Strategic Management: Walt Disney Case Study
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Strategic Management: Walt Disney Case Study
- 1. THE WALT DISNEY COMPANY Organizational Case Study Callie Unruh MGT6145 December 14, 2012
- 2. WALT DISNEY COMPANY It’s not just Disneyland!
- 3. OUTLINE Introduction and Overview Internal Assessment External Assessment Strategy Implementation and Financing Conclusion
- 4. MISSION AND VISION "The mission of The Walt Disney Company is to be one of the world's leading producers and providers of entertainment and information. Using our portfolio of brands to differentiate our content, services and consumer products, we seek to develop the most creative, innovative and profitable entertainment experiences and related products in the world."
- 6. FINANCES Ratio 2008 2007 Current Ratio 1.0 0.99 Gross Profit Margin 0.20 0.19 Return on Stockholder Equity 1.36 1.52 Sales 7% 5%
- 7. ORGANIZATIONAL STRUCTURE Walt Disney Company Disney Consumer Studio Entertainment Parks and Resorts Media Networks Products • Walt Disney Pictures Broadcasting • Miramax Films • Walt Disney World • Buena Vista Home • • • Disney Hard Lines Disneyland Disney-ABC Entertainment • Disney Soft Lines • Tokyo Disney Television • Buena Vista • Disney Toys Theatrical • Disneyland Paris • ESPN Inc. • Disney Publishing Productions • Hong Kong • Walt Disney • Disney Press • Walt Disney Disneyland Internet Group • Disney Editions Records • Disney Cruise Line • ABC-Owned • Buena Vista • Disney Vacation Television Stations Records Club • ABC Radio • Hollywood Records • Lyric Street Studios • Pixar Studios Source: David, F (2011). Strategic Management.
- 8. Chair/Pres: ORGANIZATIONAL STRUCTURE Theme Parks and Resorts LEADERSHIP Co- President: Chairman: Disney Interactive and this isn’t all of them! Walt Disney Int’l Co-Chair and Pres. ABC Chair: Walt Television Disney Group Studios CEO Co-President: Disney Interactive EVP and and Playdom Chief Human Resources Officer EVP Motion Picture Distribution EVP Communicati ons EVP Strategy and Business Development President: Consumer Products President: ESPN and President ABC Sports Source: www.theofficialboard.com ESPN and Co-Chair Media Networks
- 9. ORGANIZATIONAL STRUCTURE LEADERSHIP Recommendation… Chief Executive President and Board of Directors SBU 1 SBU 2 SBU 3 SBU 4 SBU n Geographical Functional
- 10. MARKET POSITION: THE COMPETITORS
- 11. Disney MARKET POSITION Time Warner CBS Corp. High Market Capitalization Media Networks/Broadcasting and Studio Entertainment Low Revenues High Revenues Low Market Capitalization
- 12. Disney MARKET POSITION Six Flags Ocean Park Locations (high) Parks and Resorts Visitors Visitors (low) (high) Locations (low)
- 13. Disney MARKET POSITION Warner Bros. Quantity Fox (high) Consumer Products Sales Sales (low) (high) Quantity (low)
- 14. SWOT: STRENGTHS AND WEAKNESSES Strengths Strong diversification Responsiveness to markets Brand recognition Creative process Weaknesses Large R&D costs High Risk factor Constant up gradation High sunk costs
- 15. INTERNAL FACTORS MATRIX Key Internal Factors Strengths Weight Rating Weighted Score 1. Strong diversification 0.15 4 0.60 2. Responsiveness to markets 0.12 4 0.48 3. Brand name 0.12 3 0.36 4. Creative process 0.12 3 0.36 Weaknesses Weight Rating Weighted Score 1. Large R&D costs 0.15 1 0.15 2. High risk factor 0.12 2 0.24 3. Constant up gradation 0.12 1 0.12 4. High sunk costs 0.10 2 0.20 TOTAL 1.00 2.51
