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STRATEGY EXECUTION

THE WALT DISNEY COMPANY: THE ENTERTAINMENT KING


THE WALT DISNEY COMPANY - PROFILE The mega corporation, Walt Disney Company, had its humble beginning in 1923 as Disney Brothers Studio that made a series of short cartoons. The studio was the combined effort of the two brothers Walt Elias Disney and Roy Disney. Within just a year of their first major hit starring Oswald, the Lucky Rabbit, the brothers experienced a business set back when they found their distributor had cheated them in an attempt to cut them off their Oswald franchise. Soon, Walt created Mickey Mouse and it became an overnight hit with the release of the first cartoon with synchronized sound in 1928. Realizing that the cartoon shorts would not sustain the business indefinitely, they ventured into feature cartoon films in 1937. In 1940, the company went public. After World War II, the company gradually diversified into live-action films, music company, theme parks and so on. In 1954, television became a new and successful avenue for the company and in 1955; the first of their many Disneyland theme parks was opened. The huge success of the first Disneyland encouraged Disney to expand beyond borders. In 1966, Walt Disney passed away and he was succeeded by his brother. After Roy O. Disneys death in 1971, the companys financial performance started declining. In 1984, Michael Eisner took over the chairmanship of the company and Frank Wells became the President and the COO. Together, they helped the company turn its business around as during their first 15 years, the company generated a 27% annual return to shareholders. By the end of 2000, Disneys net earnings had risen to $25 billion. Also, the number of employees had increased to 110000 from 1984s mere 28000 employees. THE WALT DISNEY COMPANYS MISSION STATEMENT According to its corporate website, the mission of The Walt Disney Company is to be one of the world's leading producers and providers of entertainment and information. Using their portfolio of brands to differentiate their content, services and consumer products, they seek to develop the most creative, innovative and profitable entertainment experiences and related products in the world. THE WALT DISNEY COMPANYS BUSINESS LINES The company has five main business undertakings and they are as follows:Studio Entertainment: The driving force of the entire enterprise is the studio entertainment line. It encompasses live-action motion pictures and animated
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STRATEGY EXECUTION cartoons which are managed by Touchstone, Pixar, Walt Disney Pictures, Buena Vista, and Miramax. Plus, it includes home video, television and cable production, Broadway shows, music production and distribution businesses. Consumer Products: This encompasses the development, advertising, promoting, licensing and selling of products that represent all of the new and old Disney characters, along with the name Walt Disney. It also includes direct retail distribution, books and magazines publishing, computer software products for entertainment as well as educational purposes. Theme Parks and Resorts: This encompasses all the theme parks and resorts except for Disneyland Paris. It also includes sports team franchises. Media Networks: Broadcasting (Television, radio) and Cable Networks (ESPN Branded cable networks, Disney channel, et cetera) are the core of the media network. Internet and Direct Marketing: This includes the companys online activities, and the Disney Catalog. MAIN ISSUES Despite the companys financial performance in 2000, its strong brand name and its top position in almost all of its business lines, there are concerns about its sustainable superior performance. Eisner was consistently targeting maximizing shareholders wealth through an annual revenue growth target and ROE exceeding 20%. However, its performance throughout the 1990s showed much inconsistency, especially in the late 1990s, the ROE was far below the target of 20%. Plus, a major portion of the profits for the year 2000 stemmed from a single show at ABC Networks which raised questions over the appeal of the Disney brand and the sustainability of its other businesses. The Walt Disney Company undoubtedly scaled new heights under the leadership of Eisner, however after almost 16 years of leading the company; people were starting to raise questions regarding the approach he took to run the company. Walt Disney always emphasized quality, creativity, teamwork, communication and cooperation and the loyalty and the commitment of the employees were pretty clear. However with Eisner in command, the employee dissatisfaction seemed to be growing gradually. Hence, the main issues in this case revolve around Disneys strategy for growth and the impacts it had on the companys performance, the sensibility of the strategic goals set as well as the strategies, whether they needed to be revised to comply with the changing environment and ever-increasing competition. Also, at the pace in which it has been expanding, whether it had all the grounds covered to execute the strategies successfully. If not, what were the changes required to be made.

