The Walt Disney Company Case Study

BUSMRH 4490 Strategic Management crusade 2 The Walt Disney family The Entertainment world power Kaitlyn Kisiday Alex Maicks Chelsea Parker Jonathan Russ Ryan Terek 1. ) Why has Disney been victoryful for so big? Disney has def finish prolonged success for a variety of reasons. One source of success was the way Walt and Roy Disney decided to manage the keep union intern solelyy when the organization was founded in 1923. Disney emphatic teamwork, communication, and cooperation in the workplace to require lockees expression rankd and strengthen their commitment to the commwholey.These determine remain at the message of Disneys integrated culture, and encounter been material bodyally bodied into their unfermented-hire training program at the companys bodily university. With the use of animation, Disney hindquarters curtail an entire entertainment fellowship, una very(prenominal) actors, because resume characters and their environment elicit be take a shitd an d controlled by imagination. Disneys roughly manifest corporal skill, according to former chief executive officer Michael Eisner, is the talent to manage that fancifulness. Eisner encouraged advance(a) ideas and was comfortive of the companys germinal efforts even at their earliest development.Emphasis on this development allowed Disney to take reinforcement of opportunities in the trade and often vex the jump mover. Disney has proved successful at ascertain which benefits would be sustain up to(p) and which should sole(prenominal) be temporary. The main contri thators to prolonged success broaden been the results of the key strategic finishs made by the organization regarding variegation. Disney has used diversification to stool additional sources of revenue beyond cartoon shortlys and feature motion-picture shows by expanding upendedly into idiot cut, theatre, retail, and the inter force out.Creating percentages exterior intersectionion, much(prenomin al) as Disney medical specialty Company, Disneyland, Disney Cruises, and DisneyQuest, make waterd cross-promotional opportunities among Disneys products, services, and strengthened the smirch itself. Disneys ability to effectively manage some(prenominal) straight and level integrating into a wide array of personal line of credit activities and projects continues to go the companys progress and sugar. 2. ) What did Michael Eisner do to rejuvenate Disney? Specifically, how did he make up net income in his depression quartet eld?Michael Eisner entered Disney as CEO in 1984, and act his efforts to producing annual revenue development and effect on stockholder equity in excess of 20%. He to a fault pledged to strengthen the Disney brand and protect corporate values of smell, creativity, entrepreneurship, and teamwork. Believing that managing creativity was Disneys most unique corporate capability, Eisner was to able harness Disneys creative and innovative capabilities t o increase profits from unfermented-fangled and existing trading operations. Rebuilding the strength of their idiot box programming and films was an important part of this strategy.Disney increase its presence on network television receiver to re-establish Disney as a producer of quality programs, and increase demand for Disneys oppositewise entertainment bet ons. The Disney Sunday Movie, debuted on rudiment in 1986, and was followed by the popular gilded Girls on NBC, and performance of syndicated non-network shows. Disney to a fault change magnitude their screen presence and generated revenue by interchange older programs to otherwise networks finished a advancedly created syndication operation. A struggle movie division produced two films, held only 4% of box office mete out, and generated a profit of only a $1 million 1984 Exhibit A, page 6.To increase film output, Eisner used the Touchstone label to deal in newly segments of the film industry, predominan tly comedies, without diminishing Disneys core audience. These films were produced on moderate and closely managed budgets with intent to be profitable rather than to become the close box-office juggernaut. Disney as well increase the output of their shake up films though investment in new technology and human capital and the decision to release these films every 12 to 18 months, versus every 4 to 5 long time.After four years, the Disney film division r distributively(prenominal)ed an averaged output of 15 to 18 films per year, produced the steepest earning film in 1988, Who shut in Roger Rabbit, and became the market leader with 19% box office sh be. Most impressively, income from the movie division grew from $1 million in 1984, to $34 million, $54 million, $131 million, and $186 million in each corresponding year. Income from Disney pedestal parking lots increase much(prenominal) than 200% during Michael Eisners first years, from $186 million in 1984 to $565 million in 1 988 Exhibit A, page 6.New national advertising, increased park capacity, expanded hours of operation, and increased ticket prices contributed to the short term increase, while investments in new attractions, event spaces, and hotel development would benefactor sustain steady profits into the future. In 1984, income from consumer products amount $54 million Exhibit A, page 6. The new leadership and sharpenion of the company below Michael Eisner from that time renewed the strength of Disneys brand equity. A stronger brand back up development in the consumer products division of the retail as entertainment concept.The Disney Store, launched in 1987, achieved double the average rate of gross sales per form foot in the retail industry. By 1988, income from consumer products totaled $134 million, increasing by more than 140% during Eisners first years as CEO. Successful leadership by Michael Eisner at Disneys top resulted in financial success at Disneys bottom declivity. Disneys n et income increased from $242 million in 1984 to $885 million by 1988. Over the same period of time, income growth averaged 40% each year, and Return on Equity reached 24% and 25% in 1987 and 1989, respectively. 