Work Hard, Play Hard

By Ben Thompson

Some interesting news from the corner office: Mattel is not a toymaker. Or at least, it’s not just a toymaker: it’s a “people development” company. Here, CEO Bob Eckert explains why encouraging people to enjoy themselves actually takes a lot of hard work – and why the approach paid dividends during the firm’s recall crisis and recent downturn in the economy.

Some companies make products, others offer services; many do both. Nearly all claim to be about people. But not all demonstrate the same level of commitment to employees as California-based toy giant Mattel. As befits a company dedicated to coming up with new ways of having fun, Mattel and its enthusiastic (and hugely likeable) CEO Robert 'Bob' Eckert sees staff members' enjoyment of work as integral to the health and long-term success of the firm. "We create magic," he says at our first meeting, eyes twinkling. "The people who work at Mattel see that every day, they know that's what they're here to do. We work at fun. It's a great place to work."

It's a message that Eckert and his leadership team are keen to promote. And sat in the lobby of Mattel company headquarters on a large corporate campus in El Segundo, just south of LAX airport, I'm certainly struck by an overwhelming sense of corporate benevolence. Behind the reception desk straight ahead is a large backdrop of children at play bearing the tagline, "The world's premier toy brands, today and tomorrow", and the toymaker is clearly - and understandably - proud of its heritage: it has a huge portfolio of some of the world's best-loved and longest-running toy brands, including Hot Wheels, which celebrated its 40th anniversary in 2008; Barbie, who turned 50 last year; and the octogenarian, pre-school favorite Fisher-Price, founded in 1930. Generations of kids have grown up with these brands, and Mattel is conscious of the legacy.

But the toys themselves only tell a fraction of the company story. To my right the Mattel federal credit union welcomes in a constant stream of employees looking for all kinds of financial assistance; in a room off to my left a seminar on alleviating back pain at work is taking place in the company's new digital training center. A TV-screen overhead exhorts staff to "create a healthy lifestyle, build a better financial future and enhance their work/life balance" like some benign Big Brother. And posters dotted around the open, airy space provide recognition of the company's recent awards - with Fortune's 100 Best Companies To Work For, Ethisphere's Most Ethical Companies and CRO Magazine's 100 Best Corporate Citizens prominent amongst them. If anyone's in any doubt as to where its priorities lie, the firm's charismatic leader dispels them instantly.

"People like to be around happy people," Eckert insists in his office up on the 15th floor. "We spend so much time and energy at work, you really need to enjoy it; if you don't like your job, go get another. It's just a waste of a lifetime otherwise. The people that work here really get that. They understand that we're at the intersection of what is unique and innovative and new. They understand the importance of toys to a child's development in learning and socialization. And they all want to be a part of that. We create 8000 ideas a year for toys, and this doesn't happen on a computer. It doesn't happen in a system. Somebody comes up with these ideas. Somebody develops the ideas, engineers the ideas, gets them manufactured in Asia, gets them shipped to the right place in the world before Christmas and works with the retailer to get them sold. So we are truly a people-oriented organization, and recognizing that is key to our culture."

With a strong focus on core brands, customer satisfaction and employee welfare, it's not hard to see why Mattel is the number one toymaker in the world. But it wasn't always that way.

10 years is a long time at the top for today's chief executive. Indeed, according to recent research from Booz & Company on CEO succession rates, in the past decade alone boards have shaved nearly two years off the average CEO's tenure, from 8.1 years to 6.3 years. "New CEOs have fewer years in the role than their predecessors," suggests Richard Rawlinson, Vice President at the management consultancy giant. "They need to balance clarity and boldness with a realistic understanding of what is possible in their organizations."