- 16. MARKETING STRATEGIES Top Strategies Create a customized/targeted media advertising plan for all segments Expand Hong Kong Disney and research one new market R&D into storytelling to kids through technology Target 3 new markets and develop expansion plan around consumer products Consumer research around the use of technology and need Digitize content to utilize technology and lower costs Create and bank marketing strategies and promotions to use during adverse conditions or slow periods
- 18. COMPETITORS Disney CBS Time Warner Industry Market Cap 39.00B 4.31B 26.28B 499.59M # of employees 150,000 25,920 87,000 7.51K Qtrly Rev Growth -8.2% -6.20% -2.70% 5.10% Revenue $36.99B 13.95B 46.98B 930.87M Gross Margin 17.81% 37.99% 41.92% 41.92% EBITDA $8.18B 2.69B 13.34B 166.44M Oper Margins 17.81% 15.48% 18.62% 10.39% Net Income $4.02B -11.67B -13.40B NA EPS $2.100 -17.428 -11.224 NA
- 19. COMPETITIVE PROFILE MATRIX Disney CBS Time Warner Critical Success Factors Weight Rating Score Rating Score Rating Score Advertising 0.20 3 0.6 2 0.40 3 0.6 Product Quality 0.15 4 0.6 2 0.30 2 0.3 Price Competiveness 0.12 2 0.24 1 0.12 2 0.24 Management 0.10 2 0.2 3 0.30 3 0.3 Financial Position 0.10 2 0.2 3 0.30 4 0.4 Customer Loyalty 0.10 3 0.3 2 0.20 2 0.2 Global Expansion 0.11 4 0.44 1 0.11 1 0.11 Market Share 0.12 3 0.36 1 0.12 3 0.36 TOTAL 1.00 2.94 1.85 2.51
- 20. INDUSTRY TRENDS Social Technology Economic Cultural Political Media HD, Mobile, Broadcasting Multi-platform content, Video on demand Studio 3-D Rise in ticket prices; Home video spending Parks Traveling with kids; Group Combining Older adults business work and family time Products Consumer-centricity Retail Growth of Product safety, collaboration private label tighter regulations
- 21. SWOT: OPPORTUNITIES AND THREATS Opportunities Growth through further diversification Increase Media Networks/Broadcasting market share International growth/New markets Changes in technology and consumer consumption Threats Economic recession Changes in technology and consumer consumption Intellectual property (protection of) Uncontrollable changes in travel and tourism
- 22. EXTERNAL FACTOR EVALUATION Weighted Key External Factors Weight Rating Score Opportunities 1. Growth through further diversification 0.12 4 0.48 2. Increase Media Networks/Broadcasting market share 0.15 3 0.45 3. International growth/New Markets 0.12 4 0.48 4. Changes in technology and consumer consumption 0.15 3 0.45 Threats 1. Economic recession 0.12 4 0.48 2. Changes in technology and consumer consumption 0.15 3 0.45 3. Intelectual property (protection of) 0.1 2 0.2 4. Uncontrolable changes in travel and tourism 0.09 2 0.18 TOTAL 1.00 3.17
- 23. STRATEGY
- 24. SWOT ANALYSIS Walt Disney SWOT Strengths Weaknesses 1. Strong diversification 1. Large R&D costs 2. Responsiveness to markets 2. High risk factor 3. Brand recognition 3. Constant up gradation 4. Creative process 4. High sunk costs Opportunities SO Strategies WO Strategies 1. Develop and research plan around emerging markets 1. Growth through further diversification with low R&D costs (W1) 2. Increase Media Networks/Broadcasting market 2. Create a customize/targeted media advertising share plan for all segments (S2) 3. Expand Hong Kong Disney and research one new 3.Target 3 new markets and develop expansion plan 3. International growth/New Markets market (S3) around consumer products (W4) 4. R&D into storytelling to kids through technology 4. Consumer research around the use of technology and 4. Changes in technology and consumer consumption (S4) need (W2) Threats ST Strategies WT Strategies 1. Digitize content to utalize technology and lower 1. Digitize content to utalize technology and lower costs 1. Economic recession costs (S2,4) (W4) 2. Focus on one high tech segment and focus content and 2. Changes in technology and consumer consumption R&D there (W1, 3) 3. Document and Create TM and IP Protection Plan 3. Intelectual property (protection of) (S2) 4. Create and bank marketing strategies and promotions to use during adverse conditions or slow 4. Uncontrolable changes in travel and tourism periods for parks and resorts (S2)
