MGMT 619 Capstone: Disney

Professor Fern
Spring 2009
Team: RedDragon
Lis!an "!# May Cen# "eiLii Tan# Ro$in Sa%im# &in Coi
'Disney( Case "rite)!p
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Section 1
Disneys corporate strategy till 1994 was rooted on Walt Disneys vision to create universal
timeless family entertainment. Disneys synergistic and coherent strategies supported the
enterprise expansions and maret growths during this period with stellar financial results as well
as the timeless !rand image. "he strategies and the successful effects can !e descri!ed into four
categories #see $xhi!it 1 for Disneys strategic activities%
&ontrol of 'uality and financials( vertical integration
)swald( the *ucy +a!!it taught Disney the important lesson of total control and vertical
integration. Disney esta!lished its own distri!ution house( film studio( music la!el and so on to
!etter control 'uality content and costs. ,ynergies among !usiness sectors with the same
corporate culture - value made the communication and production more efficient and effective.
&ontrol of .rand /mage
"o !etter promote and differentiate itself from competitors( Disney used hori0ontal integration to
promote the same product to gain more customer interests. Disneys .roadway shows were
produced to promote Disneys !rand and parades were used to attract peoples attention. 1lso(
licensing characters was not only a!out cash flow( !ut also to refresh them and eep the
characters live longer in customers mind. "herefore( it was important for Disney to !e selective
and careful a!out its copyright and distri!ution in order to maintain its high !rand e'uity and to
completely control the entertainment experiences.
$xpand hori0ontally - geographically with synergies - leverage of resources - capa!ilities
"o increase its presence and maret awareness( Disney applied hori0ontal integration to expand
potential target segments with cross2promotions. /n addition( more contents for adults were
produced to expand !eyond the family entertainment !ase which offered animation( theme
pars( movies and many more that fit into the mainstream maret. 3eographic $xpansion was
the next logical step once the 4nited ,tates maret was saturated and "oyos positive feed!ac
gave Disney the needed confidence and cash flow to implant the formula elsewhere.
*eadership and &reativity
Disney relied heavily on one ey executive who had a great vision for the company to manage
the creativity of the company. Walt Disney created the animated film then led his theme par
vision to create a total entertainment for the whole family. $isner envisioned the annual 567
revenue growth !y implanting leadership and creative maret strategies to reach the goal.
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Section 2
8ichael $isners short term goal was to 'uicly improve Disneys financial performance
!y !uilding strong !rand e'uity( !ringing !ac Disneys corporate synergy( re!uilding
deteriorated !usiness lines( maximi0ing profit !usiness lines( and imposing tight cost control.
$isner strongly !elieved in preserving corporate values inherited from Walt Disney. 1ll
new employees( executives( managers were re'uired to attend culture training program. $isner
encouraged innovative ideas( !ut the !usiness units had to deliver well2defined strategic and
financial o!9ectives. "o !uild synergy and improve operation efficiency among !usinesses(
Disney employed internal transfer pricing policies and introduced corporate mareting( in2house
media !uying group( li!rary committee( etc. to coordinate and allocate !usiness resources.
$isner recruited outside top executives to re!uild deteriorating ": and 8ovie !usiness.
"o appeal to !roader audience( Disney expanded into mature audience maret. "his strategy
'uicly turned movie division to !e profita!le and !ecame the maret leader. "o maximi0e
theme pars profita!ility( Disney updated and expanded attractions at the pars to attract more
visitors( and used attendance2!uilding strategies as well as raising ticet prices to offset the
investment.
/n the long2term !asis( $isner continued to grow Disneys !usiness in hori0ontal and
vertical dimensions( and expanded its presence worldwide which fruited into $uro Disney.
"heme par expansions led to real estate !usiness lie hotels and resorts to encourage longer
stays and attract ma9or conferences. ;urthermore( movie division created <ollywood =ictures
and ac'uired 8iramax which led Disney into the mainstream movie industry. $isner expanded
into other types of entertainment such as sports #><*% and .roadway theater production. "he
consumer product division opened Disney ,tores and entered into !oo( maga0ine( record
pu!lishing !usiness( direct2mail and catalog mareting. 1lso( Disney formed .uena :ista
<ome :ideo to sell videos directly to consumers.
