Introduction
Walt Disney Company [Disney] has sustained its dominance in the global entertainment industry since its inception in 1923, through a partnership between two brothers, viz. Walt Disney and Roy Disney (Barrier, 2008). Initially, the company specialised in the production of animated films. Some of its films such as the Seven Dwarfs and the Snow White are ranked amongst the top 100 films in the American Film Institute’s charts (The Walt Disney Company, 2014).
Disney’s aim is to bring happiness to families. The company intends to maximize the level of its profitability and the shareholders’ wealth. Disney has adopted a flat and non-hierarchical organizational structure, which provides its employees with an opportunity to participate in the company’s management.
The organizational structure is based on the Strategic Business Unit [SBU]. The company is driven by the values of teamwork, cooperation, communication, creativity, and emphasis on quality. Due to effective leadership, most employees in Walt Disney are dedicated towards the company’s performance.
Walt Disney Business strategy, product portfolio, and market targeting
The company experienced challenges during the 1940s. However, in an effort to eliminate the risk of failure, Disney incorporated a number of strategic management practices. For example, the firm adopted diversification as its business strategy.
This goal was attained by venturing into different, but related entertainment sectors such as the establishment of theme parks, consumer products, resorts, media networks, and studio entertainment (Gabler, 2007).
The company’s decision to invest in the diversification strategy was also prompted by the need to attain sufficient competitive advantage with reference to the creation of entertainment experience and the provision of information to households.
Additionally, the company has also integrated market expansion strategy in an effort to maximize profitability and wealth. One of the techniques that the company has adopted in its market expansion entails merger and acquisition through forward integration. For example, the company acquired Capacities/ABC at a cost of $ 19 billion in its quest to enter the media industry (Venness, 2009). The acquisition made Disney to acquire leadership within the US entertainment industry.
Disney has adopted demographic, psychographic, and behavioral market segmentation dimensions. Regarding demographic segmentation, the company has mainly based its market targeting on age. The firm produces different products that are consumed by consumers in different age groups.
Furthermore, the firm has adopted the customers’ interest as its psychological market segmentation variable. Conversely, it has adopted benefit sought as its behavioral market segmentation variable. The company’s investment in product diversification strategy has remarkably improved its success in market targeting.
In an effort to entrench its competitiveness in the entertainment industry, and hence the effectiveness of its product diversification strategy, Disney adopted quality as its unique value proposition. The company was focused on delivering high quality entertainment products to its customers (Venness, 2009).
The decision to adopt quality as its unique value proposition was motivated by the need to promote the level of loyalty amongst its target customer groups. In a bid to achieve this goal, the company established a number of themes and amusement parks. The parks and resorts segments were focused on providing extensive family entertainment. Subsequently, the company attained a competitive edge with reference to the provision of family leisure and travel services.
Currently, Disney has established 44 resorts and 11 theme parks in Asia, Europe, and North America (The Walt Disney Company, 2014). In a bid to generate traffic within the theme parks, Disney adopted a number of strategies. It established on-site resort hotel and an in-house travel company, which operated in collaboration with airlines, tour companies, and travel agencies.
Through its media networks, Disney offers a wide array of products such as digital businesses, radio services, and cable networks. These products are offered through two main divisions, viz. ESPN Incorporation and the ABC Television Group. The company has based its establishment on the Walt Disney Studios, which offer different entertainment services.
Disney also deals with a number of consumer products such as toys, fine art products, children’s books and magazines, digital products, and apparels. The consumer products are distributed in different parts of the world through the over 350 stores (The Walt Disney Company, 2014).
On the other hand, its Disney Interactive business deals with the development of interactive entertainment products that are compatible with different digital media platforms. The company’s investment in related diversification strategy has remarkably enabled the development of its operational efficiency. For example, the company is in a position to share activities within its distribution network.
Problem
During the early 1990s, Disney had attained an optimal market position in the global entertainment industry. The company’s growth was largely driven by its commitment in implementing the growth and market expansion strategies (Thomas, 1994). However, the company experienced a number of management challenges. Despite the effectiveness of its diversification and growth strategies, the company’s executive management experienced a challenge in coordinating the various strategic business units.
Its growth led to an overlap amongst various business units. However, the company was supposed to operate interdependently in order to develop synergy, hence increasing the likelihood of succeeding. One of the major reasons for existence of coordination challenges entailed conflict amongst division executives.
Frank Wells, the company’s Chief Operating Officer, and Eisner, the company’s Chief Executive Officer, encouraged the departments to resolve their conflicts (Gabler, 2007). The management challenges increased after the death of Frank Wells and the subsequent appointment of Katzenberg as the company’s President.
However, Katzenberg and Eisner did not have a strategic fit in with regard to their management, which intensified the conflict. Katzenberg left Walt Disney and joined Dreamworks, which is a rival company. The company also experienced an increment in the rate of employee turnover amongst key executives and change of roles. The rate of turnover affected the company’s capacity to manage creativity.
