The Walt Disney Company: The

Entertainment King

By: Team ? Cinderella? Mickey Mouse? Beauty and the Beast?

Team Members Names:
Disneys Keys to Success

Resources at Disney:
1) Financial Capital: As per the Financial statements provided in the case,
Disney control of assets (Debt + Equity) grew from $2.38 Billion in 1983 to $45
Billion in 2000. This huge growth puts Disney in a strong competitive advantage
position against its competitors. As per their 2000 Annual Report, Disneys total
revenue stood at $20 Billion with Net Income of $1.3 Billion.
2) Physical Capital: Disney has a strong competitive position compared to its
competitors due to its extensive real assets. This includes large properties in wellthought-out geographic locations such as the 27,00 acres of land near Orlando,
Florida which give it enormous low-cost advantage. In fact, most of the
construction that happened in Disneys Animal Kingdom was completed using
raw materials found in close proximity to the site. Its nearest competitor in the
Theme Parks arena is Six Flags, which has a largest land area of 519 acres in
Jackson, NJ.
3) Human Capital: In addition to a vast pool of talented artists, Disney has
the advantage of being led by its visionary leader and founder Walt Disney for
almost 40 years. Although Disney suffered financial deterioration between 198083, it was again led to prosperity by CEO Eisner and COO Frank Wells, who
valued managing creativity as the companys most distinct skill. Eisner fostered
a culture of competition amongst the division heads to get the best ideas out. It
was during Eisners tenure that Disney expanded into new businesses, regions,
and audiences such as entering into retail.
4) Organizational Capital: During the early days of Disney, when it was less
diversified, it followed a flat organizational structure. This allowed for easy
communication and competition amongst artists to create the best products.
However, as Disney became more diversified, it adopted a strong hierarchical
structure that allowed it to coordinate between different business units and
maintain its culture, reputation, and brand image.

5) Intangible Resources: Over the decades, Disney has accumulated a large

number of patents in all aspects of its business operations, patents that range
from those created in-house to those acquired through diversification.
Disneys Capabilities:
Disneys Core Competencies:
In order to determine if a competency is indeed core, it must pass three tests using the
VRIO framework: 1) It must provide a potential access to a wide variety of markets; 2) it
should make a significant contribution to the perceived customer benefit; and, lastly, 3)
it should be difficult for the competitor to imitate. Being a market leader in
entertainment for decades, Disney has amassed a wealth of core-competencies, using its
unique resources and capabilities, that not just create high economic value to its
customers but also make it difficult for any competitor to imitate. Using the above three
tests, we arrived the the following three key core-competencies that position Disney
uniquely in the market:
1) Accumulated Knowledge over years: Disney is primarily in the
business of family entertainment. Over the many decades, its pursuit of
understanding what makes the the entertainment truly universal has enabled it to
amass an understanding of human behavior at a deep psychological level. This is
reflected in the shape & look of the characters in its movie productions, its choice
of storylines, choice of color combinations, lighting or sound engineering in its
sets. It delivers the same look and feel in its other product lines such as toys that
are sold in retail outlets or theme parks. Through the use of inhouse & acquired
patents, Disney has created a high barrier of entry for its competitors. This is also
evident in its higher market share. For example, just in the domestic box-office
collection alone in 1999, as per the case, Disney captured 21.45% of market share
whereas its closest rivals Warner Bros, Inc captured 18.02% and Universal
Studios captured 16.20%.

2) New-Product Turnout Speed: Disneys business model is dependent

heavily on the creation of movies and characters. During its early days, Disneys
animation movies took as long as 4-5 years to produce. This was primarily due to
the lack of high-end technology and computers. However, continuously invested
in upgrading its methodology of production to increase its speed of movie rollout.
For example, it invested $30 million in computer animated production system
(CAPS) that digitized the animation process and reduced the animation movie
production time to 12-18 months. This helps Disney maintain an appropriate
level of consumer demand for its other products and, thereby, level of sales in
other retail outlets.
3) Coordination between different BUs: Disney used its Organizational
Capital resource and operations and brand management capabilities to create the
synergies needed to deliver a unified experience to its customers. Eisner was
himself the creative head and he set up a central financial strategic planning unit
to determine the best ideas from the heads of various other business units.
Although this was hard to implement, this method allowed a central control of
ideas much needed for a unified customer experience across different customer
end-points.

