day. As a result, poor company values will produce low quality products.

Problem Statement

How can Mattel successfully differentiate in the United States to offer products that conform to United States
standards, while decreasing product recalls, properly managing their contractors and suppliers, to efficiently implement
the restructure of the organizational values of the company?

PEST Analysis

The PEST model analyzes the environment on political, economic, sociocultural, and technological factors to identify
opportunities and threats in the markets. It also generates possible strategy(s) that can be implemented to provide an
advantage to a companys implementation.

Political factors that affect the toy manufacturing and retailing industry consists of the regulations set by the U.S.
Consumer Product Safety Commission (CPSC). This commission board aims to reduce toy related injuries and death of
children in the United States. It tests toys and children products for excess harmful materials that were used in the
production that could potentially affect a childs health and well-being. If potential hazards are found by the CPSC, then
by law in the United States, the company will have to recall all products sold and seize production. However, the
regulation between the United States and China are dramatically different. The minimal regulations in China have
caused massive recalls of all Chinese-made products. The lenient policies in China have created a hard to track supply
chain in the manufacturing process. However, if Mattel is not able to have Chinese-made toys comply with United States
standards, then they will lose 100% of their domestic market share, partnership, and licensing agreements; as well lose
their creditability of their products which will result in a decline of consumer confidence.

Therefore, Mattel faces potential threats from the CPSC regulations in the United States if Mattel products continue to
increase in the future. Potential hazardous toys may also decrease consumer confidence creating a negative image
associated to Mattel toys. Lack of government policies in China creates untraceable supply chains in China; the
continuance of subcontracts will create a poor representation of Mattels brand. However, there are opportunities to
create toys with superior product quality, and implementation of SCM and CRM technologies in China.

Economic factors that affect the toy manufacturing and industry consist of the phenomenal economic growth in China
that attracted foreign investors to begin offshore production in China. As the country enters the Industrial age, it
supplied cheap labour and low government regulation on production. Financially it provided a high ROI, which for
investors, began closing down domestic production plants. However, a decline on product quality has appeared in the
manufactured products which would be hard for Mattel to differentiate from its competitors. Within 12 years of

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offshore production. This can cause a decrease in US to Yuan exchange rage as well as increasing affluence in the
employees who will begin to demand for higher wages as investors increase in the market.

Therefore, Mattel faces potential threats of decreasing exchange rate between US dollars and Chinese Yuan, and
increase affluence of the Chinese employees. However, Mattel can take advantage of the opportunities low labour cost
in China to increase their ROI and open up Mattel retail stores in the United States to differentiate its product to its
competition.

Sociocultural factors consist of the company image viewed by domestic citizens that have the possibility of improving or
decrease the companys corporate responsibilities. In 2007, Mattel laid off 24,900 employees in the United States which
the results were not specified. As a company moves to offshore production and leaving the domestic market, it sends a
message that it does not care for its employees well-being. Company values begin to decline as their remaining
employees do not believe in the company any more. An opportunity for Mattel is to open quality control centers and
retail outlets to differentiate its product from competitors. This can be done by repositioning its current employee base
to other parts of the company. As they feel that their future is cared for, company values will begin to increase. However,
restructuring the organizational structure will be required.

Therefore, Mattel faces potential threats of decreased in consumer confidence in handling the recall process, and
project poor corporate responsibilities in assuring a future for their laid off employees. However, Mattel can take
advantages of the opportunities to open up Mattel retail stores in the United States to reposition their employees, and
produce toys with superior product quality to increase child health and safety, and fund toy related events to become a
good corporate citizen in giving back to the community.

Technological factors that affect the industry consist of proper implementation of Supply Chain Management (SCM) and
Customer Relations Management (CRM) technologies to help improve production efficiencies. Since Chinas supply chain
is vast and hard to track, SCM technology will assist Mattel in tracking where every shipment is coming from. They will
be able to identify uncertified resources and stop the production as required. It will help bring Mattel closer to its
Chinese suppliers by understanding their needs and teaching them Mattels company values. Implementation of SCM
can also imply that if manufactures fail to abide from the rules, then they will face strict consequences such as the
termination of their contract. CRM provides Mattel to keep a good relationship with their major distributors such as
Wal-Mart and Target. As their production and distribution network begin to develop, they can also look towards growing
sectors of video games.

Therefore, Mattel faces the threat of untraceable supply chains, emerging video game industry, and the internet.
However, Mattel can take advantage of the opportunities of implementing SCM and CRM technologies to better
manage their supply chain in China, shift into the video game industry, and shift to ecommerce though Mattels
website to provide low cost toys and children product.

Recommendation

In order to address the issues found in our PEST analysis and problem statement, Mattel should implement a strategy
formed by weaknesses and opportunities. This is recommended because sometimes key external opportunities exist,
but a firm has internal weaknesses that prevent it from exploiting these opportunities.1

Recommended strategy for Mattel to implement is WO2 Differentiation through Superior Product Quality from the
TOWS Analysis. This is to:
Form joint venture with Lee Der to implement Mattels organizational values in order to increase employee morale, and
produce high quality product that conform to CPSC regulations. Mattel can implement SCM and CRM technologies to
better manage their supply chain. The joint venture can ensure product quality with more frequent audits of Lee Der.
W1, W3, W4, W5, O1, O2, O3, O4

1
January 6, 2011 Lecture Notes Package from ORGB 6500. Instructor: Ike Hall.

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Therefore, WO2 Differentiation through superior product quality Strategy is recommended because it deals with the
most important weaknesses in the organization between Mattel U.S and its production plants in China. At the same time
it takes advantage of all the possible opportunities in Mattels segment in the toy manufacturing industry. This strategy
aims to aims towards all the symptoms with the ability to resolve the issues.
Conform to United States standards a joint venture would allow Mattel managers to oversee the production
operation while conducting more frequent audits to sure the exported products meet U.S CPSC standards
before it ships out.
Product recalls gaining more control of the production plants in China, it can develop a strategy to properly
recall products along with a public apology to ensure consumer confidence in the company. With Mattel in
China, it should be able to increase production standards.
Contractors and suppliers Chinas 10,500+ manufacturers and 37 contractors can be closely monitored by
using SCM technologies that Mattel must implement during the joint venture. This can closely tie together the
network creating a better relationship between the firms. Strict consequences such as contract termination will
be enforced my Mattel if uncertified manufactures were subcontracted.
Organizational value the difference between Mattel US and Chinas organizational values are vastly different
Mattels managers can educate Chinese employees on the companys organizational values and encourage
health and safety aspects of manufacturing toys and children products.

TOWS Analysis

The TOWS Analysis demonstrates that Mattel would benefit through a joint venture of Lee Der production in China. A
joint venture is recommended into entering China due to political issues with foreign investors. A foreign company
established in China requires that 51% is Chinese owned. A joint venture in China with Lee Der would allow Mattel to
implement the strategy WO2 differentiation through superior product quality. This joint venture would also provide
Mattel to educate Lee Der with Mattels organizational values and successfully manage Chinas supply chain with SCM
technologies.

China is a very attractive market for foreign investors due to the low cost of labour and government regulations. The
world currency plays in their favour when trading against Chinese Yuan. However, due to the low legal structure of the
Chinese manufacturing businesses, the supply chain in China is extremely hard to track. In 2007, there were 1,019 toy
manufacturers in the United States in comparison to 10,500+ toy manufacturers in China. This would give an idea of the
level of difficulty to properly track and manage the supply chain in China. Mattel has 37 principal vendors who made
toys for the company, however, subcontracted company through the principal vendors are untraceable. China remains
attractive to Mattel and has great potential for Mattels production growth if the process can be properly monitored.