/ncrease >et2/ncome from19?4219??
/n $isners first four years( he aggressively focused on increasing revenue stream( and
controlled cost tightly( which directly improved the !ottom line. ,3-1 were maintained at flat
level even with the increasing revenues from 19?4 to 19??. .y expanding movie and ": maret
to adults( revenues from these two divisions 'uicly improved. $isner focused on moderately
!udgeted movies to eep costs low !y identifying good scripts from unnown writers and hiring
@
well2nown actors in career slumps and ": actors. &ross promotion of licensing and ":
syndication to re2use old materials were implemented to mae 'uic profits.
Section 3
,ince the company started in 195@( 'uality( creativity( entrepreneurship( and teamwor
have !een the core of Disneys corporate values. Walt $. Disney himself was nown for his
commitment to excellence and hardworing management style. "he corporate structure was very
flat and non2hierarchical where practically no one had a title. "hese values and corporate
structure helped Disney to achieve synergy across the company( introduce creative ideas and
control 'uality of the wor. <owever( after Disney passed away in 19AA( the corporate values
!egan to fade as the management team in film division struggled to come up with creative and
innovative ideas. =re219?4 years( Disney also had !een characteri0ed as family controlled
company and as family2oriented entertainment provider.
/n 19?4( $isner too over Disney as an outsider !ut he 'uicly instilled the same
corporate values introduced !y Walt Disney and simultaneously introduced frictions !ased on his
promise of maximi0ing shareholders return of 567. "he company structure !ecame more
hierarchical as $isner hired outside talents to run the Disneys motion pictures and television
division( formed a strategic planning group( and introduced corporate mareting group. $isner
put heavy focus on financial performance and at the same time emphasi0ed on expansive and
innovative ideas( which created conflicts !etween financial and creative groups within the
company. ;urthermore( $isner !roe the tradition of only providing family2oriented
entertainment and got Disney into mature audience maret.
Section 4
"he strategic logic of the ac'uisition of 1.& was due to several reasons. ;irst of all is
growth expansion. Disney wanted to grow its entertainment !usiness( and !e the B1
entertainment company. 1.& had !een the top rated networ and !uilt a glo!al media networ
channel. 1c'uiring 1.& would give Disney access to viewers around the world.
1t the time of the merger( Disneys !usiness portfolio consisted mostly of cash cowsC
studios( theme par( consumer products #see $xhi!it 5%. Disney had significant maret share and
revenues( !ut the marets served were experiencing low growth rates( with the exception of
internet content which Disney had a very small maret share #see $xhi!it @%.
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"he media networ !usiness was( at that time( still a high growth !usiness with a growth
rate of 56.A7 #calculated from 1.&s revenue D years following the merger%( and 1.& at that
time was the maret leader in that segment which would mae it a star in the .&3 matrix. 3iven
$isners goal of achieving return on stocholder e'uity of more than 567( 1.& offered high
growth rate which fitted very well into $isners plan.
1lso( 1.&s ac'uisition complemented Disneys corporate strategy of vertical
integration( giving more control over the value chain. /nstead of relying on partnerships and
agreements with various distri!ution networsE Disney would own distri!ution networ for
complete control over its contents( as well as consolidated resources and reduced cost of
operations. "he ac'uisition also added to Disneys hori0ontal integration as a content provider.
1.& had rights to content media different from Disneys traditional studio !usiness. )ne such
content category was sports( namely the $,=> sports channel( which was the most profita!le
sports channel at that time( as well as content targeted towards the adult audience. "his would
also ena!le cross2promotion !etween Disneys content and 1.&s content.
)verall( the increased vertical and hori0ontal integration would open up possi!ilities for
synergy( which 8ichael $isner had made a focal point of his management team. "here were
several well2intentioned strategic reasons why the merger made sense !oth to 1.& and Disney(
and they were aligned with Disneys corporate strategies of fostering synergy( encouraging
creativity( controlling 'uality and improving financial performance.
