The World Leader in Toys Mattel - Essay Example

? Mattel – Organizational Crisis Contents Overview of the company and the issues faced 3 How did the crisis unfold? 5 Problems that led to the Mattel’s position 5 Favorable changes Mattel should bring to improve its situation 9 The Page Principles applied to get back to its reputation and some recommendations along with it. 10 Conclusion 13 References 14 Abstract This report intends to provide a detailed overview on how a company can handle its organizational crisis. The report will give you a brief about the world leader in toys “Mattel”, it will give a detailed explanation about the issues it was facing in mid of 2006-2007. It will provide all information regarding the problems faced by the company. The problems were more internal than external due to which a company that was claimed to be the world leader sometimes was been seen with an eye of doubt by its stakeholders and the consumers. The report will also highlight the major issues the company had with its products and the steps taken by the company to rise from this set back. The company gives a good example of how any organization needs stability and consistent approach of quality in its products. Also, it highlights that the work of its employees is not only on the functioning of the processes but also there is a responsibility they hold towards their own customers and stakeholders who wants to know a clear picture of the company. They are the ones who need more communication and to build this picture in front of them, it is recommended to work constantly in this direction. Overview of the company and the issues faced Mattel is considered once the leader in the toy company in the whole world. Mattel was introduced as a garage workshop. It origins in 1945 in Southern California. The products is brought in early 80’s include match box, custom motors, Polly, barbie, casketball queen, battle force and monster high, and game consoles. It also found its space in the list of 500 largest industrial companies (Torget, 2002) Mattel won the title of being in the first 100 of "100 Best Corporate Citizens" Mattel is currently operating in more than fourty three nations with a huge work force of 31,000 people which is also and approximation with its headquarter in EL Segundo in California, United states of America. It is very great to hear that it is selling globally in more than 150 countries and since then expanding. Mattel claims many crowns due to the innovative work. One of them is "World's Most Ethical Companies." (Mattel, 2011). It is now a world leader due to the huge success and innovative ideas it has bring with it. With the introduction and success of Barbie in the year 1980’s it conquered the world leadership. Like various leaders in the world market, Mattel has attracted media due to its high growth and influence on the market. It also somewhere led to consumer distrust. Further, Mattel came into highlights when it started outsourcing its processes which also means loss of hundreds of American jobs to Asian nations due to cost. It also led to the moment of human rights organizations to take action against Mattel. But Mattel was consistent in telling the outside world, the investors and stakeholders that is it growing and there are no problems with its functioning but the inside story was something else which was highlighted to the outside world in the early years of 1994 (Morgenson, 1999). Next decision which turned down the trust of investors was turning to mergers and acquisitions for growth. The buying of Companies named Tyco Toys Inc, Pleasant Company, Bluebird Toys PLC maker of Polly Pocket and Learning Company. All the companies were bought at unusual high prices then the company‘s annual sales (Morgenson, 1999). In 2000’s, in view of taking the recovery actions towards transparency and corporate social Responsibility, Mattel started taking moves in the direction of regaining the trust and confidence among its consumers and investors. With that the operations team was also working judiciously to manage and bring up the sales. The situations became more worse when the company recalled its products for the first time in 2006 then it continued with a tail of recalls .Company recalled 967,000 items. It was one of the biggest recall of that period which was covering more than eighty three products made from made from April 19 to July 6 in 2007 because the products was having lead content that was harmful for the health of Childern ( Etheridge, 2007). Due to this uncontrollable situation which led to the involvement of the governments of both the nations involved in this production that is china and America .not only this, the fear of the harmful products further tensed the situation due to the hindering of trust factor in vendors, consumers, and stakeholders as well as Chinese and American governments. The governments of both sides started reviewing the process and quality checks measures and testing