Despite its commitment to venturing the media industry through acquisition, for example, the acquisition of CapCities/ABC, the merger was characterized by a number of challenges due to culture clash between Walt Disney and ABC. Management executives at ABC perceived the merger as an avenue to promote Walt Disney brands at the expense of ABC (Venness, 2009).
For example, Disney terminated some of the production agreements that ABC had entered with Dreamworks. The company’s decision to enter new business segments threatened Walt Disney’s brand. In order to deal with the identified challenges, it is imperative for Walt Disney to improve its strategic management.
Analysis
In spite of being one of the pioneers in the entertainment industry, Walt Disney was operating in an environment that was increasingly becoming competitive. Its business units faced intense competition from other well-established entities and new entrants that ventured into the industry in an effort to exploit the industry potential.
Despite the challenges faced, the company’s management was focused on attaining the desired 20% growth by 2000 (Venness, 2009). The achievement of this goal depended on the firm’s effectiveness in managing the challenges faced. Therefore, the firm’s management team should have considered a number of strategic issues and options as evaluated herein.
Analysis of the external environment; Porters five forces
Disney’s operations were subject to changes in the external environment. Subsequently, the company should have considered developing an extensive understanding of the external environment, for example, the entertainment industry, in order to understand the prevailing organizational problems. Subsequently, the firm would have been in a position to exploit the available opportunities optimally and manage the threats.
Threat of competition / rivalry [high]
The company’s business units faced high threat from other competing firms in the entertainment industry. Most industry players were effectively established due to the diverse competitive strategies adopted such as consolidation. As an entertainment conglomerate, Disney faced a threat from poor business coordination. Subsequently, individual companies could easily leverage from this weakness, hence exploiting the Disney’s market share and growth strategy.
Threat of entrant [medium]
As a conglomerate, Disney has developed optimal competitiveness in the entertainment industry. The firm’s entry into other industries such as the hospitality industry has strengthened its competitiveness. However, the firm faces a growing threat of competition for other well-established firms and small players venturing into the industry.
Furthermore, the firm is also experiencing an increment in the intensity of competition in the film industry. Technological development is one of the major factors contributing towards the increment in threat of entry. Small companies are progressively producing high quality entertainment products due to technological advancement.
Threat of substitute [medium]
The entertainment and hospitality industry are experiencing an increment in threat of substitute due to the existence of diverse avenues through which customers can achieve unique entertainment experience. One example of such substitute entails touring national parks.
Furthermore, customers can opt to consumer competing entertainment products. For example, in the media industry, Walt Disney faces a threat of substitute from other companies in the cable network industry. Growth in the threat of substitute may affect the company’s profitability adversely.
Consumer bargaining power [high]
Consumers in the entertainment industry are characterized with a relatively high bargaining power due to their decision-making capacity. In their consumption process, consumers first cater for necessities before considering purchasing luxuries. On the other hand, firms in the entertainment industry deal with the provision of luxuries.
Subsequently, the ability of such companies depends on the consumers’ purchasing power and the prevailing economic situation. Therefore, Disney’s financial performance might be affected adversely if consumers opt not to consume luxuries, for example, going on a vacation, visiting movie theatres, or spending on cable television networks.
Supplier bargaining power [Low]
Disney suppliers’ bargaining power is relatively low due to its vertical integration strategy and the establishment of diverse business units. Thus, the company has positioned itself as one of the leading conglomerates in the entertainment industry.
However, some suppliers within the industry such as film and television celebrities have substantial bargaining power as opposed to suppliers in the hospitality sector. The celebrity agents are in a position to leverage on their reputation in signing contracts. However, their bargaining capacity is reduced significantly when negotiating with conglomerates such as Walt Disney.
Improving the internal environment
Disney’s success in an environment that was increasingly changing depended on the level of its creativity. Over the years, the company has been considering its workforce as one of the most essential organizational assets. In order to tap the capacity within its force successfully, Walt Disney should adopt the resource and capabilities approach. In a bid to achieve this goal, the company should integrate the VRIO framework. Thus, the firm should have invested on the concepts of value, rarity, imitability, and the organizational elements.
Value
One of the company’s internal strengths is based on teamwork, which is one of its core values. The company’s growth strategy had transformed it into a multibillion empire. However, the effectiveness of the company’s management team in sustaining its competitive advantage and operational efficiency depends on the degree of collaboration amongst the various units.
Thus, Walt Disney should have considered adopting a systems approach in its operation, which means that the various business units should have created a high level of synergy. However, the attainment of system approach is only possible if employees develop a holistic approach towards the firm.
Teamwork is a fundamental issue in promoting the level of creativity within organizations. However, Walt Disney’s teamwork effort experienced a major challenge due to the existence of conflict amongst employees in different business units, which threatened knowledge and information sharing (Venness, 2009).