A joint venture with Der Lee would implement Mattels organizational values, standards, and abide to CPSC regulations.
Mattel reduces the risk of toy recalls in the United States if they have invested into the company and become a
stakeholder. Mattels presence in the company can educate the staff on the effects of poorly made products that can
cause Mattel and Lee Der to go out of business. With the companys investment they will be able to properly implement
the SCM technology required to monitor their supply chain to ensure that uncertified manufactures are not a part of it.
Mattel will also be able to conduct audits more often to test for any potential hazardous materials in the toys and
children products. The increased number of audits also reduces defective toys from reaching the United States and
recalled in China before being shipped off. Mattels partnership in this joint venture can also put Mattels renounced
leadership skills back into practice.

The joint venture between Mattel and Lee Der can be an effective tactic for Mattel to follow through on its strategy of
differentiation though superior product quality.

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GEs Nine Cell Business Screen

Industry Attractiveness
The world toy market size estimate to be US$71 billion business in 2007, with a growth of 6% compared with year before.
The total market share in North America was about US$24 billion, while the European markets is US$ 21.3 billion of
global toy sales with a growing of 5% each year. The market turn more attractive with the growth of toy market in Asia,
China and India, which expected to growth 25% in 2007. Over the past year, the US toy maker has been shifted their
production to the low cost countries to reduce the unit cost in order to obtain a economies of scale. While the domestic
operation will be focus on the product design, marketing, research and development and other high value activities.
Other than the market size and growth rate, and company that enjoy economic of scale that made the toy industry
attractive, the introduction of social and environmental standards have make the toy markets more attractive where the
current market emphasis on the high quality products. Although Mattel was the leader in the toy industry and rate as
the top 100 best corporate citizen by CRO Magazine 2006, but if Mattel want to remain in the top cell 1 in the GEs nine-
cell and stay competitive in the toy market, Mattel needs to differentia themselves by differentiation strategy through
superior product quality. With this differentiation through superior product quality, Mattel would increase the barrier of
entry to minimize the threat of the new entrant. With the high capital costs required in designing and marketing plus
the superior product quality, Mattel will be able maintained as a leaders of the toy maker in North America and as well
as globally.

Business Strengths
Mattel was the leader among the 880 toy companies in North America, and the third larger toy company globally with
US$2.7 billion with the total of 3.8% global market share, and the No.1 toy maker in US. Mattel not only produced
children toys, but also produced toys for different ages. Mattel have three divisions, Mattels girls and boy brands
(US$1.57 billion), Fisher price brands (US$1.47 billion) and American girls brands (US$0.44 billion). With the variety of
products produced by Mattel, they were able to capture market share available in the toy industry. Mattel not only can
compete in the variety of toys they produced, they were also able to compete through product quality and quality
management. Mattel had been exercise Global Manufacturer Principle from 1996, in order to ensure responsibility
management practices were used in Mattels factories as well the vendors. This practice also can ensure that the
suppliers to produce quality and standard toys and other merchandizes throughout the production line. To overcome
the substitute product threat Mattel also license action figure characters and some supporting products for their core
brand names. Therefore, in order to increase their market share in the toy industry and fully utilize their strength to stay
competitive in this market, they have to differentia their product by superior product quality. By increase the product
quality, Mattel will be able to reduce the bargaining power of buyer by increasing the switching cost. Other the other
hand with the superior product quality plus the variety of products Mattel produced, Mattel also able to reduce the
threat of substitutes where they able to produce safety and standard quality that meet the consumers needs. So with
the superior product quality, Mattel will be able to stay on cell 1 from GEs nine cell.

PORTER Analysis

PORTER analyzes the firm and its competitiveness in the market. It is measured by the five forces which consist of
competitive rivalry, threat of new entrants, bargaining power of buyer and supplier, and threat of substitutes. Mattel is
positioned as the world leader in toy industry and pioneering on good corporate responsibilities. It has most of the
control over their suppliers where in the sense that if they discontinue a contract with the production firm, it may not be
able to survive in the future. In the PORTER analysis two credible threats were the bargaining power of buyers and
competitive rivalry of the industry. Rating Scale: 1 (Low) Good for Mattel; 5 (High) Bad for Mattel

Bargaining Power of Buyers 5 (High)

This force is extremely high because it represents both Mattels distributors: Wal-Mart, Toys R Us, Target, and end
users. The distributors and end users face few switching cost, where the losses by distributers can be minimized through
other popular brands. End users however, will have the lowest switching cost as many substitute products are available.
Additionally, if Mattels recalls continue, the level of consumer confidence would be depleted and both distributors and
end users would likely demand less product.

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Similarly, both Wal-Mart and Target have begun to source toys directly from China and sell them under their own brand
(e.g., Kid-Connect, Play Wonder). This signals a credible threat of backward integration reinforcing the power of the
buyers. The biggest threat of all lies in the large volume purchases by their three main distributors who account for 45%
of all toy sales. If anyone of these buyers makes a switch to a competing brand, sales are likely to decline.

Intensity of Rivalry 5 (High)

The intensity of rivalry within the industry is extremely competitive due largely in part to seasonal sales and a number of
equally balanced firms. Most sales occur within the third and fourth quarter of the year and are attributed to traditional
holiday shopping trends. Pressure for firms to design, manufacture and advertise these products increase their risk as it
is unpredictable whether a new toy will be popular and liked by children. It is not uncommon to see companies make
millions on one product and lose millions on another.

Slow growth in the U.S. has prompted fiercer battlers for market share at home and has led to firms seeking
opportunities in new markets such as Europe. High fixed cost and large capacity increments associated with production
of specific product lines create high exit barriers for firms, reinforcing the high level of rivalry in the industry.

Therefore, executing a differentiation strategy through superior product quality demonstrates Mattels continuing
effort to produce high quality popular branded products like Barbie, Hot Wheels, and other licensed brands. Being the
number one toy manufacturer, Mattel has the ability to fund toy related events to allow everyone to see the numerous
products that it has to offer, the superior product quality, by opening up a Mattel retail store. This is aimed to reduce
competitive rivalry by further differentiating Mattels products from their competitors. However, the only major threat
is the emergence of video games and Internet into the industry. The KGOY group may not be fascinated by traditional
toys.

PORTER Internet Analysis

The PORTER internet analysis measures the influence that internet has on the firm and industry. (+) Reflects an increase
for Mattel while (-) reflects a decrease for Mattel

Bargaining Power of Supplier (+)

In this case, the Internet has provided Mattel with greater power over their suppliers. With an infinite amount of access
to information on competing suppliers, Mattel can have greater control over who they contract for production should
one of their suppliers choose to not comply with the standards of Mattel.

By implementing a differentiation strategy through superior product quality, Mattel will further differentiate them
from the competition and increase their brand power. This will increase Mattels ability to be selective of their suppliers
while completing more thorough histories and background checks.

Bargaining Power of Buyers (-)

The Internet has given the end-user the ability to shop online with ease while searching for price comparisons and
product reviews. Buyers can now choose, with more certainty, which products to buy and the price at which its worth.
Some distributers are also better off with the Internet as a result of increased exposure of their own brand of toys taking
priority over Mattels products (i.e., online flyers). The cost of doing business also reduces in regards to ordering and
logistics which puts pressure on Mattel to lower unit prices and/or provide quantity discounts.