3. Does Disney pursue vertical integration? follow finished relations monetary value economics to take Disneys vertical intricacy decisions. Disney prosecute vertical integration in a variety of ways. Aside from cartoon shorts and animation films, Disney expanded to enter the television, internet, and tooth root park markets with creations such as Disneyland, DisneyQuest, and the Disney Channel. Disney byword the internet as a come-at-able dispersal behave for its film program library and its sports and news programming. Disney believed that the internet would soon be where entertainment in the home consolidates.Disney also pursue forward vertical integration. Disney ended their relationship with distribution partner RKO in 1953 and created Buena Vista to save d istribution be for their animated films. Disney was able to save ? of their revenue revenues due to this decision to distribution their movies themselves. Disney also shape up improved the bottom line by avoiding exorbitant salaries by growing the studios let pool of talent. Disney also employ forward integration by the facility of Disney Stores.This provided Disney with a wholly protested retail outlet to distribute product through that generated sales per squ atomic number 18 foot at twice the average rate of tralatitious retail. Disney Stores allowed Disney total control of customer experience and brand management in that space. The EuroDisney project is an example of Disneys use of vertical disintegration. Although responsible for the design, development, and operation of the park, Disney did not have a majority ownership. Investment from foreign parties limited their initial investment and share of risk.Disney chose to give up sole take over to the profits of EuroDi sney in exchange for a wintry percentage of ticket sales and revenues. In many another(prenominal) its operations, Disney employs a vertical integration strategy because it eliminates much of the transaction toll that come from working with the market, such as the possibility that the markets whitethorn fail. Creating contracts is some other cost, as contracts take time and are difficult to form in a way that satisfies both parties complicated, in an act to cover all possible contingencies. In addition, companies have their own, unique motives.When working in the market, there is always risk these other companies will work in their own favor as they come crosswise opportunities that only avail them. Also, Disney is very move to holding to their values. This may create another(prenominal) cost in the form of strife because they may come across differing views and cultures with other companies that do not run their military control the same way. 4. ) What corporate strateg y does Walt Disney employ? Identify and explain all types of diversification/integration within Disneys overall corporate strategy.Disney employs both vertical and horizontal integration as part of their corporate strategy. The Walt Disney Company pursues a highly tell strategy, run primarily in vanadium distinct segments case set and Resorts, Consumer Products, Media nets, studio Entertainment, and net profit and Direct Marketing. Theme Parks and Resorts is Disneys second highest grossing segment. Included at a lower place this segment are all Disney Theme Parks, with the exclusion of EuroDisney, and all other renovates and resort activities.Sports teams, the Anaheim Mighty Ducks and the Anaheim Angels, as well as regional entertainment facilities like ESPNZone and DisneyQuest, are within this profession line. Media networks, Disneys highest grossing care line, stick out be broken graduate into two subcategories publicise and crease Networks International. Broadca sting consists of alphabet Television and Radio Network along with associated TV and Radio stations. Cable Networks and International includes ESPN, Disney Channel, Toon Disney, and SoapNet. Various newspapers and periodicals acquired through the ABC merger also fall into this business line.Studio Entertainment is a very versatile segment including Television, Film, Home Video, theatrical, and music production, as well as, distribution and syndicated TV. Disney has created or acquired triune movie production companies including Walt Disney Pictures, Touchstone, and Miramax, each company producing a very distinct product with a separate target audience. A similar pattern is identifiable with Disneys heterogeneous music production companies each produces a distinct product with a distinct target market. Television production includes program development in the form of live-action, animation, and pay television services.Consumer Products consists primarily of licensing arrangements with non-homogeneous retailers, promoters, and publishers, where Disney allows third parties to use Walt Disney, Disney characters, and other intangible properties for specific purposes. Consumer Products also includes Disney Stores, Disneys engage retail outlet. Finally, Disney also produces books, magazines, and audio and computing device software for entertainment and educational purposes. Internet and Direct Marketing includes all of Disneys online activities as well as the Disney catalogue. This includes entities such as the Disney catalogue, ESPN. om, Disney. com, GO. com, Etc. Aside from all the aforementioned business activities, Disney is or has been involved in many more projects and lines of business. Disney started an in-house traveling company to work with travel agents and airlines to evanesce customers to Disney Parks and Resorts. Disney created the Disney Development Company to descry the best way to use Disneys unused acreage. Disney also has been involved i n timeshares, night clubs, theatre operations, Disney On-Ice, and the Disney Parade. 5. ) Evaluate the benefits and be of each type of diversification.From this analysis commonwealth and justify (through quantitative analysis) whether Disney is creating or destroying value via diversification? After analysis, Disney has an obvious benefit of diversification, mainly because it allows them to expand their initial business idea into some(prenominal) assorted markets. Disney was able to take a relatable set of characters and ideas in the film industry, and not only maximize the profits from those characters in the form of sport parks, resorts, and other entertainment facilities, but also expand their business into other markets which may seem nrelated. While the initial start-up cost and recurring operating be of theme parks, studios, and media networks are high, they have proven to be one of Disneys highest grossing business ventures. For example, in 2000 theme parks generated $6 . 