Swakiya Shrestha, #1330

March 3, 2010

STRATEGY EXECUTION To address these issues, we will have to first understand the industry it operates in and then analyze its strengths and weaknesses as all these have a major bearing on the company performance. We will also have to assess whether these were taken into consideration when devising strategies and whether the approach Eisner took was appropriate.

THE WALT DISNEY COMPANYS BRIEF INDUSTRY ANALYSIS Industry Life Cycle Stage: The Walt Disney Company has a long history and an established name, not only in the United States but throughout the world. It produces entertaining theatrical productions that are family oriented and family friendly; creates products and toys that promote their theatrical productions that are both entertaining and safe for children, and also interesting enough to attract new customers; entertains families with children who are looking for a fun and interactive vacation spot both with resorts and parks, and also cruise lines. Simply, The Walt Disney Company is in the entertainment industry. The entertainment industry is in the growth stage due to the change in demographics and the orientations of todays generations. Disney has a strong foothold in the industry, an accomplishment mainly due to their history and roots in the American culture and their brand value. Competitive Analysis: As the generations are changing and families are more prone to taking vacations, the entertainment industry is growing rapidly. This produces a demand for entertainment and many opportunities for new players to enter the industry. This also creates a lot of competition for established entertainment companies. There might not another equal competitor to The Walt Disney Company, as a conglomerate; however, there are a lot entertainment companies, existing as well as emerging, competing with its individual business lines. In Disneys case, a lot of their competitors for their theme parks are the same as their competitors for their theatrical productions. For example, Universal Studios has theme parks and, like Disney, is a global organization with operations in the United States, Japan, et cetera; Paramount Pictures is a more local example with many parks situated throughout the United States. In terms of its Broadcasting business, its ABC Networks faces strong competition from NBC, Viacom-CBS and AOL-Time Warner. In terms of cable networks, The Disney channel ranked a distant third to Viacoms Nickelodeon and Time Warners cartoon Network, both of which entered the market after The Disney Channel. This affected its consumer product sales as well. As for its Internet entity GO.com, it did not have leadership [position either and

Swakiya Shrestha, #1330

March 3, 2010

STRATEGY EXECUTION faced tough competition from the likes of Yahoo. Despite all these, the history and the brand are very important when it comes to competition in terms of positioning the products and services in the minds of the consumers and Disneys name and history in the entertainment industry supersedes all of its competitors THE WALT DISNEY COMPANYS MAIN STRATEGIES In general, The Walt Disney Companys main strategies are:
Related Diversification: The Walt Disney Company is a diversified

entertainment company. Originally, it was involved in studio productions only. Gradually, it diversified into many fields like media networks, theme parks, consumer products to name a few but the diversifications always remain within the entertainment industry. It is involved in studio entertainment and theatrical productions for children, teens and adults of all ages; television stations targeting a wide variety of audiences: ABC for news and families, Disney Channel for children, ESPN, ESPN2, ESPNEWS, and ESPNU for the sports fanatics, SOAPnet for the stay at home mothers and fathers; theme parks like Disneyland, Disneyworld and the Disney World Resort to attract families with younger children looking for a good vacation, et cetera. Growth through acquisitions: The Walt Disney Company gradually added to its capacity and the services it provided through acquisitions aimed at expanding its reach to a wide variety of customers. The IPO in 1940 strengthened the company by giving it the ability to use a publicly traded security to make strategic acquisitions in diverse but related areas for growth. In 1992, it acquired an NHL team to venture into sportswear merchandising and it also provided the company with cross-marketing opportunities. In 1993, it acquired Miramax, an independent production studio that made low-budget art films. One of its major acquisitions was ABC network. Recorded as the second largest acquisition in US history at $19 billion, it enabled the brand to enter into a new business territory. All its mergers and acquisitions increased the scale of the business dramatically. Focus on creativity and technology for leadership through customer satisfaction: To become a leader in the industry, Disney has a team of people involved in the process of developing new technology called Disney Imagineering. It is the R&D section of Disney which continuously thinks up, designs, and implements new, fun and exciting products for the Disney Company that will attract, amaze, and excite their customers. From developing rides and attractions of Disneys theme parks, new movie technologies offering cutting edge visual effects to their Disney resorts, Disney Imagineering is involved in all development to enhance the brand appeal of Disney in all aspects that

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March 3, 2010

STRATEGY EXECUTION matter.