- 25. SPACE MATRIX
- 26. INTERNAL-EXTERNAL MATRIX IFE Total Weighted Scores 4.0 3.0 2.0 1.0 EFE Total Weighted Scores I II III 3.0 IV V VI 2.0 VII VIII IX 1.0 EFM 3.17 IFM 2.51
- 27. GRAND STRATEGY MATRIX Rapid Growth Market Quad II Quad 1 Weak Strong Competitive Competitive Position Position Quad III Quad IV Slow Growth Market
- 28. QUANTITATIVE STRATEGIC PLANNING MATRIX Strategy 2: Target 3 new Strategy 3: Digitize Strategy 1: R&D into Walt markets and develop content to utilize storytelling to kids Disney expansion plan around technology and lower through technology (S4) consumer products (W4) costs (W4) Key Factors Weight AS TAS AS TAS AS TAS Opportunities 1. Growth through further diversification 0.11 4 0.44 1 0.11 4 0.44 2. Increase Media Networks/Broadcasting market share 0.09 1 0.09 4 0.36 1 0.09 3. International growth/New Markets 0.15 3 0.45 4 0.60 1 0.15 4. Changes in technology and consumer consumption 0.15 4 0.60 1 0.15 4 0.60 Threats 0.00 1. Economic recession 0.15 2 0.30 2 0.30 4 0.60 2. Changes in technology and consumer consumption 0.12 4 0.48 1 0.12 4 0.48 3. Intelectual property (protection of) 0.08 3 0.24 1 0.08 2 0.16 4. Uncontrolable changes in travel and tourism 0.15 1 0.15 1 0.15 1 0.15 Total 1.00 Strengths 1. Strong diversification 0.15 4 0.60 1 0.15 3 0.45 2. Responsiveness to markets 0.15 4 0.60 4 0.60 2 0.30 3. Brand recognition 0.10 3 0.30 3 0.30 1 0.10 4. Creative process 0.10 4 0.40 1 0.10 2 0.20 Weaknesses 0.00 1. Large R&D costs 0.15 2 0.30 4 0.60 4 0.60 2. High risk factor 0.10 2 0.20 2 0.20 2 0.20 3. Constant up gradation 0.10 1 0.10 4 0.40 2 0.20 4. High sunk costs 0.15 2 0.30 4 0.60 4 0.60 Total 1.00 5.55 4.82 5.32
- 29. RECOMMENDATIONS Strategy 3: Digitize Strategy 1: R&D into content to utilize storytelling to kids through technology and lower technology (S4) costs (W4)
- 31. EPS/EBIT ANALYSIS Common Stock Debt Financing 50-50 Financing Recession Normal Boom Recession Normal Boom Recession Normal Boom EBIT $30.000 $35.00 $40.00 $30.000 $35.00 $40.00 $30.000 $35.00 $40.00 Interest $0.00 $0.00 $0.00 $1.50 $1.75 $2.00 $0.75 $0.88 $1.00 EBT $30.00 $35.00 $40.00 $28.50 $33.25 $38.00 $29.25 $34.13 $39.00 Taxes $11.40 $13.30 $15.20 $10.83 $12.64 $14.44 $11.12 $12.97 $14.82 EAT $11.40 $13.30 $15.20 $10.83 $12.64 $14.44 $11.12 $12.97 $14.82 #Shares 1 1 1 1 1 1 1 1 1 EPS $11.40 $13.30 $15.20 $10.83 $12.64 $14.44 $11.12 $12.97 $14.82 Amount Needed $5 million EBIT Range $30-40 billion Interest Rate 7.00% Tax Rate 38.00% Stock Price $65.00 Stock Outstanding 1 billion Annual Divident per share $0.65
- 32. EPS/EBIT ANALYSIS 12 10 8 50/50 6 DF CSF 4 2 0 30 35 40
- 33. CONCLUSION Strategic Planning Needed Implement strategies that help lower costs, and maintain competitive advantage Balanced approach to innovation and cost-savings
Editor's Notes
- Mr. Walt Disney and his brother arrived in California in 1923 to sell the cartoon Alice in Wonderland. Its first film was created in 1954—Treasure Island and in 1955 Disneyland Park opened. Now, more than 50 years later, the Walt Disney Company has grown and expanded into one of the world’s largest media and entertainment corporations in the world. They are structured as strategic business units consisting of Disney consumer products, studio entertainment, parks and resorts, and media network broadcasting. This slide show some of the major units of Disney today. The Walt Disney Company headquarters are located in Burbank, CA.