Eckert, who celebrates a decade at the helm of the toymaker this year, has done this better than most. He arrived in May 2000 to discover a company reeling from an ill-judged acquisition of children's software firm The Learning Company the previous year and rife with internal discord. The $3.6 billion deal was supposed to give Mattel a leadership position in the market for online education, adding popular titles such as Reader Rabbit, Where In the World Is Carmen Sandiego? and Pokemon to its portfolio; but the hoped-for synergies failed to materialize and led to management conflicts, rivers of red ink and a plunging stock price - not to mention a round of corporate blood-letting, including the resignation of CEO Jill Barad. Eckert is the first to admit that it was something of a baptism of fire.

"We made that acquisition at the peak of the dotcom boom, and when that market imploded, unfortunately The Learning Company imploded with it," he says. "The business was hemorrhaging cash. My predecessor had exited. A lot of the management had left. And while the culture at a deeper level was very positive, very warm, very friendly, very supportive and very nurturing, at the very top of the company the culture had gotten a little dysfunctional. The company was in tough shape, but I saw it as a real challenge."

He claims he was inspired to take on the role during a conversation with a Mattel director who, in response to Eckert's question about what the company culture was like, told him it could be whatever he wanted it to be if he was in charge. As a result, Eckert's first move - right after cutting his losses with The Learning Co. in a pennies-on-the-dollar sale - was to try to change the culture for the better. "Being able to influence and change a culture as opposed to being a product of or influenced by a culture was really appealing to me," he says - a process that he believes begins at the top. He's certainly not your average CEO; he wears a name badge, eats in the company cafeteria most days, and rides in the elevators with the rest of the staff. He flies American Airlines, eschewing many of the traditional trappings of the corner office and its luxury lifestyle. "There was a time when the senior executives at Mattel weren't like that," he explains. "They were very distant, very removed from the people that actually do the work here, they were isolated. I've tried to be more open. That's just my natural personality."

In addition to instilling that C-level visibility and accessibility, the company has also made some significant investments in people development, leadership development and functional training to let employees know that they are valued. "We want to make sure people know that for whatever time they're going to spend here, we're going to invest in them," says Eckert. "They're going to learn. And if they decide to leave Mattel, they're going to be better prepared, a better person, a better leader and a better manager than they were when they came here. Letting people know that we value them and are investing in them has paid tremendous dividends for us."

It's all part of his plan to make Mattel a truly 21st century business - one that embraces greater communication, collaboration and partnership as a means to achieving its goals. It's most apparent in the rapport the company has with its employees, but it's also there in the relationships it has built with suppliers, manufacturers and retailers. Increasingly, companies are being forced to look outside of their own corporate boundaries in order to deliver the best results for customers and shareholders alike, and Mattel is no exception. "A business can no longer be isolated in its own little space," asserts Eckert. "It really started with our retail customers, who were increasingly open, more demanding and more willing to partner with vendors regarding how to build their business. We saw the benefits of that, and have embraced a similar approach here at Mattel. We are more collaborative. We are more open. We take advantage of our scale. It's good for business and we get better ideas when we're more open."

One such example is the series of strategic alliances the company has built with its retail partners. "We are sitting down and talking about where the toy business is today and where it can go in the future, and the strategies we can jointly deploy to achieve that end state in a few years. If we have a common view of the future and a common strategy, then decisions around pricing, assortment, marketing, etc. take on a different perspective. So we are constantly engaged with retailers in this business. It is so fast-paced. It is so seasonal. It is so product-oriented. None of us is smart enough to do this by ourselves, so we work collaboratively with our customers to find out what's important to them and how toys fit into their strategy, and that makes the partnership that much more productive."

And such a strong focus on communication was to prove invaluable as the company faced up to the biggest challenge in its history.

Bob Eckert is not a superstitious man, but even so he is the first to acknowledge that Friday 13th has taken on a heightened sense of significance for Mattel. In the first instance, it was on this date in December 1998 that the firm first struck the ill-fated Learning Co. deal that very nearly sunk the company; in the second, it was on Friday 13th July 2007 that Eckert received the news that was to turn his world upside-down and catapult Mattel onto the front pages of newspapers around the world for all the wrong reasons.