Symbiotic ( cross-promotional) marketing program: Disney combined

the studio's movie productions with television promotion through the Wonderful World of Disney. The television shows also showcased the Disneyland as well as upcoming feature films. The parks featured rides based on Disney's films and the animated films themselves were re-released every few years in order to market to the newest group of children. This not only bolstered the sales in its home video division (Video tapes and DVDs) but also gave way to merchandising its consumer products. The placement of Disney characters on school supplies and lunchboxes, in malls, and on the walls of their theme parks, in turn, served as a daily advertisement for the company and reinforced its brand image. THE WALT DISNEY COMPANYS PERFORMANCE ANALYSIS The Walt Disney Company has been through a lot of ups and downs to become the entertainment powerhouse that it is today and the strengths and weaknesses are internal reflections on why it performed the way it did. Some of its general strengths and weaknesses are discussed below:Strengths
Well-defined and targeted market is one reason for the companys

successful performance. Its target market is not only children, but the parents as well. It has understood that it's one thing to make products that kids are excited about but the efforts often fall short if parents don't approve of it.
Another of its strength is its universal appeal such that it not only has

an attracting effect on children but teens and adults as well. It can attract younger children who identify with the Disney characters and enjoy seeing them in full life form. It also attracts the older children who still identify with the characters in the form of enjoying the themed rides that feature their favorite movies and characters in them. Plus, it appeals to the adults by bringing the fond memories of their childhood back to them.
Its creative and technological capabilities are also major strengths.

Being in the entertainment industry, catering to a large group of customers that differ demographically, it is a must for the company to incorporate creativity and ingenuity in its products. For that, an advanced technological capability is indispensible and Disney has a

Swakiya Shrestha, #1330

March 3, 2010

STRATEGY EXECUTION great pool of creative talents along with a sound technological infrastructure.
The company has developed a very strong brand name, image and

brand portfolio. Disney has one the most recognized and powerful brand names in the entertainment industry. Not only does it have a strong corporate brand, it has additional brands such as ESPN (one of the biggest sports channels in the world), Miramax, Touchstone, and Pixar. These, being other brands of Disney, have high brand equity.
The Walt Disney Company utilizes multiple positioning bases to its

advantage, due to its long, successful history. The main positioning base employed by Disney is the customer benefit-a family-friendly, safe, fun environment that is open for business all year. It also offers specials for families, such as discounts on flights, car rentals and hotel rooms, to attract more people to their parks, and this tactic is considered in the price and quality base indicating a value bargain to their potential customers. But the most important positioning base utilized by the company that distinctly sets them apart from any of their competitors is emotion. Being founded in 1923 that produced widely popular cartoons, the name Disney has been a part of peoples lives for a very long time and people can easily relate to them. Weaknesses
Disneys frequent change in top management and the enormous

amount of employees are two major sources of problems. As of 2000, there were 110, 000 people working for Disney. Expanding their business portfolio and gaining many different niches gave them a bigger image, but it also meant greater possibilities for miscommunication and a high chance for a bureaucracy in the company. Also, the changes in top management were too frequent and it hindered strategic implementation to some extent, which reflected in the balance sheet as well. Another point is that the company relied too heavily on mergers and acquisitions. Failure to develop a common unified culture that each new acquisition could identify with caused a lot of trouble for the company, especially after the ABC acquisition. THE WALT DISNEY COMPANY AND EISNERS LEADERSHIP The Walt Disney Company, since its inception, has undergone much upheaval. The company was doing great till Walt Disneys leadership. After his demise, the performance started declining bit by bit. In the late 1970s and early 1980s, its film division ( a major source of its revenue) declined.