c) Why have Disneys competitors such a tough time imitating or catching up

with Disney? [50 points]
Analysis using RBV Framework:

Inimitability is at the heart of value creation because it limits competition. If a resource

is inimitable, then any profit stream it generates is more likely to be sustainable.
Applying the test for inimitability under the RBV framework we find the following:
1) Physical Uniqueness: As mentioned above, the high-barrier created
because of high fixed-costs make it difficult for competitors to imitate many of
Disneys resources such as Theme Parks. Additionally, Disney has achieved
economies of scale through consolidation of
2) Path Dependency: The consistent experience that Disneys customers
have across the various Disneys product lines are a result of Disneys resources
and capabilities that have been accumulated over time. This makes it hard for any
competitor to accelerate the imitation and provide the same experience because
the competitor will need to spend the same amount of time or even more to get a
truly competitive edge.
3) Causal Ambiguity: Disneys primary competitive advantage is not
caused by a few factors but various factors working together in a coordinated
way. Over decades, with numerous patents and knowledge, the number of these
factors have become so large that it is difficult to determine the true form of
causality if the competitors try to emulate Disney.
4) Economic Deterrence: Disneys speed of releasing new products, one
of its core-competence, is a result of Disneys huge capital investments in
property, technology, and accumulated knowledge of managing the operations of
a diversified portfolio. In order for a competitor to deliver a similar experience at
a similar speed, it will have to break the minimum efficient scale. Thus its corecompetencies act as an economic deterrent helping Disney sustain a competitive
edge over its competitors.
All above still does not fully explain what causes Disneys customer to repeatedly hire
Disneys products over its competitor. To analyse this we will look into a more recent
theory mentioned below.

Analysis using the New Jobs-to-be-done theory (Sept 2016) proposed by Prof. Clayton
Christensen:
Disney has been a remarkably successful company for many decades. From the outside
it may appear that Disney is diversified into various unrelated businesses - Animation,
Movie Production, TV Channel, Retail Store, and Theme Parks etc. Nevertheless, these
seemingly unrelated businesses are actually so tightly integrated that together they
create a high-barrier for any competitor to create a similar product in any of these
businesses.
To determine why it is difficult for the competitors to imitate or catch up with Disney, it
is important to step back into its history and see Disney through the lens of the new
Jobs-To-Be-Done Theory proposed by Prof. Clayton Christensen (2016) to determine its
competitive advantage. From the early days of the firm, the job that Disney is helping
its customers get done can be simply stated as followscustomers sometimes need to get away from reality and immerse themselves in a
fantasy together as a family, an experience that they will remember for the rest of their
lives.
With the insights from this job-to-be-done and from the history of Disney, as mentioned
in the case, we realize that to get the job done perfectly, Disney had to provide a whole
set of experiences to its customers and those experiences are what determined how they
needed to integrate and what they needed to integrate. For instance, they had to develop
the characters around which they would build Disney. Then, the firm had to build the
stories in which these characters participated. Subsequently, they had to produce these
stories in the form of cartoons and movies so that their customers could build memories
around these characters. Finally, in 1955, Disney integrated forward to build
Disneyland, an area of five different lands with castles in which these characters came
out live and interacted with customers. Disney, in fact, built a wall around Disneyland so

customers could not see what is going outside in the world to ensure that the job was
done perfectly. They further integrated into building toy-stores from where customers
could take these characters home as toys and relate back to the overall experience. All
these integrations created a unique combination of past memories and new experiences
that created a high-barrier to any competitor. This is the Disney formula mentioned in
the case and we see a clear evidence of it even in Disneys mission statement (from its
website) - to develop the most creative, innovative and profitable entertainment
experiences and related products in the world.
This persistent focus of creating a unique blend of memories, new experiences, fantasy,
and reality in the products of all of the diverse business units is what makes it difficult
for any competitor to imitate Disney . For example, Six-Flags offers different and new
rides but it cannot leave the same memorable impact of Disneyland or Disney World
Resort where in customers not just experience rides together as a family but adults get
to relive their childhood and children get to meet their favorite animation and movie
characters in person. Similarly, a toy-store may find it difficult to compete with Disneys
toy store not just because of the experience of shopping but also because of how the
product relates to happy memories of past. Adults who buy toys for their children
already know how happy their children would be to own their favourite characters
because of the movies.