By implementing a differentiation strategy through superior product quality, Mattel can increase the switching cost
towards their buyers and further differentiate their products from their competitors. With improved product quality,
Mattel will be able to reduce buyer hesitation of safety and quality while increasing positive rating of their products. In
effect reducing the impact of the Internet

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BEAM Analysis

Supply Forces
With the increasing cost pressure from the awareness of social and environmental production standards in most
Western countries, many manufacturing factories have been shifted to China in order to reduce cost and improve
quality of the products. With costs expected to rise in the future, many more companies are forecasted to shift their
productions across seas as well. China has produced 60% of the world toys with a total of 10,500 toy makers. The
complex supply chain and enormous amount of suppliers and subcontractors make it difficult to maintain the standards
and quality that is expected of the products produced in China.
Therefore, Mattel Inc. should differentiate themselves by improving their product quality. By improving their products
safety and standards guidelines (other than the GMP they currently apply), Mattel would be able to properly manage
their important suppliers, not only in China but also other countries such as Indonesia, Mexico and Malaysia which have
less product safety awareness, standards regulation and human rights.

Competitive Forces
Manufacturing outsourcing trends have created new ways for company to lower the production cost and remain in the
market. This trend is expected to continue into the future as the trends in the toy industry in US consisted of 880
companies in 2002 but was 1019 in 1997 where most of the small company went out of competition because they failed
to compete with company that have low production costs. Currently the toy market is being dominated by few key
players such as Mattel, Hasbro, RC2, JAAKS Pacific, Marvel and Lego, where these players are all direct competitors that
produce toys products. Other than the direct toy products competitor, the other substitute products such as video
games, computer games and other electronic games have dominated as substitute for toys products.
Therefore, Mattel should differentiate themselves by improving product quality and provide the guideline and
regulation to restrict suppliers from practicing fraud and deception. With the pressure from the buyers power in
demanding quality and cheap products, in order for the company to remain competitive, their suppliers are more likely
cheat on their production. Thus, Mattel must keep a close eye on its supplier to prevent the cheating from occurring.

Mattels Vision

There is changing trend of consumer from buying cheaper toys to buying a safety toys product recently. The increasing
of awareness of safety and standard of toys products, many manufacturers changed their direction in focus on products
standard and reduce the cost by out-sourcing the manufacturing to low cost countries. Mattel had their new direction
which was to produce safety and standard toys in a relatively lower cost of production, but Mattel should also carry
forward the direction with a new vision. Without a new vision the new strategy wont work successfully. A new vision
could provide a conceptual framework for understanding the organizations purpose and its also an important element
for emotional appeal. Mattel had a complex supplier-buyer relationship in China supply chain; this is China culture to
involve in the informal relationship with the sub-supplier in China, where Guanxi played a important role than the
contract. So by apply the same vision before that used in North America wont work in other country, where the
suppliers would use their own vision rather the Mattel vision that not related to their companies.

Therefore, Mattel should develop a new vision where Mattel could have the power to influence their out sourcing
suppliers. For Mattel, a vision could be created by leader-senior team visioning. This collaborative vision process would
include the gathering of thought from Mattel senior management team and the suppliers senior management team.
The vision that created by both Mattel and their supplier consists of both parties commitment toward the vision. This
commitment would mobilize the out-sourcing employees to be proud that they are part of something larger than their
career and family, and to guide the employees behavior. This vision would provide a direction and a focus, so the
organization reacts on any necessary actions.

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Pre-Implementation: Similar Strategic Changes from other Companies

Good Strategies
Motorola Inc.
Motorola developed the Participative Management Program (PMP) as means to enhance productivity and
employee involvement in the firm. PMP divided employees into small groups that met to discuss problems and
potentials improvements in their area of responsibility. It was tied to bonus incentive programs, which
encouraged the employees to participate and share their ideas to enhance communication at all levels. Galvin
style and the Motorola culture were people oriented where high value was placed on senior service where
employees with less than 10 years of experience can be terminated. This motivated employees to become loyal
to Motorola and Galvin. Galvin looked internally, listening to ideas and complaints from middle managers
because it is believed that they were in sync with the real world. Higher level managers might miss important
opportunities and weaknesses because of their task to oversee various operations. Mattel will be looking to
implement similar programs in W1, W3, and T6
Apple Computer Inc.
Weaver concluded that the best way to retain a talented manager like Dubinsky was to continually reward and
challenge her. She focused on caring and honest relationships with her subordinates. Dubinsky projects a lot of
confidence on conviction in her belief.
Sculley simplified Apples structure by centralizing product development and product marketing into two
divisions. Coordinated sales and marketing approach was necessary for the firm to present a clear message to
dealers and to compete with IBMs highly trained sales force and other major firms with sophisticated marketing
procedures and relationships. Mattel will be further developing its relationship with its current distributors S3,
O4 and monitoring its manufacturers in China O2, O3, and T3.

Bad Strategies
Motorola Inc.
A multilayered matrix system of management was created which caused longer product development cycles due
to excessive layers in the management structure. This had caused the product line managers to be more
technology driven than market driven in their marketing processes. Gavin had always stressed the importance of
staying close to the customer and cater to their needs. Managers were not clear about their responsibilities for a
projects life cycle from customer discussions to sales.
The operating officers were hesitant about Gavins unexpected spontaneous challenge. Many top officers did
not sense the urgency of Motorolas competitive position. Motorolas employees are scientists and viewed
themselves as the leader of technology in their industry. Mattel has addressed the issues with organizational
values and will take Motorolas experience into their planning process. Mattel aims to gain the commitment of
their employees during the implementation of the new strategy. This has been has been addressed in W1, W2,
W3, W4, W5, T5, T6
Apple Inc.
Organizational charts were not printed at Apple due to their frequent changes. This reflects the conflict between
product organization and functional organization. As new products began to develop, each team formed its own
division with its own marketing, engineering, and administration teams.
Dubinsky thinks that Coleman proposal was more than a new distribution system. It was a total change in
distribution and manufacturing strategy, taking Apple from supply driven to demand driven procedures and
reducing the distribution and warehouse centers form six to zero. The problem with Coleman proposal was that
it fails to consider the more than 50% of Apple products that were manufactured offshore, it focus only on
central processing units, ignoring Apple other products. There were also no provisions for customer complaints
and products returns. Multiple products lines order would be inconvenient for dealers who would be required to
split their request between the two products divisions and their respective directors of manufacturing. Dubinsky
stressed that inefficiencies were not in the warehousing and the physical distribution but rather in forecasting
process.
Mattel will improve on their consumer confidence by hearing their comments and finding an efficient way to
properly execute a recall strategy for their products. They will take on the corporate responsibilities by practicing

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 human resource procedures to United States standards. However, Mattels major distributors also pose as potential
competitors in the future with their own brands. Mattel can address this though the possibility of distribution
though the internet. T1, T2, T3, T5, T6, T8, W1, W2, W3

Implementation

In order for Mattel to successfully implement their strategy WO2 Differentiation through superior product quality in
order to differentiate by superior product quality it must determine the tactics of the tasks that needs to be
accomplished in technological gap, organizational gap, and people gap. Furthermore, the models will prepare and
determine the potential of success for the WO2 Differentiation through superior product quality strategy.