Swakiya Shrestha, #1330

March 3, 2010

STRATEGY EXECUTION The results from heavy investments into newer ventures were yet to materialize, its financial performance deteriorated rapidly from 1980 to 1983, and it was facing hostile takeover and dismemberment. It was after 1984, when Michael Eisner joined as Chairman and the CEO and Frank Wells as president and the COO, that the company turned a new leaf. Eisner brought a rich base of executive experience while Wells brought his operating management skills and his experience as an entertainment lawyer to Disney. Doubts regarding their ability to understand and maintain Disneys corporate value of quality, creativity, entrepreneurialism and teamwork faded quickly and together, they helped the company to enter newer realms successfully. To revitalize the company, Eisner hired Jeffrey Katzenberg to make movies under two new brand names namely Touchstone Pictures and Hollywood Pictures. He also took initiatives to rebuild its TV business. He also syndicated to sell some of its TV programming accumulated over the years to independent TV stations. Under his management, the company also entered home video arena. Disney offered the "classics" of Disney animation in the expanding home video market through Buena Vista Home Video and the revenues from this division provided an immediate boost to the companys profits. The existing theme parks were updated and many new attractions were added. It engaged in attendance-building strategies that included national television ads, retail tie-ins, media broadcast events, et cetera. It also stepped up expansion of its hotels and resorts to encourage longer stays and attract major conferences. In 1992, Euro Disney was established in Paris, which was later renamed Disneyland Paris. In late 1980s, Disneys consumer products division expanded into retailing through Disney stores, book, magazine and record publishing through establishment of Disney Press, Hyperion Books and Hollywood Records. It also established new channels of distribution through direct mail and catalog marketing. In 1993, Disney also entered theatrical productions which added a new revenue stream to the company. As new theatrical productions were released, it allowed for new product lines based off the features characters to be made and sold in strategically placed stores throughout the United States. The stores were located in malls and in urban locations in order for them to be accessible, and they were also located within the theme parks where they could be heavily sought after by eager vacationing families. The company resorted vertical, horizontal as well as geographical integration. To maintain coordination among its multiple business lines, Eisner-Wells team introduced a corporate marketing calendar to facilitate
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STRATEGY EXECUTION companywide cross-marketing activities. Several promotional campaigns with corporate sponsors in one business needed to be coordinated with similar initiatives by other Disney businesses. A monthly meeting of 20 divisional marketing and promotion executives was initiated to discuss interdivisional issues. This created synergy and boosted revenues through cross promotion and scope. An in-house media buying group was also established to coordinate media buying for the company. Every aspect of Disney promoted not only itself but every other aspect as well. He also introduced a system whereby every few months 25 executives from every business were necessitated to take part in a synergy boot camp for eight days. They cleaned bathrooms, cut hedges and played characters in the park. This enabled them to bond not only with the company but with each other as well. With all these, Eisner made the Disney balance sheets glow. From 1986 through 1990, the company broke profit records and operating margins remained above 20%. PROBLEMS UNDER EISNERS LEADERSHIP Under Eisners reign, Disney first defied and later fell short of expectations. Eisner, along with Wells, was responsible for Disney's monumental success after 1984; however things started to go downhill in the late '90s. In 1994, after a decade of contributions to the company, Frank Wells was killed in a helicopter crash. From 1984 to 1994 Wells and Eisner helped to increase annual revenues from $1.6 billion to $8.5 billion. Well's death marked the beginning of a misfortune for Eisner and Disney. He and Wells worked well as a team. They seemed to complement one another with their marketing and executive leadership abilities, but after Wells death, Eisners leadership faltered. Some of the problems under his leadership are discussed below: 20% growth target: When Eisner entered Disney; he targeted annual revenue growth and ROE exceeding 20%. After more than 15 years, he has stuck to the same strategic target throughout. With operations in five different businesses, he seems to have overlooked the emergence of competitors and changes in the customer demographics as the target have not been revised ever since. This reflects on the companies inconsistent financial performance. Considering its ever growing businesses, the target is quite vague as the targets for the individual businesses seem to be missing. This will create problems in evaluating their actual performance and the long term viability. Mergers and acquisitions: Apart from what has already been explained earlier, Disney underwent a lot of mergers and acquisitions in a relatively short span of time. It seems that the company did not plan
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STRATEGY EXECUTION them well. They went ahead with them as easy option for growth without giving much thought to whether the companies they acquired were on similar grounds in terms of culture, brand image and value or whether it had enough capabilities to manage the successfully manage the new acquirements. Moreover, the company had grown so big and its problems so far-reaching that they could not be counteracted by a couple of hit movies or TV shows or additional Disney stores. Cultural clashes with ABC Networks: The organization culture of Disney totally clashed with that of ABC. The highly combative culture at Disney did not go well with the executives at ABC who were used to working in a relaxed and congenial atmosphere. Disney also cancelled ABCs earlier agreements when it had already incurred costs and it was yet realize the results. This strained the rating as well as the financial performance of ABC, thereby deteriorating Disneys performance as well. Cost control at the expense of quality and creativity: To pare back operations that had been bloated during Disneys long run of success, Eisner started a cost cutting plan, starting in 2001. He cut down the number of its licensed products by half, reduced film budgets, and tightened cost control in its TV production unit. Club Disney, a chain of shopping mall play centers and ESPN stores were also shut down in attempts to cut down cost. High employee turnover: There were increasing grievances regarding the combative culture, too much focus on making money and Eisners management style. Between 1994 and 2000, approximately 75 highlevel executives left the company. The creative minds of the company Disney started to feel that their creativity was being smothered. With increased emphasis on making money, Eisner moved towards tightening cost control and undermined creativity and quality in the process. Deteriorating core brand image: With its series of diversification and acquisitions, Disney increasingly faced the prospect of damaging its brand. Disneys core image as a wholesome entertainment provider was instilled with traditional family values and family orientation. With its careless diversifications and acquisitions, it was risking its most valuable asset, its brand name and image. Also, high employee turnover raised speculation about the companys image. Apart from these, under Eisners leadership, Disney faced a public feud between Eisner and Jeffrey Katzenberg (who went on to co-found DreamWorks Studios with Steven Spielberg); sinking ratings for ABC television; limited success at the box office; ill-considered theme park developments; and a famously bad billion-dollar gamble on the Internet via the subsidiary Go.com. PROBLEMS WITH EISNERS MANAGEMENT STYLE
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STRATEGY EXECUTION

