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)