Gap Analysis

The Gap analysis provides of where the firms current operations stand in Technology, People, and Organization. The Gap
analysis allows a company to develop the position of where they want to be in the future, and how they would want the
public to view them as. In short, it is strategic position for the firm. The Gap is the how to part for a company to
reach its potentials goals, and tactics are derived for the firm to achieve their goals.

Technological Gap

The two major issues that Mattel needs to address in the technological gap are methods to deal with the current lack of
operations and low creditability associated with Mattels business. Due to the major recall in 2007 and continuous
recalls since 1998, Mattels corporate reputation has been destroyed with the lack of quality control involved in Chinas
manufacturing operation. Mattel needs to regain its consumers trust and reclaim their spot at the top of the toy
manufacturer hierarchy to associate the brand with high quality products through toy safety inspection process by
increased attention to this area. Some of the tactics to make this possible are:
TE6 Ensure each factory is highly regulated and abides by safety check process
TE11 Create customer service department and hire highly qualified employees to respond to questions and
comments of customers
TE8 Taking responsibility publically for mistakes

Organizational Gap

In the organizational Gap, Mattel needs to focus on creating a working vision and mission statement that its employees
will believe in and work towards. These include all of Mattels contracting companies, especially the Mattel Lee Der joint
venture. It also needs to implement a feasible culture which will create great working environments regardless of the
country that they are working in. Currently, Mattels lacking these two viable parts of the organization in their Chinese
production firms. Unmotivated employees, who feel that they have nothing to lose in this industry, produce inadequate
toys to Mattels standards. Mattel needs to provide them with the feeling that the United States employees had, where
they will feel that they have a future in this company. Some of the tactics to make this possible are:
OR1 Build and promote opportunities for growth both inside and outside the organization for employees
OR7 Create succession plan and voice it to all employees and managers of the company
OR8 Rebuild customer relationships through loyalty programs

People Gap

The people Gap provides an image of the four major drivers that make a company work. Shareholders, suppliers,
employees, and customers are key drivers for a successful business. However, with the major recall in 2007, Mattel has
lost many of these groups confidence in the company. Mattel needs to derive tactics to regain a positive view of their
company from their key people. To do so, they need to come up with tactics to reposition themselves positively in the
industry. This will assist them to regain the confidence from their shareholders and consumers. As a result, sales would
be expected to increase, as well as investment, and their stock prices. Some of the tactics to make this possible are:

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 P1 Share succession plans and change strategies to move the company forward
P4 Conduct regular inspections of factories
P5 Include employees in consideration for policymaking, implementation, culture, and communication.
P9 Provide customers with reform plans to address issues

Model: Beatty and Ulrich: Re-energize the mature organization

This model will be used to determine areas of the organization that require further strategic tactics that are necessary to
be arranged with the chosen strategy.
Stage 1: Restructuring
P5, P6, W1, W3, S2, O2, O3, T4
There will be areas of Mattel that will need to be downsized and restructured in order to create a cost effective
company that can run most efficiently. It will also help the company with one of its biggest issues; quality control.
This could be achieved by conducting a thorough inspection of all aspects of the company and laying off
unnecessary positions of employees. Employees that lose positions will be consolidated appropriately for their
losses. The typical areas that are crucial in the success of the company are areas such as R&D, management and
customer service offices. These areas, especially, will implement the new succession plan and strategy.

Stage 2: Bureaucracy Bashing

OR8, OR10, P9, P10
Mattel must remove any unnecessary office processes and procedures in order to effectively improve employee
productivity as well as create a more efficient workplace with the increased workload of employees after layoffs
of positions and new implementation of strategy.
They will continue only the activities that add value to the organization, to shareholders, stakeholders and most
importantly to the customers

Stage 3: Employee empowerment stage

OR11, P4, W3, W4, W5, O3, O5, T1, T2, T4, T5
Employees will be given more power to be involved in company decisions for policies, decision making and
procedures
They will encourage employees to attend training seminars and will establish the foundation of exceptional work
habits with a rewards system

Stage 4: Continuous improvement

TE1, TE2, OR5, OR11, S2, O1, O2, O3. O4, O5, W1, W2, W3, W4, W5, T1, T2, T3
Mattel will conduct constant research for their industry and provide updates on companys well-being and
future expectations
Stress brand image and how important employees play a role in how the company is perceived
Encourage training seminars for employees and rewards systems that allow them to feel noticed and motivated
for constant improvement within the organization.

Stage 5: Cultural change

TE4, T7, O1, P5, W3, T3
Provide employees with empowerment and involve them as much as possible to voicing opinions on all aspects
of the business
Incentives will be given to employees and managers who strive to a level of excellence within the corporation

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Model: Disruptive Change by Christensen and Overdorf

Disruptive Technical Changes

Through the strategy of Differentiation through superior product quality, Mattel must develop a disruptive technical
change tactic to cater its customers with new added values in the products. The values added into the products would
include implementing modern technologies into traditional toys, health and safety features to minimize child injuries.
The joint venture with Lee Der will allow Mattel to position itself to closely monitor Lee Der and its contractors
production processes in order to stop uncertified producers from entering their supply chain. The joint venture will aim
towards educating Lee Der and its contractors about Mattels organizational values and minimize defective products
from shipment to the United States. The joint venture will also work closely in quality control to ensure that all products
meet the regulations of CPSC. The United States consumers demand high quality products that will be of no harm to the
health and safety of their children.

Fitting the Tools to the Task

FIT WITH ORGANIZATIONS VALUES

Lightweight
GOOD FIT WITH
Heavyweight
BAD
Team in a ORGANIZATIONS
Team with Seperate PROCESSES
Organization Spinout
Organization

Heayweight
Lightweight
Team in a
Team within
Seperate
the existing
Spinout
organization
Organization

GOOD
BAD
For Mattel to pursue their desired strategy it must initiate the process of a lightweight team (indicated by the green
square) within the existing organization. Mattels organization will have the ability to change given that changes are
applied to the following factors.

Procedure Manufacturing technologies can be implemented to ensure that the toys produced are within the safe
ranges of toxicant levels which will not jeopardize any childs health and safety. Proper training and screen procedures
will be required in the human resources process to select good candidates that have the ability to grow within the
company. Proper audits will also need to be conducted of all Chinese suppliers.
Processes This includes the implementation of SCM and CRM technologies to better manage their supply chains in
China. The Mattel Lee Der joint venture will oversee the production to ensure that the proper quality control is
conducted through frequent audits of all its contractors and manufacturers. Mattel also has the potential to distribute
their products outside of its major distributors though Mattel retail stores and the internet.
Values Mattel needs to realize the importance of the compliance of their organizational values with their contractors
and manufacturers in China. In order for them to be on the same pace as Mattel, a lightweight team will assist Mattel in
executing their values to these organizations. All firms operating with Mattel must understand the importance of the
values that consumer confidence will provide for them. With the recent recall in 2007, Mattel must regain their
consumers trust on a worldwide level.

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The new strategic plan fits well within the organizations value; a differentiation through superior product quality does
not fit into the organizations current procedure and processes. The consumer confidence has been brought down from
their toy recalls over the recent years and the 967,000 toys in 2007. However, thought the proper implementation of a
lightweight team within the current organization, Mattel can successfully put forth their strategy of differentiation
through super product quality. Backed up by the joint venture between Mattel and Lee Der, it can have the potential to
regain the lost consumer confidence in Mattel products.

