NOTA BENE

November 1 1989 by John W. Amerman

It’s possible that even Ken doesn’t love Barbie as much as John W. Amerman does. The 57-year-old chairman and CEO of Mattel has good reason to be enamored with his 30-year-old doll: Barbies are now bought at a rate of 54,000 a day. More than 500 million have been sold and, according to Mattel, 90 percent of girls age three to 11 in the U.S. own at least one. Is there any other product that can claim such market penetration? And wait a minute, that’s just the U.S. There’s a whole world out there, all of it wanting Barbie. “One of these days,” says Amerman, “I’d like to sell Barbie in Red Square. I think it would help the togetherness of the U.S. and Russia. Kids are the same around the world.”

If Amerman has reason to be pleased with Barbie, Mattel’s stockholders have even more reason to be pleased with Amerman. Two years ago the big toy company was in big trouble. Costly new product development, ballooning expenses and lackluster marketing had put Mattel in the red; 1986 and 1987 were years with no dividends and ’87 saw the company lose a resounding $114 million on sales of $1 billion.

In February ’87, Amerman-then president of Mattel International was brought in to succeed CEO Arthur Spear. He acted quickly to turn the company around and succeeded: In 1988 Mattel reported a profit of almost $36 million on sales of almost $990 million. It looks as though 1989 will be even better. As Kidder, Peabody analyst Gary M. Jacobson summed it up: Mattel had “metamorphosed from a seemingly out-of-control money loser into a focused, profitable company.”

Amerman’s strategy for the turnaround was painfully effective. At the company’s Hawthorne, Cal. headquarters, 500 of 1,800 employees were let go. Mattel’s worldwide manufacturing was cut by 40 percent. Company debt was restructured at lower interest rates and advertising budgets were drastically cut.

Simultaneously, Amerman replaced Mattel’s previous emphasis on new products with one based on what he calls the “core products”: perennial best-sellers like Barbie, Hot Wheels and L’il Miss Makeup. Ogilvy & Mather, Mattel’s longtime advertising agency, invigorated the core brands’ appeal. Finally, in an exclusive and potent alliance, Mattel joined with its neighbor Disney to produce toys for infants and pre-schoolers, an important market that once eluded Mattel.

Amerman has also been team building. Noting that “confrontation” had previously been fostered at Mattel, he comments: “It can work that way. All you have to do is read Charles Revson’s book and you know it can work. But I happen to believe in team building, particularly in the toy business.”

John Amerman hasn’t always been into toys. Before joining Mattel in 1980 he had spent many years in marketing and managerial positions with Warner Lambert and Colgate-Palmolive, which he joined after graduation from Dartmouth (B.A./M.B.A.) and service as an army officer. A native of New Jersey, today he lives in Palos Verde, Cal. with his wife Jerry. The couple’s two children are grown up, but Amerman still has plenty of other kids to think about the ones in Red Square, for instance.

-Peter Lacey

JOHN R. WALTER

Printing is the sixth largest industry in the U.S. and one of its most fragmented: An estimated 80 percent of the nation’s 54,000 printers have less than 20 employees. With 24,000 employees and 6 percent of the industry’s total income, R.R. Donnelley & Sons towers above the crowd. Its 1988 sales of almost $2.9 billion were larger than those of the five top U.S. printers combined. In fact, it’s the largest printer in the world. And with profits of more than $205 million, it’s thriving when the rest of the industry is languishing.

How do they do it? “It’s really marketing 101,” says the company’s new president and CEO, John Walter, 42. “You understand where your customers are and then you build a manufacturing facility amongst them-and then you service them to death.” Sounds simple, but it does help to already be a well-managed, relatively debt-free, consistently profitable behemoth, and to be, as Walter’s remark implies, “market driven”-Donnelley goes where the business is. Today it’s in Europe, Mexico and the Far East, as well as the U.S. Wherever it is, Donnelley is a formidable competitor.

Take financial printing, for instance.

Five years ago the firm was barely in that profitable industry niche. When it decided to move in, it moved in strength, offering a worldwide satellite data transmission network, an impressive new building in the middle of the Wall Street area, and a set of new plants specifically designed for financial printing. Everything was in place on October 19, 1987, just as the market collapsed. When the dust cleared, the general financial printing market had decreased by 20 percent-and Donnelley’s share had increased by 22 percent.

“People don’t lose business on price,” says Walter. “People lose it because someone did a better job of selling. Pure and simple. I will not listen to someone who comes to me and says we lost the business because of price. That’s not the case. People buy from people.”

To those who complain that, as one financial magazine recently put it, “Donnelley steamrollers the competition,” Walter replies: “The best selling tool our competitors have is knocking Donnelley. Now that’s an unfortunate selling position to be in. You like to deal from strength instead of weakness.”