Eisner was a good leader when he had a joint leadership role with Wells, but when he took charge after Wells died, problems emerged with his management style are as follows:Autocratic and Micromanagement: Eisner was running the Disney empire single handedly and this became more apparent after Wells died. He headed an organization structure that was hierarchical, centralized, and slow. His management style is apparent from the fact that he did not delegate his authority even when he had his bypass surgery. Also, every decision had to pass through him. His micromanagement style seriously hurt the creative process at Disney and it created an atmosphere where the creative force could not perform their best. Program ideas, script decisions, even decisions on which writers might be signed, often had to go through as many as six executives, then through Eisner. This stifled the creativity in the company which is the core value of Disney. Eisners micromanagement was one of the main reasons for clash with ABC executives. Lack of succession planning: There seems to be an apparent lack of succession planning in Disney. For a company of Disneys stature, a clear succession plan is indispensible for the company to operate smoothly. Eisner's failure to incorporate succession planning in his management has negatively affected the company. To fill Wells position, Eisner hired his longtime friend Michael Ovitz, but that did not work out. Eisner paid a severance package that included a $38.9 million cash payout and stock options valued at more than $100 million. Ovitz worked for only 14 months with Disney, and Eisner paid him enough for life. In the span of about a year, almost $100+ million was irresponsibly spent. Also, his persistent failure to name a successor for himself has been a major concern. Inflexibility: The economy, businesses, customers change with time; so there has to be revisions made to accommodate such changes. The recognition of these changes was delayed, which caused more chaos for Disney than was needed. In a business, checks and balances are vital, and for any business to prosper, it has to focus on strategy. This analyzes competition, but it also looks at the customers and clients of the entity. They are the ones the organization is trying to reach, and the customers should have more input, especially when it is publicly traded. This is where I feel Eisner went wrong. Deviation from the core corporate values of quality, creativity and teamwork: Walt E. Disney created an environment where his employees felt welcomed, and empowered, to speak freely their mind. Walt's management style empowered the company to cultivate fresh ideas and they abided by their corporate values to make profits. Eisner lost a lot of money with a negative approach, and then cut back costs, which resulted in many poor quality films and merchandise. Also, Eisner talked about teamwork and empowerment
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STRATEGY EXECUTION but continued to seek control. He fostered favoritism by hiring top executives that he wanted instead of letting the board decide. Eisner pitted employees against each other to show their worth. There was too much conflict built into the organization. The environment that used to be fun and light changed into a highly competitive and pressurized environment. CONCLUSION It is undeniable that The Walt Disney Company has created an empire that is unmatchable. It strived for excellence and is continually growing. It is surrounded with the best artists, the most innovative creators, and the newest technology. Above all, the consumers are the driving force behind the mega enterprise. The Walt Disney Company in very interdependent on its various sections; it is a global leader in the industry of entertainment; and it is a continuously growing company with a strong foothold on several aspects of business practices. The studio productions seem to get the ball rolling, providing characters to base their products after, and themes to model their attractions. Because of the rich selection Disney has from which to produce its products and attractions, it enables Disney to have many options and opportunities to expand their product lines. They certainly are a leader in the domestic market in the United States, and with their reach into many different diverse countries their global expansion is also among the tops in the industry. Michael Eisner was successful in attaining financially positive goals for the Walt Disney Company, but he did it at the expense of losing quality employees, business relationships, as well as tarnishing the companys image and reputation. By using a dictatorial, authoritarian, micromanagement style, Michael Eisner was somewhat successful in increasing Disneys bottom line but it also damaged key relationships and business associations. However, Because of Eisners track record and demeanor, it was hard for others to point out his faults and realize he was no longer the best one to guide Disney into the future. RECOMMENDATIONS
Its strategy (M&A) did contribute to its growth into a mammoth