- As we look at the WDC we will begin with an over view of the organization and then dive deeper into finances and internal strengths and weaknesses before moving onto their competitive position in the marketplace. Then we will discuss strategy, implementation and conclude with an overall evaluation. Lets get started by looking at WDC’s mission and vision.
- Creativity and innovation are synonymous with the Walt Disney brand, largely because of the company's strong mission. One of the reasons why Disney has a reputation of delivering a seamless "magical" experience to its guests in all of its operations - theme parks, hotels, restaurants, retail stores, etc. - is because it has one overriding vision and mission for all of its business operations.
- Next we will look deeper into the organization through an internal assessment to see better how they operate. The internal assessment will include financial ratios, the organizational chart as well as recommended changes, market position, marketing strategy, strengths and weaknesses and an internal factor evaluation.
- WDC’s finances have held steady over the last couple of years while their current ratio is not so great it did improve ever so slightly in 2008. Sales have increased each year by a small margin. But even small increases in revenues are better than stagnation or losses. Overall, the ratios shown here should be seen as cautiously optimistic with the area that needs to be improved being their current ratio.Walt Disney’s net income fell 26 percent for the third quarter of 2009 with no division or segment of the company reporting an increase. The worst preforming division of the quarter was the Movie studio. The change from 2007/2008 to 2009 is mostly a result of the global recession. As the recession lingers, consumers are spending more of their money on the things they need versus things they want or luxuries like Parks and Resorts and movies.
- WDC operates under a strategic business unit model. Their four SBUs consist of Disney Consumer Products, Studio Entertainment, Parks and Resorts, and Media Networks and Broadcasting.
- The leadership structure of the organization follows its SBU structure. I think this is the best organization for them and the most clear. The only proposed changes I would make would be to look at consolidating the Chairman/President/EVP levels. Currently they are all at the same level and there are many people directly under the President/CEO. Under the President are a slew of Chairmans, EVPs, Presidents and such, and then under them are Presidents of other various things.
- I feel that there could be some consolidation in WDC’s executive strucutre and that they should take advantage of the SBU structure of the organization in their organizational chart. While it might mean duplication of some functions it ultimately will help the SBU’s function better since they are very distinct and need to operate and understand their own markets.
- Because Disney, and the industry in general is broken out into segments, a market positioning map must take the different segments into account. Overall Disney’s primary competitors are Time Warner and CBS Corporation. While these competitors directly compete with WDC in Media Network segments, they are not rivals in Consumer Products and Parks and Resorts and Consumer Products so we will look at those segments separately.
- Disney and Time Warner are most closely related. Disney’s market captialization is at 39B, followed by TW at 26.28B and CBS a distant third at 4.31B. The rest of the industry totals 499.59M In terms of revenues Disney and TW are close, but Time Warner sneaks ahead—49.98B to WDC 36.99B.
