Industrial Engineering Department

Faculty of Engineering
King Abdulaziz University
IE351: Industrial Management

WALT DISNEY COMPANY

Case study 3

Team 6
Rawan Baik 1421654

Malak Mously 1420530

Wala’a Othmani 1420963

Dania Mimsh 1420235

Summary
Background information
The Walt Disney Company, commonly known as Disney, is an American
diversified multinational mass media and entertainment conglomerate headquartered at the Walt
Disney Studios in Burbank, California. It is the world's second largest media conglomerate in terms
of revenue, after Comcast.[4] Disney was founded on October 16, 1923, by brothers Walt
Disney and Roy O. Disney as the Disney Brothers Cartoon Studio, and established itself as a leader
in the American animation industry before diversifying into live-action film production, television,
and theme parks. The company also operated under the names The Walt Disney Studio, then Walt
Disney Productions. Taking on its current name in 1986, it expanded its existing operations and
also started divisions focused upon theater, radio, music, publishing, and online media.[1]

Over two decades, the predecessor and boss, CEO Michael Eisner, accomplished much, starting
the Disney Channel, the Disney Stores, and Disneyland Paris, and acquiring ABC television,
Starwave Web services (from Microsoft cofounder Paul Allan), and Infoseek (an early Web search
engine). But his strong personality and critical management style created conflict with shareholders,
creative partners, and board members, including Roy Disney, nephew of founder Walt Disney. One
of the first moves as Disney's new CEO was repairing relationships with Pixar Studios and its then
CEO Steve Jobs. Pixar produced computer-animated movies for Disney to distribute and market.
Disney also had the right to produce sequels to Pixar Films. Jobs argued, however, that Pixar
should have total financial and creative control over its films.
More important than the price, however, was promising Jobs and Pixar's leadership,, total creative
control of Pixar's films and Disney's storied but struggling animation unit. Although Pixar and
Disney animation thrived under the new arrangement, Disney still had a number of critical strategic
problems to address.
With many of Disney's brands and products clearly suffering, you face a basic decision: Should
Disney grow, stabilize, or retrench? Disney is an entertainment conglomerate with Walt Disney
Studios (films), parks and resorts (including Disney Cruise lines and vacations), consumer products
(i.e., toys, clothing, books, magazines, and merchandise), and media networks such as TV (ABC,
ESPN, Disney Channels, ABC Family), radio, and the Disney Interactive Media Group (online,
mobile, and video games and products).

Let’s find out what happened at Disney and see what strategic plans and steps the CEO took to
improve Disney’s competitive position.

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Major Issues

1. With many of Disney’s brands and products clearly suffering, you face a basic decision.
Should Disney grow, stabilize or retrench?

2. Next, given the number of different entertainment areas that Disney has, what business is
Disney really in? Is Disney a content business, creating characters and stories? Or is it a
technology/distribution business that simply needs to find ways to buy content wherever it
can, for example, buying Pixar, and then delivering that content in ways that customers want
(i.e., DVDs, cable channels, iTunes, Netflix, social media, Internet TV, etc.)?

3. Finally, from a strategic perspective, how should Disney’s different entertainment areas be
managed? Should there be one grand strategy (i.e., growth, stability, retrenchment) that every
division follows, or should each division have a focused strategy for its own market and
customers? Likewise, how much discretion should division managers have to set and execute
their strategies, or does that need to be controlled and approved centrally by the strategic
planning department at Disney headquarters?

Reflection

1. With many of Disney’s brands and products clearly suffering, you face a basic
decision. Should Disney grow, stabilize or retrench?
The purpose of a growth strategy is to increase profits, revenues, market share, or the number of
places (stores, offices, locations) in which a company does business. Companies can grow
externally by merging with or acquiring other companies in the same or different businesses. Or,
they can grow internally, directly expanding the company’s existing business or creating and
growing new businesses.

The purpose of a stability strategy is to continue doing what the company has been doing, just doing
it better. Companies following a stability strategy try to improve the way in which they sell the
same products or services to the same customers.

