Hasbro, Inc
Strategic Management Project
MBA 670
Executive Summary & Introduction
Corporate Description
Company & Industry Description
History of the Firm
In 1923, two brothers who migrated from Poland started a small business
by selling textile remnants. In 1926, the Hassenfeld’s officially organized what is
known today as Hasbro Inc. In the 1940’s, the brother duo expanded by offering
pencil boxes and school supplies. By 1950, they were ready to leap into another
market by introducing its novelty toy, “Mr. Potato Head”. GI Joe was
introduced in 1963 producing revenue sells in excess of 28 million dollars the
next two years after Hasbro spent nearly 2 million in TV ads (Miller 1998). In
addition to toys, Hasbro develops games most notably Monopoly which was first
introduced in 1935. Decades later, Hasbro continues to be innovative with
product design, introduction of new products, developing brand recognition to
maintain being a leader in the game and toy industry.
Ownership Characteristics
Hasbro Inc is a publicly traded company in the NYSE. Alan Hassenfeld,
Chairman of the Board of Hasbro Inc., owns about 4% in shares of the company;
while other corporations such as The State Street Corporation and Barkley’s
Global Investors UK Holding LTD are the major institutional stockholders and
each own approximately 6% of the company. While there are other private
stockholders owning significant amount of shares in the company, most of the
ownership is comprised by institutional and mutual fun holders.
Financial Condition
i. Financial Statements (Appendix)
ii. Level of Performance
Hasbro Inc. has been able to increase its net revenues consistently from
2002 through 2006. Its net revenues rose from $ 2,816,230 in 2002 to $ 3,151,481
while Hasbro Inc. produced Net Earnings starting 2003 of $ 158,000 which are
now up to $ 230,000 in 2006. Additionally, Shareholder’s Equity was increased
over the last 4 years by almost $3 and the debt ratio reduced by 23%, which
indicates a financially sound and stable company.
iii. Soundness
As mentioned above, Hasbro Inc. has been performing well in terms of
company growth and profit maximization over its business units, however also
substantially improved its debt ratio by continuously decreasing long term debt
and increasing shareholders equity and return on investment. Hence, Hasbro
Inc. is a financially sound organization that strives to become more profitable
each year and was able to perform great throughout the last four year period.
Industry Identification/Segmentation
The gaming and toy industry is a conglomerate of companies who have
various brands and products in an environment that is competitive and retail
market driven. Major players, such as Hasbro, Mattel, Jakks, and other
manufactures have controlled the industry eliminating smaller firms due to
relationships with major retailers such as Wal-Mart, Target and Toy R’ Us.
However, competition among the larger firms is very intense and has required
firms to build alliances with outside firms like Disney, Star Wars and others.
These strategic alliances along with requirement to perform in the areas of
product innovation, manufacturing, marketing and sales are vital to each
company survival when products are primarily consumed in large retail box
environments.
Company Corporate Culture
Hasbro Inc. emphasizes innovation and professionalism within its
company. Because of the nature of the business and its operating field which
requires constant innovation in order to compete in the market and maintain
leadership among its rivals, Hasbro Inc. has created a work environment that
fosters innovative and creative minds to function accordingly. Additionally, the
company values community involvement and creating opportunities for
underprivileged children. Alan Hassenfeld has been a leader in rallying
corporate executives to work with elected officials to end childhood hunger. He
is involved in issues impacting underserved communities in the state of Rhode
Island by serving on advisory boards for Refugees International and Big Brothers
of Rhode Island. He is also a board member of the company's two philanthropic
divisions, the Hasbro Charitable Trust and the Hasbro Children's Foundation.
Hassenfeld is active in many charitable and social causes, serving as Chairman of
the World Scholar Athlete Games, Chairman of Families First and Chairman of
the Right Now! Coalition, an effort created to foster ethics and campaign reform
and enlighten the state government to its constituent's concerns.
Organizational Structure
External & Internal Analysis
Macro Environment
Stakeholders
Social/demographic trends
b. The toy and game business is characterized by customer order
patterns which vary from year to year largely because of
differences each year in the degree of consumer acceptance of
product lines, product availability, marketing strategies and
inventory policies of retailers, the dates of theatrical releases of
major motion pictures for which the companies have product
licenses, and changes in overall economic conditions.