procedures were also under scrutiny. The recall was not a serious situation for Mattel but for the whole world as Mattel was considered a role model in the world for the way it manage its operations in China (Page, 2007). How did the crisis unfold? The company should have alarmed when the mergers and acquisitions cost it more than the annual sales of the companies bought them. Secondly, the outsourcing of more than 70% of the production to china should also be accompanied with more scrutiny in the direction of quality standards and material check by the Mattel. The company should have focus more on quality standards it would not have to do 36 recalls between 2006 and 2007. Mattel lost both the consumer and stakeholders support after this scandal which also left Mattel with heavy burden of losses to be recovered. It also gave a rise of other toy’s products to chase the race and stand nearby the same or higher than the Mattel’s own position which was considered unmatchable. In short it led to the loss of sales and reputation. Problems that led to the Mattel’s position Expecting too much and paying too much for the Learning Company “It’s a function of overpaying for an acquisition and bad due diligence. They should have had a better sense of what the accounting was like at the Learning Co.” – Hayley Kissel, Analyst, Merrill Lynch (Goldman, 1999). In 1998, Mattel gave shocking news through the channel of Wall Street analysts that it is falling short of $500 million revenue. Moreover, the key decisions by MS. Barad and Mattel on acting on the changing desires and play patterns of children in the late 1990’s by overtake of the Learning Company. The idea came from the continuous success two years success in the educational toy market and games like Myst and Riven. After this they thought that Learning Company will be the perfect way for Mattel to get the desired profits in high tech and interactive media segment. But this was not true from the third person’s point of view. The profitability of Learning was questionable. Learning company had also faced the Mergers problems in the year 1999 before the acquisition took place. Reports from the Center for Financial Research and Analysis highlight further the lack of proper due-diligence by Mattel during the Learning Co. acquisition. The biggest mistake was Ms.Barad’s continued optimism (Bannon, 1999) Continually over promising and under delivering A series of events highlights the under delivering situation 1. When Ms. Barad was the CEO for three consecutive years the investors kept a watch that a well running company with huge revenue and earning show a high dip during the quarter with losses. The latest was $171 million in the Ist quarter, this pointed towards the credibility of Ms. Barad and several other Sr. executives that were employed within the year(Bannon, 2000) 2. Second event was the resignation of Ms. Barad’s resignation that left Mattel without division president, chief executive officer, COO and CFO for running its business on international level. It is true that Ms. Barad’s way of working and her leadership attitude led to the decline of Mattel’s (Byrne & Grover, 2000). 3. Moreover during the chairmanship of Ms. Barad , The company surprised Wall Street analysis a total of four times. Here are the series of events occurred: In Sep 1998, Mattel promised the earnings growth for the next year ahead that is 1999 would be 9-12% instead of the anticipated 18 percent. 3 months later, in December 1998, Mattel warns that revenue will fall short by $500 million and earnings will be 30 percent below previous estimates (Morgenson, 1999). Heavy losses in the 3rd and 4th quarters of the year 1999 in respect of the problems with the Learning Company which became the reason of Ms. Barad’s resignation. Soon wall street journal, stakeholders found no confidence in the promises of her as after each announcement of negative earning, she promised and re assured that the issues will be resolved with time. Again in 1999, she instated “We continue to be confident in the future of this company. What we now need to do is prove the potential of international [sales] and the Learning Co.” Throughout 1999 and early 2000, It was seen that Senior executives were departed on a steady rate which further complexes the situation (Goldman, 1999). Licensing vs. new product development and innovation to fuel growth With the change in the demographic of the Americans and the variation found in the customers preferences left Mattel a lot behind in the production of the new and innovative toys which can attract the consumers which are children. “Something’s changed,” says Eric Johnson, professor of management at Dartmouth’s Tuck School of Business. “Kids are growing up faster. They want toys for a shorter length of time.” (Greenfeld, 1999) The statictics of the sales of the toys and video games is as under Toy sale-- > flat past 2 years at $21 billion /year computer and video games ?twice the