"I was sitting in my office right here when our Worldwide EVP of Operations and the Senior Vice President of Product Integrity walked in and said, 'We think we have a problem'," remembers Eckert. "And in my experience, when the head of quality walks into your office and says there's something wrong, the antenna goes up straight away." The news was bad: an internal probe had discovered a Chinese manufacturer had used a non-approved paint pigment on a range of the company's toys - including characters popular with young children such as Sesame Street's Big Bird and Elmo, and Nickelodeon's Dora the Explorer - violating Mattel's own stringent in-house safety standards.

What do you do when faced with such a problem? For Eckert, the answer was simple. "The first thing we had to work on was finding out the scope of the problem," he says. "How big is it? Where is it? How many toys are involved? What caused it? How long has it been going on for? We had a lot of homework to do but fortunately we had a lot of professionals on the ground who started digging right away." What they found was frightening: around 1.5 million Chinese-made toys worldwide could contain excess lead levels in their paint. In the worst cases, the lead in paint was found to be significantly above the US federal limit.

On August 2nd, the company recalled the toys, including 967,000 in the US. Then came the hammer blow. Just two weeks after the initial recall, Mattel was took the decision to recall an additional 18 million toys worldwide, this time over concerns about high-lead levels and the use of small, strong magnets that could be dangerous to children if two or more were to become loose and ingested. A third recall of a further half-million toys followed in September.

Such a public relations disaster would have floored most companies, but the Mattel machine quickly sprang into action. In fact, the firm is now widely praised for the way it responded to a potentially crippling crisis. "It took us some time to adequately define the scope of the problem," he admits. "It wasn't like day one we understood it. However, we knew we had a problem with what ended up being 83 products recalled on August 2nd. Even then we increased our testing, looking for more, and by August 14th we had our second recall. We tend to have two or three small recalls a year in the toy business, but when you have two big recalls two weeks apart you're suddenly talking a whole different level of crisis."

In response, the company essentially shut down its supply chain in its two busiest shipping months, August and September, in order to contain the impact. The other thing that Eckert says was key was seeking advice. Drawing on a previous crisis management case study - that of Johnson & Johnson's handling of the Tylenol recall in the 1980s - he called a retired J&J director to ask for help. "He told me that there're two things that are important," recalls Eckert. "Number one, the CEO needs to be seen as active; whether you like it or not you need to be visible. People need to see somebody and they need to see you, not a subordinate. And number two, you need to make sure people understood this isn't about money. You need to tell them, 'I don't care what it takes. We will fix this and we will spend whatever we need to spend. Today I'm not the capitalist concerned about profits. I'm the person concerned about your kids and I will do whatever it takes financially, culturally, personally to make sure you don't have to worry about your kids anymore.' That was great advice."

And Eckert took it, putting himself at the forefront of the media effort and taking direct responsibility for rectifying any issues and addressing consumer, retailer and regulator concerns head on. He won customer kudos for his open communication style and plaudits both inside and outside the business community for his clear-headed handling of a difficult situation. And he won the respect of his employees for his honesty and transparency. It's a lesson a number of other high-profile executives currently mired in their own problems - BP and Toyota, to name but two - would do well to follow. Typically, however, he's reluctant to take the applause, preferring instead to share the credit with his 27,000-strong team. "It was a big challenge for the company as a whole, but the people of Mattel delivered unbelievably during some really demanding, taxing, trying times," he says.

It's typical of a man who claims to be a big believer in the Boy Scout motto 'be prepared' to take nothing for granted. "We didn't practice a recall related to lead paint but when that issue appeared we did have a plan in place regarding who does what when, and how we engage," he says. "The other thing is that we're a global company and around the world, someone at Mattel is always working. So twice every day, seven days a week, we had phone conferences - one at 7am Pacific time and the other 4pm Pacific time (the perfect transition between either Europe and Asia and the US) - to coordinate what had been happening on a given continent, what needed to happen in the next 12-hour period and what the impact of that was globally. We had 30 or 40 people on the line all over the globe at different levels in the organization, so we were pretty current all the time. There weren't many surprises."