Model: Sawhney & Wolcott 12 Dimensions of Business Innovation

The innovation radar consists of four key dimensions that serve as business anchors: the offering (what), the customers
(who), the process (how), and the points of presence (where). Mattel would utilize the four key dimensions to create
new value for customers and the firm.

The Offering (What)

Offerings are a firms products and services. Innovation along this dimension requires the creation of new products and
services that are valued by customers. Therefore Mattel will offering the superior product quality that will ensure that all
the toy produced would meet all the safety and environmental standard. This would help to differentiate Mattel from
other competitor that produce same product with lower quality.

The Customers (Who)

Customers are the individual or organizations that use or consume a companys offerings to satisfy certain needs. So
Mattel should try to fulfill the consumer any unmet. Therefore Mattel will offering the internet catalog as part of
distribution that will offer a convenience way for customers to purchase Mattel products other than going to the Mattel
distributor such as Wal-Mart or Toy R Us. This create a new way for consumer to shop, and avoid product shortage in
the distributor center, consumer would able to buy the toy they desired.

The Process (How)

Processes are the configurations of business activities used to conduct internal operations. So in order to maintain the
standard quality of the products produced and the new internet catalog, Mattel should implemented the SCM and CRM
software to enable them t manage inventory across the complex supply chain and to satisfy consumers needs by
identified and fulfilled consumer needs toward their products.

The Points of Presence (Where)

Points of presence are the channels of distribution that a company employs to take offerings to market and the places
where its offerings can be bought or used by customers. So by offering Mattel new superior quality product, promotion
through internet would be the most faster and convenience way. Since Mattel would want to change their strategy from
distribution through distributor to internet catalog, online order will be allow the consumers to have the faster explore
to the latest products and search for the suitable toys for them or their children with only few clicks from the webpage.

Model: Spector Inspiring Change

As a leading company within the Toy industry, Mattel must utilize its leadership and brand power to influence and
create dissatisfaction with the status quo amongst all units within the organization. The primary focus is to increase
product quality standards and controls in all their manufacturing facilities. Doing so will involve three of the four steps
as shown in the Dissatisfaction Diffusion Interventions table below.

Company Sharing Competitive Pointing to Individual Using Original Mandating

Information Behavior Models Dissatisfaction
Leading Company X X X
(Mattel)

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Sharing Competitive Information

To create dissatisfaction throughout all employees, the sharing of upper-level information will create a sense of equality
amongst all employees. This can be sent down to individual unit managers or facility managers and shared between
their respective teams. The information disclosed will highlight the impact and cost of conducting recalls along with
market share gains/losses and potential job losses should the issue regarding quality and safety continues. As a result,
collaboration between management and factory managers along with the support of their employees can begin the
transformation process.

Using Original Models (P5, OR2, OR3, OR4)

Mattel must first initiate the change process within those facilities which have demonstrated a willingness to comply
with quality and safety standards. Ideally, the HR department must contact the main facilities in China to identify which
firms within Mattels supply chain have adapted and responded to previous changes in the past, and to demonstrate the
new strategy can be achieved. Using the selected firm as a model and recognizing their success as leaders amongst their
peers will inspire other firms to become dissatisfied with the status quo.

Mandating Dissatisfaction (P3, P4, P6 OR5, OR6)

To ensure firms within Mattels supply chain get onboard with dissatisfaction of the status quo and comply with the new
strategy for quality products, requires Senior level managers to reiterate the importance of the change and create buy-in
through gain-sharing programs and rewards designed to reward manufacturers for compliance towards Mattels
manufacturing policies, guidelines, and standards. This will be enforced through more frequent visits and audits of
manufacturers within the supply chain. Should manufacturing firms fail to comply, these firms would lose their
contracts to manufacturer for Mattel.

Model: Orlikowski & Hofman Improvisational

The improvisational Model for Change Management is a living document intended to adapt to the
continuous changes within firms during implementation of strategies and new technologies. Orlikowski and
Hofman categorize these changes into three segments: anticipated, emergent, and opportunity based
changes. In the case of Mattel, the recommended strategy of differentiation through superior product quality
will require the implementation of a SCM system to monitor suppliers and their purchasing habits. The
changes that will arise must be embraced and exploited to maximize effectiveness of the strategy and must
align with the companies organization and technology

Anticipated Change

SCM systems installed to increase controls and monitoring of materials and inputs purchased by suppliers. The SCM
systems will ensure greater compliance towards Mattels quality and safety standards. (TE6)

Emergent Change

Embrace and review feedback and development of employees using SCM systems and create a project team (if required)
to evaluate the process and procedures along with the effectiveness of the system. (P5, OR3, TE4)

Opportunity Based Change

Quarterly review of both internal environment and external environment to address any potential opportunities with
regards to employment, cross-functional project teams to promote innovation, quality and safety standards, and
customer request. (TE1, TE3, TE4, TE9, OR1, P7)

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Model: McKinseys 7s

Current Required Tactic

Structure Unknown Improve P2 Enforce regulations
communication in all factories to meet
between Mattels with standards of
quality control team quality
and Chinese suppliers
by implement
leadership roles in their
organization
Strategy Differentiation through Differentiation (toy TE6-Ensure each factory
superior product quality quality based on health is highly regulated and
and safety, brand abides by safety check
product breathe and process, this will be
licensed names) monitored through SCM
technologies
Systems Unclear policies Clear policies regarding TE7-Hire more staff
regarding the the allowed limitation with expertise in this
consequences of of the allowed field
manufacturers resources to be used by
resources the manufacturers
Style Unknown To provide P3 Conduct regular
manufacturer with the inspections of factories
proper tools in means
to communicate with its
suppliers
Staff Unknown To provide OR1 - Build and
opportunities of growth promote opportunities
within the organization for growth both inside
and outside the
organization for
employees
Skills Market demanded Higher product safety TE9-Consumer
innovative product with comments and
licensed brand names. suggestions will be
analyzed and taken into
consideration for future
succession plans
Superordinate Goals To be the world premier Product safety OR2 Extending
toy maker corporate culture
throughout supply
chain at factories
worldwide to have
same standards

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Action Worksheet: Anticipatory Change

Phase 1:
Target: Internal
Objective: Decisions of changes and implementation of changes in organizational structure
Tactics: TE1, TE2, TE3, TE4, OR9, OR10, P1, P2, W4
Timing: Jog (short term) (1-3 months)

Phase 2:
Target: Internal
Objective: Implementation of changes to be made within organization along with additions of corporate culture
and employee empowerment
Tactics: TE9, OR1, OR2, OR4, OR5, OR6, P4, W1, W3, S2
Timing: Run (medium term) (3-6 months)

Phase 3:
Target: Internal, Supporters, External
Objective: Regaining consumer trust and shareholder confidence, increased marketing efforts to promote the
prestige brand image/high quality of brand
Tactics: TE1, TE9, TE10, TE11, OR8, OR9, OE10, P2, P8, P9, P10, O1, O2
Timing: Run (medium term) (6-12 months)

Phase 4:
Target: Supporters, External
Objective: Improvement of brand image, produce high quality products
Tactics: T1, P8, P9-conduct surveys and analyze financial reports to analyze succession plan and change as
necessary
Timing: Sprint (long run) (1-2 years)

Final Thoughts and Summary

Mattels new strategy of differentiation through superior product quality will resolve the issues related to conforming to
U.S. standards, product recalls, organizational values, and contractors and suppliers. This new strategy and the tactics
will assist Mattel with the proper tools to regain its consumers confidence by implementing proper SCM and CRM
technologies that will monitor manufacturers in China to conform to United States CPSC regulations. The tactics will
provide Mattel with procedures to establish the Mattel Lee Der joint venture and integrate it with Mattels
organizational values and standards. The joint venture will provide Mattel with the increased audits of contractors and
suppliers, quality control, process control, employee morale with Mattel organizational values, and management of
Chinas supply chain. The differentiation strategy will give a competitive advantage by decreasing the available
substitutes, and increase buyers switching cost with high product quality for the consumers.