The purpose of a retrenchment strategy is to turn around very poor company performance by
shrinking the size or scope of the business or, if a company is in multiple businesses, by closing or
shutting down different lines of the business. The first step of a typical retrenchment strategy might
include making significant cost reductions; laying off employees; closing poorly performing stores,

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offices, or manufacturing plants; or closing or selling entire lines of products or services. After
cutting costs and reducing a business’s size or scope, the second step in a retrenchment strategy is
recovery. Recovery consists of the strategic actions that a company takes to return to a growth
strategy.

The diminished incomes continued to occur and the company’s position wasn’t stable. Disney
Films which had been profitable their revenues dropped by 12% with a $12 million loss just a year
after earning $97 million in profit. At Disney’s TV networks, operating income fell by 34% as the
number of viewers aged 18 to 49 dropped by 9.7%. The CEO had to make the decision whether
applying the growth, stability or retrenchment strategy. The CEO should implement the
retrenchment strategy. Since Disney has many products but still they are not giving a desirable
output which is leading to loses and reducing revenues. The CEO should look for the poor products
that are not increasing the company’s performance and shutting them down.

Disney may start to buyouts to executives, willing to reduce costs. Another way for further savings
that might apply is merging Disney’s departments, such as the menu planning departments at
Disney Land in California and the menu planning department at Disney World in Florida, into one
department to serve both parks at one time.

The initial step of retrenchment includes significant cost reductions; the following step is recovery,
taking strategic actions to return to a growth strategy.

Without doubts, after cutting costs, the company should double down on amusement parks
investments, technology and construction all these ways to return Disney back to its position and
growth.

While having a deep recession, Disney has invested millions in the Disney Dream, a brand-new
cruise ship, $1 billion to Disney's California Adventure and then expend through billions more to
expand Hong Kong Disney Land, and another Disney resort in Hawaii.

While those investments were intended to grow, Disney spent $4.3 billion to purchase Marvel
Entertainment, home to well known and loved Comic book heroes such as X-Men, Captain
America, Iron Man, and Thor, and $563 million to buy Playdom, which is a company thst makes
Facebook games.

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 2. Next, given the number of different entertainment areas that Disney has, what
business is Disney really in? Is Disney a content business, creating characters
and stories? Or is it a technology/distribution business that simply needs to find
ways to buy content wherever it can, for example, buying Pixar, and then
delivering that content in ways that customers want (i.e., DVDs, cable channels,
iTunes, Netflix, social media, Internet TV, etc.)?
A corporate level strategy involves all the strategic decisions that are made by a company that
affects the whole organization or company. Most organizations will only use this one strategic plan
in all their operations. Portfolio strategy focuses on lowering business risk by being in multiple,
unrelated businesses and by investing the cash flows from slow-growth businesses into faster-
growing businesses. BCG matrix is a type of the portfolio strategy and it is a business tool, which
uses relative market share and industry growth rate factors to evaluate the potential of business
brand portfolio and suggest further investment strategies. The best approach to utilize the portfolio
is to deal with corporate technique is to risk through related diversification. A grand strategy is a
broad strategic plan used to help an organization achieve its strategic goals. Grand strategies guide
the strategic alternatives that managers of individual businesses or subunits may use in deciding
what businesses they should be in. Moreover, there are three kinds of grand strategies: growth,
stability, and retrenchment that is followed by a recovery stage.

Disney is an entertainment conglomerate which means a company that owns several smaller
businesses whose products or services are usually very different. They have Walt Disney Studios,
parks and resorts, products such as toys, clothing lines, magazines. As with the media networks
such as TV ESPN, shows and channels like the well-known Disney Channels, ABC Family. They
also have their own video games. So, by judging on the entertainment areas that Disney has, we can
ask ourselves what business is Disney in or wants to be in? Is Disney the creating characters and
stories we grew up watching? Or is it a distribution business that simply needs to find ways to buy
content wherever it can like when it bought Pixar, and started to deliver content in ways that
customers wish such as social media, TV channels or DVDs?

The Mission of the Walt Disney Company is to be one of the world’s leading producers and
providers of entertainment and information. As the CEO, I would want Disney to be in the creative
content business and not distribution. Disney Bought Pixar because they focus on creating content
and solid form of storytelling that holds a hidden ethical/ moral message underneath rather than just
focusing on making it visually appealing to the audience. So, we can safely say that content is way
more important than animation that’s why Disney gave Pixar control over its animation unit. The
audience are expecting Disney to give them something that they can relate to and be genuinely
interested to let their kids watch.