They say whatever doesn't kill you only makes you stronger - and Eckert certainly feels the experience, whilst hardly beneficial in the short-term, has actually helped forge a stronger bond between Mattel and its employees, between the management team and the people on the front line. More importantly, it has also enhanced the levels of trust between the company and its customers.

He feels such mutual trust has been invaluable during the recent downturn, where tightening belts and pulling together has been paramount. "We all hunkered down," he says. "We were tough on the cost side of our business. We were tough on expenses and spending. We had layoffs. We had no promotions, no salary increases. And we didn't make so many toys. Our vendors had to deal with that, and we didn't sell too many toys to our retail customers who in turn didn't want to buy too many toys. It was a tough year all round. But somehow we got through 2009 together."

Fast forward to 2010, and Eckert believes the firm is in much better shape to capitalize on any potential upturn in the economy. "The company did better than I expected in 2009," he maintains. "It was a tough year for our employees but they really stepped up and delivered. Our sales were down in 2009 by about 8 or 9 percent. Revenues were down. But our profits were up over 30 percent. Our cash flow was also very strong. It was the best performing year I saw among Mattel's employees and the most challenging year we've had. So if they can do that, if we maintain that discipline and focus, we'll have a really good 2010. That's where all the investment we made in people really paid off."

Allied to this optimism is the fact that a number of big entertainment properties are set to drive sales this year and next for the toy giant. Mattel has a strong relationship with firms such as Disney, Warner Brothers, Nickelodeon and the Cartoon Network, which Eckert says provide it with great intellectual property. "Right now Toy Story 3 is incredibly popular," he enthuses. "It is a fabulous movie. It's just a really warm story and toys are obviously at the center of that and we're fortunate to make a lot of the toys that support the Toy Story franchise. Our number one priority is to do the best job we can for the intellectual property that comes out of television and movie studios."

Mattel is also set to begin developing stories around its own brands. "There has been a new genre in filmmaking that starts with the toy and turns it into an entertainment property," says Eckert, "and we'll participate in that. We'll probably do some things with brands like Masters of the Universe, which at one point in the 1980s was bigger than Barbie. We're also looking at other properties that have been away for a while - for instance, we had a property called Major Matt Mason that was about our fascination with life on the moon, and it turns out that it was one of Tom Hanks' favorite toys and he wants to make a movie out of that. I don't think that turning toy properties into movies is going to be around forever, but as long as people in the entertainment business are interested in that then we'll participate."

Certainly the future looks bright for the toy giant. According to investment bank Caris & Company, key sales drivers in 2011 will be the launch of Cars 2, Warner Brothers' Green Lantern and a possible Monster High live-action musical movie from Universal. Key 2012 drivers will be the release of Batman 3, Ghost Busters, a Barbie movie and Tom Hanks' Major Matt Mason treatment. As with Cars, the studios are also planning follow-on entertainment to support Toy Story and Green Lantern as 'evergreens'. But while bullish on his company's prospects over the next few years, Eckert maintains that the results will only come if he and his team remain focused on developing the right culture. "Mattel is first and foremost a people development machine," he concludes. "We're helping kids develop, and while we're helping kids develop we're helping ourselves. And hopefully, that will continue long after I'm gone."

MATTEL'S SUMMER WINS

Fisher Price iXL

Think of it as an iPad for kids aged 3-6. Applications include a storybook, game player, art studio, notebook and photo album, and it will play MP3 or WMA music files. It features an SD card for expandable memory and is compatible with Mac and Windows. Priced $79.99, the device will be available from July.

Monster High

The new franchise, focused on the world of Frankie Stein and her freakishly fashionable friends - Draculaura, Claw-Deen Wolf and Lagoona Blue - will include books, movies, webisodes, apparel, toys and more. Toys are available now, with books and an animated special expected in the fall.