Section 5
"he core corporate strategies of Disney from pre2199D years continued on through the
period 199D25666C such as synergies across !usiness units( cost control( distri!ution control(
geographic( vertical( and hori0ontal expansions( etc. 1fter the ac'uisition of 1.&( even though
1.& too Disney into other non2related marets( Disney actually maintained the same corporate
strategies in terms of expansions with synergies !y controlling high 'uality contents( distri!ution(
and financial aspects of the !usiness units. <owever( the ac'uisition of 1.& !rought new
challenges to Disney at the corporate level in dealing with the corporate strategies at much
!igger scales and !roader diversities. Disney was already experienced with managing multi2
!rands lie "ouchstone( 8iramax( and <yperion( !ut the association with 1.& made the !rand
e'uity more difficult to manage due to the incongruent approaches of diversified !usinesses.
D
;urthermore( the inherent synergies that Disney valued in the previous years !ecame o!solete(
thus $isner had to put more efforts into maing sure that the outsiders received the in9ection of
Disneys core values and esta!lishing performance metrics !ased on synergistic !usiness growth.
3eographically( 1.&( &ine>ova( and /nternet added to the glo!al delivery arms putting
Disney in good position for international and untapped regions growth. With the international
maret offering Disney the !iggest growth potential( the glo!al access certainly puts Disney in
!etter position than !efore. :ertically( 1.& added distri!ution channels with more ": and radio
networ( &lu! Disney added retail stores at malls( and internet added services for consumers to
deal online. Disneys long term corporate strategy of controlling the production and distri!ution
puts Disney as a corporate in stronger position than !efore. <ori0ontally( Disney expanded into
other types of entertainment lie sports( cruise ships( and mature themed .roadway shows. With
wider hori0ontal expansion and diversification( Disney is in !etter position to cross2promote at a
!igger scale.
)verall( Disneys ac'uisition of 1.& and other expansions demonstrate good strategic
fits with additional resources and capa!ilities to grow and enter into new marets. <owever(
Disneys financial performance has !een deteriorating with +)$ going from 157 in 199F down
to 47 in 5666( whereas +)$ num!ers were in dou!le digits for the years leading up to 1994.
)ne ma9or area of difference is synergy !eing much weaer now with 1.& ac'uisition diluting
the traditional force !ehind the synergistic values. ,o( it appears that Disney is struggling with
the execution of the core strategies. Disneys success will attri!ute to how well the corporate
coordinates the synergies among !usiness units to !ring values to each .4 in terms of sharing(
leveraging( cross2promoting the growth potentials. Disneys corporate strategies for providing
leadership and creativity( as well as tight financial management( will need to continue as the
!ac!ones of the company.
A
Exhibit 1: Disney Strategy Activity Map till 1994
Reliance
on Key
Exec. to
manage
creativity
WD
Eisner
Adult
Entertain
ment(New
Business
Develop-
ment
!"e
#olden
#irls
$ %en
& a
Ba'y
(ost
(ontrol
Brand
e)uity
((ontrol o*
copyrig"t&
Distri'ution
%erc"a
dise
B+,+
-ynergy
(corporate
cultures
!eam-
wor.
(reat-
ivity
(ross
/romotion0
1everage
Brand & Key
("aracters
Disney
on
/arade
!+
("annel
+ertical
2ntegration
Buena
+ista
K(A1
#lo'al
#eograp"ic
Expansion
!"eme
/ar.
Retail
-"op
,ori3ontal
Business
Expansion
%ira
max
!ouc"-
stone
1icensing
("aracters
%ic.ey
1ion
King
4wn
/ool o*
!alent
/artners"ip
&Alliance
wit"
creative
*inancing
Disney-
land
Euro
Disney
Re-Runs
(New
#eneration
-now
W"ite
(inder-
ella
5amily
Entertain-
ment
(ontrol o*
6uality &
Experiences
/mage +esourceC Disney.com
F
Exhibit 2: BCG Matrix
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Exhibit 3: Gr!th rate "r #a$r Disney b%siness %nits a"ter #erger " ABC
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