He-Man can teach you powerful lessons about how to successfully manage continuous innovation

The whiplash journey of Mattel’s beloved kids’ toy range perfectly sums up the fundamentals and key challenges of managing continuous, successful corporate innovation.

And now for something a bit different: key lessons from the history of Mattel’s kids toy range, He-Man and the Masters of the Universe. The brand’s journey perfectly demonstrates the fundamentals and challenges of managing continuous, successful corporate innovation.

In highly competitive market conditions, Mattel instinctively undertook the innovation process (well before Design Thinking and Lean Startup were even things), and they won big. But that triumph led to monumental downfall within a heartbeat. Learn how and why He-Man’s extreme success didn’t translate into an engrained and sustainable growth engine, innovation culture, and repeatable capability.

READER TIP: Think about your own organisation whilst reading to see if you spot some of the same responses to challenges throughout your typical innovation project process.

Context

In 1979, Mattel was the biggest toy manufacturer in the world, particularly in the doll and toy car markets. Despite market success, Mattel was in a challenging financial position. The organization’s market share and profits were being continually eroded due to the success of competitors’ just-launched Star Wars action figures. Interestingly, Mattel’s then-president, Ray Wagner, turned down the rights to produce the Star Wars toys based upon his experience and gut feelings about what he knew children would desire in the future.

Adding to financial pressure, Mattel had entered into expensive ($14 million per movie) licensing agreements for Flash Gordon, Battlestar Galactica, and Clash of the Titans. These deals failed to deliver return on investment, adding to Mattel’s financial burdens. Mattel knew that unless they innovated for themselves, they’d die – fast.

Problem fit

Their first move was to quickly test a bunch of random toy range ideas to see what stuck with kids. Nothing did. Realizing that this scatter-gun strategy was failing, the team decided they needed to adopt the golden assumption: to assume they knew nothing. They parked their egos and imagined solutions in favor of simply listening and observing customers through empathy research. They intuitively started to follow Design Thinking and Lean Startup before it was a thing.

The marketing team carried out ethnographic studies by observing and interviewing their target market: 5 to 10-year-old boys. They quickly saw common themes emerge from their data grounded in fundamental human needs and emotions. Kids at that age were tired of being told what to do by their teachers and parents. They simply wanted a way to gain back a sense of ‘power’ over their own lives and decisions. It was grounded in the deep need for significance, variety, and certainty in their lives.

These deep-seated insights would not have emerged by simply running surveys with mothers or teachers. They could only have been generated by speaking directly to those with said emotional needs and desires. Once the data was collected first-hand from the right respondents, it required synthesizing, analyzing, and abstracting to form the right problem statements to solve. Which, if done from the outset, would have saved a lot of time, money, and misplaced enthusiasm.

The [kids] kept using the word 'power' over and over.

Armed with the right emotional insights, the marketing team created challenge-area themes that could potentially solve the problem and give kids the sense of emotional power they longed for through play. They instinctively (perhaps even without knowing it) created how-might-we statements that were probably something like:

• How might we: give young boys aged 5 to 10 a sense of power and control in their lives through the act of playing?
• How might we: design new play experiences so that kids have a sense of power and control in and over their lives?

Ideation targeted at the right solutions then took place. Policemen, spacemen, army people, and fantasy action concept mock-ups (aka. minimum viable products (MVPs)) were quickly tested with the target group.

They asked excellent desirability questions, like:

• “Which one do you want to be?”
• “Which one do you relate to the most?”
• “Which one do you like the best and why?”

Based on early market validations and testing with kids (coupled with a quick market competitor scan), Mattel’s team was able to confidently determine that fantasy action figures were the right desirability and viability direction to head in for new product development. To make this vital decision, the team didn’t need to build anything and managed to spend very little money compared to traditional product development cycles.

Solution fit

The next step was to further explore the desirability of fantasy action figures. They created clay models using existing characters in the Mattel portfolio to save time and money by repurposing tooling and equipment. Artists quickly bulked up the figures with clay, creating enormous muscles to make them look more powerful and physically aggressive than all other toys on the market (including their biggest competitor, Star Wars figurines).

