Group 4 Strategy Case 'Disney' v 1.4

FULL-TIME INTERNATIONAL MBA 2011 - 2012

Case

„The Walt Disney Company: The Entertainment King‟ „Strategic Management‟ Prof Dr Venkat Subramanian

Students:

Serhat Kurum, Ott Jalakas, Stijn Lefebure, Marc Licha Matteo Mantiero, Sajjad Sheikh

Engaging in irregularities is severely sanctioned in correspondence with article 34 of the Examination rules. We hereby declare that we have not engaged in any such irregularities. Student(s)‟s signature(s)

Strategic Management | Case „ The Walt Disney Company: The Entertainment King‟

Strategic Management Case The Walt Disney Company: The Entertainment King Introduction: In this report we aim to present Case „Walt Disney Company‟. Our approach will be as follows: Firstly there will be an overview of the „big picture‟ of the relationships within the Walt Disney different businesses, next the report will progres on Business Model into two branches: a) Value Proposition and b) Activity model. After all the analysis stated, the two questions will be answered in the final part.

Disney Business: An Overview STUDIO ENTERTAINMENT CREATION of Characters and STORY Theme Parks & Resorts Experience

Consumer Products Bring the characters into family homes

Media Networks Distribution Channel of Studio Entertainment and Portfolio enhancing

Internet & Direct Marketing Distribution Channel

I only hope that we never lose sight of one thing – that it was all started with a mouse. -Walt Disney

FTIMBA 2011-2012 | Team Assignment Group #4 : S. Kurum, O. Jalakas, S. Lefebure, M. Licha, M. Mantiero & S. Sheikh

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Strategic Management | Case „ The Walt Disney Company: The Entertainment King‟

Picture of Walt Disney Company Everything starts in Walt Disney by Creation of the „Creature‟ or live action motion movie, on top of the diagram. The department, called Studio Entertainment, includes Theatrical Films division. In addition, Buena Vista Home Entertainment, which is a channel for the movies, belongs to this group. As shown in the diagram Studio Entertainment feeds all other departments such as Theme Parks & Resorts, where the customers can purchase the experience of the animation or movie. At the same time, another department called Consumer Products, for which Theme Parks & Resorts are place to reach the customers. In addition to Theme Parks, go.com, the website of Walt Disney also serves as online shopping place for those products. In addition to that, even though the online place was not a successful part in 2000, it is a channel for all product ranges. In addition to its online channel, by acquisition of ABC, Walt Disney put broadcasting capabilities on cable television networks. This department is called Media Networks. This networks not only enabled Walt Disney to reach out its customers of animation or movies, but also helped the company to gain new audiences through hit shows such as “Who Wants to Be a Millionaire” on ABC.

Value proposition Walt Disney is in the family entertainment industry, where it is the global leader. The mission of Walt Disney says “A magical world where dreams come true”. The value proposition of Walt Disney is in its product leadership. To deliver this value proposition they invest in: Creativity Since more than sixty years, the company develops appealing characters and storylines that are the base of its success. The company has developed a management style that is both results driven and risk oriented, in order to manage and foster creativity in a large size business such as Disney. Commercialize their ideas quickly The company manages to stay on top because of their ability to stay close to its ever evolving customer segments, both in the characters they develop as in the way in which they target their customers. The firm is to a large extent vertically integrated. It creates movies and tvshows, which are distributed through privately owned channels and film distributors. Also the firm controls the valorization of the characters through merchandizing, retailing and theme parks. This enables them strategic control over all elements of their core value proposition, namely the “Disney Experience”.

FTIMBA 2011-2012 | Team Assignment Group #4 : S. Kurum, O. Jalakas, S. Lefebure, M. Licha, M. Mantiero & S. Sheikh

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Strategic Management | Case „ The Walt Disney Company: The Entertainment King‟

Relentlessly pursue ways to leapfrog the latest product or service The company is flexible in the adoption of new technologies, which enter the firm through intensive cooperation with external partners. In the case of Pixar, this partnership has evolved into a merger.

Mickey Mouse vs Bugs Bunny Our team decided to do a comparison between the two big media conglomerates. Given the limited data available within the „case‟ about the competition, we decided to go for a group discussion about our perception about Disney and Time Warner (as consumers too). 10 9 8 7 6 5 4 3 2 1 0

Walt Disney Time Warner

Our discussion leads us to consider that the two big conglomerates differs first in vertical integration in favor of Disney, being able to benefit from more Disney and Time Warner are almost on the same level if we consider adoptions of new technology. While Disney was (and is) on the edge with the realization of movies with the latest technologies for special effect, Time Warner was „experimenting‟ and benefitting since the beginning of the videogames era with the acquisition of Atari in the early eighties. However lately Disney is back on top with new technology adoption after signing a partnership with Pixar, and hence creating tremendous successful CG movies such as Nemo, Toy Story, Monsters Inc and so on. As for the multichannel presence and global presence, Disney scores again higher than Time Warner benefitting in particular from its huge exploitation of theme parks, merchandising (i.e. McDonald‟s happy meals), licensing and direct customer relations thanks to its stores FTIMBA 2011-2012 | Team Assignment Group #4 : S. Kurum, O. Jalakas, S. Lefebure, M. Licha, M. Mantiero & S. Sheikh