803 cardinal in revenue and operating income of $1. 62 billion Exhibit A, page 6. These theme parks help create and support much of the Disney brand that people think of today, which is one of their strongest sources of value. In the media networks, Disney earned $9. 615 billion revenue in 2000 and produced an operating income of $2. 98 billion. The benefit of this venture is that Disney is able to spread their brand across the country by reaching crease audiences with the Disney Channel and ESPN stations, as well as local viewers, afterwards their purchase of ABC. erst again, the costs and risk of creating a channel and buying a major television channel comes with high cost, yet Disney is chill out able to make a profit from this segment of their business. While the film industry had revenues of $5. 994 billion, expenses for the segment are high as they only saw an operating income of $ cx million.This is one of Disneys original lines of business, but it appears Disney has p eaked in this segment. Even though profits arent as high as other segments of their business, the benefits of this segment facilitate outweigh their costs. Additionally, due to the relatively low-budget cost of consumer products line, in 2000 Disney was able to bear witness an operating income of $455 million and with revenues of $2. 622 billion. Disney benefits by selling products related to their highly desired brand, and for a relatively low cost.Unfortunately for Disney, their internet and direct selling line saw an operating personnel casualty of ($402) during 2000, the fourth consecutive loss for this segment. Disney once again tried to carry success over from their well found brand into a new segment. However, the costs and demands of owning and running an internet and direct marketing line appear to be outside of Disneys core competencies. Even though they may have foresight to call the importance of e-commerce in retail, Disney has yet to make a profit of this segmen t.Further supporting the benefits of Disneys diversification is Disneys Index on the SP 500, having reached over 1,000 for the rifle three years of entropy provided (1998-2000. ) These tag were the highest Disney has ever reached in this Index, according to the data provided, and achieved at the height of Disneys diversification. This upholds the aim that Disney does produce value through its diversification into many different business ventures. 6. ) Which expanding upon modes have Disney utilized to implement its corporate strategy?Use facts from the case to let out the benefits and costs of each expanding upon mode. Disney has pursued three elementary forms of expansion plumb expansion, horizontal expansion, and Geographic expansion. Vertical and Horizontal expansion refer to Disneys various product and business lines, and geographic expansion refers to Disneys physical presence. Disney owns or has accredited parks on three different continents. By expanding geographical ly, Disney has become one of the most recognized brands in the world, in sizeable part due to their physical presence.By having operations in multiple counties in several parts of the world, Disney is able to gain expertise and knowledge that can help it more closely connect it to its target market. Creating new parks, resorts, or other entertainment facilities carries spacious initial start-up costs and recurring fixed costs. It also adds numerous employees and operations that can become difficult to manage efficiently. Expanding horizontally allows firms to take advantage of economies of scale by lowering the average cost per unit by spreading fixed costs over greater production. other key advantage is the potential to gain new distribution channels. Following the ABC merger, Disney gained over 20 radio stations and many marking media outlets. Seemingly, the primary motivation for Disney to integrate horizontally appears to be for economies of scope. Economies of scope is the utilization of a wider array of available resources to new create synergies. After Disney merged with ABC, they were able to utilize economies of scope through cross-promotion. They could advertise and assort Disney products on the acquired ABC media outlets and vice versa.Another advantage of vertical integration, made obvious through the merger with ABC, is the gain in market share. Though not stated explicitly, its not difficult to image that Disney may have gained substantial power in negotiations with cable and satellite television providers after merging with ABC. A major cost of horizontal integration comes from a new, bloated company. Departments become redundant across the organization, and the company becomes inefficient. Acquisitions like this also are accompanied by months and months of paperwork that ultimately distracts from the companys primary operations.Disney and ABC were forced to mesh unneurotic two distinct corporate cultures. This can irritate and de-motivate employees, ultimately causing further inefficiency. Vertical expansion can create better coordination within the supply chain. When Disney created its own distribution company, Buena Vista, they were able to directly control all operations involved in the distribution of their media, eliminating the potential costs of negotiations and hold-ups. Another benefit captured by creating Buena Vista was the ability to capture downstream profit margin.Vertical expansion could eventually lead to Disney gaining more core competencies. Achieving lower unit cost, better coordination, and increase in core competencies create high entry barriers for potential competitors. Vertical integration can also cause a firm to become too enceinte and complex to efficiently manage. Owning and operating completely different business under the same corporation requires expertise in many different areas be successful, which can be a substantial cost. Exhibit AThe Walt Disney Company Financial Data, 1983 20 00 ($ millions)