A doll's house.

Jill Barad wants you to think of Mattel not as a toy manufacturer, but as a consumer brand company whose brands happen to be toys. She's credited with the makeover of 38-year-old Barbie; can she now pull off a similar play for the world's largest toy company?

Is Mattel ready for a makeover? When Jill Elikann Barad, 46, was appointed to succeed John Amerman, who had run the El Segundo, CA, toymaker for 10 years, she initiated moves to unload non-core businesses and abandoned a long-standing emphasis on double-digit quarterly earnings growth - a hallmark of her predecessor, who continues as chairman. Described by colleagues as a hard-driving manager with an instinct for what kids like, Barad won early recognition for re-energizing Barbie, the 11.5-inch doll that currently represents $1.7 billion of Mattel's $3.8 billion 1996 annual revenue.

Like Amerman, who had also been president of Mattel's international unit prior to becoming CEO, Barad faced short-term financial reverses that led to restructuring charges, including layoffs, the phasing out of nonperforming assets, and the streamlining of international operations. Current challenges relate to the merger with Tyco Toys, weakness in European sales, and a major decline in Fisher-Price products - a line the company acquired more than a year ago. The company also took a bruising in the media for its failed merger attempt with Hasbro. Between 1988 and 1996, Mattel had achieved a compound annual growth rate of 18 percent in revenue and 34 percent in income before charges. The company projects 7 percent revenue growth this year. While Mattel's cash position - more than $500 million last year - is strong, Barad's immediate charge is improving topline growth, which is down to 4 percent on an annualized basis. She must also depart from Mattel's former business practices. Several large toy retailers last year warned Mattel and other toy makers that they will no longer sanction the industry practice of shipping merchandise above previously agreed levels at quarter's end to boost sales targets.

The Brooklyn-born and Long Island-bred Barad, who earlier in her career created such Barbie variations as Teen Talk Barbie, Barbie Businesswoman, and, more recently, an interactive Barbie complete with CD-ROM, has no doubt that she is up to the task of re-inventing Mattel. She plans to focus on global brand building, emphasizing the four core brands - Barbie, Hot Wheels, Fisher-Price, and Disney licenses - that represent 87 percent of revenue. In fact, on the day CE visited with Barad, Mattel execs in the next office were conferring with a close-cropped Demi Moore about adding yet another new face to the Barbie Bunch - Barbie Planet Hollywood. Meanwhile, the remaining 13 percent of Mattel product lines are to be vetted for worldwide appeal, profitability, and what Barad calls "sustainable play pattern" - the success of a particular toy or toy genre to capture children's imagination.

In fact, rather than compare Mattel with other toy companies, Barad would prefer to have it likened to a consumer brand company on the order of a Gillette or a P&G - a thought not completely discounted by Mattel observers. "When you look at companies like Gillette and P&G, their businesses are not as seasonal as Mattel's and their world markets are perceived as being a lot bigger, so I don't know that Mattel will get to that point of comparison," says an industry analyst. "However, from an earnings, growth, and consistency standpoint, they have accomplished a lot and can be considered a very inexpensive consumer stock."

Like those on her executive team - such as Bruce Stein, president of Mattel Worldwide, who returned to the company after a stint with Hasbro's Kenner Toys - Barad is viewed as a product person able to hone in on the strength or weakness of a product. Her ability to recognize a product as "toyetic" - a highly developed skill - will be increasingly put to the test as the company pushes for growth in tough international markets - and corresponding local product differentiation. An Angel Princess doll considered acceptable in North America and the U.K., for example, is borderline sacrilegious in Catholic Italy and Spain.

Barad began her career first as a model, then dropping out of college to sell Love Cosmetics. She returned to New York City's Queens College to graduate in 1973 with degrees in English and psychology. After flirting with the idea of becoming an actress, she took a trainee position at Coty Cosmetics and was later promoted to marketing positions at the company, where she met her husband, movie producer Tom Barad, and moved to Los Angeles. There she worked in advertising on the Max Factor account before leaving to have the first of two sons. Barad joined Mattel in 1981 as a product manager. As she climbed the ranks from within, one of her tasks was to rejuvenate the image of Barbie, whose sales were beginning to flatten. Her success brought her to the attention of then-Mattel chairman Arthur Spear. After being named president of the girls and activity toys divisions, she was named president of Mattel USA in 1990 and COO in 1992

As the sole woman CEO in the Fortune 500 (Golden West Financial's Marion Sanders shares the title with her husband), Barad has become a high-profile executive. But while companies and recruiters call her weekly to join their boards, she's adamant about limiting herself to three outside boards: Microsoft, BankAmerica, and Pixar. When told she is sometimes described as difficult to work for, Barad exhibits a range of expressiveness to rival Lucille Ball's, rolling her eyes as if to say "they can't be talking about me." "I want to get the best from people," she responds, eyes widening in mock horror.