sale of the last year to $6.2 billion (Greenfeld, 1999). This change in the trend leaves Mattel catching up the competition in the interactive game market. All the new moves in the direction of innovation were not able to attract the consumer and to match the customer trends those days Like It’s Exclusive licensing arrangement with Disney to produce action figures for the latest full length animation feature .In addition to this , another setback came from the acquisition of the Learning company where Mattel was facing serious problem with its internet operations in the 1999 especially during the holiday season where it would have boosted its sales. They began selling selected Merchandise direct through ShopMattel.com with limited customer service and logistics Support. Mattel also neglected to fully deal with concerns of major toy retailers Toys “R” Us and Wal-Mart prior to launch. Passive Board of Directors “The board has a fiduciary duty to look at this. We’re very upset, and we’re very critical of management at this point.” – Kevin Grant, Manager of Oakmank Fund, one of Mattel’s largest shareholders (Bannon, 1999). Ms. Barad got a lot of support from the board of the directors of Mattel. According to William D. Rollnick, who is the director and interim board chairman, shared his views that he and other directors are confident on the work of Ms. Barad and they fully support her seeing her CEO track with the building the Barbie line. They respected Ms. Barad for the work and devotion for Mattel down the years in bring the company’s upliftment and growth. Another reason of the poor oversight from the board was due to the lack of senior directors and outsiders intervention. It was when the Mattel made it important to communicate with its shareholders against the Michigan Lawsuit. Mattel then made it sure that It will be more transparent in the information to the shareholders. It was claimed by the Michigan suit that the company’s directors had the prior information of the coming recalls when they sold $33 million shares from January to May of 2007. These types of juggling in between the company members worsen the situations from time to time. Favorable changes Mattel should bring to improve its situation Rebuild position as an organization devoted to social and fiscal responsibility Be more communicative with the investors and keep transparency in providing the information and Continue to implement a communication strategy Regain the trust of the worldwide support of consumers and investors Regain the valuable confidence of the stakeholders Use the page principals to improve the management and strategies of testing in other foreign factories. The Page Principles applied to get back to its reputation and some recommendations along with it. Be truthful: Each time Mattel recalled it came with an apology make public. It shows that it wanted to be transparent. The transparency was not as absolute as each time Ms. Barad and fellow directors knew already about the recalls but there was a discrepancy in the time that passed when Mattel found about the issues and when the public and CSPC was informed. It seems it should have applied more dedication to the communication strategy of transparency when the recalls take place. If it would have applied communication strategy, it would have continued to be the trustworthy organization in front of its customers. On the other hand, It started making video and audio releases of each updating about the Company inside information in order to keep transparency. Prove it with action: Mattel faced several recalls from early 2006 and it went on. In lieu of making this clearer to the public Mattel used the best communication strategy like news releases and videos as the medium to keep the public informed about each and every action. In addition to this. Some recommendations to this are:- A corporate responsibility department to be formed A new system of audit will be applied by a committee appointed by the Company itself a three-point safety check system conducting regular action evaluations are needed the findings should be made public Listen to the customer: In view to be more informed to the public and especially parents as the products in which Mattel dealt was mostly for the children. The parents were to be informed first so Mattel started using the communication channels like social media, chat room, news, journals, monitoring blogs and especially parenting blogs. Good thing done by the company was to update as soon as the company recalled any of its products and providing suitable warnings in order to keep the parents informed. Recommendations to this: Corporate communication campaigns. Shopkeepers have the one-to- one contact with consumers. They should make sure that they manage to answer each question of its customers in absolute and accurate manner. Preparation for tomorrow: Mattel was facing organization issues like problems with the quality check, material check, toxic