- There are more than 400 amusement parks in the United States. The magic kingdom at Walt Disney World in Florida is the most visited amusement park in the world. Disney doesn’t have much strong competition in this area. The second largest company after Disney is Six Flags with 20 parks around the world. Ocean Park is the other competitor and is located in Hong Kong. The park receives more than 5 million tourists each year and are planning new parks. It also seems that Hong Kong residents are that impressed with the small version of Disney built there and in 2009 Disney reached an agreement to enlarge Hong Kong Disney.
- Disney’s primary competitors in the consumer products segment are Warner Brothers and Fox followed by Sony, Marvel and Nickelodeon. Disney is likely the largest world wide licensure of character-based merchandise and producer/distributor of children’s film-related products based on retail sales.
- Based on their market position in their different units we have identified four strengths and weaknesses of the organization as a whole. We will use these strengths and weaknesses throughout this analysis, and ultimately combine them with the opportunities and threats to begin to develop strategies.
- In the internal factors matrix the strengths and weaknesses are weighted and rated. The total score of 2.51 makes them average on a scale of 1-4. Basically the weaknesses even out the strengths. As I noted earlier under finances, in 2009 WDC saw a sharp decline in net revenues for the third quarter of 2009. An example is that the Movie Studio did the worst. One example is that as a weakness sunk costs are large for movies. We will see later on that one threat is economic recession for this very reason.
- After creating the SWOT analysis and reviewing the internal factors a number of strategies emerged. The top strategies are listed here. The ones in bold were the strategies selected for the QSPM analysis which we will discuss later.R&D into storytelling to kids through technology highlights WDC strength of the creative process. Additionally, WDC was based in storytelling and has expanded. WDC’s competitors have less of a history in the area of children’s stories which gives WDC the edge.One of WDC’s weaknesses is high sunk costs, but an opportunity is to expand more internationally. The strategy of targeting three new markets and developing expansion plans touches the “high sunk costs” as they could expand a segment that doesn’t have the as high sunk costs which gives it the potential to more quickly be a revenue producer.Lastly, digitizing content. This strategy touches the high sunk cost weakness, high risk factor, as well as the opportunities and threats that technology brings. By digitizing content including advertising, media etc WDC can save money on print, get things out quicker and utalize other segments to do it. This again is an advantage WDC has over its competitors because its primary competitors the vast diversification that WDC has.
- Now that we have looked at an overview of the WDC, looked into their finances and strengths and weaknesses we are ready to do an external assessment before brining it all together. We will look more closely at competitors and industry trends as well as opportunities and threats facing the organization. We will conclude this section with an external factors evaluation. Now lets take a closer look at WDC’s competitors.
- As we mentioned earlier, the WDC has a variety of competitors because of their many segments. The primary competitors that most closely match WDC are Time Warner and CBS. The chart here shows the comparative data for the industry. Disney is most closely matched by Time Warner and as you can see in the Industry column, there are many other players in the industry that make up the rest of the market share. Also one should note that Disney if more diversified in its segments than Time Warner.
- The competitive profile matrix also shows that Time Warner and Disney are closely related on various issues with Disney showing the slight edge. Again, because Disney is much more diversified than most organizations within the various industries we must look at larger factors that would cover all segments. Disney edge comes from product quality and global expansion. In the other areas Disney is quite similar/close to Time Warner.
- As the first competitors slide on market share shows there is a lot of money to be had in these industries. Over the last few years new trends are emerging that affect WDC and its competitors. These trends—including HD, 3-D, mobile content and consumer-centricity—affect many aspects of the organizations from R&D to customer service. And they all affect the bottom line and competitive advantage.
- Based on the competitors, state of the industry and industry trends we have developed four opportunities and threats for the WDC. Because WDC is so diversified we tried to look at opportunities and threats (as well as strengths and weaknesses) that apply to as many segments as possible.