2. Which businesses is Disney involved in (in the movie/television, leisure park, and
consumer retail industries)? Based on these businesses, what degree of diversification
does Disney have? [15 points]
As of the year 2000, Disney was involved in the following businesses:
1. Media Networks

2. Studio Entertainment
3. Theme Parks and Resorts
4. Consumer Products
5. Internet and Direct Marketing
By taking a quantitative and qualitative look into these business lines, it is clear that by
the 1990s and through the year 2000, Disney took a Related Constrained approach to
diversification. In 1987, revenue from Disneys Theme Parks and Resorts business line
fell below 70% of the revenue for the entire company, and that number continued to
drop into the 1990s with the introduction of its Media Networks and Internet & Direct
Marketing business lines. In the year 2000, the companys five business lines accounted
for the proportion of total revenue found in Figure 2. From the table, it is clear that
Disney had no single dominant business line by the year 2000.
Another consideration to determine whether or not Disney followed a Related
Constrained approach to diversification involves the level of integration between its
business lines. Starting with its original business line, Studio Entertainment,
relationships to Disneys other four business lines can be drawn, as seen in the figure
below:
From the relationships established through integrated production, marketing, and sales
efforts, each of Disneys business lines is interconnected through the cross-promotion of
products and a common goal of maximizing synergies.

3. How is Disney creating value for these businesses? (Hint: Think about the motives for
diversification and their implications). [20 points]
Disney has created value for its businesses through corporate synergy within its
corporate strategy of diversification. Disneys motives include shared activities and core

competencies from operational economies of scope, as well as employee and stakeholder

incentives for diversification by maximizing managerial compensation.
In an effort to initiate corporate synergy, Eisner started Disney Dimensions,
sending 25 different senior executives from every business through synergy boot camp
every few months, traveling to Burbank headquarters, ABC in New York, and Walt
Disney World to gain a better understanding of the company. This resulted in a high
level of team building from employees among different business units within Disney and
higher synergy. Disney also has a synergy group that reported directly to Eisner, with
representatives among different business units. This group aimed to maximize synergy
throughout Disney by keeping each other abreast of important and potentially
synergistic company projects.
In addition, these synergy efforts helped mitigate some of the risks of
diversification. This included difficulties in managing cross business relationships,
limits of organizational structure, and intangible core competencies leading to poor
diversification decisions. Lastly, Eisner utilized managerial incentives for diversification
by awarding larger bonuses to managers who have been most committed to synergy as
well.
Synergy was utilized to increase revenues through cross promotion. Creators
from Disney animations would deliver presentations to product management
executives, who would then approach licensing partners to sell Disney merchandise.
Thus, through this arrangement, Disney achieved operational economies of scope
through their unique mix of businesses and their unique hierarchal form of governance.
Additionally, Disney expanded into Cruise ships and included trips to Disney World in
their packages, an example of shared activities.
Disney also used synergy to increase its percentage of international sales. In
order to do so, Disney had to change its overseas operations. Disney consolidated its
overseas offices under regional executives, such as a brand manager and CFO. By doing
so, Disney saved rent through shared activities. This included shared offices and
advertising, but also increased synergy through cross promotion.

