Disney’S
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The Walt Disney Company
The Entertainment King
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I. Executive Summary
After analyzing the Walt Disney case, we found that the root issues include the need to increase revenue to reach the 20% growth target set by upper management and to expand into new markets and/or industries. We used a Porter’s Five Forces analysis to develop our alternatives (Please See Exhibit A for further information). The alternatives that we proposed were to expand globally and enter the Internet and cable distribution industry. We analyzed these alternatives against a set of selected criteria including: the time to implement, how the alternatives fit with Disney’s corporate culture and corporate synergy, if the alternative would provide a competitive advantage, how costly the implementation would be for Disney, and the revenue potential for the alternative. Upon the completion of our analysis, we recommend that Disney should expand globally in order to capitalize on unrealized markets in order to alleviate its root issues.
II. Root Issues
The two root issues for Disney are:
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To increase revenue to reach the 20% growth target set by upper management
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To expand into new markets and/or industries
III. Alternatives
We proposed two alternatives that address Disney’s root issues. Both of these alternatives are possible solutions to the root issues that we proposed. The alternatives are:
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Expand globally
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Enter the Internet and cable distribution industry
IV. Evaluation Criteria:
A. Implementation Time
Throughout the past several years there have been many mergers especially in the telecommunications and broadcasting market which have left a couple extremely large companies to compete. One of the more recent was a merger between America Online and Time Warner Broadcasting which occurred in 2001, and cost a reported $350 billion. The time to implementation would be a crucial statistic in determining how effective a merger like this would be, however it is very hard to predict the actual time it would take for two huge companies to become fully integrated.
We believe that Disney’s root issue at hand is its declining growth and revenue due to loss of market share, and that one of the ways it can deal with this problem is moving into the cable provider realm by acquiring or merging with one of the large cable providers of today. However, since Disney would most likely merge with one of the largest cable providers, this would affect the time it would take to implement the merger and integrate itself with the other company.
Since Disney already owns several television networks such as The Disney Channel, ABC, and ESPN, it has the means and know-how to compete in the cable industry, so there are many overlapping interests with Disney and a large cable provider. This would prove to be very helpful on the account that Disney actually merges with a provider because it should not be as hard to transfer their competencies from one to another. The time it takes to fully implement the merger should be shortened by the fact that these competencies exist, and it should also help to make the integration of the cable provider with Disney easier.
We can use the time to implement and integrate as a criterion of how successful the merger would be by comparing it to other known mergers that have taken place recently between two large companies. Some of these examples would be the AOL/Time-Warner merger, Wachovia/First Union merger, MCI/WorldCom merger, and several others between two dominant companies in related industries. Even though these are not closely related to Disney and cable, they illustrate that two huge companies can successfully merge and can be used as a comparison for how long such a merger should reasonably take. It is challenging to estimate the actual time to implement, so we should look at this statistic after the fact to get a clear idea of how well the merger went. If the merger seems to take unreasonably long, this should be an indication that the two companies are not a great fit together and it probably won’t work well. The time to implement is a statistic that we believe should be included as criteria to decide whether or not the alternatives we have chosen will be successful.
B. Disney’s Corporate Culture and Corporate Synergy
Two strengths of the Walt Disney Company are their powerful corporate culture and their strategy of corporate synergy. The Disney brothers bred a company that was a “flat, non-hierarchical organization, in which everyone, including Walt, used their first names and no one had titles” (280) Even though the corporate culture has changed since then, Eisner is still trying to keep the beliefs of Walt and Roy Disney alive. Also, Eisner believed “Disney’s ability to leverage its brand and create value depended on corporate synergy” (289).
By implementing the first alternative to expand their business globally, their corporate culture and company synergy will be affected. Their main targets are Europe and Japan, which at first will be difficult to create synergy because of their different cultural and business practices. It will result in the same “culture shock” that the faced with the merge of Touchstone and ABC from New York to Los Angeles but on a greater scale. As the headquarters in these two regions integrate with the existing company, Disney will begin to maintain their culture and synergistic goal. Representatives from each of these foreign headquarters will need to be a part of the Synergy Group in order for Disney to better work with the new ventures. Aside from company growth, expanding globally will give Disney’s upper management a broader outlook on their global consumer and how to better satisfy their needs, which is a main value of the company. In addition, Disney’s consolidation of foreign offices will boost synergy between those divisions abroad. This alternative reflects the corporate mission of focusing on entertainment just in expanding into