Selling was Walter’s career path at Donnelley, which he joined in 1969, just five days after getting his B.S. in business administration from Miami University in Oxford, Ohio. In 1986, after a spell as a plant division director, he became the company’s executive vice president of operations, rose to company president in 1987 and CEO in January 1989. Walter also became chairman in September, succeeding John R. Schwemm.

With a job that keeps him traveling 50 percent of the time, Walter devotes most of his free hours to his wife Carol and their two daughters. At his home in Northfield outside Chicago, he also tends to his collection of rare clocks, which he enjoys repairing.

Of prosperously ticking Donnelley, he says: “We’re in the marvelous position of being able to fix something that isn’t broken.”

-Peter Lacey

GARY BURANDT

The cautious but inexorable opening of Russia to market forces-and to advertising-is presenting some unusual challenges for Madison Avenue. “In order for us to start an advertising industry,” says Young & Rubicam’s Gary Burandt, “there have to be products on the shelf and there needs to be more than one brand in each category.” Neither of these conditions has yet developed in Russia, but that hasn’t prevented Y&R from plant ing its flag there, the first agency to do so. Advertising, after all, is about optimism.

Burandt, the CEO of Moscow-based Y&R/Sovero, a joint venture with the largest Soviet international agency, certainly expresses optimism about his assignment: “It may be the best job in the advertising industry. It really is a chance to be the first advertising man on the ground in the last frontier.”

Y&R, which established the first agency in post-Mao China, wanted to be the first in Russia, too. Being privately owned helped, because profits would be well down the road for any such venture. In September 1988, after a year of negotiations, a 50/50 partnership was formed with Sovero, which has been the main Soviet conduit for Russian advertising abroad and foreign advertising in Russia. Eight of Sovero’s 350 employees were chosen to join Burandt and Burson-Marsteller’s Michael Adams in the new agency, now located in Moscow‘s towering World Trade Center.

What will they do pending the arrival of products and brands? Says Burandt: “We will begin as a matchmaking company, a marketing consulting company. Then we’ll do PR work because we’re going to be introducing products people have never seen before. Then corporate advertising.” Burandt will be working with such Y&R clients as RJR Nabisco, Johnson & Johnson and Chevron. Y&R/Sovero has, in fact, already run its first ad in Russia-a du Pont TV commercial for Teflon, aimed, interestingly, not at Natasha Consumer, but at Soviet cookware manufacturers.

The activities of the agency are still rather basic: acquainting its clients with the possibilities of perestroika, and the Russians with the mysteries of marketing.

To assist the Russians, Burandt, 46, also lectures on product development and advertising at a Moscow institute. There, he explains, his students “ask excellent questions” and he, in turn, does his best to instill in the students such alien concepts as “the client is king.”

Gary Burandt is no stranger to tough assignments: as a young navy officer in Vietnam he served aboard a Mekong Delta minesweeper. Raised in Kansas City, he earned a journalism degree from the University of Missouri. After a period with GE (interrupted by the war), he moved to Chicago and then Europe with BursonMarsteller. In 1986 he joined Y&R in New York. When he heard about the agency’s new Russian venture, he volunteered. Leaving their two daughters at school in America, Burandt and his wife Freddye became pioneers on the “last frontier.” His midwestern forebears would have understood the urge.

-Peter Lacey

ANTTI POTILA

Last May, with a flourish of parties, press releases and interviews, Finnair celebrated 20 years of regular flights between New York and Helsinki. The airline’s chairman and CEO, Antti Potila, also had two more substantial reasons to feel pleased: Finnair had just announced a record financial year, with revenues up almost 17 percent (to $1.1 billion) and profits up 25 percent (to $17.5 million); and in 1988 Finnair had flown 5 million passengers, a number equal to the total population of Finland.

If Finnair has a problem, it’s not passengers, it’s capacity. But it takes money to build new routes and buy new planes and, though the Finnish state owns the major part of Finnair, there are no direct government subsidies. The airline is expected to be profitable. Says Potila, “I do not care from which source it comes, but I need capital.”

Early in 1989, $60 million was gained from the public sale of 5 percent of the government’s 76 percent stock holding. The issue was 14 times oversubscribed, indicating a ready market for Finnair offerings. But the sale of the government’s stock is a delicate matter and, in any case, the state will never release more than 51 percent.

An alliance with a bigger carrier is another possibility: “I can see a joint venture with a foreign airline,” Potila speculates. “A cross-share holding could easily be organized.” But, he adds, “we will preserve our Finnish identity, even with foreign shareholders.”

Finnair will need a lot more cash or a big partner to hold on during the coming shakeout of 1992. Profitability aside, the airline is relatively small: though it is the sixth oldest airline in the world, it ranks fortieth in size.

Antti Potila, 50, was brought over as CEO in 1987 from Rauma Repola, a Finnish industrial conglomerate he headed for three years. Rauma Repola is twice the size of Finnair and was paying Potila a great deal more than he earns at the airline. However, there were other considerations: “The chief executive of Finnair has a very high status in the country,” says Potila. “It’s not only industrial people any more, it’s the whole society and even abroad.” Despite his new profile, he denies any political ambitions: “I’m completely neutral, a technocrat.”

