A Body at Rest

Mattel's world-class competitive intelligence system crunches sales reports, children's play-pattern studies, and even findings on where kids go online. The system picked up signals that young girls, heavily influenced by the gyrations of pop star Britney

Well before the Bratz came hip-hopping along, Mattel, and the toy industry in general, had spotted a phenomenon called "age compression."

The most recent generations of children are outgrowing traditional toys sooner. Not so long ago, girls up to age 12 played with Barbies. By 2000, tween girls were a generation weaned on Britney Spears gyrating on MTV in a schoolgirl uniform and crowned her their own pop icon.

For growing-up-in-a-hurry tastes, Barbie had become a baby toy; Mattel understood that older girls were losing interest in its flagship doll—and that even little girls 6 and 7 years old were influenced by their big sisters.

But starting in 2000, Mattel was focusing on a set of business challenges that included a transition at the top.

Former Kraft Foods chief executive Robert Eckert arrived as its new chief executive, replacing Jill Barad, who as CEO had pushed Barbie into new venues such as CD-ROMs, digital cameras and even NASCAR with a car-racing Barbie doll.

The company also was wrestling with the Barad-led acquisition of educational software maker The Learning Co., a deal blamed for Mattel's $431 million loss in 2000.

Figuring out how to regain profitability topped Eckert's to-do list.

"Mattel was vulnerable," says Ronald Goodstein, associate professor of marketing at Georgetown University in Washington D.C., and a consultant for Mattel in the mid-1990s about best practices in product branding. And the best time for a rival to strike with a new product, he adds, is when a company is looking inward.

But former COO Stein says that even if Mattel executives had focused on the intelligence that Barbie was vulnerable and sounded a red alert, the company's instinct not to mess with the "hallowed ground" that was the highly profitable Barbie line would have muted the response.

Although Mattel was willing to add accessories and appendages—even a fish tail in 1992 to brush back Tyco's Little Mermaid—remaking Barbie with heavy makeup and urban-chic outfits would have run up against years of policy not to break the mold. "The culture of protecting Barbie within Mattel is in their basic DNA," Stein says.

Yet that reluctance to disturb Barbie—even with hard evidence of a market shift—coupled with the internal distractions, left the product line, and by extension Mattel itself, exposed.

In any industry that experiences tectonic shifts, it's rare to see companies react to the early warning signs, even though they're generally visible, says Wharton professor Day, who has studied missteps at Mattel, Monsanto and other industry giants.

Long-running success makes managers at large companies near-sighted, he says. Focused on a mainstay product, they tend to ignore fresh information that diverges from their accepted norm in three basic areas: marketplace trends, the interests of target consumers, and threats from competitors. For example: