LeapFrog Enterprises, Inc.

1
LeapFrog Enterprises, Inc.
LeapFrog to cut 180 jobs Troubled toymaker loses
9 million in fourth quarter San Francisco
Chronicle February 16, 2005
2
Recent News
Some industry analysts also believe Mattel has
squeezed LeapFrog's profit margins by
introducing a competing product similar to the
LeapPad. AP, 2/15


LeapFrog targets tweens with digital computer
Device Fly USAToday Jan. 18, 2005
Makers of traditional toys are attempting to
expand the definition of toys to appeal to a
broader age group and as well as to counter
sales erosion from the video game industry.
Anita Frazier, NPD Funworld
Hasbro Inc, the No. 2 U.S. toy maker, on Monday
reported fourth-quarter earnings rose 7.2
percent, after cutting costs to offset a tougher
retail environment and declines at its U.S. toys
unit. Reuters, Feb.
7, 2005
In November, 2004, Toys 'R' Us CEO John Eyler
announces that Toys R US will separate its
global toy business from Babies R Us.
Speculation has swirled that it may exit its
namesake business altogether because of
competition from discounters and off-price
shopping clubs. BusinessWeek Online Jan 10, 2005
A Silver Lining? Net Sales from the Education
and Training Segment were 55.2 million, up 47
over 2003. LeapFrog Press Release
3
Semester Timeline

• Student Coordinators Alexis Lenhart, Zoë
  Holtzman
• You are now LeapFrog executives
• Tonight/Very Near Future
• get together as a team - Social Activity
• read case then review and discuss it as a group
• understand basics of LeapFrog and the relevant
  industries
• begin to conduct research
• Moving Forward
• develop a plan - schedule a regular meeting time
• use orientation presentation as a guide
• Get to know the Management and Business Faculty -
  they want to contribute!
• use Library resources (Barbara Norelli)

4
Semester Timeline

• Dry Runs March 22 24
• Minimal Preparation
• Strategic Recommendation
• Basic Financials
• Basic Powerpoint
• What is involved
• presentation in front of student execs and
  faculty
• solid preparation will yield quality feedback
• use feedback to refine and enhance presentation
• Presentation Day - Friday, April 22, 2005
• assignment sheet outlines main tasks
• you must update the case to April 22, 2005

5
Group Performance

• Accountability Each member must be aware of
  their responsibility to the team
• Communication Effective dialogue including
  criticism is a must
• Leadership Every teams needs leadership not
  just a leader
• Support Work together motivate each other
• Stages The team will have good bad days.
  Figure out your SWs.
• Flow Take Advantage of the Big MO Momentum
• Influences on Team Performance
• Scheduling Group Size
• Work Norms
• Task-Oriented Relationship-Oriented Cohesion
• COACHES WILL NOT DO THE WORK FOR YOU!

6
Potential Failure of Groups

• Groupthink
• Escalation of Commitment
• Social Loafing

7
Problem/Issue Identification and Resolution

Two Key Slides to include in your
presentation 1. What are our key
problems/opportunities/issues? 2. Tell how
your strategy addresses these.

8
Situation Analysis Leads to Strategy

• External Analysis
• General/macro-environment
• Porters 5 forces
• Industry life cycle
• KSFs
• Value chain
• Competitor analysis
• Strategic group mapping
• Market segmentation
• Response profile

• Select Best
• Strategy
• 5 elements
• Arenas
• Vehicles
• Differentiators
• Staging
• Economic logic

Strategic Options

• Internal Analysis
• SWOT
• Core/distinctive competencies
• Internal value chain

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The Strategy Diamond

• Arenas
• Which product categories?
• Which market segments?
• Which geographic areas?
• Which core technologies?
• Which value chain emphasis?

How will we obtain our returns (make money)?
Where will we be active?

• Economic Logic
• Lowest costs via scale advantages?
• Lowest costs via scope and
• replication advantages?
• Premium prices due to
• unmatchable services?
• Premium prices due to proprietary
• product features?

• Vehicles
• Internal Development?
• Joint Ventures?
• Licensing/Franchising?
• Acquisitions?

• Staging
• Speed of expansion?
• Sequence of initiatives?

How will we get there?
What will be our speed and sequence of moves?

• Differentiators
• Image?
• Customization?
• Price?
• Styling?
• Product Reliability?

How will we win?
10
Arenas

• Should LeapFrog continue to focus on toys? What
  are some other options given the existing core
  competencies?
• Which geographic markets should we operate in?
  Should we expand further?
• Which market segments do we operate in? Do gaps
  exist in our current market coverage?
• What elements of the value chain should we
  emphasize to maintain our competitive advantage?
• How can we utilize our current technologies to
  improve our current operations and products? Do
  we need to employ different core technologies or
  processes in the development of new products?

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The Importance of Trade-offs

• Strategy is about making trade-offs in competing
  the essence of strategy is just as much about
  choosing what NOT to do as it is about choosing
  what to do.
• Trade-offs help create a consistent image and
  reputation
• Trade-offs help keep organizations focused and
  set clear priorities
• Cant be all things to all people!

LeapFrog is ditching the traditional
LeapFrog packaging stakeholders perspective?
Are there related industries to which LeapFrog
could transfer its core competencies?
12
Vehicles

• What are the cost/benefits of internal
  development vs. acquisitions?
• Are there attractive acquisition candidates?
• Should we embrace licensing? Criteria for
  partners?
• Should we merge or form strategic alliances with
  other companies?
• Should we engage in backward or forward vertical
  integration?
• Are there opportunities for us to differentiate
  based on market trends or consumer preferences?
• What are the traditional vehicles for expansion
  in the toy industry?

13
Differentiation

• Does the razor and blade strategy have long-term
  viability?
• Are we going to be the low cost player in terms
  of operations?
• Are we going to try to be unique relative to our
  competition? If so, how?
• How do we react to what seem to be customer
  preferences?
• How far do we go with customization?
• Are there any limitations on our ability to
  innovate and create new product streams?
• Should we attempt of satisfy all age groups?
  Impact on overall performance?

14
Staging

• What specific actions should be taken in Years
  1-3 versus 3-5 when considering internal
  resources versus external threats?
• Provide a set of appropriate and sequential
  action steps?
• Identify the specific resources and capabilities
  that will facilitate our growth?
• If our resources become limited, which markets
  products and/or business categories deserve
  continued attention?

15
Economic Logic

• What core and distinctive competencies are we
  relying on to maintain our market position?
• Are these competencies hard to duplicate and
  sustainable?
• What factors influence the cost of our products?
• Are the conditions surrounding these factors
  currently favorable or unfavorable?
• What role do macro-environmental factors play in
  determining our cost structure and pricing
  policies?
• What are some appropriate responses to the state
  of the current environment?
• Is the maturity of the industry impacting our
  financial performance?

A new category of Video Game Toys has
emerged. NPD Insights
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Basic Financial Estimates

• Cash Flow Concerns - What is your funding source?
• Operations
• Investment
• Financing
• Revenues Itemized
• Expenses Itemized
• Qualitative Explanations for Quantitative
  Analysis
• - Realism
• Can you offer a coherent explanation of your
  finances
• utilizing the financial template or your own
  system?

17
The Big Day Financial Impact

• Financial Requirement
• The financial impact of your three to five year
  strategic plan should amount to at least a total
  of ten million in net income over the time of the
  plan.
• Example (net income) 2005 (-1 mil), 2006 (1
  mil), 2007 (3 mil),
• 2008 (3 mil), 2009 (4 mil) 10 million total
• Discuss and reveal specific financials
• revenue projections
• cost projections
• income/profit projections
• Project out 3 - 5 years

18
Functional Policies

• How does your strategy and business actions fit
  into the overall vision of LeapFrogs management?
• What are your specific marketing and advertising
  plans? How much money will these plans require?
• What types of advertising are most appropriate
  given the nature of your strategic plan?
• How will your strategic recommendation impact
  LeapFrogs relationships with its suppliers and
  retailers.
• Do we need to consider manufacturing capacity?
• How are we going to manage, motivate, pay, and
  retain our employees?

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The Big Day - Strategic Plan Format

• Remember the two must include slides
• Diagnose major problems/opportunities - Do not
  address symptoms!
• Develop strategic recommendations - Specific
  courses of action that address problems and
  opportunities
• Justify your recommendations through analysis -
  Explain WHY you chose these courses of action
• Implement your ideas - Explain HOW you are going
  to make your plan become a reality
• Examine the risks of your strategy - What could
  go wrong?
• Outline possible contingency plans - If X
  happens, we will do Y?

20
The Executive Viewpoint Litmus Test Issues

• Is your proposal strategic?
• Do your numbers add up, formatted appropriately?
• Do you look like young executives?
• Did you do the SWOT analysis?
• Are you a team?
• Do you have a basic understanding of financials?
  Are you able to explain your financials?
• Do you have a basic understanding of the
  appropriate
• marketplace? Are you able to describe the
  key characteristics of
• the marketplace?

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The MB107 Executive Viewpoint - Advice
Does your use of PowerPoint enhance what you are
saying or simply repeat it? Lead with analysis,
then explain why your idea fits the
problem. Have an answer for competitors
responses anticipate these responses. Provide
one overarching strategic concept linking several
sequential action steps. Hand out detailed
financials that are legible, accurate and
logical. Identify the sources of the funds
required to implement your idea and provide
specifics about the cost. If you get asked a
question that you simply dont have an answer
for 1) stay in character 2) relate the issue
to your presentation if possible and 3) identify
the issue as something that the firm should
consider in the future.
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The Big Day - Reminders

• Make one unified presentation, not five separate
  ones!
• BE PREPARED!
• executive questions
• equipment failures
• disk failures
• travel arrangements
• RELAX, BE CREATIVE, and HAVE FUN