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Appendix A: PEST Analysis

Political
Low levels of government regulations in China regarding health and safety of the products produced. The
minimal regulations enforced by the Chinese government allow contracted vendors to subcontract to other local
vendors that may or may not be certified.
High levels of government regulation in the United States regulating consumer products that are both
manufactured domestically and imported from offshore productions the Consumer Product Safety Commission
(CPSC).
Therefore: Mattel needs to be able to manage their supply chain in China to ensure that their product quality is
up to company standards before being shipped to the United States. Proper implementation of SCM and CRM
technologies will help track their supply chain in China while maintaining a good relationship with their
customers.
Threats: CPSC regulations in the United States, Decreased Consumer Confidence, Untraceable Supply Chain
Opportunities. Superior Product Quality, Implementation of SCM and CRM technologies

Economical
Phenomenal economic growth in China during its industrial stage attracted foreign investors due to its low
labour cost and government regulation. The world currency exchange rate favoured first world country over
Chinas Yuan which has imposed on high ROI for the investors.
Domestic production of toys has decreased and toy imports from China have increased by 41% since 1992,
accounting for 86% of toy imports in the United States. This may result to a decrease in exchange rate between
US and China. As the investors in China increase, employees will begin to demand for higher wages.
Therefore: Mattel needs to address the economic benefits of offshore production in order to increase their
customer service to their domestic consumers with superior quality products.
Threats: Decrease Exchange Rate of US Dollar and Chinese Yuan, Increasing Affluence of Chinese Employees
Opportunities: Low Labour Cost in China, Open up Mattel Retail Stores

Sociocultural
There is a greater concern for healthy and safety of the products sold in the United States. It is governed by the
CPSC who aims to decrease toy related injuries and deaths in the United States.
There is a greater concern for human rights in the United States and Europe compared to Asian countries. As a
company conducts offshore productions and massive layoffs domestically would be viewed as a company with
no corporate responsibilities.
Therefore: Mattel needs to address their employees about the changes in the company. As a team they can
reposition their current staff to either retail outlets and or quality control centers to minimize the chances of
recalling products.
Threats: Decreased Consumer Confidence, Poor Corporate Responsibilities
Opportunities: Open Up Mattel Retail Stores, Superior Product Quality, Fund Toy Related Events

Technological
As a result of kids getting older younger, the demand in advanced toys began to increase which caused the video
games sector of toys to rise in sales in the United States.
Proper implementation of SCM and CRM technologies are required to keep a track of production plants in china
and customer relations in the United States to perform future tasks quickly and efficiently.
Therefore: Mattel needs to implement SCM technology quickly in order to monitor their production plants in
China. Consequences must be imposed for failure to follow the guidelines for product quality set by Mattel.
Threats: Untraceable Supply Chain, Emerging Video Game Industry, Internet
Opportunities: Implementing SCM and CRM technologies, Shift to Video Game Industry, Shift to Ecommerce

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Appendix B: TOWS Analysis
Opportunities
O1 Superior product quality
O2 Implementation of SCM and
CRM technologies
O3 Low labour cost in China
O4 Open up Mattel retail stores
O5 Fund toy related events
O6 Shift to video game industry
O7 Shift to Ecommerce
Threats
T1 Decrease consumer
confidence.
T2 CPSC regulations
T3 Untraceable supply chain in
China.
T4 Decrease of exchange rate
between US Dollar and Chinese
Yuan
T5 Increasing affluence of
Chinese employees
T6 Poor corporate
responsibilities
T7 Video game industry
T8 Internet
Strength
S1 No.1 in the world with gross sales of
$6.1 billion.
S2 Pioneering efforts to be a good
corporate citizen.
S3 Strong distribution channels
S4 High product breathe
S5 Licensing agreements
SO Strategies
SO1 Market Development. Begin Mattel
China to increase sales in Asia. This would
help Mattel open up new stores in Asia to
differentiate their products from Asian
competitors and be viewed as a superior
toy product.
S1, S4, S5, O1, O3, O4
SO2 Product Development. Promote
occupational health and safety to its
Chinese employees. This would provide
the opportunity to boost morale. With
growing technology in Asia, Mattel can
also shift towards producing educational
video games to promote early learning
standards
S1, S2, S3, S4, S5, O3, O6
ST Strategies
ST1 Domination Strategy. Buyout
domestic toy manufactures to eliminate
potential competition.
S1, T4, T6
ST2 Focus Video Game Market. Acquire
domestic video game manufacturers to
eliminate competition. Mattel can use the
acquired company to produce video games
with Mattel brands and other licensed
brands. Mattel can exit the China
manufacturing market
S1, S4, S5, T3, T4, T5, T7
Weakness
W1 Organizational value difference
between China and the United States
W2 Poor execution of product
recalls
W3 Low employee morale
W4 Low control over the supply
chain in China
W5 Low frequency of audits in its
production plants in China.
WO Strategies
WO1 Acquire Lee Der and Dongxing
companies. This will allow Mattel to
monitor production process in China
to meet CPSC regulations.
W1, W3, W4, W5, O2, O5
WO2 Differentiation through
Superior Product Quality. Form joint
venture with Lee Der to implement
Mattels organizational values in order
to increase employee morale, and
produce high quality product that
conform to CPSC regulations. Mattel
can implement SCM and CRM
technologies to better manage their
supply chain. The joint venture can
ensure product quality with more
frequent audits of Lee Der.
W1, W3, W4, W5, O1, O2, O3, O4
WO3 Focus Niche Market. To form a
joint venture with a Chinese computer
company to develop educational
video games
W4, O6, O7
WT Strategies
WT1 Parent Company Strategy.
Create a headquarter in China to
constantly monitor the production
plants to ensure they are meeting
CPSC standards
W1, W3, W4, W5, T2, T4
WT2 Improve Product Recall
Procedure. Constant inspection on
imported products. Recall products
quickly with a public announcement
and apology for the defective product
W1. W2, T1, T2, T6
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Appendix C: PORTER Analysis

Rating Scale: 1 (Low) Good for Mattel; 5 (High) Bad for Mattel

Threat of New Entrants 1.5 (Low)

The toy and children products manufacturing industry is comprised of two key players, Mattel and Hasbro. Together,
these two firms have combined for annual sales, internationally, of approximately $8.7 billion U.S. Mattel controls the
majority of the market share in the United States, leaving the other 1,019 firms to share a small portion of the remaining
market.

Mattel has created barriers to entry through high start-up capital costs and economies of scale related to R&D,
advertising, and manufacturing. Additionally, Mattel has access to some of the strongest distribution channels in
Wal-Mart, Toys R Us, and Target, and have accounted for 45% of all toys sales. Another barrier that keeps firms from
entering the industry is the strict toy regulations in the U.S. which is governed by the CPSC. As a result of these
regulations, many uncertified firms are kept out from entering the industry.