Decreased costs was another outcome of Disneys focus on synergy. In 1999,

Touchstone Television was merged into a division of ABC, which saved ABC an
estimated $50 million a year. Additionally, Disney drove down costs in their theme
parks through synergy as well. Disney introduced popular attractions from DisneyMGM studio in Disneyland Paris. Thus, they utilized operational economies of scope
through core competencies.
All of Disneys synergy initiatives between its business units has strengthened its
sustainable competitive advantage because of the rarity of its diversification and
costliness to duplicate its core competencies.
4. Where is Disneys current diversification strategy heading? What are advantages and
disadvantages of its vertical, geographical, and product diversification (see also the WSJ
articles on Disneys acquisitions of Pixar and Marvel posted on Blackboard).
According to the case, Disneys diversification strategy is focusing on making more
efficient use of its synergies, and promoting management that can work well across
divisions and cross-promote Disneys products1. For instance, geographically, Disney
aims at increasing international sales and plans to consolidate international offices.
Horizontally, the firm provides new types of entertainment such as ESPN Zones and an
expansion of its cruise line. Vertically, the company tries to merge the TV and Internet
spaces, as it sees the Internet as the future distribution channel for its films and
programming.
The main advantages of diversifying through synergy are a sharp cost reduction better
cooperation at the managerial level, the development of new technology such as
Internet-based programming, and easiness in managing licensing relationships. The
disadvantages of such practice is that effectiveness of movie tie-ins is dropping, and
culture clashes between management style and geographic areas.

1 Rukstad, Michael. "The Walt Disney Company: The Entertainment King." Harvard Business School
Case Study (2009): n. pag. Web.

The Wall St Journal remarked that Disney is also diversifying through a solid
franchising model that exploits the firms vast collection of intellectual property and
successful movies. For instance, the franchising model seeks to turn each successful film
into its own business2 and expand commercial opportunities for each popular
franchise, such as Frozen and Star Wars. The main advantages of this diversification
strategy is that it allows different businesses such as movies, parks and others to feed
off each others successes3, facilitate a global reach, and if a franchise fails it might not
necessarily be associated with Disney, but with the particular franchise. A disadvantage
of this strategy is that it is risky to rely on a handful of profitable franchises.

Appendix
Figure 1 - RBV Framework for Disney

2 Fritz, Ben. "How Disney Milks Its Hits for Profits Ever After." The Wall Street Journal. N.p., 08 June
2015. Web.

3 Fritz, Ben. "How Disney Milks Its Hits for Profits Ever After." The Wall Street Journal. N.p., 08 June
2015. Web.

Figure 2 - Proportion of Disneys Total Revenue by Business Line in Year 2000

Business Line

Proportion of Revenue

Theme Parks and Resorts

26.8%

Studio Entertainment

23.6%

Consumer Products

10.3%

Media Networks

37.9%

Internet & Direct Marketing

0.1%

Other

1.3%

Figure 3 - Relationships between Disneys 5 Business Lines as of Year 2000

References
Fritz, Ben. "How Disney Milks Its Hits for Profits Ever After." The Wall Street Journal. N.p., 08
June 2015. Web.
Rukstad, Michael. "The Walt Disney Company: The Entertainment King." Harvard Business
School Case Study (2009): n. pag. Web.

Analyzing Disney using the Resource-Based-View (RBV) framework to determine its

Corporate Strategy and Competitive Advantage:
As per the Resource-Based-View (RBV) framework in Figure 1, a firms resources are all
assets, capabilities, competencies, organizational processes, firm attributes,
information, and knowledge etc that are controlled by the firm and that enable the firm
to conceive of an implement strategies designed to improve its efficiency. These
resources are further classified as Financial Capital, Physical Capital, Human Capital,

and Organizational Capital. However, resources by itself do not offer much insight into
the competitiveness of a firm unless these resources are compared with a nearest
competitor.

As per the RBV Framework, this includes all the different capital resources that Disney
can use to conceive and implement strategies. This includes all the sources of debt from
bank and lenders, and equity.

For Example, one of the competitors of Disney in TV Channels & Movies Production is
CBS Corporation.
1) Product Concept & Design:
2) Brand Management:
3) Operational Excellence and Price Management:
a) What are its core competencies and how does Disney
translate its core competencies into products and services?
Disneys core competency is its ability to create universal timeless family entertainment by
using the art of storytelling. As mentioned in the case, the company is a strong believer in the
importance of family life and has always been oriented towards fostering an experience that
families can enjoy together, which is reflected throughout its businesses from animations and
movies to theme parks and hotels. Disney has been able to transfer this core competency in its
related diversification across all divisions (in-house and acquired) by creating operational and
corporate relatedness and transferring the core competency across businesses to generate
economies of scope. By sharing this core competency, the company is able to use synergies to
cross-develop and sell products across various divisions. For example characters created for
movies are sold as figures in toy stores (Consumer Products) and form the basis for theme park
rides (Hotels and Resorts division).