Unabashedly declaring that her family comes first, Barad says more companies should judge people on performance and not whether they are 18-hour-day office drones. Her own goal is to make Mattel a fun place to work. Recalling a business trip to Las Vegas where several members of senior management had 20 minutes to kill before their return flight to Los Angeles, a senior executive recounts how Mattel's CEO disappeared briefly, returning to distribute coins for the airport slot machines. "We're a toy company. We're supposed to have fun," she quips.

- J.P. Donlon

TOY STORY

You took over Mattel in the wake of the Tyco merger. What were the most critical business challenges you faced?

Last year, we had a softening of the top line that threw us off and the outside world off in terms of their confidence in us. The biggest issue was regaining Mattel's credibility as a consumer products company in the business of building global power brands versus a toy company in the business of finding this year's hot new toy. I needed to get everybody focused again on the fact that we were building global power brands and get the merger with Tyco done. Our brands already had great appeal across the world, but in certain countries we lacked the organization, the infrastructure, the relationships, and the distribution ability we have today. So we needed more brands to do the brand building that we do so well, and we needed to do it in more places than ever before.

What did you address first?

I had to fix a brand issue that resulted from a strategic misstep. Fisher-Price, which had a great reputation for quality, decided that they should go into every category that was being sold to children from zero to five. This was at a time of excitement about educational and electronic learning toys - which were outside our core expertise. So we entered those categories and didn't add anything new to our core holdings. I spent a lot of time getting them back on track.

Then we changed the strategic underpinnings to focus on basic but innovative traditional infant and preschool products. We managed out of the other businesses and brought the infant and preschool brands of Mattel together. Today, Mattel is $1.6 billion in infant and preschool brands, almost equal to Barbie. We have the hottest licenses, with sustainable characters that are well established.

What changes did the Tyco merger and the restructuring bring?

With the addition of Matchbox and Tyco, we now have $500 million in the wheels business. And Matchbox's name recognition outside the U.S. helped our international vision. Now we're asking, "What can we do to innovate the way they're distributed? The way they are merchandised? The way they're created? The way they're developed?" We decided to sell Matchbox in vending machines; you put in $1 and the car drives down a lane and falls into the little boy's hand. We want to develop each of these businesses so they can be seen as standalone companies. That should allow us sustainable, consistent growth year after year around the world.

Your share price is at an all time high, yet last March you indicated annual growth of 7 percent, which is below your pattern. What are your forecasts?

We said 7 percent for this year only because of the effect of the dollar. Going forward, it would be 10 percent on the top line, 15 percent on the bottom line. We give a projection for the year and then talk five and 10 years out because I want people behind us who are in for the long haul. We are still undervalued compared to the companies - not toy companies, but companies like P&G and General Foods - that we would put ourselves against.

You can't really put us in a category with toy competitors because our main competitor is nothing like us. They're in the licensed toy business. They're looking for that hot property and they change it every year. We're more about brand building. Barbie has been around for 38 years now, and she grew 20 percent in her 37th year. Hot Wheels virtually doubled this year already, and now we also have Matchbox. So we need to compare ourselves with other peer consumer products companies in the business of building brands. And those are not necessarily toy companies.

What are your goals for growing Mattel's international business?

To grow it to 60 percent of earnings over the next five years. We are trying to make our international operations far more efficient, so that we have even greater margin opportunities outside the U.S. For example, in Europe we utilize 35 warehouses. We'd like to go down to two.

We are aligning ourselves strategically with some of the best distributors in the world and taking advantage of their clout. We have signed a deal with Avon, which has some of the best direct selling distribution both in and outside the U.S., particularly in developing countries. When our retailers go into these countries, we'll be poised and ready.

What other international moves are you making?

We've hired outside consultants. We've worked long and hard to open the door to Japan. We had been operating there through a license agreement, so we hadn't done the necessary research. When we took over, we went in and spent time with kids. We've seen tremendous results in the last six to eight months because we finally realized that there is a different play pattern that goes on there. Little girls in the U.S. dream about what they will be when they grow up, and little girls in Japan dream about what they are today. Our line reflects both, but in the U.S. we play up the part about dreaming about being a doctor or an astronaut. So we cut out that part for Japan and focused on the everyday stuff. Once we did that, sales took off.

At some consumer companies, the brand has at one time or another been considered sacred - any extension or modification was almost a sacrilege. Has that ever been an issue at Mattel?

If you understand your brand, there's no limit to the creativity that you can have. All of the limits to what everybody felt Barbie was or could ever be were blown apart in the last 15 years. The last time CE wrote about Mattel, the whole company was at $1 billion in revenue. Barbie alone will be $2 billion this year. So I believe that having a formula for something is the worst thing in the world, because any formula can be copied. It's not fresh. It's not new. And it's not making you stretch your thinking.

You have to look at two real factors in a brand very often. How relevant you are and how differentiated you are from everything else out there. The more predictable you become, the more vulnerable you are.

How has Barbie changed?

