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 2|Page

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

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 ninecell 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. 5|Page

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 6|Page

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 8|Page

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: 9|Page

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

GOOD

Heavyweight BAD Team with Organization

Lightweight Team in a Seperate Spinout Organization Heayweight Team in a Seperate Spinout Organization

FIT WITH ORGANIZATIONS PROCESSES

Lightweight Team within the existing 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. 11 | P a g e

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 Leading Company (Mattel) Sharing Competitive Information X Pointing to Individual Behavior Using Original Models X Mandating Dissatisfaction X

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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) 13 | P a g e

Model: McKinseys 7s
Current Unknown Required Improve communication between Mattels quality control team and Chinese suppliers by implement leadership roles in their organization Differentiation (toy quality based on health and safety, brand product breathe and licensed names) Clear policies regarding the allowed limitation of the allowed resources to be used by the manufacturers To provide manufacturer with the proper tools in means to communicate with its suppliers To provide opportunities of growth within the organization Tactic P2 Enforce regulations in all factories to meet with standards of quality

Structure

Strategy

Differentiation through superior product quality

Systems

Style

Unclear policies regarding the consequences of manufacturers resources Unknown

TE6-Ensure each factory is highly regulated and abides by safety check process, this will be monitored through SCM technologies TE7-Hire more staff with expertise in this field

P3 Conduct regular inspections of factories

Staff

Unknown

Skills

Market demanded innovative product with licensed brand names.

Higher product safety

Superordinate Goals

To be the world premier Product safety toy maker

OR1 - Build and promote opportunities for growth both inside and outside the organization for employees TE9-Consumer comments and suggestions will be analyzed and taken into consideration for future succession plans OR2 Extending 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

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 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

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

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

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

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

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

HR

Ineffective management practices/ lack of control and low coordination among employees

Create communication team throughout entire company

Create the motivation and loyalty needs in the new company along with management control

TE3-Management training program to endure a higher quality control over company and factories TE4-Development programs for employees to create a more skilled and productive workforce TE5-Develop succession plans and seek out employees fit for the position to these plans

Operations

Quality control issues

Meet toy safety inspection process by increased attention to this area Create perceived image of high quality products

Acquire technology and gain tight controls on supply chains

TE6-Ensure each factory is highly regulated and monitored through SCM systems and abides by safety check process TE7-Hire more staff with expertise in this field

Marketing

Low credibility and reputation throughout the world

Improve reputation and gain trust of end users to products worldwide

TE8-Taking responsibility publically for mistakes TE9-Consumer comments and suggestions will be analyzed and taken into consideration for 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 Great corporate culture Required Advantages Creating an environment that promotes new idea development for improvement of production process Encourage motivation and inspiration among management and employees Gap Innovative culture Tactics OR1 - Build and promote opportunities for growth both inside and outside the organization for employees OR2 Extending corporate culture throughout supply chain at factories worldwide to have same standards OR3- Management training programs to increase knowledge of production processes OR4 Employee training programs to emphasize importance of quality control OR5- Provide incentives for employees to strive for excellence OR6- Promote strong organizational culture among all levels of the corporation OR7-Create succession plan and voice it to all employees and managers of the 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 OR11- Train managers on proper screening process and hiring/training appropriate fits for each positions

Culture

Leadership

Motivated, inspiring and strong CEO

Improved communication, and cohesion between all management Retention and training strategy

Staffing

Innovative and hardworking staff team

Knowledgeable and motivated staff to help create a positive image

Vision and mission

To be the premier of toy brands

Rebuild reputation as company dedicated to social responsibility

Develop prestige brand image worldwide

Recruiting and Hiring

Higher quality screening process in North America

Improve screening process for performance and knowledge in Asia

Create a prestige employee base within all companies

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Appendix G: People Gap

Current Less confident in company Required Provide promising future revenue reports with better communication Gaps Lower revenues and bad publicity Tactics P1-Share succession plans and change strategies to move the company forward P2-Address company accusations and admitting mistakes to regain trust P3 Enforce regulations in all factories to meet with standards of quality P4 Conduct regular inspections of factories P5 Include employees in consideration for policymaking, implementation, culture, and communication. P6-Laying off unnecessary employee positions and providing compensation P7 Create and discuss plans to change and reform production practices

Shareholders

Suppliers

Poor quality control and poor communication

Enforce regulations in all factories

Improved communications and brand image

Employees

Helpful as messengers and company authorities throughout the world

Building strong foundation as an honest and successful business

Training programs

Stakeholders

Lower trust in products

Increased trust and consumer confidence in products and company

Toy recalls and a hindered brand image

Customers

Lower trust in products

Gain back consumer confidence

Ability to add back trust quickly

P8-Address issues and admit to 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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