HOW WILL HASBRO, THE MANUFACTURER OF SCRABBLE, ACTION MAN AND SINDY DOLLS, KEEP PACE WITH THE CHILDREN OF THE COMPUTER REVOLUTION?

It would be many a boy's dream to take charge of the world's second- biggest toy company. But it was the last thing Alan Hassenfeld wanted. At university, he wanted to be a writer, and he was happy to leave the management of the family toy firm, Hasbro, to his father and elder brother. But life isn't always that straightforward.

For the past 10 years, Mr Hassenfeld, now 51, has been chairman and chief executive of the company, steering the maker of such traditional favorites as Sindy and My Little Pony into a world where kids grow up faster and have attention spans suited more to the latest state-of-the-art computer game.

Mr Hassenfeld's best-loved game is, of course, Scrabble, acquired by Hasbro from Spears, the British company, back in 1994. But he is well aware most children expect something rather more cutting edge in their Christmas stockings these days. The run-up to the festive season this month brought Mr Hassenfeld the unpleasant task of laying off 2,200 employees - mostly in Britain and Mexico - as part of a restructuring that will further reduce the company's exposure to the traditional action figures business and, hopefully, help it to compete with computer gaming competitors and its larger rival, Mattel.

Hasbro is slimming down its pre-school and girls' toys businesses to focus on its mainstream brands, and that means sacrificing 20 per cent of the workforce. The output of the traditional dolls business will be halved, with Hasbro releasing only a couple of dolls a year, instead of the usual four. Production, including that at the site in Ashford, Kent, is to be shifted to Spain and Asia.

Decisions like these can take the fun out running an enterprise based around toys. When the closures were announced, Hasbro's New York-listed shares were already well off their year high of $37 because Star Wars figures tied to the Phantom Menace had not sold as well as Wall Street expected. The shares slumped a further 5 per cent on the restructuring news to just over $20 - only a little above the $18 year low - valuing the business at $3.98bn. The family still owns 13 per cent of the company.

Toys are big business, but it is an increasingly competitive world. In 1998, Hasbro enjoyed sales of $3.3bn (pounds 2.1bn), of which $1.2bn came from outside the US. But while US sales have been growing at about 13 per cent, overseas they have been heading down. The group still has a strong presence in Britain. Here, Hasbro's Action Man was the highest-selling boy's action figure in 1998, bringing sales of more than pounds 100m. Given an estimated pounds 155m is spent on boys aged four and five in Britain annually, that's impressive. Despite this success, Hasbro's sales lag those of Mattel, the world's biggest toy company, valued at some $5.7bn.

Hasbro successfully fought off a takeover attempt from Mattel three years ago. So one might expect the person responsible for keeping Hasbro independent to be a thrusting and aggressive character. But Mr Hassenfeld says he is in the top job at Hasbro because he has a passion for creativity, just the trait that deterred him from considering a business career when he was a student.

"I was something of a radical, believe it or not," he says. "The last thing I was interested in was business. I majored in creative writing and I wanted to be a great writer. I wasn't going to be a businessman, and I certainly wasn't going to join the family business."

Mr Hassenfeld is no less an idealist today. He insists Hasbro tries to give something back to the community, and with some justification. Our interview can't overrun because he's persuaded a bunch of chief executive officers to staff a downtown soup kitchen afterwards. He also sits on the board of the Hasbro Charitable Trust and the Hasbro Children's Foundation.

Alan's grandfather Henry founded Hasbro with his brother Helal in 1923. The family had emigrated as refugees from Poland to the US, and the original company - called Hassenfeld Brothers - was based in Bristol, Rhode Island, and sold stationery and school supplies. Toys came later.

The company's big break came in 1952, with the launch of the Mr Potato Head doll who proved so popular he got a wife, Mrs Potato Head. The success of GI Joe, the original Action Man, in the Sixties, paved the way for a stock market flotation in 1968, when the company changed its name to Hasbro. By 1980, when Alan's father, Stephen, became chief executive, Hasbro could take the credit - or blame, perhaps - for Transformers and My Little Pony.

Stephen Hassenfeld set the ball rolling for Alan's future strategy with Hasbro, rightly spotting that the toy and children's entertainment industry was heading away from figures and physical toys and into electronic games. He masterminded deals, such as the acquisition of Playskool, which took Hasbro into the pre-school games and puzzles market. Alan succeeded his father and elder brother as both chairman and chief executive in 1989 and he has sharply upped the pace of Hasbro's move away from what he calls "making things for children" and into "a family entertainment business", by hurriedly snapping up the intellectual property rights to any kids' brand around which Hasbro can create a new game.

"One of the great things about this job is working with creative people and being able just to pick up the phone and start talking about turning an idea into a product," says Mr Hassenfeld. "I was in the bath late one night when I remembered hearing about Jumanji [the riddle-by-riddle board game] being made into a film and I thought, `We've got to have a product based around this', and I was up all night planning it."

Mr Hassenfeld's original determination to avoid the family business did not survive the lure of Japan. "One day my brother said, `Will you spend the summer in the Far East working for the company?' I did, and I fell in love with the people I was working with over there."

It wasn't blind love. If Alan Hassenfeld was going to embrace what he had spent so long determined to avoid, it had to be on his terms. "My father was a sensational man, but I was an independent thinker - and I was a little scared," he says. "So there were three agreements I made with my brother and father when I came into the business. One, because this was a time when there was a great deal of hostility to big business, I should never have to sacrifice the ethical values they had instilled in me. Two, I had read a lot about family businesses and how they could tear families apart. I wanted to make it clear my relationship with them came before the business. Three, `I will work with you,' I said, `Not for you'."