The team used analogy thinking to build on the visual language, taking cues from movie characters like Conan the Barbarian, art by Frank Frazetta, and leaders in the weight-lifting world. The new toy prototypes were put into aggressive battle action poses and were further tested in terms of specific desirability features with kids to see if the assumptions were objectively true or not.

PROTOTYPING AND MVPS

Three desirability MVP types were tested: Tank Head, He-Man, and Bullet Head. He-Man came out the clear consumer favorite (as Mattel predicted).

Next up, the team matured the MVP/prototypes with the help of professional product artists to make sure desirability held at scale. They also needed to perfect the key features and characteristics through more iterative validation feedback loops with kids.

The result was eight new 5.5-inch action figures that had been fully validated with target consumers. Four were primary figures and an additional four were repeat purchases to help sustain the business model.

He-Man and the Masters of the Universe was born!

Four core figures

• He-Man
• Battle Cat
• Skeletor
• Man-At-Arms

Extended range

• Mer-Man
• Stratos
• Zodac
• Beast Man

The team got to this point by effectively bootstrapping and rapid-prototyping to meet the emotional needs of young boys. This involved iterative prototype testing – through MVP 0.1, MVP 0.2, and so on – with actual end consumers and buyer profiles. Doing so required them to ignore the competition entirely and solve problems they knew existed from the data they had collected themselves. They’d started to truly innovate.

PITCHING TO B2B BUYERS

Once the team had achieved problem- and solution-fit validation, the next step was to pitch to external B2B buyers at toy stores and retail outlets. Mattel was entering into the business model viability phase. Customer-buyers at both Child World and Toy ”R” Us were concerned at the lack of supporting storylines like those of the successful Star Wars range. Mattel quickly responded (aka. pivoted the concept to meet buyer needs) by stating they were already, in fact, creating a comic book series to go with them, even though they had not until that moment considered it. Mini comic books were then developed and re-validated with kids. This added a crucial buyer feature to the final solution-fit phase.

Once that problem was solved, store buyers asked why there was no supporting action movie to go with the toys – most 5-year-olds can’t read, after all. Again, the Mattel team instantly responded by claiming they were already developing a cartoon series when they were not. Mattel ideated on the spot to meet this additional B2B customer-buyer need.

Both situations resulted in requests for added features that needed validation with the end-user kids and the intermediary buyers. As a result, comics were included in the first products shipped to the toy stores and ended up playing a highly influential role in the business model, whilst adding high cultural capital for kids (one of the highest forms of value as we will see). Most ‘80s kids today recall the cartoon visuals rather than the actual physical action figures.

PITCHING TO PARENT-BUYERS

The most critical buyer profile in that value exchange ecosystem was the parent-buyer. Parents want to focus on making sure that their kids are healthy, happy, mentally stimulated, and instilled with good values that serve them. It was the latter need that Mattel wisely chose to focus on.

The underlying narrative of the comics and cartoons was about morals, values, ethics, and big life-lessons. Through storytelling, kids learned how and why things go wrong in life and were shown ways to solve problems constructively: themes that parents would gladly pass on to their offspring (particularly if doing so required no more effort than sitting the child in front of a TV screen and simultaneously enjoying some peace a quiet). The value proposition for parents was that simply buying the toy range could help them create even better kids, adults, and even future parents. Parent-buyer needs were certainly met in new ‘wow’ ways by the He-Man value proposition and, as a result, the product was extremely desirable to all validated buyer types.

Product-market fit

Masters of the Universe launched in 1982 to roaring success. The range captured 19% of the male action figure market in just 10 months by selling over 5 million characters. The team had successfully uncovered consumers’ deeply rooted unmet needs and desires and managed to solve the pain points of their business model viability buyers: toy stores, retail networks, and parents’ wallets.

He-Man smashes it in the market.