Issues
c. volatility of consumer preferences, combined with the high level of
competition and low barriers to entry in the family entertainment
industry make it difficult to maintain the success of existing
product lines or consistently introduce successful new products.
d. The business is seasonal and therefore, the annual operating result
depends on the sales during the brief holiday season.
e. Continuing consolidation of the retail customer base means that
economic difficulties or changes in the purchasing policies of the
major customers could have a significant impact on them.
f. Market conditions, including commodity and fuel prices, public
health conditions and other 3rd party conduct
g.
International/global issues
h. The substantial sales and manufacturing operations outside the US
subject Hasbro to risks associated with international operations
including: currency conversion risks, political instability, difficulty
enforcing intellectual property rights, complications in complying
with different laws in varying jurisdictions, natural disasters,
imposition of tariffs, etc.
Governmental/legal issues
i. The toy and game products sold in the US are subject to the
provisions of The Consumer Product Safety Act (CPSA), The
Federal Hazardous Substances Act (FHSA), The Flammable Fabrics
Act (FFA), and for some of the mixes for the EASY BAKE ovens, the
Food and Drug Administration.
Industry Environment & Strategic Groups
Competitors
j.
Hasbro competes with several large toy and game companies in
various product categories as well as many smaller US and
international toy and game designers, manufacturers and
marketers. Competition is based primarily on meeting consumer
entertainment preferences and on the quality and play value of the
products.
k. JAKKS Pacific Inc., LEGO Holding (privately held), Mattel Inc.
Entry Barriers
l. The volatility in consumer preferences with respect to family
entertainment and low barriers to entry continually create new
opportunities for existing competitors and start-ups to develop
products which compete with Hasbro’s toy and game offerings.
Substitutes
Suppliers
m. Most of Hasbro’s products are manufactured from basic raw
materials such as plastic, paper, and cardboard. All of these
materials are available but are subject to significant fluctuations in
price. As a result, Hasbro generally enters into agreements with
suppliers at the beginning of a fiscal year that establish prices for
that year. For this reason, Hasbro is generally insulated, in the
short-term, from increases in the prices of raw material.
n. However, severe increases in the prices of any of these materials
may require renegotiation with their suppliers during the year.
Buyers
o. Hasbro’s products are sold nationally and internationally to a
broad spectrum of customers, including wholesalers, distributors,
chain stores, discount stores, mail order houses, catalog stores,
department stores and other traditional retailers, large and small,
as well as internet-based “e-tailers.” During 2006, sales to the 3
largest customers, Wal-Mart Stores, Inc., Target Corporation and
Toys ‘R Us, Inc., represented 24%, 13%, and 11% respectively.
During 2006, 90% of the net revenues from our top 5 customers
related to the North American segment.
Internal Strategic Evaluation
Strategic Condition of the Firm
Hasbro’s strategy is to continue growing core brands, developing new
toys and games, and maximizing efficiency. This focused differentiation
approach allows Hasbro to meet the demands of several segments, most notably
a wide age group. The focus on efficiency provides Hasbro the opportunity to
maximize profits through manufacturing competencies and importing from
China. Hasbro is arguably the most innovative toy company in the industry
today. Its strategy has been for several years and continues to be focused on
innovation. The key to Hasbro’s success has been its ability to develop new toy
technologies. These technologies are conducive to growing brands and
providing an array of different products for all age groups.
Mission Statement & Corporate Strategy
Hasbro’s mission statement is as follows:
“The heart of Hasbro’s business is making great games, toys, lifestyle and
entertainment products that are enjoyed by people of all ages worldwide.
Hasbro intends to be the number-one company in the toy and game
industry; the leading provider of play; and the number-one marketer,
pioneer and partner in all channels and all customers.”
This mission clearly supports Hasbro’s focused differentiation. The
organization is focused on meeting the needs of all age groups, and being a
leading entertainment provider. Also, this mission demonstrates the need to
truly be an innovative company. Without the innovation of new toy technologies
it would be impossible for Hasbro to achieve its mission goals.