- The opportunities and threats were then placed into an external factor evaluation, weighted, rated and scored. With a total score of more than 3 we see that overall WDC is above average at capitalizing on their opportunities and mitigating their threats. Noting that a score of 2.5 is average WDC could do better and we attribute their slightly above average rating to economic conditions that have caused lowered revenues which has forced adjustments to be made and growth to slow.
- Now that we have looked internally and externally we will take all this information and formulate strategies for the WDC to use. To do this we will create a full SWOT analysis that takes our strengths, weaknesses, opportunities and threats and will use them to develop strategies. Additionally we will look at a space matrix and internal-external matrix to analyze where they are in the industry/market.
- In the SWOT analysis we now put together the various parts we have discussed previously in this presentation. The SWOT analysis helps us to see everything together in context so that we can develop the best strategies to best capitalize on strengths, strengthen/mitigate weaknesses, utilize opportunities and mitigate threats. The SWOT analysis brought out a number of potential strategies. The letter and number in parentheses reference the strength or weakness the strategy addresses while its line item addresses the opportunity or threat. Any number of additional strategies could be added, but we want to look at the strongest and most attractive strategies for implementation. Any strategies either not listed here, or not selected for further evaluation in the QSPM matrix should be noted and banked for the future when they might be more attractive given the right circumstances.
- The space matrix looks at financial position, competitive position, stability position and industry position to give the organization an understanding of where they are in the market as a competitor. The matrix here shows that WDC has a competitive and aggressive profile. This combination profile shows us that WDC has a major competitive advantage and is competing fairly well in a currently unstable industry. The reason for this unstable industry is primarily because of the current economic recession. Their financial strength has given them major competitive advantages.
- The IE matrix shows that WDC is in an average position, but leaning to the strong side. I believe this is because of the economic recession and slowing market. Because the WDC is so diversified it has helped them remain in a more neutral position during the recession even though they are seeing declining revenues. As long as the WDC continues to be strategic and plan for the future and how they can adjust in recession periods they will remain viable and weather the storm. BUT if they choose to not do any strategic planning they will be at risk for further revenue loss as well as a decline in competitive advantage.
- In 2007 and 2008 we might have classified the industry as fast growth but with the economic recession lingering the market as slowed as well. Disney is currently in Quadrant 4 on the Grand strategy matrix which deals with related diversification, unrelated diversification and joint ventures. This quadrant speaks well to the strategies chosen for the QSPM matrix.
- Based on the Grand strategy matrix, IE Matrix, trends, finances and economy we selected three strategies that we would be most interested in pursuing. Strategy one received the best score, followed closely by strategy 3. Because of the recession and decrease in revenues the most attractive strategies are ones with lower R&D costs and sunk costs, but that make sure the WDC stays viable in the industry.
- Because Disney has a strong competitive position, in a currently slow growth market I believe they can look at implementing two strategies. Strategy 1: R&D into storytelling to kids through technology will utilize their strong competitive advantage. Additionally it will help keep them on the forefront of technology. Strategy 3: Digitize content to utilize technology and lower costs will help on a number of fronts, and can complement the first strategy. By digitizing content they can lower costs during a lingering recession, keep up with technology, and streamline costs. I would suggest banking strategy 2: exploration into new markets with consumer products. If revenues increase and there are signs that the recession is easing this strategy would be more effective.
- After developing strategies and recommendations for the best strategies it is now time to see how they can be implemented and financed. If a strategy can’t be financed or implemented successfully it could ultimately cost the organization more money and during a recession that is not something anyone wants to happen.
- To look at financing the two strategies we used a EPS/EBIT analysis to contrast the various options. You will see the amount needed was $5 million. Because we know we are currently in a recession the recession column is going to be of greatest interest to us.
- The numbers inputed result in the following chart. While any of the options would work to finance the new strategies, knowing that we are in a recession and revenues are decreasing the common stock financing is the most attractive option.