Kids desperately wanted all eight action figures, which stood out next to the lean and slender Star Wars toys. He-Man and his friends looked like they could break a Jedi in half physically – and did so (financially, that is).

Moreover, kids could see the manifestation of their unmet needs with targeted comics and cartoons explicitly featuring the line, “Now I Have The Power!” which played into their subconscious minds and desires at a deep emotional level. One of the creators was quoted as saying, “We were like psychological terrorists with He-Man because the ‘power’ [insight] came right out of the research and we burned it into their little pea-brains.” It was a massive hit due in part to the core research insights that led to a disruptive and radical innovation outcome impacting the industry as a whole.

He-Man and his friends looked like they could break a Jedi in half physically – and did so (financially, that is).

What was unique was the extent and reach of the new emergent business model. The success of the product line and cartoon series brought in new licensing models for new comic books, kids’ wallpapers, bed sheets, shoes, t-shirts, mugs, food, video games, and more. The He-Man brand was third-party licensing gold. This success defined the future de-facto business model, value-exchange types, and monetization strategy of the toy industry for generations to come.

Scaling

For the first time ever, the boys’ toy market outperformed the girls, in spite of the success of Mattel’s Barbie. Girls were also He-Man converts, accounting for 20% of total sales. They, too, had unmet latent power needs and wanted in on the action. He-Man was clearly doing things Barbie couldn’t do to satisfy subconscious needs, so Mattel immediately stepped in to fill the gap. She-Ra was born – a half-Barbie, half-He-Man female equivalent.

Meanwhile, sales were continuing to boom through the mid-‘80s, peaking at $1.3 billion per annum in today’s money. Mattel had originally promised first-year sales at $13 million but outperformed, instead reaching $38 million (in ‘80s money). Mattel had grossly miscalculated the significance of the stakeholder needs they were satisfying in ways previously unimagined.

The perfect hockey stick curve.

Success breeds... (not) success!

At this point, Mattel felt they knew the customers better than the customers knew themselves. They assumed their clear market success built on the initial research meant that they could do nothing wrong. Spirits, confidence, and profits were high and shareholders were happy. Why rock the boat when they were onto such a clear winner and seeing a growing bottom line? They decided to just keep pumping the market with more of the same without changing the formula – like drilling for oil, finding it in abundance, and assuming it would last for a very long time, if not indefinitely. What followed was a form of organizational narcissism at the jaws of success.

The product range diversified using a scatter-gun approach again. Any design qualified for production without testing with end-users. Low quality, cliché characters quickly entered the marketplace, including Clawful, Fisto, Evil-lyn, Mani-Faces, Ram-Man, and Stink-Or, to name a few.

In total, 62 further characters were designed and launched on top of the core eight figures, saturating the market and reducing the availability of the original main figures due to the production capacity being diverted to newer lines to support new sales.

Mattel’s logic was that whatever they could think of, kids would love because it was already validated as such. This resulted in gross over-confidence in their own decision making about subsequent consumer needs, wants, and desires. They assumed the market was not evolving as time passed by. Mattel reverted back to looking at the world (and markets) from an inside-out perspective. Short-term profits further demanded by shareholders, as well as middle management rewards and motivation structures, made it harder to go back to the original (successful) innovation formula and methodology. The corporate mothership had started to take charge again. Suddenly, the team’s intuition and capability to actually research, observe, and speak to kids to find needs seemed like a long time ago.

Price points were lowered in response. Profit margins evaporated, and sales revenue nose-dived by more than 95% in a matter of months with the core team being re-assigned to other roles and product lines.

Mattel had just witnessed its own success and demise within a heartbeat.

So what went wrong?

Mattel had gone from struggling to compete to leading the market and back within five years. It was led by a cross-disciplinary team of organizational misfits who had the right skills at the right time and who instinctively knew what and how to succeed by iteratively following their gut feelings about how to manage risk and uncertainty.

