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Shaking Up the Toy Shop

June 30, 2006
Related Topics: Corporate Culture, Featured Article, HR & Business Administration
It may have appeared that Robert Eckert was bypassing a career-making opportunity when he didn’t immediately take the top job at Mattel Corp. It had been the world’s largest toy company and home to some of the most successful brands in history: Barbie and Hot Wheels.

    But when Eckert was thinking about coming aboard as CEO six years ago, Mattel was not the company it had once been. It was dealing with the disastrous $3.5 billion acquisition of the Learning Company, had fired its CEO and had virtually no strategic plan. From the beginning, Eckert knew that the employee groups were disjointed and unmotivated. Workforce management had to play a critical role in pulling the company out of the muck.

    Looking back, he attributes the company’s turnaround largely to its workforce strategy.

    "The institutionalization of people development is what I would love mylegacy to be," Eckert says, "so that nobody necessarily remembers who I am, but that there is a people development machine that lives on forever."

    Today, Mattel’s annual sales exceed $5 billion and the company has a workforce of 25,000 spread across 42 countries. Its stock is now in the range of $16 to $17 per share, lower than the $40-plus level in 1998 but still a vast improvement over the $11.25 share price when Eckert took over.

    Getting the company on healthy footing was a Herculean effort. It began by creating a basic workforce management plan along with supporting initiatives like performance tracking, succession planning and leadership development. Those might be standard at most Fortune 500 corporations, but they were conspicuously absent at Mattel.

    There were many doubts along the way. Eckert wondered whether the Southern California-based company’s culture could stomach the changes.

    "I had the stereotypical perception of anybody working in Los Angeles as being of the ‘Let’s do lunch’ crowd," he says. That would be a stark contrast to the "let’s get to work" crowd that Eckert grew up around at Kraft Foods in Northfield, Illinois, where he had risen to president and CEO during his 23-year tenure.

    In one of his conversations with John Vogelstein—a lead member of Mattel’s board of directors, and the one who had approached him about the top spot after Korn/Ferry’s initial outreach—Eckert asked for a candid assessment of the corporate culture within the organization.

"The institutionalization of people development is what I would love my legacy to be, so that nobody necessarily remembers who I am, but that there is a people development machine that lives on forever."
--Robert Eckert, CEO, Mattel Corp.

    Vogelstein’s response was simple: "If you are the CEO, the culture is anything you want it to be."

    The idea of developing a workforce strategy to effect cultural changes within Mattel was seductive, Eckert says, and was a major factor for taking the CEO job in May 2000. Once Eckert came aboard, workforce strategy took center stage at Mattel, says Alan Kaye, senior vice president of human resources and a self-described "corporate anthropologist."

    At the end of that summer, Kaye was the only executive besides Eckert who presented to the board of directors during a turnaround strategy meeting that lasted for three days.

    Kaye proposed ambitious initiatives that would motivate the workforce and give it more discipline. The idea was to create tangible development programs that would generate a more skilled and competitive workforce, establish metrics to understand how the workforce was performing and set up a systematic succession strategy that would enable the company to retain its homegrown talent.

    Harold Brown, a Mattel board member and former secretary of defense under President Carter, summed up the spirit in the room when he looked at Kaye and said, "Go for it," Kaye recalls.

Boys versus girls
    With that endorsement, Kaye received a pledge of several million dollars in seed money. Along with Eckert and a two-member human resources team, he embarked on what would be one of the most important tasks: breaking down the cultural silos within the company.

    Mattel is essentially a sprawling tree with multiple branches. There is the girls unit, where Barbie reigns supreme. The American Girl line has its signature educational and historical dolls. The boys division is where Hot Wheels is in the driver’s seat. Finally, there is Fisher-Price, a line of toys and educational tools for infants and preschoolers. Each entity had its own distinct culture, language and way of doing business.

    This environment can breed close-knit communities and foster strong group dynamics, workforce experts say. But it can also create a disconnect among the subcultures, brewing discord and inefficiencies, as had been the case at Mattel.

    "The culture could be contentious and aggressive at times," Kaye says. "How well you did could depend on how poorly somebody else did." What’s more, the silos at Mattel choked the flow of information and undermined important workforce strategies, such as succession planning. Supervisors were unwilling to reveal the identity of promising talent to other silos.

Disconnected corporate silos at Mattel chocked the flow of information and undermined important workforce strategies. "The culture could be contentious and aggressive at times. How well you did could depend on how poorly somebody else did."
--Alan Kaye, senior vice president
of human resources

    Putting an end to the splintering called for decisive action. All of the brands, with the exception of American Girl, which was purchased in 1998, would eventually be unified under one umbrella: Mattel Brands.

    That change did not happen overnight. Eckert began by creating a corporate strategy and a vision, something that would give the individual business units a common objective to work toward. Up to that point, Mattel had never had a formal written strategy for the company as a whole.

