Disney also has strategic complements which allow the company to gain sustainable profits. Disney has many complementary business units so that the company not only has more control over it sales and distribution; it also decreases the costs of maintaining contracts with other companies. Disney World is an example of the complementary businesses that Disney uses to make itself stand out within its industry. Disney World has hotels and resorts, convention center, amusement and water parks, bars and clubs, sports arena, and a network of transportation. All these complement each other to make Disney World unique and therefore gain sustainable profits.
Another criterion for sustainable profits lays in the director’s foresight for the company’s development. The Walt Disney Company has always focused itself in creativity and innovation. The company constantly builds its own pool of talents in the creativity department to enforce itself and continue to keep innovation alive at all costs. The way that the company vertically integrates itself and with such diversity in its business units, it would be difficult for any company to imitate its success.
Disney’s Ability to Create Value across its various Businesses
The Walt Disney Company successfully utilized synergy in its business to create value across its many units. Though many companies know that there is a need for synergy in success, it seems like little knows how to utilize synergy. Since Disney’s original success came from its characters, it is important to use the idea of synergy to increase and sustain its success. The Walt Disney Company diversified itself into many business units such as movies, television, music, retail, amusement parks, sports team, and hotels to complement and cross-promote its important characters. This kind of usage of different industries effectively maximizes its characters’ exposure and captures all its values. For example, for every animation Disney produces, the Disney parks, Disney Store, and Disney Channel takes part in promotion. There are parades for the animation at the park, stuff toy for the heroes of the animation, and Disney Channel does reruns on the animation. The use of the different business units within the corporation allows the company to minimize promotional cost and increase revenue in different units. This kind of cross promotion is a very successful type of synergy used in the company.
Synergy is also important within the internal structure of the company. The Walt Disney Company has a very good coordination within the different units and departments in the company. For example, a monthly meeting of 20 divisional marketing and promotion executives is held so that there is a good communication between the promotional activities within Disney. There is also an in house media buying group to coordinate media buying for the entire company. The high coordination within all different units of the company creates great value to achieve success for the company.
Michael Eisner’s rejuvenation of Disney from 1984-1987
After the death of Walter Disney in 1966, the company’s financial performance declined. There were several hostile takeover attempts with the intention to sell of the separate assets of Disney. In 1984, Michael Eisner was named Disney’s chairman and chief executive officer. He wanted to maximize shareholder equity through an annual revenue growth target and return on shareholder equity over 20%. He successfully rejuvenated the Disney brand while maintaining the corporate values of quality, creativity, entrepreneurialism, and teamwork. From 1984 to 1987, Eisner did several specific things to rejuvenate Disney.
Eisner educated the Disney culture to the new managers through a three-day training program at Disney’s corporate university. He believed that “managing creativity” is Disney’s most unique corporate skill. Therefore, he encouraged creativity, and spending was approved in order to achieve creativity.
One of Eisner’s priorities was to rejuvenate Disney’s TV and movie business. Disney once again started producing shows for network television, and sold some of its TV programming to independent TV stations. Eisner believed that the shows “helped to demonstrate that Disney could be inventive and contemporary”. As for the movie division, Eisner increased film production by releasing 15 to 18 new films per year, from two new releases in 1984. Eisner managed movie budgets and encouraged creativity at the same time by ensuring that the creative talents operated near the target budgets. Since Eisner led Disney, 27 out of 33 Disney’s movies were profitable. As for the animation division, Eisner expanded its staff and increased production by releasing a new animation every 12 to 18 months, instead of every 4 to 5 years. He also invested $30 million in Computer Animated Production System to digitize and increase efficiency of the animation process.
In the consumer products division, Eisner advocated the “retail-as-entertainment concept”, and launched the Disney Stores in 1987. The stores generated sales per-square-foot at twice the retail’s average rate. Disney expanded into new businesses by launching book, magazine and record publishing. It also created new channels of distribution through direct mail and catalog marketing. In addition, Disney successfully pioneered the “sell through” strategy by marketing videos at low prices for consumers.