They ignored the rules of the game, which at the time saw Mattel simply baiting new concepts to kids in hopes that they’d bite, and ran with one golden assumption: they were ignorant. Acknowledging this took courage and enabled the team to free themselves from the ‘business as usual mindset‘. They then went on to openly figure out what their customers felt and were trying to do at an emotional level. Qualitative insights revealed deep-seated unmet needs and desires for the team to solve with relevant solutions to meet them.

As the concepts and desirability validation matured across problem and solution fit, the team kept an open mind, pivoting their offer to satisfy all stakeholder needs and desires around the product and its value chain as they moved towards product-market fit.

Once market success was found, the team focused solely on solution fit and saturated the market with yet more solutions that didn’t address evolving needs. This got Mattel further and further away from the core needs and problems of the kids they were serving. It also re-ignited traditional business decision-making logic, leading Mattel to pursue further profits above all else.

Ironically, by launching the She-ra Princess of Power action figures for girls (with an animated cartoon series) and simply repeating the same formula, Mattel betrayed the core boys market by also giving ‘the power’ to their sisters! The idea of exclusive power to meet the bigger market latent needs was no longer exclusive to boys and rendered it useless to serving needs and was therefore undesirable.

The second irony was that despite the bounded rational logic to proceeding with business as usual, the true power of Mattel’s innovation capabilities was in the minds of their team of misfits. However, the misfits had been disbanded as it was clear to management that they no longer knew what they were doing.

Instead, Mattel should have rewarded the team for ‘failing‘ (like Amazon does today) and re-assigned them to run the innovation process again, building their validated capabilities further and learning from their mistakes. What could be more valuable than a team that had already failed and learned? They’d discovered exactly how to run and execute the innovation process intuitively! They could autonomously find key insights that could trigger disruptive and radical innovation, and they knew how to frame problems and validate solutions all the way to market success.

What can you learn from this powerful tale?

Mattel had all the ingredients of a continuous high-performance innovation growth engine. These elements allowed them to design and test new propositions with their end-users and customers quickly, cheaply, and repeatedly. Instead, Mattel developed short-sightedness – success blinded their best people and management to the core ingredients that created their bottom-line impact.

What should have followed was the creation of a balanced innovation portfolio of projects and teams to support continuous-innovation as a capability. Additionally, they should have set up a dedicated space in which product designers, marketers, and sales teams could work cross-disciplinary, outside the everyday organizational logic and culture. They should have had a safe space to uncover and meet the evolving needs of kids and customers over time.

If the team had trained others with this capability and approach, who knows what other disruptive, radical, or architectural innovations could have emerged? Mattel was so close to having the innovation power, but it slipped through their fingers.

The more success you've had in the past, the less critically you examine your assumptions.

– Vinod Khosla  (thanks to Kai Springwald for sharing via LinkedIn).

BOOTNOTE

He-Man continues to generate profit for Mattel today based upon the immense cultural capital it generated since launch. Mattel licenses the brand as part of a generation 2.0 figurine line in collaboration with Super7, selling emotional nostalgia to millennials for just under $100 per action figure. Mattel clearly does still have some He-Man power.

(Check out the official He-Man YouTube Channel here).

REFERENCES

Bourdieu, P. (1986) ‘The Forms of Capital’, in Handbook of Theory and Research for the Sociology of Education. New York, NY: Greenwood, pp. 241–258.

Creations, M. (2020) Masters of the Universe Classics. Available at: https://www.he-man.org/collecting/toycollection.php?id=14 (Accessed: 6 January 2020).

Hatch, M. J. and Schultz, M. (2002) ‘The Dynamics of Organizational Identity’, Human Relations, 55(8), pp. 989–1018. doi: 10.1177/0018726702055008181.

Volk-Weiss, B. et al. (2018) ‘The Toys That Made Us: He-Man’. United States: Netflix. Available at: https://www.netflix.com/watch/80161602.

Wikipedia (2020) Masters of the Universe. Available at: https://en.wikipedia.org/wiki/Masters_of_the_Universe (Accessed: 1 January 2020).