    "Employees within the silos knew what they were individually trying to accomplish, but they had no clue of where Mattel was headed as an organization," Eckert says.

    Workers around the world were blitzed with an awareness-raising campaign that outlined the corporate goals. The strategic objectives included improving productivity, globalizing and extending the brand, and creating new brands. Remnants of this massive undertaking can still be found at Mattel’s headquarters in El Segundo, California, where the corporate strategies are plastered along the bustling corridor that links the main elevators to the airy cafeteria.

    Kaye, however, did not want employees to merely recite the corporate strategy. He wanted them to visualize their role within the organization and to deepen their understanding of how the business functions. "Sometimes corporate philosophies can be abstract," he says.

    With this in mind, Kaye and his team in human resources designed "learning maps" that depict some of the critical functions within Mattel, like the toy development cycle. The diagram illustrates how the different departments—such as global marketing, design and concept, market research, engineering and promotion—contribute to this process. It also shows how that work contributes to the overall health of the organization.

    In addition to the 184 large learning maps distributed worldwide, Mattel produced cards and facilitator materials in multiple languages. Facilitators using the maps instruct 10 to 12 employees at a time.

    To further foster teamwork, the company also provides special training courses on topics like managing across cultures, communicating more effectively and dealing with difficult people.

    Even though the corporate silos were well-entrenched, Eckert says that creating a unified culture was easier than he had anticipated. Employees understood the negative implications that poor communication and weak team spirit had on their day-to-day tasks.

    "Workers are not dummies," Eckert says. "They knew what had to be done. It was management that had stood in the way."

Even though the corporate divisions were well-entrenched, creating a unified culture was easier than anticipated. "Workers are not dummies. They knew what had to be done. It was management that had stood in the way."
--Robert Eckert

    The unification process began by first combining the boys and girls divisions under Mattel Brands in 2003. And as a testament to the progress that has been made, the Fisher-Price line of toys was added in fall 2005. Five years ago, Eckert says, the vast cultural gaps among the divisions would have made this marriage impossible.

Standardizing people development
    The HR leadership understood that workforce development would have to become a systematic process throughout Mattel. With Eckert’s vision, the company developed standard methodologies for employee training, performance management and succession planning.

    The move effectively guarantees Eckert’s mark on Mattel because nothing like this had ever existed within the organization. Grace MacArthur, vice president of leadership and development, plays a critical role in this undertaking. Kaye brought her on early in the workforce revamping process, and she has built many of the programs from the ground up.

    MacArthur began by turning a building on the company’s El Segundo campus that had been used for displaying toys into a state-of-the-art learning center. "The transformation of the building is a metaphor for the changes in workforce strategy," she says.

    Today, the building hosts employees who want to participate in instructor-led training programs for sharpening their core competencies. There is also a digital training center and more than 2,000 online courses that offer support on a variety of business-related issues.

    All divisions now adhere to a single performance management system. The "targeted results assessment and coaching" process measures employees’ contribution toward realizing Mattel’s strategic goals.

    Performance management begins with Eckert and cascades down to employees worldwide. Each individual in a supervisory role receives a set of objectives that support the overarching corporate goals. There is a 360-degree feedback system that lets employees know how well they are doing. Individual coaching is available for employees who need improvement in certain areas. The coaching courses cover a variety of topics, such as interpersonal skills, emotional intelligence, negotiation and giving presentations.

    Mattel also put a formal talent management system in place. This facet of the workforce strategy not only sets the stage for sound succession planning practices, but also encourages communication among the divisions. Managers are responsible for identifying potential leaders within the organization, and the new succession planning process encourages executives in strategic positions to exchange the information with one another. That’s not how it operated before.

    "True sharing of knowledge is going on for the first time," Eckert says.

    Employees benefit from this new dynamic because it can open up career advancement opportunities outside of their division. Mattel’s internal promotions have increased by 25 percent during the past five years, with about 75 percent of open positions now filled internally, Eckert says. And in the same time period, turnover among nonmanufacturing personnel has decreased by 50 percent. Annual attrition rates are now 7 percent to 8 percent.

    The ability to retain talent is particularly critical in the fiercely competitive toy industry, says Julie Livingstone, director of marketing and communications for the Toy Industry Association, a trade group with more than 400 members.

A building on the company's El Segundo campus that had been used for displaying toys has been turned into a state-of-the-art learning center.
"The transformation of the building
is a metaphor for the changes in workforce strategy.
--Grace MacArthur, vice president of leadership and development

    "Toy commerce is as competitive and fast-paced as the fashion world," Livingstone says. "Companies can be made or broken by the innovation and creativity of their talent."