She has evolved just as everyone else has evolved. We're in the fashion business in a sense. People aren't buying what Barbie was 10 years ago. They want to know why Barbie's relevant today. Barbie's a reflection of what's going on with today's girls, and that changes every year.

Last year she had all new joints and could move for the first time, and this year she's able to walk. It's in a low-tech manner, because Barbie will retail for only about $12. You hold her waist and she walks across the table. Barbie can talk this year, and she actually uses your name and talks about things relevant to you. You point your mouse to particular icons in a special CD program and it downloads immediately into her and stores that information. So when your best friend comes over, she'll say, "Hey Glenn!"

How do you to let Barbie do this or that?

We test with kids and moms around the world. Sometimes, it's when I feel, "Oh God, that's really scary," that those are the best ideas. A good illustration is Share a Smile Becky, Barbie's new best friend who is in a wheelchair. Maybe some people would have said that was inappropriate. But response has been unbelievable. It's been out for about three months and we sold out. It's being bought not only by the specially abled community but the entire mass market community.

We're not necessarily here to educate. But if we can open up a child's thinking about the world, why not? We had Teacher Barbie last year, and she had ethnically diverse students. She came with two students, and every package had a different mix of students, because that's the real world. Students come in lots of colors. We feel a responsibility to get girls where we think the world is going.

GUYS AND DOLLS 

How do you respond to critics who say that toy manufacturers sexually stereotype children?

Boys always show more aggressive play. Give them pots, and they'll slam them against the floor. A girl will explore what's inside and treat it with care. There are clear gender play patterns. What we want children to play with and to like has nothing to do with where their tastes are. If you put 30 colors up there, a little gift most often will pick pink, red, or purple. I didn't do anything to make her do that. A boy will pick blue, yellow, or green. And that is reflected in toys.

What is Mattel doing to enhance its position with little boys?

Hot Wheels, Matchbox, and Tyco RC are $500 million today. We expect that to reach $1 billion within the next three or four years. These are boys' toys that will be around for years to come. I don't want to be in the game of having some hot licensed property that brings in $300 million next year and then the following year have to replace $300 million in business.

As the mother of two sons, what do you feel boys look for in toys?

Barbie changes dramatically from year to year depending on girls' tastes. It's the same thing with boys. This year they're into space, with Star Wars, and some years they're under sea or into Westerns. I would love to have the boys' counterpart to Barbie-not a Barbie for boys, but a character that we can grow and nurture and change and have reflect boys as they change.

My two sons prefer computer games. How has the shift toward software affected the toy business?

We are in software development already. Barbie Fashion Designer was the No. 1 selling new software introduction last year. We're looking into it in our other businesses. We can use that medium to actually bring boys and girls back to us in a dynamic way. We'll be able to have a car designed by a boy on his computer uploaded to us, so that we can give him a 3D model of it. There's no question that interactivity will be the way of the world.

When developing Disney products, how do you factor in the risk associated with a given character's lifespan?

When we just did one movie for Disney, we were very dependent on the outcome of that movie. But the new relationship that we just signed with Disney last year gave us the rights to all their properties. With Hercules, retail response wasn't strong from the outset, but we also had all the other Disney characters. So we saw 14 percent growth in our Disney business in the U.S. during the Hercules launch.

What is your management style?

I try to do things with humor and a sense of fun versus an iron fist. I don't believe in firing people for mistakes. I've made mistakes in my career and I'm still here. I rally everyone together and say, "Let's look at it in a different way." It's people's sense of their own importance in a company that keeps them motivated. We could all do amazing things if we believe that others thought we were good enough.

The worst thing someone can do is clone themselves. What we're comfortable with is what we know, so we end up duplicating ourselves. It's a real problem in management today. If you want to screw up your business, that's the best way - to have all the same personality types with the same vision and the same expertise. How do you balance work and family? Period. I don't miss a single birthday, whether it's a board meeting or the world coming to an end. There were times when I thought that would turn everybody off. When I was pregnant, I thought that was pretty much the end of my career, and that's when I got promoted to director of Barbie. That's what gave me enough confidence to not feel threatened. I wouldn't compromise my children for anything.

What advice would you give firms trying to find the Barads in their companies?

Judge people on performance. They should be able to perform their jobs in the time it takes to do a job. Don't make people work 18 hours and judge them because their bodies are there. You want people with balance in their lives. I feel strongly about quality-of-life issues. Talent is the name of the game here. People develop toys. People manufacture toys. People market toys. And if we're going to get the best of them, we've got to start thinking about their total lives.

I want our people to get out of the four walls of this building and experience more in their lives so that they bring it back here. We have half days on Fridays. This year, I gave everyone four fun Fridays off and 16 days off for Christmas, versus 12 last year. And our people get two extra days to go see their kids at school. We just announced extended family benefits, so that you can cover an extra dependent. We put in a child-care facility and a gym and went to casual dress instead of formal attire. We're a toy company. We're supposed to have fun. We shouldn't look like bankers.