Switching costs for these distributors are low to medium due to the popular Mattel brands like Barbie, Hot Wheels, and
other licensed brands. The incentives for these distributors to continue to sell Mattel products have created strong
loyalties. The popular brands have also helped to differentiate Mattels products over their competitors. However, the
emerging concern over product safety has put Mattels brand in jeopardy of market share decline and reduced customer
loyalties.

Therefore, a differentiation strategy through superior product quality will help to close the gaps on Mattels product
recall issues. This can be demonstrated through Mattels opportunities to create toys with superior product quality,
funding toy related events, to reduce their threats of decreasing consumer confidence.

Bargaining Power of Suppliers 1 (Low)

Suppliers for the toy and child products industry is largely based in China. There are more than 10,500+ toy
manufacturing firms making the market extremely competitive. With only a few large toy manufacturing firms in the
world, Mattel is the industry leader reducing the power of Mattels suppliers.

Mattel also owns manufacturing firms around the globe to manufacturer their key brands while outsourcing non-key
brands to their main suppliers. Coupled with a large pool of suppliers, Mattel is able to keep switching cost at a
minimum.

Therefore, Mattel should implement a take advantage of the low labour cost in China. This will provide Mattel with a
competitive edge in the toy retail industry in the United States where parents would be less reluctant to spend money
on a brand name toy for their child. Mattel can take advantage of the opportunity of low labour cost in China, however
they have to implement a strategy to resolve internal weaknesses of organizational values, employee morale, and
supply chain management.

Bargaining Power of Buyers 5 (High)

This force is extremely high because it represents both Mattels distributors: Wal-Mart, Toys R Us, Target, and end
users. The distributors and end users face few switching cost, where the losses by distributers can be minimized through
other popular brands. End users however, will have the lowest switching cost as many substitute products are available.
Additionally, if Mattels recalls continue, the level of consumer confidence would be depleted and both distributors and
end users would likely demand less product.

Similarly, both Wal-Mart and Target have begun to source toys directly from China and sell them under their own brand
(e.g., Kid-Connect, Play Wonder). This signals a credible threat of backward integration reinforcing the power of the

18 | P a g e
buyers. The biggest threat of all lies in the large volume purchases by their three main distributors who account for 45%
of all toy sales. If anyone of these buyers makes a switch to a competing brand, sales are likely to decline.

Therefore, by implementing a differentiation strategy through superior product quality, Mattel will continue to
decrease the bargaining power of buyers. This would increase the switching cost of Mattel to its competitors. Mattels
strengths provide it with an advantage through its brand name, product breathe, and licensing agreements. This strategy
demonstrates success because it will be able to resolve its internal weaknesses of the low frequency of audits in order
to create a toy with superior product quality.

Threat of Substitutes 4 (Medium)

The threats of substitutes are rated at a medium to high level due to the wide selection of substitute products. These
substitutes include video games, enrolling in sports teams, educational games, Internet, and competing brands. The
variety of substitutes lowers the switching cost to the consumer resulting in a high threat score. A strength Mattel can
leverage is brand power as they control a majority of the markets popular items including: Barbie, Hot Wheels, Disney,
and other licensed products. These differentiated and popular brands have helped Mattel maintain its market
dominance. However the increase in poor product quality and safety are threatening their reputation.

Therefore, by implementing a differentiation strategy through superior product quality Mattel will continue to
decrease the threat of substitutes by utilizing their strengths to gain a competitive advantage. Some of the threats that
Mattel face are the decreasing consumer confidence, video game industry, and the Internet. These factors have the
ability to influence their end users to switch to substitute products rather than the traditional toys. However, Mattel has
the opportunities to change it with toys of superior product quality, opening up Mattel retail stores, and to fund toy
related events to get their consumers in touch with traditional toys again.

Intensity of Rivalry 5 (High)

The intensity of rivalry within the industry is extremely competitive due largely in part to seasonal sales and a number of
equally balanced firms. Most sales occur within the third and fourth quarter of the year and are attributed to traditional
holiday shopping trends. Pressure for firms to design, manufacture and advertise these products increase their risk as it
is unpredictable whether a new toy will be popular and liked by children. It is not uncommon to see companies make
millions on one product and lose millions on another.

Slow growth in the U.S. has prompted fiercer battlers for market share at home and has led to firms seeking
opportunities in new markets such as Europe. High fixed cost and large capacity increments associated with production
of specific product lines create high exit barriers for firms, reinforcing the high level of rivalry in the industry.

Therefore, executing a differentiation strategy through superior product quality demonstrates Mattels continuing
effort to produce high quality popular branded products like Barbie, Hot Wheels, and other licensed brands. Being the
number one toy manufacturer, Mattel has the ability to fund toy related events to allow everyone to see the numerous
products that it has to offer, the superior product quality, by opening up a Mattel retail store. This is aimed to reduce
competitive rivalry by further differentiating Mattels products from their competitors. However, the only major threat
is the emergence of video games and Internet into the industry. The KGOY group may not be fascinated by traditional
toys.

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Appendix D: PORTER Internet Analysis

(+) Reflects an increase for Mattel while (-) reflects a decrease for Mattel

Threat of New Entrants (-)

The ease and accessibility of the Internet has provided an opportunity for smaller firms to sell to markets that were
otherwise inaccessible due to government regulations, in effect lowering the barriers to entry. The potential can result
in decreasing market share in an already fierce market.

By implementing a differentiation strategy through superior product quality, Mattel will demonstrate that safety and
quality are their main focus and will enforce barriers to entry through product differentiation and brand power.

Bargaining Power of Supplier (+)

In this case, the Internet has provided Mattel with greater power over their suppliers. With an infinite amount of access
to information on competing suppliers, Mattel can have greater control over who they contract for production should
one of their suppliers choose to not comply with the standards of Mattel.

By implementing a differentiation strategy through superior product quality, Mattel will further differentiate them
from the competition and increase their brand power. This will increase Mattels ability to be selective of their suppliers
while completing more thorough histories and background checks.

Bargaining Power of Buyers (-)

The Internet has given the end-user the ability to shop online with ease while searching for price comparisons and
product reviews. Buyers can now choose, with more certainty, which products to buy and the price at which its worth.
Some distributers are also better off with the Internet as a result of increased exposure of their own brand of toys taking
priority over Mattels products (i.e., online flyers). The cost of doing business also reduces in regards to ordering and
logistics which puts pressure on Mattel to lower unit prices and/or provide quantity discounts.

By implementing a differentiation strategy through superior product quality, Mattel can increase the switching cost
towards their buyers and further differentiate their products from their competitors. With improved product quality,
Mattel will be able to reduce buyer hesitation of safety and quality while increasing positive rating of their products. In
effect reducing the impact of the Internet

Threat of Substitutes (-)

With the addition of the Internet, children can visit social sites, play games, interact with educational software, and
watch television or videos as an alternative to toys. Each of these substitutes reduces the need for toys and increases
the threat against Mattel. This is even more likely as product quality becomes a growing concern among households.

By implementing a differentiation strategy through superior product quality, Mattel can reinforce the safety and
superior quality of their products leaving parents with a renewed confidence for Mattel.

Intensity of Rivalry (-)

Competition begins to increase as information is readily available online. Firms now have the ability to view competitor
products and create designs of their own.