    A changing market, shaped by the emergence of new competitors and the increased bargaining power of retailers like Wal-Mart, make the industry particularly grueling, according to Sean McGowan, retail analyst for BMO Capital Markets in New York.

    For all its internal work since 2000, Mattel has not been left unscathed. Worldwide gross sales for the core brands have been disappointing. Barbie, which once raked in $3 billion in sales, was down 13 percent in 2005. Mattel’s only strong performer was the company’s $436 million American Girl line of business, which surged 15 percent in 2005. Last year, net sales for the company overall were $5.2 billion. MacArthur says the tough market is behind the malaise. She believes the situation would be more dire without new workforce initiatives.

    Now that methodologies for training, performance management and succession planning are deeply ingrained across the various divisions, MacArthur is looking for a more strategic balance between what she calls "federal powers," which is Mattel as an organization, and "state powers," which are the individual business units.

    She is not opposed to the various divisions molding the standardized workforce management strategies to suit their individual needs. They will all be carrying out performance management, succession planning and tracking using certain guidelines, but there will be a degree of personalization, she says.

Disciplined creativity
    With its volume and frenetic pace, the toy industry is part art, part science, Eckert says. Employees have to be continuously—and effectively—creative, since as much as 80 percent of Mattel products are new every year.

    About $4 billion of the $5 billion in annual sales is derived from new toys. Because the speed required leaves little time for careful thought and reflection, many decisions have to be made on instinct. But Eckert wanted to reduce the "throw spaghetti against the wall and see what sticks" dynamic that was in place. His solution was to train and develop the company’s people.

    To do that, Mattel has made serious training investments. MacArthur’s overall budget is about $2.5 million. That’s a luxury that only a handful of companies in the toy industry, such as Hasbro and Lego Holdings, can even dream of approximating, the Toy Industry Association’s Livingstone says.

    Mattel managers have access to sophisticated training initiatives that include the Executive Seminar, the SOAR program and the Global Leadership Program.

    The Executive Seminar is a weeklong event held in Southern California, though away from corporate offices. The seminars focus on particular themes, such as leadership. Classes in areas like leading change, leading yourself and leading others support the premise. The programs cost about $300,000 annually to run, excluding lodging and travel expenses for the participants.

    Graduates of the seminar move on to SOAR, which targets 125 executives from around the world and is also held in Southern California. (The acronym encompasses four concepts: strategize, open your eyes, act to energize, and realize the future.) Excluding travel and lodging costs, the program has a price tag of about $400,000 annually.

    The Global Leadership Program is a weeklong initiative held twice a year at Thunderbird, the Garvin School of International Management in Glendale, Arizona. Each session hosts about 35 executives from around the world, which is good not only for training purposes, but also for team building, exchanging ideas and identifying rising stars within the company, MacArthur says. Mattel declined to disclose the cost of the program.

    Some of the skill-development courses include global finance and global marketing. Eckert kicks off the program and is an active participant.

    Kanan Ramaswamy, instructor of strategy at Thunderbird, says that Mattel’s level of commitment to workforce development is rare, particularly in the cash-strapped toy sector. "When margins are going down and cost pressure is going up, few companies have the courage to invest in their people," Ramaswamy says.

    Mattel used to rely more heavily on external professors, but now some of the high-ranking executives, including Eckert, teach several of the courses for the programs in Southern California as well as in Arizona.

    Case studies are also becoming more focused on the toy business, and Mattel in particular. The company brought in a writer from the Harvard Business Review to design case studies that deal specifically with Mattel products and problems.

Seeing results
    Eckert says Mattel can now make smarter bets because it has a better-trained staff. One of the results has been a reduction in inventories. "We have added science and discipline to estimating how much toys we are going to make," he says. The company also does a better job of satisfying customer supply-chain needs.

    And yet, while the company has rebounded from its darkest days, challenges persist in the uncertain and highly competitive world of the toy industry.

    From his office overlooking Los Angeles International Airport, in a room decorated with a smattering of exotic Barbie dolls, Hot Wheels cars and other toys, Eckert reflects on his past six years at Mattel.

   The workforce is much more disciplined than it used to be, he says. The training and development programs have created employees who are more discerning when it comes to making important business decisions, like entering new markets or forming partnerships. They have the skills and the know-how to make better predictions, he says.

    There is no question that Mattel’s workforce strategy has flourished under Eckert. The rigid silo mentality within the organization has largely disappeared. People development programs support underlying corporate goals. Performance measurement has taken concrete shape.

    But Eckert is the first to admit that he did not tinker with one aspect of the workforce: its work ethic. California notwithstanding, employees turned out to be from the "Let’s get to work" crowd.

    "These are very hardworking people," he says. "You could stick them in a food company in the Midwest and you wouldn’t know the difference."

Workforce Management, June 26, 2006, p. 26-34 -- Subscribe Now!

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