organization, however continuing with mergers and acquisitions is not advisable in the long run for the reasons already discussed above. To achieve growth, it can pursue markets worldwide by leveraging its core competencies. The exact strategic target of 20% growth rate does not seem sensible considering how far the company has reached in terms of size and scope. The targets need to be revised as per the changes occurring
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STRATEGY EXECUTION and they should be more specific. Instead of a 20% growth rate for the entire company, the targets need to be individualized in accordance with the investments made in them and their level of operation. Also, it should learn from its earlier mistakes (GO.com, cultural issues at Disneyland Paris, et cetera). While fixing targets and devising strategies, the organizational capabilities as well as their ability to tackle the competition have to be taken into consideration. There has to be changes in the way the company is being managed. A multi-billion dollar conglomerate like Disney definitely requires more than one person controlling its overall activities, from minutest details to major policy decisions. Micromanagement is not a productive form of leadership because for employees to be innovative, they need guidance without conformity. Decentralization in authority will not only help motivate the employees, but it will also enable management to provide deserved attention to all the businesses, activities, thereby strengthening management. This will also enable decision-making at the right time. Disney is a company known for providing wholesome family entertainment. This is what differentiates it from the rest and it should preserve it. Its brand name and image is its most valuable asset. Without it, the company will easily fall into oblivion. So , extra care should be taken to preserve them The strategic role of human resource management is pivotal for a companys overall success in accomplishing its mission and business strategy. The company should give due importance to the role of the employees to motivate them to put their best foot forward. While certain conflicts can give rise to new and innovative ideas, too much of it can paralyze the company as well. Teamwork always fares better than tension and hurt ego. Most importantly, a clear succession plan should be incorporated in the organizational policies. It will help the transitions in top management to take place without much friction and with as little implications on the company performance as possible.

Swakiya Shrestha, #1330

March 3, 2010