Mr Hassenfeld hasn't looked back. His fears about the family being undermined were misplaced - "thinking about the three people involved, it was never a risk" - and he worked his way up, with apprenticeships in manufacturing and sales. By the time he became CEO, the changes already under way in the industry were posing even greater threats to Hasbro's traditional business, and Hasbro has been forced to adapt more rapidly. "Kids are getting older, younger," he says. "Kids aged two and a half are absolutely proficient with a mouse. We have strong products in development in the pre-school area, but that expression now means nought to two and a half years old, whereas - and I hate to date myself - I always thought it meant nought to six years. Once a Sindy doll was for kids up to 12, now it's aimed at three to five-year-olds."

Hasbro is in the throes of transformation. Buoyed by the release of the first of the new series of Star Wars films, which gave Hasbro the chance to undertake the biggest rollout of entertainment product in history, the company's traditional skills in dolls and figures have come back into play. But the real excitement this Christmas will be over Pokemon, Nintendo's video game cartoon character for which Hasbro makes spin-off figures.

The computer revolution has done much for Hasbro. The CD-Rom has created a new market for its existing intellectual property portfolio, and exploiting this to the full is central to Mr Hassenfeld's strategy. Having seen gaming was where the market was heading, he decided the most important thing to do was beef up the intellectual property portfolio.

"We have several core competencies, and originally these were being a producer of action and collectible figures. But what I have to do is understand where we want to be and build competencies around that. You have to change the company to fit where the world is going. I believe I've seen the future - what's picking up the slack in figures is the whole area of gaming. So we've put more dollars into gaming than any other area. We have desperately gone out to find businesses with content, and

our aim is to put these into both board games, computer games and the interactive experience." Gaming accounts for half of Hasbro's business and the company's growing range of interactive CD-ROMs make it the UK's third largest software publisher.

One of Mr Hassenfeld's early moves as CEO was to spend $343m on the chunky toymaker, Tonka Corporation in 1991. Even then, this was in line with the gaming thesis. The deal included Monopoly, and by 1995 Mr Hassenfeld had brought out CD-ROMs of Monopoly and Tonka trucks, produced by the newly-created Hasbro Interactive subsidiary. At the same time, Hasbro brought out a CD-ROM of Cluedo, which Mr Hassenfeld had acquired with the pounds 50m purchase of Waddingtons Games in 1994. So when he struck a deal in 1997 with George Lucas, the creator of Star Wars, for the rights to manufacture and market Star Wars merchandise for three new films, the deal covered not just figures and toys, but board and video games too.

And Mr Hassenfeld still believes dolls have a future. The market will not grow, but it won't decline much further either. So the action continues to centre on developing Hasbro's intellectual property. He has even acquired the rights to make Teletubbies dolls and to some of the legendary Atari game brands.

"The old Atari library has great games, Centipede and Asteroids, which we can update, and we've done separate deals with Pac Man and Tetris. Now we can turn these into great board games and interactive experiences."

Mr Hassenfeld expects sales of Hasbro's interactive unit to double this year, fuelled by electronic versions of Monopoly which allow players to plan the layout of their board and choose to be represented by something other than a lead iron or an old boot.

The restructuring will cost $141m to implement, and will save the company $16m this year and $23m thereafter, which can be ploughed back into the interactive activities. But Mr Hassenfeld didn't wield the axe happily. He knows the people who will be leaving the company are the people who built it.

"People don't like hearing the soft side of a CEO, but Wall Street has known me for 10 years now," he says. "And those institutions also know I'm looking out for every possible trend in children aged zero to 90. There's a difficult relationship between communities, shareholders and the people companies sell to. The lesson I learnt from my father was that in the good times, and in the bad times, you must treat all people equally."

Mr Hassenfeld is not a soft touch. "He recognises he's soft, but he's very good at hiring other people who can make the really hard decisions and who will say no to people," says Hayley Kissel, the Hasbro analyst at Merrill Lynch, the US investment bank. "Alan's great at striking up relationships with the studios and with people like George Lucas, and convincing them Hasbro is the right partner. He's the one who can not only spot great content, but also identify what isn't going to work. He's a big kid who appreciates children's play patterns."

Yet critics have accused the company of cashing in on children or sponsoring violence with GI Joe and Action Man. The charge he frequently hears is that Star Wars was just a marketing tool for merchandise. "Star Wars is one toy in one year for a company that's got half its business in gaming," he says. "I don't have any problem with people saying Star Wars was made to sell toys - because George Lucas didn't make Star Wars to sell toys. Star Wars is a wonderful story. It's about good and evil."

For the same reason, Mr Hassenfeld is a supporter of the Harry Potter books, which have faced a backlash from US Christian community. "Hasbro has said we won't make blood-and-guts games based on TV shows. So I'd love to make a game around Harry Potter. It's much better than what is on TV. The real reason it is controversial is because it's successful. Kids are reading who haven't been reading before."

Mr Hassenfeld has to rush - that soup kitchen beckons. And there is Christmas to think about. Not this year's. That was tied up months ago. But next year's. There's the budgets to do, the products to plan. What's going to be big next year?

"I'm not saying - but I know Pokemon's going to be huge this year." He knows this because the biggest obstacle to Mr Hassenfeld's Christmas 2000 preparations is the incessant calls from friends asking why the local toyshop has sold out again.