Although Disney’s theme parks had been popular and profitable since its operations, Eisner recruited a new management team and expanded attractions at the parks to maximize theme park profitability. His strategy to increase the growth and revenue of the parks were to include national television ads, special events, retail tie-ins, media broadcast events, and other promotional devices. He also removed restrictions on the number of visits allowed, and kept the parks opened on Monday. Although ticket prices increased, the theme parks’ attendance continued to grow. In addition, he established the Disney Development Company to develop Disney’s unused acreage, which included hotel expansion at Disney World in Orlando.
During this period as Disney became more diversified, Eisner’s major contribution was to create coordination among its businesses and reinforced the corporate value of creativity. Eisner exploited its core competencies, and created synergies among its business units. Different business units used negotiated internal transfer prices to resolve conflicts, and they also jointly coordinated important events. Eisner also created a corporate marketing function to coordinate company-wide marketing activities. From 1984-1987, Eisner had successfully rejuvenated Disney, and revenues and stock performance had improved dramatically.
Evaluate Disney’s growth strategy over the past 15 years
Over the past 15 years, Eisner continued his strategy of Disney’s expansion and diversification. In addition, hotels and convention centers were added at Disney World to encourage longer stays. Cruise ships helped bring customers to the theme parks. These projects are similar to and build upon the existing businesses by creating stronger brand image and bringing in great profits. Disney also created new types of entertainment such as ESPN zone and DisneyQuests. These new expansions attracted adults and older children. The production of Beauty and the Beast for Broadway, although risky, was another good diversification because the nature of the entertainment was in line with Disney’s expertise and added to Disney’s brand image. The Euro Disney project was brought about by the success of Tokyo Disney. Although the project was not an immediate success due to cultural differences, Disney was able to improve operations and adjust to foreign culture. The success of theme parks abroad led to higher sales in Disney products. It proved that Disney has major growth potential abroad.
Although many projects proved to be a success, some remains questionable. The acquisition of an NHL expansion team was less in line with Disney’s growth trend. Although the team created profit through merchandise, it did not bring extra value to the Disney brand. One of the most questionable expansions was the acquisition of ABC which made Disney the largest entertainment company in the U.S. Acquisition of ABC appeared attractive because it can provide Disney with global distribution, however, the $19 billion acquisition also raised Disney’s debt ratio from 20% to 34%. ABC created profitability for Disney, but Disney was not necessarily better off. ABC and Disney differed greatly in corporate culture, show content and targeted audience. The differences and the large size of the enterprise can lead to problems for brand management, culture clashes between Disney and ABC, and synergy creation.
Disney’s Current Principal Threats and Possible Responses
Brand management is becoming a problem due to Disney’s increasing size. While Disney tried to broaden its audience, new themes and topics presented in shows and movies caused controversies, protests, and dissatisfaction for some viewers. On the other hand, Disney’s wholesome image revolving around traditional values also restricted its appeal to contemporary audiences. Merging Touchstone Television into a division of ABC to cut costs created culture clashes since it involved the movement of a New York business to Los Angeles. In addition, Disney’s combative culture made it difficult for people to put through their ideas thus creating unsatisfied executives who left the company. Many believed that Disney was emphasizing too much on cost control and profits, and less on creativity. Eisner puts emphasis on the importance of synergy to leverage its brand and create value. In order to create synergy, divisions were force to find ways to work with one another. However, it became increasingly difficult to create effective synergy in such a large corporation. Therefore, Disney should continue to implement Disney Dimensions to create synergy in the company. The synergy boot camp can increase loyalty and devotion by allowing managers to identify with the company and eliminate culture clashes through bond building. Synergy will increase revenue by allowing cross-promotion which is a necessary part of any future expansions.
Over the years, Disney seemed to be growing for the sake of growth. However, steps have been taken to cut back on operations and refocusing Disney’s original values and position. Businesses that did not offer healthy returns were eliminated, and “non-strategic” assets were sold. For example, Disney reduced its licensed products by half while concentrating on products featuring its main characters. Disney should continue to grow as long as the growth is in line with Disney’s corporate position and value. One way for Disney to grow is to expand abroad. For example, the plan to build a theme park in Hong Kong can create a huge market for Disney products in Asia by familiarizing people with the Disney brand and characters. In addition, technology is growing at a fast pace, it is necessary for Disney to recognize new technology trends and develop plans to minimize the risks associated with technology.