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Strategic Management | Case „ The Walt Disney Company: The Entertainment King‟

worldwide. This reflects even the different approach to its customers; while Disney focus more on creating an experience for the whole family with its „Disney magic‟, Time Warner for examples in its cartoons focus more on humor, fun and violence (Wile E. Coyote is a big consumer of TNT for example). Overall, in our team discussion, Disney seems to do have some more arrows to shoot when compared to Time Warner. Further, Disney is without doubt one of the most valuable brand in the world and the company seems to exploit it far better than Time Warner. Compared to Disney, they are not making extensive use of its brand but focus on separate „product brand‟ more than its umbrella one.

Activity Model In order to further develop our analysis of the Disney Business Model we use the following “activity framework” that help us to understand Disney focus on the three main activities being Operational Excellence, Product Leadership and Customer Intimacy.

Cost

Benefit 2. Best Product

Product

(Product Leadership)

1. Best total cost (Operational Excellence)

3. Best total solution Service

(Customer Intimacy)

1. Operational Excellence: 

Combination of quality, price, and ease of purchase that no one else in the market can match



Don‟t care about relationship with customers



Perfect execution and low price guarantee

2. Product Leadership: 

Push the product into the realm of the unknown



Leading edge products or new applications for existing products



Creativity, quick commercialization and constantly following ways to leapfrog the latest product

3. Customer intimacy: FTIMBA 2011-2012 | Team Assignment Group #4 : S. Kurum, O. Jalakas, S. Lefebure, M. Licha, M. Mantiero & S. Sheikh

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Strategic Management | Case „ The Walt Disney Company: The Entertainment King‟



Delivering value via customer intimacy bonds with customers



Deliver what the customer wants



Know people‟s needs and wants



Tailor the products and services, and do so at reasonable prices

Discussion of the Activity Model Disney always strive to be the best in product leadership and customer intimacy without neglecting the operational excellence. Since its creation, Disney is (and was) pioneer in different sectors and has created many business lines to enhance and support its original business model as a studio producing animated shorts and full-length features. Over the years, they have had their ups and downs but recently, Disney successfully fulfilled its mission to position itself as one of the world’s leading producers and providers of entertainment and information. Moreover, because customer intimacy is very important to them, Disney has developed their staff to be responsive, flexible and empowered them in order to effectively delivery on customer expectation. In fact, a 3 days training program is required by every new worker and executive in order to embrace Disney‟s values and during this program, everyone has to dress as a character for a full day. As a result, workers become fiercely committed to the company and they manage to deliver the experience that Walt Disney wanted. In addition, Walt Disney‟s philosophy is to create universal timeless family entertainment and this requires the company to be the best in customer intimacy. Disney wants the families to enjoy the Disney experience and spend time together without caring about time. Its theme parks are also customized in order to accommodate for the cultural differences. Consequently, people feel that they receive value for money. As for product leadership, Disney focuses on creativity, quality, teamwork, communication and cooperation in order to excel in their business. They create amazing movies and they invest in all the new technologies in order to stay on top. They have pioneered in the theme parks, the animated movies, the “sell through” approach and the Disney stores. They have gained their position as market leader in the movie industry. They also use their strong media network to expand globally and they manage to maintain and increase their market share through their ability to blend new innovative technologies with traditional stories and values. Disney couldn‟t have survived for almost 90 years without having an excellent operation management system. Over the years, they acquired many related businesses to reduce costs and to be more efficient. And thus, they have created an empire around the Studio Entertainment line. They eliminated the distribution outsourcing and created their own distribution firms and acquired others in order to reduce costs without decreasing the quality. FTIMBA 2011-2012 | Team Assignment Group #4 : S. Kurum, O. Jalakas, S. Lefebure, M. Licha, M. Mantiero & S. Sheikh

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Strategic Management | Case „ The Walt Disney Company: The Entertainment King‟

They operate their parks all over the world in an excellent way. However, due to the acquisition of ABC, they face synergy and integration problems that have decreased the operational efficiency for a while, but eventually they now managed to overcome this hurdle through better governance, integration and synergy programs. Finally, if we were to give a score to Disney on a scale to 10 on these 3 criteria, it would be 8 for operational excellence, 9 for product leadership and 10 for customer intimacy.