check etc. These types of issues could have been checked before hand by making more diligent moves in this direction which Mattel failed to do due to which it has to do so many recalls which also led to loosing of the confidence and the market. Mattel did manage to work on a 100- page strategy that had helped them to manage the post crisis in an effectively manner and timely manner but it should take steps in order to avoid the recalls which really hinder its position each time any product was recalled. Recommendations to this are:- Clear cut moves that can eradicate some of the menace that hinders the company’s international outposts. They should maintain the standards for which they were known. Mattel should manage to live to the standards it was known for in whole country. Conduct public relation strategies and considering it as if whole organization was depended on it: Mattel created an in – house team was appointed for communication regarding any query after each recall. This team took immediate actions and consulted the experts from web services Album-oriented rock and local public relations organizations working in markets on international level. On the other hand, the top level management came out in public not to defend them but to regain the trust within their customers by communicating with them through the channels like media, news, blogs, like Robert Eckert came on TV and other national broadcasting channels and gave interview. Due to this Mattel slowly started regaining the status by being transparent and most communicative at that moment. It is true that any Company’s character is defined on the basis of its eomployees: Mattel was found and established on the shoulders of its directors and one such was Ms. Barad. They had proven history by introducing Barbie and other range of exclusive products which made them the king of toys. This shows that Mattel already have strong foundation with dedication staff which is diligent in making moves as per the instructions. Mattel has set an example in front of whole world but the time of crisis, it needed more support from its organization which was failing to work like before. The recommendations to this are: Mattel should continue to work with transparency Mattel should work in the order of priority by employing more staff for communication purpose and quality check Employees are the ones that can make a negative or positive impact on the consumer’s mind. So, an aggressive training should be given so that he know how to address problems and queries of the consumers (Owen, n.d.) Conclusion The detailed analysis shows that Mattel was shaken by its setbacks in the organization. Mattel should have kept its organization more informed about its setbacks and should have taken the moves earlier than the recalls happened. The problems occurred in the company could have been avoided if the company’s employees and its staff would have been more active in managing the situations. Mattel also learned from this crisis that how much the stakeholders are important and how much the trust in the consumers needs to be consistent to perform in the best manner. It learned the strategies of improving the communication and quality checks. References Bannon, L. (1999). “Mattel’s New Profit Shortfall Punishes Stock and Raises Questions About CEO”. The Wall Street Journal; Oct 5, 1999 Bannon, L. (1999). “Mattel Still Doesn’t Grasp Snafu at Learning Co.”. The Wall Street Journal, Oct 8, 1999. Bannon, L (2000). “Mattel Posts $171 Million Loss for Quarter”. The Wall Street Journal; April 20, 2000. Byrne, J.A. & Grover, G. (2000). “Mattel’s Lack-of-Action Figures”. Business Week; February 21, 2000. Etheridge, S. (2007). Lead Paint Prompts Mattel to Recall 967,000 Toys. [Online]. Available at: http://www.nytimes.com/2007/08/02/business/02toy.html?_r=1&ref=worldbusiness. Accessed on 5th April, 2011. Greenfeld, K.T. (1999). “Mattel: Some (re)assembly required”. Time; Oct 25, 1999; pg. 58. Goldman, A. (1999). “Mattel 3rd -Quarter Estimate Bad News for Investors”. Los Angeles Times; Oct 5, 1999 Goldman, A. (1999). “Mattel CEO’s Report Fails to Ease Investors’ Doubts … But Barad says the worst is over”. Los Angeles Times; Oct 22, 1999 Mattel (2011). Investor and Media. [Online]. Available at: http://investor.shareholder.com/mattel/. Accessed on 6th April, 2011. Morgenson, G (1999). “Barbie’s Guru Stumbles; Critics Say Chief’s Flaws Weigh Heavily on Mattel”; The New Your Times; Nov 7, 1999. Owen, M. (n.d.). Made In China: Mattel’s Lead Paint Crisis. [Online]. Available at: http://www.meredithowen.net/yahoo_site_admin/assets/docs/teaching_notes_final.4193422.pdf. Accessed on 7th April, 2011. Page, A.W. (2007). Mattel Recalls 2007. [Online]. Available at: www.awpagesociety.com/images/uploads/Mattel_PPT.ppt. Accessed on 8th April, 2011. Torget, J.W. (2002). Learning from Mattel. [Online]. Available at: http://mba.tuck.dartmouth.edu/pdf/2002-1-0072.pdf. Accessed on 5th April, 2011. Read More