The Toy Industry Transition – Part III: The Change Scenarios

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In part I we discussed the changes that are shaking up the toy industry, in part II we saw the challenges toy companies are facing trying to reinvent themselves as tech-savvy companies.

Understanding the need for change is the easy part. Choosing how to implement change and implementing change itself, are much harder. In this part we’ll explore different ways to implement change:

  1. The first obvious solution is to reinvent your company from the inside. Hiring more engineers and retraining existing employees can both be challenging. And as some toy companies already found out, hiring great engineers in a non-engineering driven environment isn’t easy.
  2. Acquiring connected toy startups. The fastest way to acquire  knowledge is to acquire a connected toy startup. Acquiring startups will likely lead to VCs investing more money in connected toy startups, which may be a good thing (more acquisition possibilities) or a bad thing (more competition. As is often the case in fast changing industries, the competition to worry are usually the new startups, not the existing companies). As I have experienced first hand at a big bank, integrating tech focused startups in a traditional company is challenging without tech-savvy top management.
  3. Invest in connected toy startups. Besides Mattel, I’m not aware of corporate Venture Capital in the toy industry. Some startups might be hesitant to accept money from corporate VCs, as it will limit future acquisition possibilities. Others might welcome the backing of a strong brand and their expertise in for example marketing and distribution. Either way, an investment is a good way to stay on top on what’s new.
  4. Adopt the video game publisher model. As we saw in part II, the inventor model is not well suited for connected toys. The video game industry went through a similar transition when video games became too complex to be designed and coded by a single person. AAA video games are built by teams of in between 50 to 200 people, and connected toys team sizes will be likely be on the lower end of that range. Wowwee is already licensing toys from startups such as EZ-Robot, it is possible that Wowwee has already figured out how to make this work financially (leave comments below or email me if you know the answer)
  5. Merger with a video game publisher or studio. Video game publisher have the technical knowledge in house that toy companies need. While the idea might seem far-fetched, don’t forget Hasbro once had a video game publishing division. Spinmasters recently bought Toca Boca.
  6. Skunkworks. A skunkworks is a small experimental off-campus lab, that is able to work autonomously outside of corporate influence. A skunkworks work well for projects that need to done in short amount of time. Skunkworks are often run by unconventional people.

How powerful skunkworks can be, is shown by IBM in 1979: When tech giant IBM felt threatened by a new type of small computer, the Apple II, IBM decided it needed to build a similar “personal computer”. There was one problem: IBM was a notoriously slow moving company. In fact, it literally took nine months to ship an empty box within the company, due to the red tape and procedures in place to protect quality. Yet IBM was able to design, engineer and ship the IBM PC within just one year. How was this possible? Instead of having an IBM team following procedures and developing the computer, IBM chose to put its faith in a tiny off-site IBM lab, a skunkworks. The lab that had free reign in deciding what they thought was the right thing to do and how the Apple II competitor would look like. Unlike regular IBM products, the skunkworks team was not forced to use IBM solutions only, they were free to use whatever components or software they saw fit. After the skunkworks finished the development IBM PC, the lab was reintegrated with IBM and the IBM PC obviously became a huge succes, squashing the Apple II and its successor, the Apple MacIntosh, in the process. 

If a skunkworks sounds like an affordable way to catch up with the possibility to come out ahead, you are absolutely right. A well executed skunkworks project can make a huge difference for any company. In part IV we’ll look at successful and not successful skunkworks and how the toy industry can take advantage of it.

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