Let’s Get Digital, Digital!

Can Mattel adapt to the digital age?

Mattel, Inc. – the one-time world leader in the design, development, and marketing of a broad variety of children’s toys – is confronted with the dual challenges and opportunities associated with digitalization. While digitalization has broad implications for the entire traditional toy industry, its effects may be most clearly crystallized in the example of Mattel, which uniquely operates thirteen company-owned plants and employs up to 40,000 supply chain employees.[1] [2]

First, the emergence of digitalization has placed new demands on the organization’s product development capabilities. It would be of no surprise to any resident of a developed nation that children are spending increasing amounts of time engaging with digital products. In fact, approximately 85% of U.S. children, aged 3-5 have access to a tablet.[3] Consequently, Mattel is now pressured to develop new, tech-enabled products that can hold a child’s attention. Having achieved its past success through expertise in injection molding and die-casting, this capability gap reflects a significant departure from its core product development capabilities.

 

Can Barbie get back into “great shape”?

However, digitalization can also serve as an enabler to Mattel’s supply chain, by enhancing demand planning and speed-to-market. Traditionally, Mattel’s supply chain faces significant pressure to deliver new products. Given the highly seasonal and fashion-driven nature of the business (i.e., each year has different “must-have” toys), the company annually develops 6,000 new products with a typical lifecycle of under two years.[4] Accordingly, digitalization presents a massive opportunity for Mattel to improve its speed-to-market, demand planning, and inventory management. Using digital design and modeling, Mattel can rapidly prototype new toys and design the products with automation in mind. Once designed, a digitalized supply chain can improve the level of visibility – from factories to demand planners – to more effectively deliver products to market. In incorporating these elements of a digital supply chain at scale, Mattel could create a massive competitive advantage in an industry with typically long lead times.

In the short-to-medium-term, Mattel has addressed these issues in several of ways. First, Mattel has attempted to both buy and partner to access the relevant tech-oriented product development capabilities. In early 2015, Mattel strategically acquired the companies Fuhu and Sproutling, providing capabilities in product development; data analytics; and software, hardware, and firmware engineering skills.[5] Additionally, Mattel also announced a partnership with Google to revive its classic View-Master toy, revamped with virtual reality technology.[6] Using some of these capabilities, Mattel has launched several tech-enabled products (see: Hot Wheels AI, Hello Barbie, Hello Barbie Dreamhouse, Ultimate Justice League Batmobile). Next, to digitalize the broader supply chain process, Mattel announced JDA Software Group as its strategic supply chain partner, with the objective of driving “improvements across its end-to-end supply chain processes, […] demand planning, […] and customer collaboration.”[7] While these initiatives have made minimal contribution to the firm’s growth in the short-to-medium term, they indicate a willingness to evolve that will be critical to the firm’s future viability.

 

To more fully address the dynamics of digitalization, Mattel still has ground to cover. As Mattel slowly shifts its product

development capabilities towards a digitally-enabled offering, cascading new complications arise. For instance, in engaging with a child end-user, data security and privacy become increasingly important concerns for Mattel. Almost two years after kid-friendly electronics company VTech announced a major data breach (including child user data), Mattel announced that it would no longer bring its Aristotle product – an “all-in-one voice-controlled smart baby monitor” – to market, due in large part to concerns about privacy and Mattel’s intentions with collected data.[8] [9] Given the gravity of these new obstacles, Mattel must continue to build out the relevant product development capabilities to both create a digitally-enhanced line of products and improve its overall supply chain performance.

Mattel’s discontinued “Aristotle” product

Of course, questions remain as Mattel’s supply chain grapples with digitalization. Namely, can a seemingly old-fashioned company recruit and sustain the talent required to develop a tech-enabled product portfolio? Additionally, will the introduction of more technology into toy offerings further shorten the product lifecycle and, thereby, further stress Mattel’s supply chain (i.e., obsolescence risk is higher in technology than in toys that maintain an open-ended play pattern for kids)?

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[1] Mattel 2017 Investor Day – Chief Supply Chain Officer Remarks (link)

[2] This value reflects approximately a 50-50 split between owned and outsourced manufacturing by volume (link @1:36:00 mark).

[3] Mattel 2017 Investor Day – CEO Remarks (link)

[4] Mattel 2017 Investor Day – Chief Supply Chain Officer Remarks (link @ 1:34:28 mark)

[5] Mattel Bolsters Digital And Smart Technology Capabilities With Pair Of Strategic Acquisitions (link)

[6] Google Partners with Mattel to Bring VR to the Iconic View-Master (link)

[7] Mattel Selects JDA to Power Digital Transformation Across Its Supply Chain (link)

[8] Security Breach at Toy Maker VTech Includes Data on Children (link)

[9] Mattel cancels plans for a kid-focused AI device that drew privacy concerns (link)

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7 thoughts on “Let’s Get Digital, Digital!

  1. Kevin, I think this is a very interesting topic, though it hurts my feelings to think of children migrating away from toys to screens. It’s incredibly surprising to me that 85% of children in the US have access to tablets. Call me old fashioned, but I have this wild fantasy that Newton’s Third Law (every action has an equal and opposite reaction) will apply even in this case of the most rapid introduction of technology in history. Sherry Turk, a science professor from MIT, expressed the kind of concern I would imagine might become prevalent in the decade to come in saying she “fear[ed] that children who do not learn real interactions, which often have flaws and imperfections, will come to know a world where perfect, shiny screens give them a false sense of intimacy without risk.” [1]

    Because of this, and because of the way some millennials have seemed to become sensitive to limiting their technology usage, I have faith yet that toys will remain relevant. That said, I think it is a good idea for a company like Mattel to begin to invest in screen-centric offerings to adapt to the times. In addition, I believe that digitization of supply chain will be absolutely necessary in the coming years and it would behoove Mattel to continue this practice going forward. Nice piece, I enjoyed it.

    [1] Nick Bilton, “The Child, The Tablet and the Developing Mind,” The New York Times November 29, 2017.

  2. As someone with a 6-year-old sister, this post really resonated with me. I have seen my sister evolve from being content playing with Legos and Playdough to preferring to play with an iPad. It worries me that with the increasing availability of technology, children are being overstimulated and are no longer finding joy in simpler non-tech-enabled toys that require imagination instead of microchips.

    To answer your first question about whether Mattel will be able to recruit and sustain the talent required to develop a tech-enabled product portfolio, I believe that they have no option. They will need to develop this talent in order to compete and survive in a world where children prefer tech-enabled toys over simple Legos or Playdough.

    To address your second question, I do believe that the introduction of more technology into toy offerings will require Mattel to shorten the product lifecycle for three reasons: (1) the overstimulation of children is shortening their attention span, which will in turn leave them bored of older toys and wanting new toys more frequently, (2) technological advancements will make toys outdated much more frequently than in the past, and (3) an increase in technology and resulting advertising will make children more aware of new toys quicker than ever before, increasing competition and competitive response.

  3. Thank you for a very interesting article, it’s great to hear about how the company that created some of my favorite toys growing up is evolving to remain relevant in a digital world.
    I believe that another consequence of the improved speed-to-market, apart from capitalizing on the fashions of the toy industry, is also the ability for Mattel to customize its toys. As evidenced by the “American Girl” dolls (also owned by Mattel), children and their parents are increasingly interested in customizing toys and presents rapidly, and the shorter lead times and greater flexibility of a digitalized factory could help deliver on customer demands.
    In addition, the advent and increasing sophistication of robots and 3D technologies will also decrease speed-to-market and increase production flexibility. This will help shift Mattel from a toy company to a tech one, and therefore help with the hiring and retention of top talent you mentioned in your article.
    Lastly, digitalization in children’s toys offers entertainment, but it also provides educational possibilities. Mattel, with its reputation and know-how, could be well-positioned to capitalize on this new segment.

  4. Kevin,

    Great article. Thank you for the thoughtful work.

    After reading this and considering the future state of the world that you alluded to, I could not help but think that there could also be a strong counter movement away from the very trend you described above. There are already those bringing into question the negative effects that overuse of technology has on child development, such as attention, sleep, and mental health, amongst others (1). And it’s early days. I wonder what the future will bring in terms of scientific discovery as it relates to kids using technology, and how that might effect the toy industry as a whole.

    So if I am Mattel, would I ignore the trend altogether? Perhaps. If I did so, I would anchor my brand, communication strategy, supply chain, and organization around the concept of child health, natural products, and living in a world free of technology where kids can use their imaginations to enjoy the wonders of play.

    (1) https://www.huffingtonpost.com/cris-rowan/technology-children-negative-impact_b_3343245.html

  5. Good job Kevin, Solid read! I think there is an interesting juxtaposition between the clear benefits of technology and the risks of being too absorbed in the digital, as the previous comments stated. However I see screen use just as another thing to manage – it must be managed just like food, exercise, work/life balance, risks that have permeated our lives since the start of humanity. We can learn to manage this one as well.

    I see technology as a complementary good to physical toys, especially as the barriers between them are removed. Mattel has already released a 3D printer for kids (https://techcrunch.com/2016/09/27/mattels-thingmaker-the-3d-printer-that-let-kids-make-their-own-toys-delayed-until-next-year/), as well as a 3D scanner (https://gizmodo.com/hasbro-patented-a-3d-scanner-for-kids-that-uses-a-smart-1764720563). As the cost of these devices drop and ease of use increases, the barrier between the digital playground and the sandbox will become diffuse. The result is a huge opportunity – the success of combining toys with digital games has been demonstrated with Nintendo’s Amiibo series (https://gamerant.com/nintendo-amiibo-sales-splatoon/) but success in this area will require significant effort, and expertise in areas far outside of Mattel’s historical competency.

  6. Great article, Kevin! It brings to mind an earlier conversation we had about how Mattel lays out toy strategies years ahead of release, and, in some instances, to coincide with major cinema releases. However, in today’s world of ‘fidget spinners’, where a certain toy takes the world by storm and then disappears a few months later, I can imagine situations where Mattel would need to increase speed to market using a digitalized supply chain.

    The second thing your article brings to mind is the role a ‘toy’ can play with regards to increasing a child’s safety in today’s digital world. Mattel’s experience with Aristotle, in my opinion, represents a significant opportunity for Mattel to develop toys that parents will feel comfortable leaving their children with i.e. toys that keep children engaged and learning but that also protect their identities, protect their privacy and prevent them from accessing unsuitable online content.

  7. Thank you for the interesting essay! As children turn to digital entertainment, one question for Mattel is whether the company can build solutions on third-party platforms or whether they should focus on developing original devices. For example, would Mattel be better off licensing its intellectual property for a PC or Nintendo game or building digitally-enabled devices internally? Utilizing other companies’ platforms seems easiest in the short-term, but it may also jeopardize the company’s long-term value proposition.

    Additionally, I think digitalization of the supply chain has unique advantages in a seasonal business like toys. There is a relatively narrow window for Mattel to meet retail demand. A digital supply chain and closer integration with retail partners could help Mattel keep the shelves stocked during the busy season, ultimately driving incremental sales.

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