Potila will have to use political skills, however, to turn Finnair from a state-owned to a competitive mentality. He’s brought in McKinsey & Co. and he’s encouraging management participation, something new at Finnair. And he’s patient: “Too fast a growth in the airline business is not too good, either. You get into service problems, your punctuality suffers.”

Married with one daughter, Potila lives in Helsinki. He has a private pilot’s license but mainly flies for recreation, not for business. He likes soaring above the crowd and wants to see Finnair doing the same thing.

-Peter Lacey

RICHARD BRANSON

Richard Branson, CEO and 95 percent owner of Virgin Atlantic Airways, is one of England‘s richest men, one of her most admired figures, and the principal owner of 120 companies employing 4,000 people in 23 countries. His office is an old barge anchored in the Thames.

Branson, 39, bought the barge for $150 in 1968 for use as both a home and an office. He was then 18 and had already begun his first business. Today his holdings, mainly The Virgin Group (notably the hugely successful Virgin Records), and The Voyager Group (which includes Virgin Atlantic), comprise the second largest private enterprise in Great Britain, with revenues of $830 million. The story of his rise from a school drop-out to business tycoon has become part of the folklore of Thatcherite England.

Virgin Atlantic was founded in 1984 as a low-priced transatlantic carrier. “When we started out five years ago,” Branson recalls, “I think most people thought that I’d lost my head: ‘What’s an entertainment entrepreneur doing starting an airline?”‘

It was a small airline-only two leased 747s to begin with-and its advertising budget was modest. But then there was the publicity flair of Richard Branson himself: skydiving, ballooning and speedboating across the Atlantic, and dangling from a tall building dressed as Spiderman are just some of his more notable stunts. Virgin Atlantic prospered.

Today Virgin Atlantic has four 747s flying scheduled routes between New York, London, Miami and Tokyo. Profit has risen to $16.7 million, and in terms of profitability, little Virgin is one of the top three airlines in the world. Now bidding for the lucrative business traveler market, it is offering what it calls “Upper Class-a first-class service at a business class fare.”

Branson claims he does not want a big airline, just a very good one. “We’ve watched the mistakes of the large American carriers, where size is all important,” he says. “I think in this particular business, size is dreadful.”

Some years ago Branson went public, but has since bought back the stock. “You can’t be a free entrepreneur as chairman of a public company,” he observes, “unless you’re willing to play the takeover game, buying and selling people and so forth, which doesn’t interest me. I’d much rather start companies from scratch, with people who will stick with you through thick and thin.”

Richard Branson now lives in a large London townhouse with his wife Joan and their two young children. But he still keeps his office on that old barge moored in Regent’s Canal; it seems to give him the right perspective on the world.

-Peter Lacey

GREGORY DILLON

When Hilton sold its international subsidiary to TWA in 1967, no one knew about 1992, high-speed trains, or the remarkable new 747-400s that travel at rapid speeds non stop to almost anywhere in the world.

Now they do. “We can’t just sit back in our own little town, in our own little country, and not take into consideration what’s happening in the rest of the world,” says Gregory Dillon, president and COO of Hilton’s newly launched international subsidiary, Conrad Hotels.

Dillon, whose career began with Hilton some 20 years ago as assistant to the founder Conrad Hilton, has been expanding the chain at a dizzying pace to outdistance its biggest competitor, Intercontinental. By the end of the 1989, Conrad will have properties in Australia, Ireland, England, Monte Carlo, and the Caribbean. By 1992, additional hotels will be opened in Brussels, Istanbul, Hong Kong, Toronto, and in Mexican resort areas. More than 50 additional sites are planned for Western Europe, the Asia/Pacific Basin, South America, and the Caribbean.

“We think that we can compete head-on in any given city or area,” he says citing the distinct advantage of having the multibillon-dollar Hilton Corp. to fall back on. How advantageous that is, is debatable since Hilton just put itself on the block last month. It was a move that shocked investors, since Barron Hilton just won a 10-year fight over his father’s estate, finally gaining full control of the company last May.

Dillon would not comment on how a possible sale would affect Conrad, but Bill Lebo, Hilton’s senior vice president, general counsel, said “Whoever buys Hilton will be buying the entire structure-everything that’s in place.”

So if it is truly “business as usual,” will Dillon make Conrad Hotels as profitable as Hilton itself, with its 70 percent occupancy rate, 95,000 rooms, 271 properties, and 1988 revenues of $953.6 millon? “Eventually,” he says, although he admits that it could take Conrad a while to catch up. (Analysts agree.)

But it’s a welcomed challenge for Dillon who in 1942, as an army airforce lieutenant, proved his leadership skills-skills he found handy in raising three boys and two girls. How does he keep his troops in order? “Maintain a strong position, and never compromise your standards.”