Strategic Management Case 2
The Walt Disney Company: The Entertainment King
1.) Why has Disney been successful for so long?
Disney has sustained prolonged success for a variety of reasons. One source of success was the way Walt and Roy Disney decided to manage the company internally when the organization was founded in 1923. Disney emphasized teamwork, communication, and cooperation in the workplace to make employees feel valued and strengthen their commitment to the company. These values remain at the core of Disney’s corporate culture, and have been formally incorporated into their new-hire training program at the company’s corporate university.
With the use of animation, Disney can control an entire entertainment experience, unlike actors, because cartoon characters and their environment can be created and controlled by imagination. Disney’s most distinct corporate skill, according to former CEO Michael Eisner, is the ability to manage that creativity. Eisner encouraged innovative ideas and was protective of the company’s creative efforts even at their earliest development. Emphasis on this development allowed Disney to take advantage of opportunities in the market and often become the first mover. Disney has proved successful at determining which advantages would be sustainable and which should only be temporary.
The main contributors to prolonged success have been the results of the key strategic decisions made by the organization regarding diversification. Disney has used diversification to create additional sources of revenue beyond cartoon shorts and feature films by expanding vertically into television, theatre, retail, and the internet. Creating divisions outside production, such as Disney Music Company, Disneyland, Disney Cruises, and DisneyQuest, created cross-promotional opportunities among Disney’s products, services, and strengthened the brand itself. Disney’s ability to effectively manage both vertical and horizontal integration into a wide array of business activities and projects continues to drive the company’s progress and profit.
2.) What did Michael Eisner do to rejuvenate Disney? Specifically, how did he increase net income in his first four years?
Michael Eisner entered Disney as CEO in 1984, and committed his efforts to producing annual revenue growth and return on stockholder equity in excess of 20%. He also pledged to strengthen the Disney brand and protect corporate values of quality, creativity, entrepreneurship, and teamwork. Believing that “managing creativity” was Disney’s most unique corporate capability, Eisner was to able harness Disney’s creative and innovative capabilities to maximize profits from new and existing operations.
Rebuilding the strength of their television programming and films was an important part of this strategy. Disney increased its presence on network television to re-establish Disney as a producer of quality programs, and increase demand for Disney’s other entertainment ventures. The Disney Sunday Movie, debuted on ABC in 1986, and was followed by the popular Golden Girls on NBC, and production of syndicated non-network shows. Disney also increased their screen presence and generated revenue by selling older programs to other networks through a newly created syndication operation.
A struggling movie division produced two films, held only 4% of box office share, and generated a profit of only a $1 million 1984 [Exhibit A, page 6]. To increase film output, Eisner used the Touchstone label to compete in new segments of the film industry, predominantly comedies, without diminishing Disney’s core audience. These films were produced on moderate and closely managed budgets with intent to be profitable rather than to become the next box-office juggernaut. Disney also increased the output of their animated films though investment in new...