In order to enhance the effectiveness of teamwork in the organization, Walt Disney should have adopted a hybrid approach in constructing teams to execute a particular project. The hybrid approach would have created an environment for employees from different departments to engage in extensive interaction.
In a bid to succeed in entrenching the concept of teamwork within the organization, Walt Disney should also have ensured that the organizational culture is well developed. One of the issues that the organization should have considered in developing the organizational culture entails diversity. The firm should have ensured that employees within the organization appreciated each other irrespective of their diversity. Thus, the firm would be in a position to share ideas, knowledge, and information, hence promoting the level of creativity within the firm.
Rarity
Walt Disney sourced its workforce from different fields such as animators, designers, architects, and artists. In order to enhance its performance, the company integrated employee training as one of its operational strategies. The training program was undertaken through the Disney Corporate University (Venness, 2009).
One of the aspects that the training program focused on entailed entrenching the Disney culture. For example, employees were required to be proud of Walt Disney. Despite the view that the training program was intended to promote a strong organizational culture, it did not focus on enhancing the employees’ creativity, hence the rarity of its human resource capabilities.
In a bid to eliminate this internal weakness, Walt Disney should have ensured that its resources and capabilities were unique. One of the strategies that the organization should have considered entails investing in an extensive and unique training program. The training program should have specifically designed to foster the organization’s long-term competitive needs.
Imitability
Due to the management challenges faced such as conflict amongst the top executives, some of the firm’s employees left and joined rival companies. This aspect shows the prevailing capacity to imitate the company’s operational strategy. Thus, the company’s long-term competitiveness was under threat. In order to deal with the challenge posed by imitation, Disney should have improved its intangible capabilities.
One of the aspects that the organization should consider entails improving its tacit knowledge. Moreover, the organization should also consider improving the internal working environment, which has deteriorated over the past few years.
For example, Disney should have invested in a comprehensive talent management program. Investing in talent management would have improved the employees’ level of satisfaction. Additionally, the organization would have succeeded in entrenching its organizational culture. Thus, the level of employee loyalty towards the organization, and hence their length of tenure would have improved.
Organizational
In its quest to attain a high competitive edge in the entertainment industry through its aggressive growth and diversification structures, Disney should have incorporated optimal control mechanism and business processes. However, the company did not appreciate the importance of following due process in the course of implementing some of its growth strategies.
For example, the organization ignored the importance of investing in due diligence in the course of acquiring ABC. The company only emphasized the financial aspect of due diligence and ignored the cultural aspect. Thus, it did not undertake a comprehensive culture analysis between Walt Disney and ABC in order to determine the degree of cultural fit. This aspect explains why the company encountered culture clash amongst the top executives.
Recommendations
The case highlights Disney as one of the dominant players in the global entertainment industry. The company’s success has arisen from the adoption of optimal business strategies, which include diversification and expansion. The company intends to attain long-term growth through its related diversification strategy. However, the case study shows that the firm has experienced a number of challenges that might affect its long-term success. In a bid to deal with the identified problems, Disney should consider the following issues.
- Entrenching a strong organizational culture – Disney’s success will depend on its effectiveness in developing new and high quality entertainment products. This goal can only be attained if employees are creative. The firm can enhance creative thinking of its workforce through recruitment and training. One of the elements that the company should consider entails adopting an effective management style. It should integrate transformational leadership style in order to ensure that the employees are motivated optimally and satisfied in their jobs. Furthermore, a strong organizational culture will foster collaboration amongst the various business units.
- Adopting a system approach management strategy – Disney should consider positioning itself as a learning organization. This goal can be attained by promoting collaboration amongst the various business units. A high level of coloration will promote information and knowledge sharing. Subsequently, the likelihood of the company attaining operational efficiency will improve significantly.
- Appreciating due process – in its quest to grow through acquisition, the company should appreciate the importance of undertaking cultural and financial due diligence in order to determine the degree of strategic fit. This move will play a fundamental role in increasing the success of its merger and acquisition processes by eliminating conflicts and culture clash.
- Environmental analysis – the company should evaluate the external environment continuously in order to understand the prevailing industry trends. This aspect will provide optimal market intelligence, hence the company’s capacity to improve its management practices and operational strategies.
References
Barrier, M. (2008). The Animated Man: A Life of Walt Disney. Berkeley, CA: University of California Press.
Gabler, N. (2007). Walt Disney: The Triumph of the American Imagination. New York, NY: Vintage Books.
The Walt Disney Company: Company Overview. (2014).
Thomas, B. (1994). Walt Disney: An American Original. New York, NY: Disney Editions.
Venness, S. (2009). The Hidden Magic of Walt Disney World: Over 600 Secrets of the Magic Kingdom, Epcot, Disney’s Hollywood Studios, and Animal Kingdom. Avon, MA: Adams Media.