Toy Story 3

The big-hearted mini heroes are back for a third instalment this summer, and Mattel is set to reap the benefits through its licensing of the toy range. Mattel, which owns Fisher-Price and makes Ken and Barbie dolls - stars of the new film - is bracing itself for a rush on the kids' classics.

INTERNATIONAL EXPANSION

When Eckert joined the company, business outside the US represented just 29 percent of Mattel's overall sales; last year it was 46 percent. Here he reveals why expanding internationally is a key part of its focus.

Our publicly stated goal is 50 percent, but our president of international knows the day we achieve 50 percent his new goal is 60 percent. When I joined the company, I benchmarked the really well-run global consumer goods companies - Unilever, Proctor & Gamble, Coca-Cola, Kraft Foods - and typically about half of their business was done outside of the US. It seemed to me that at 29 percent we were underdeveloped - and as it turns out, about half of the global toy business is done outside of the US, so there's a lot of growth potential there.

Economies are growing. Middle classes are growing. Populations are growing in many parts of the world. So virtually all of the growth in this company is coming from outside the US; that's part of our strategic plan and I think it's going to continue to be that way for years to come.

Today, the global toy industry is about $50 billion. We're the largest toy company in the world at $5 billion, and we only do 10 percent of the world's toy business. But in a place like China, which is a huge and quickly developing market, the entire toy business is maybe $1-2 billion today, and of that the branded toy business where we want to play is maybe only between $100-300 million. That's the whole market, and we only have a small share of that market. So we've got to develop the toy business.

The economy helps. The advent of the middle class helps. People investing more in their children and wanting to see their children have a better future helps. But we've got to create the toys that appeal to that market, and then promote them. Not only promote the toy category but promote toy brands and our brands specifically. So it's a challenge from a marketing standpoint, but not unlike the challenge our predecessors faced when they developed the toy market in the 1950s in the US.

I got an e-mail last week from one of our directors on a business trip to China and she said, "Bob, I just went into a mass merchandiser here in Shanghai and the toy department is really small, it's the very back of the store and it looks like they could use some help in how they display toys for the Chinese consumer". That's not atypical. We're used to walking into stores here in the United States where the toy section is a big, beautiful department with lots of brands; it's very colorful and exciting and entertaining and a fun place to shop. But if you go to a mass merchandiser in China today, toys are probably category number 83 out of the 100 categories they have in the store, and we've got a lot of work to do to help them realize that if you put enough energy into it you can make toys number 60 in a hurry, and then someday if all goes well it can be like a Walmart in the United States where, during the holiday season, toys is one of the two or three most important departments in the store at Christmas. But we've got a lot of work to do to help retailers understand that, and it's going to take a lot of time to develop those markets.

CONFIDENCE IN A CRISIS

How did Mattel handle 2007's product recall? Eckert explains.

Have an open culture internally. "We wanted to know what the issues were in order to be able to deal with them collectively and quickly. An open culture means people are engaged and there is no unnecessary fear that the messenger of bad news is going to get shot."

Enshrine honesty as a value. "We talk about the value of playing fair. We want to do the right thing. We knew we had made mistakes and I think we were quick to acknowledge that. Our messages were very consistent, particularly in terms of speaking to parents."

Take responsibility for what happened. "We said, 'We're sorry this happened; you don't need to worry about your toys, we're here to worry about the toys. We're sorry we put you in this position where you have to think about your toys and you have to worry about how your children play.'"

Communication is essential. "Let people know exactly what happened and what you're doing to ensure it doesn't happen again. We were open with our communications - with regulators, with our retailers, with the media and directly with the consuming public."

Have a crisis management plan in place. "I don't go anywhere in the world without the contact list for activating our crisis management plan. It's in my wallet. It's in my briefcase. It's on my shelf here at work. I've got the chain of command on whatever the issue is and I can reach anybody, anywhere, 24 hours a day."