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Appendix D: BEAM Analysis

Demand Forces
The world toys market increased 6% from its previous year and was estimated to be a $71 billion business in 2007. Toys
are not only being demanded by young children but also growing popular among adults as well and this trend will
continue to grow in the future. Action figures, such as Iron Man, are currently one of the highest demanded toys by
adults.
Other than solely demanding toys themselves, there is also an increasing trend towards the awareness the product
safety of them. Consumers, now, not only demand the cheapest and latest toys but also demand that they be the
highest quality for safety standard for their children and themselves. Companies that manufacture toys have to ensure
that the toys product meet the social and environmental standards in its production process.
Therefore, Mattel should concentrate on a differentiation through superior product quality strategy. This would satisfy
the consumers demand with product safety. This also could reduce the chances of the toys they produce being
contaminated with any hazardous materials.

Supply Forces
With the increasing cost pressure from the awareness of social and environmental production standards in most
Western countries, many manufacturing factories have been shifted to China in order to reduce cost and improve
quality of the products. With costs expected to rise in the future, many more companies are forecasted to shift their
productions across seas as well. China has produced 60% of the world toys with a total of 10,500 toy makers. The
complex supply chain and enormous amount of suppliers and subcontractors make it difficult to maintain the standards
and quality that is expected of the products produced in China.
Therefore, Mattel Inc. should differentiate themselves by improving their product quality. By improving their products
safety and standards guidelines (other than the GMP they currently apply), Mattel would be able to properly manage
their important suppliers, not only in China but also other countries such as Indonesia, Mexico and Malaysia which have
less product safety awareness, standards regulation and human rights.

Government Forces
Toy companies tend to outsource to low cost countries such as China where the government regulations on contracts do
not play a main role in maintaining the supplier-buyer relationship. Informal relationships have been and will be more
important than formal contracts in the future. Lee Der respected the relationship with their close friend by
subcontracting the paint to his friend rather than follow the contract where by the paint company should be inspected
before it can be part of the supplier. The absence of a facilitative government relationship in China will cause supplier
picking to be based on business relations rather than contracts. Less government regulation on product safety would
encourage the greedy production companies to decrease the product safety standard in order to reduce costs and be
competitive in the market by being more efficient through producing faster and cheaper.
Therefore, Mattel, once again, should pursue and implement strategies that are different from their current culture to
improve product quality. In order to meet quality standards, an external audit with frequent inspection from
headquarters is needed to help eliminate the suppliers that try to bypass the regulation and contracts.

Competitive Forces
Manufacturing outsourcing trends have created new ways for company to lower the production cost and remain in the
market. This trend is expected to continue into the future as the trends in the toy industry in US consisted of 880
companies in 2002 but was 1019 in 1997 where most of the small company went out of competition because they failed
to compete with company that have low production costs. Currently the toy market is being dominated by few key
players such as Mattel, Hasbro, RC2, JAAKS Pacific, Marvel and Lego, where these players are all direct competitors that
produce toys products. Other than the direct toy products competitor, the other substitute products such as video
games, computer games and other electronic games have dominated as substitute for toys products.
Therefore, Mattel should differentiate themselves by improving product quality and provide the guideline and
regulation to restrict suppliers from practicing fraud and deception. With the pressure from the buyers power in
demanding quality and cheap products, in order for the company to remain competitive, their suppliers are more likely
cheat on their production. Thus, Mattel must keep a close eye on its supplier to prevent the cheating from occurring.

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Appendix E: Technological Gap

Process/ Current Situation Required Situational Gap Tactics

Method Situation
R&D Lack the knowledge Meet toy safety Conduct research TE1-Continuous research and watch of industry
and process control inspection to gain website and consumer watch groups world
of product processes knowledge on wide
production ways to improve
production TE2-Conduct market research to determine any
process new safety regulations or new safety issues

HR Ineffective Create Create the TE3-Management training program to endure a

management communication motivation and higher quality control over company and
practices/ lack of team loyalty needs in factories
control and low throughout the new company
coordination among entire company along with TE4-Development programs for employees to
employees management create a more skilled and productive workforce
control
TE5-Develop succession plans and seek out
employees fit for the position to these plans

Operations Quality control issues Meet toy safety Acquire TE6-Ensure each factory is highly regulated and
inspection technology and monitored through SCM systems and abides by
process by gain tight controls safety check process
increased on supply chains
attention to this TE7-Hire more staff with expertise in this field
area

Marketing Low credibility and Create Improve TE8-Taking responsibility publically for mistakes
reputation perceived image reputation and
throughout the world of high quality gain trust of end TE9-Consumer comments and suggestions will
products users to products be analyzed and taken into consideration for
worldwide future succession plans

TE10-Conduct market research to determine

changes to be made in order to improve brand
image

TE11-Create customer service department and

hire highly qualified employees to respond to
questions and comments of customers

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Appendix E: Organizational Gap

Current Advantages Required Advantages Gap Tactics

Culture Great corporate Creating an Innovative culture OR1 - Build and promote opportunities
culture environment that for growth both inside and outside the
promotes new idea organization for employees
development for
improvement of OR2 Extending corporate culture
production process throughout supply chain at factories
worldwide to have same standards
Leadership Motivated, inspiring Encourage motivation Improved OR3- Management training programs to
and strong CEO and inspiration among communication, increase knowledge of production
management and and cohesion processes
employees between all
management OR4 Employee training programs to
emphasize importance of quality control
Staffing Innovative and Knowledgeable and Retention and OR5- Provide incentives for employees
hardworking staff motivated staff to training strategy to strive for excellence
team help create a positive
image OR6- Promote strong organizational
culture among all levels of the
corporation
Vision and To be the premier of Rebuild reputation as Develop prestige OR7-Create succession plan and voice it
mission toy brands company dedicated to brand image to all employees and managers of the
social responsibility worldwide company

OR8-Rebuild customer relationships

through loyalty programs

OR9-Update Mattel site to allow

customers to follow where the company
is heading and wants to go

OR10-Create 24/7 customer service line

where customers ask questions and give
comments/complaints on products
Recruiting and Higher quality Improve screening Create a prestige OR11- Train managers on proper
Hiring screening process in process for employee base screening process and hiring/training
North America performance and within all appropriate fits for each positions
knowledge in Asia companies

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Appendix G: People Gap

Current Required Gaps Tactics

Shareholders Less confident in Provide promising future Lower revenues and P1-Share succession plans and
company revenue reports with bad publicity change strategies to move the
better communication company forward

P2-Address company accusations

and admitting mistakes to regain
trust
Suppliers Poor quality Enforce regulations in all Improved P3 Enforce regulations in all
control and poor factories communications factories to meet with standards
communication and brand image of quality

P4 Conduct regular inspections

of factories
Employees Helpful as Building strong foundation Training programs P5 Include employees in
messengers and as an honest and consideration for policymaking,
company successful business implementation, culture, and
authorities communication.
throughout the
world P6-Laying off unnecessary
employee positions and providing
compensation
Stakeholders Lower trust in Increased trust and Toy recalls and a P7 Create and discuss plans to
products consumer confidence in hindered brand change and reform production
products and company image practices

Customers Lower trust in Gain back consumer Ability to add back P8-Address issues and admit to
products confidence trust quickly previous problems/mistakes

P9-Provide customers with reform

plans to address issues

P10-Provide customer service

representatives to allow constant
feedback from all customers

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