Current Business Level Strategy
Hasbro’s business level strategy revolves around developing new toys
and games to maintain demand of its products and to grow its core brands. This
includes creating new products, as well as constantly updating current toy lines,
such as GI Joe. Hasbro has some of the most recognizable brands in the toy
industry. A major part of Hasbro’s business strategy is to utilize and grow its
core brands to their fullest potential. Hasbro’s domestic business level strategy is
relatively the same as its international business level strategy except for its
expansion plans. Hasbro’s international business strategy is to expand into
Eastern European markets and emerging markets in Asia and Latin and South
America.
Another facet of the business strategy is to align with Hollywood through
exclusive licensing agreements. Intellectual property is crucial to Hasbro
maintaining market share, as it gives the firm rights to popular characters and
motion pictures. For example, Hasbro has signed a multi-year license with Star
Wars and Marvel. The Star Wars and Marvel merchandise are expected to
contribute to Hasbro’s total revenues in the years to come.
Finally, Hasbro focuses on operating profits through manufacturing and
importing toys from China. This is an important aspect of Hasbro’s strategy,
because operational profits are used to develop more toys and maintain licensing
agreements. All of this is in support of the firm’s mission to be the “leading
provider of play.”
Current Functional Level Strategy
Hasbro’s functional strategy is fairly simple. First, its toys and games are
sold in major retail outlets, such as Wal-Mart. This places Hasbro products in
easy and convenient locations for customers. However, there is great
competition within these retailers as many competitors have the same outlet.
Hasbro sells its products directly to its retailers and in many cases these products
are imported directly to the retailer from the Far East.
An additional aspect of Hasbro’s functional strategy is to import toys from
China. Hasbro is focused on keeping costs low and maximizing efficiency.
Hasbro’s working capital needs are financed through cash generation from
operations. Therefore, low manufacturing costs and efficiency are crucial to
enhancing operating profits and financing new product development.
Current Corporate Level Strategy
Hasbro’s corporate strategy is to maximize shareholder value by
maintaining its competitive advantage through focusing its business on family
leisure time and entertainment products and services. Hasbro has an array of
diversified products and services but all its products are related to the above
focused segment. For example, in the fiscal years of 2004 and 2006 no one single
product line generate more than 10% of consolidated net revenues for those
years. In 2005 the selling of Star Wars products generated 16% of revenues for
that year. All other products lines generated less than 10% of revenues.
Hasbro’s corporate strategy is vertically integrated through the designing,
manufacturing, and marketing of its products. However, Hasbro does not
produce the raw materials for its products neither does it do any direct selling to
the consumer. Also, Hasbro utilizes strategic alliances with the movie industry
through licensing to make movie themed toys and games.
Another aspect of the corporate strategy is giving something back to the
community. This is why the Hasbro’s Children Fund was established. In 2006
six million kids were helped by charitable grants, product donations, and the
Team Hasbro employee volunteer program.
Resources and Capabilities
The most important resource Hasbro maintains is its intellectual property
rights. Alliances with Hollywood provide Hasbro with tremendous product
potential, and the firm benefits from the popularity of the characters. This helps
alleviate marketing expenses while supporting demand for Hasbro products.
Another resource that is vital to maintaining success of the company is the
development and growth of its core brands. Consumers have come to know and
trust brands such as: PLAYSKOOL, MILTON BRADLEY, PARKER BROTHERS,
and TONKA. By owning these well know brands, Hasbro has the capability to
develop and grow them in any manner they deem necessary that will increase
revenues.
Competitive Evaluation & Recommendations
Key Strategic Issues
Under-Utilization of Overseas Occupancy
US $584 earned per square foot
$377 overseas
Future Domestic Market Potential Relatively Limited
4th Quarter Dominance/ Seasonality of Sales
Rarely win Toy of the Year
Must Gain a Greater Return on Intellectual Property/ Licensing
Recommendations & Implementation
Expand in Global Markets
Continue to Innovate
License Video Games & other products :
(apparel, cereal)
Focus on Winning Toy of the Year:
Alleviate Seasonal Impact on Sales
Pursue Promotions Through Out the Year
Integrate Products to Gain Better Return on Summer Movies
Enhance Hollywood Alliances
(This intellectual resourse is huge Competitive Advantage)