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Using the portfolio of brands to differentiate the content, services and consumer products, they seek
to develop the most creative, innovative and profitable entertainment experiences and related
products in the world.

3. Finally, from a strategic perspective, how should Disney’s different

entertainment areas be managed? Should there be one grand strategy (i.e.,
growth, stability, retrenchment) that every division follows, or should each
division have a focused strategy for its own market and customers? Likewise,
how much discretion should division managers have to set and execute their
strategies, or does that need to be controlled and approved centrally by the
strategic planning department at Disney headquarters?
As mentioned earlier in question 2, a grand strategy is a broad strategic plan used to help an
organization achieve its strategic goals. Grand strategies guide the strategic alternatives that
managers of individual businesses or subunits may use in deciding what businesses they should be
in. As discussed in question 1, there are three kinds of grand strategies: growth, stability, and
retrenchment/recovery. Rather than using just one broad strategic plan to achieve its organizational
goals, Disney, however, used two of those, growth and retrenchment/recovery.

So, does that mean that Disney doesn’t have a grand strategy? Well that’s not true Disney does have
a grand strategy, however it’s not based on growth, stability, or retrenchment/recovery. Instead,
Disney’s grand strategy is to manage its portfolio of brands in an integrative way, but differently
from the ideas suggested in portfolio theory. For example, to make sure kids know about upcoming
movies, Disney script writers planted repeated direct and indirect references to it in the company's
television shows.

Its well-recognized strategy that Disney uses to promote and profit from many movies such as for
example toys story 3 and the sleeping. So, that its diversified activities should complement each
other. Why look for the solution outside the box when you still must discover what’s inside that
box, Disney’s old strayed strategy states “Not doing anything in one line without giving a thought
to its likely profitability in our other lines.” It clearly should be reused. However, some
enhancements could be added to Disney’s integrative portfolio strategy like brand management.
Each successful Disney movie, tv show or character is a brand that would appeal to the audience
but weren’t managed at that time. So, it would be smart to manage and integrate those brands across
the different parts of Disney’s businesses. In Disney’s theme parks, clothing and much more.
Imagine stepping inside the magical Disney land and seeing cool rides with your favorite Disney
character on? That would-be both epic and attracting.

So, with an integrative strategy that manages brands across Disney’s various businesses, how much
discretion are Disney’s division managers given to execute their strategies? Traditionally Disney’s
strategic planning department would narrow the effective execution of the company’s integrated

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strategy. Also, financial metrics must be established to track them against each franchise so we can
see what's excelling financially and what’s not.

That tight integration, however, is balanced by the creative autonomy for Disney’s division
managers and content creators. We should always remember Disney is in the business of creating
content. And that means that the people managing content creation must have the freedom to be
creative enough to develop great captivating stories and strong characters. So clearly if there was a
problem in the content and the guys running the divisions need to oversee their job and that’s why
as a CEO my first step would be to separate it from Disney’s strategic planning department.

Conclusion
After analyzing the main issues of disney’s case study, we can sum up our solution into:

It was clear to us that it would be wiser to implement the retrenchment strategy. Since Disney has
many businesses but still they are not getting a desirable output which is leading loses and reduces
revenues. They can do so by joining department and financial cuts. after that to recover the
company should double down on amusement parks investments, technology and construction to
return to its position and growth. By using the portfolio of brands to differentiate the content,
services and consumer products, they’ll seek to develop the most creative, innovative and profitable
entertainment experiences and related products in the world. Disney managed its portfolio of brands
in an integrative way that manages brands across Disney’s various businesses and however, is
balanced by the creative autonomy for Disney’s division managers and content creators. It’s now
clear that Disney wants to be in the creative content business and not distribution

References

[1] The Walt Disney company," in Wikipedia, Wikimedia Foundation, 2016. [Online]. Available:
https://en.wikipedia.org/wiki/The_Walt_Disney_Company. Accessed: Nov. 28, 2016.