FTIMBA 2011-2012 | Team Assignment Group #4 : S. Kurum, O. Jalakas, S. Lefebure, M. Licha, M. Mantiero & S. Sheikh

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Strategic Management | Case „ The Walt Disney Company: The Entertainment King‟

Answering the questions:

Q1. How does the Business Model help Disney make (lose) money? Having already discussed the activity model, background and value proposition framework of Disney we take a step further to delve deep to analyze Disney‟s model under scrutiny of making or loosing money. It is essentially a mix of operational excellence, product leadership and customer intimacy that helps it to make money… or lose them, when the mix is not optimal. Essentially, Disney bases its model on how the public thinks about fun and entertainment and they have created a whole array of offerings that helps to complement and synergize each other. Propelled by vision to create a unique experience for its customers, it diversifies and adds to its offerings by working with related businesses such as theaters, television, hotels, toy selling, television and Internet to generate a holistic experience for its customers. This enables Disney to sell more to the existing customers and increase customer loyalty. Further to this, it benefits Disney by charging premium on its products while trying to reduce internal costs significantly through synergies. Disney also expands its markets geographically reaching more customers. Simultaneously, its machinery is geared towards continuous promotion through all its business lines and creative methodologies such as entertaining its customers while waiting in queues at its theme parks. Where creativity is core to business it invests highly in its people and development of ideas or creativity. Training and inspiring talent is essential for Disney. It is clear to understand how it makes money when communication and coordination in the company works best and looses money with it experiences problems here or when the best of its talent leaves or feels demotivated. Which is apparently the case lately due to a lack of proper change in management (see answer to question 2). Furthermore, Disney has done a good work at following and creating trends and capitalizing on them. It further showed some flexibility to adapt its offerings to a broader market such as offering from a cartoon experience, such as Cinderella to not only children but to their parents as well, while at theme parks through hotels, etc. The success of its money-making depends on the quality of the experience they created as well as on fostering and sharing creativity and new ideas all over the business divisions. Lastly, much of the nature of business offered by Disney such toys, hotels, theme parks can be classified as luxury and is subject to favorable market conditions. In times of economic growth and certainty the business model generates exogenously fueled growth. During FTIMBA 2011-2012 | Team Assignment Group #4 : S. Kurum, O. Jalakas, S. Lefebure, M. Licha, M. Mantiero & S. Sheikh

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Strategic Management | Case „ The Walt Disney Company: The Entertainment King‟

market downturns, as is the case in recent years, if Disney does not demonstrate agility through cost cutting (i.e. closing unprofitable businesses) on one side, and on the other investing on fostering creativity in the whole organization, it looses money.

Q2. What type of management approach does Disney use in managing its business units? Is that appropriate? The management style applied by Walt Disney, and especially by Michael Eisner, a long-term CEO of The Walt Disney Company, can be characterized by two, sometimes contradictory features. First, both executives practiced micromanagement style of leadership, desired excessive involvement in various elements of the business, combined with rather dictatorial approach aimed to tight control throughout the company. Especially Eisner had rather task specific and target oriented approach, having high demands to his team in terms of target setting and achieving results. Target setting was important not only in terms of financial goals, but also encouraging and even demanding innovation and creativity from his people. Demanding approach, strong view on business development together with hands-on style of micromanagement enabled Eisner to mobilize underutilized resources available within the company. Together with implementation of vertically integrated organizational structure it enabled to profit from new initiatives as establishing a theme park in unused land, sales of videocassettes with well-known Walt Disney characters, and using TV networks to distribute the company‟s production. Still, the very much hands-on leadership style created frustration among many top managers leaving the company and criticizing Eisner on mismanaging the firm. Second, rather contradictory to the previously described, both applied a management approach aimed to involve people at all levels to promote informal cooperation between business lines, to identify synergies and to encourage creativity through regular brainstorming events. Increasing involvement and interaction between business divisions was aimed to take advantage of Disney‟s brands and characters, and to exploit unused resources. Involvement and cooperation between units was important for two reasons. First, to take advantage of existing characters, trademarks and copyrights through diversification into several business lines and industries (theme parks, cruise ships, hotels, merchandise, retail, movies, music, etc). Second, to benefit from full vertical integration of business by driving established themes and characters through means owned by The Walt Disney Company, namely movie production, distribution channels, TV, retail and theme parks. Also, promoting cooperation and involvement of people from different business lines was a part of the

FTIMBA 2011-2012 | Team Assignment Group #4 : S. Kurum, O. Jalakas, S. Lefebure, M. Licha, M. Mantiero & S. Sheikh

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Strategic Management | Case „ The Walt Disney Company: The Entertainment King‟

company‟s global strategy enabling learning from experience and achieving economies of scale. To summarize, management approach advocated and used by Michael Eisner was appropriate and successful as it enabled to make use of unexploited synergies and underutilized resources available within the company. The approach was efficient at the times of implementing vital changes to increase profitability of the company, enabling smooth integration of business lines and leveraging the existing resources (trademarks, copyrights, and existing characters) into new businesses acquired by the firm. Also, in short term the micromanagement encouraged creativity by urging creative thinking and cooperation. Challenges to the chosen management approach are related to the very large size of the company, as in long-term the method may lead to mismanagement of the company and discontented management team. Top-down approach applied in traditional industrial companies with limited number of business lines and products, while contemporary creative industries have chosen a different path aimed to leverage the idea creation and involvement in business development into large number of employees (Google, Facebook). To maintain its global leadership position in creativity and innovation, the Walt Disney Company needs to adjust its management approach by further encouraging out-of-the-box thinking and idea generation in all levels of the organization.

FTIMBA 2011-2012 | Team Assignment Group #4 : S. Kurum, O. Jalakas, S. Lefebure, M. Licha, M. Mantiero & S. Sheikh

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