Bob Iger Rocks Disney & Q&a-the Iger Difference
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During a stagnant period in Disney’s storied history, CEO Bob Iger joined the company in 2000 as president and later became the CEO, succeeding Roy E.Disney. Iger vision to turn Disney’s quest to become a well-diversified mega media conglomerate was realized with strategy of related diversification with the goal of enhancing the company with major dividends. The Walt Disney Company started primarily in 1923 as a studio animation company. Over the past 80 years, Disney has grown to become a mega-entertainment empire, comprising four diversified business units: Studio Entertainment (Pixar and Disney Animation), Parks and Resorts (Disney World and a host of other theme parks), Consumer Products (Cars Franchise, Mickey Mouse and Winnie the Pooh), and Media Networks (ABC, ESPN, Disney Channel). These segments consist of integrated, well-connected businesses that operate in concert to maximize exposure and growth worldwide. The difference with Disney in respects in their core competencies in regards to related diversification is the majority of Disney’s revenue does not come from a single business unit, where the different businesses share only a few links and common attributes or different links and common attributes.
As with any company that wants to diversify, Disney’s strategy is driven by lofty financial goals. From our lesson, we know that any company who wants to diversify the company must aim to maximize earnings and cash flow, and allocate capital profitability toward growth initiatives that will drive long-term shareholder value. Disney has developed a strong brand image over many decades and generations while successfully diversifying its operations and products to hedge against decreasing revenues in product lines such as their Disney Animation Studio productions. Even within the consumer products business, Mickey Mouse and Winnie the Pooh accounted for more than 80% of their core business, now its roughly 50% of its sales due to the emergence of the Cars franchise, Hannah Montana merchandise and a host of others. The benefits of related diversification must include these conditions:
* The core competence must enhance competitive advantage(s) by creating superior customer value. Disney has always seemingly created superior customer value in its traditional core business units (theme parks and animated programming), that has now spread to other business unit they have acquired or created such as Toy Story, Cars, and Hannah Montana products. * Different businesses in the corporation must be similar in at least one important way to benefit from the core competence. What has surprised many in the business world is Disney’s success when venturing into non-juvenile related businesses, mainly in the majority ownership of ESPN (sports broadcasting). ESPN alone as generated more than a third of the entire company’s operating income in 2008. How this relates to this core competency, which in my estimation is still in animation and theme parks, is the global reach of both businesses. ESPN’s core programming Sportcenter is now shown in 35 different countries in several languages, rivaling the business plan of other units such as theme parks expansion in France and Asia. Disney’s animation studios into Russia, Asia and India for the first time with original local-language movies
* The core competencies must be difficult for competitors to imitate or find substitutes for. There is not a single competitor that comes close to the conglomerate of business units of Disney. Their business model will not be duplicated, mainly because of the synergies that have been created over time from the traditional BUs and the un-rivaled success of ESPN. As stated in the “Iger is the Difference article” Iger claims their “… parks, we’ve worked very hard to create a competitive advantage. If families are going to go on a vacation, they’re likely to either come to us first or abandon us last. I don’t think it would be fair to say that we’re recession-proof, but we’re much more resilient than our competitors.
“ Disney’s unrelated diversification may not have as many benefits since we usually derive positive results in this method due to vertical (or hierarchical) relationships, or the creation of synergies from the interaction of the corporate office with the individual business units. As stated in the article, it doesn’t appear that the BUs of Pixar or say ABC/ESPN is handled strictly from a head office, rather each unit acts as it own companies within the Disney conglomerate. This is not meant to say synergies cannot be obtained with horizontal relationships, as these concepts may not be an exact tangible asset, but rather intangilbles such as strength, creativity, and a product awareness that is in demand as stated in the “Iger is the Difference” article.
With all of the successes with Disney and their attempts to become a mega international media conglomerate, the most difficult venture in their effort was expanding their theme park operations into other regions of the world. Disney expanded its popular theme park concept in 1984 from its original two sites in the United States to Japan. To limit its risk, Disney signed an agreement with the Oriental Land Company, which financed and owns Tokyo Disneyland and pays Disney royalties. Tokyo Disneyland proved to be an enormous success, and prompted Disney to seek other foreign opportunities. Disney chose Paris, France as the site for its next theme park in 1988. Disney decision to establish a theme park in France had a negative impact on Disney’s bottom line for years, especially during the late 90’s where many in the business community deemed Disney had “simply stopped growing” 1 We will analyze the difficulties with concepts related to the Unit 5 Lessons on the Disadvantages of Global Diversification:
0 Political and economic risks. Paris was selected because some 350 million people live within a two-hour plane ride of the city, and because the French government offered numerous incentives, including bargain-priced land and an extension of the Parisian rail system to the park. Disney was permitted to retain up to 49 percent of the stock in the new theme park. Unfortunately the economic benefits did not outweigh the political and culture of the region, particularly their disdain for the United States in many circles. Critics blasted the French government decision on the location of the park as they feared that it would threaten the French culture. Farmers condemned the decision of the government to sell their land to Disney.
Differences in consumption patterns and styles, therefore, difficult to address such differences. The construction costs were higher than expected, spent much less than anticipated on hotel and concessions, affecting the bottom line considerably since this where the majority of the revenue is generated. The park reached a major financial crisis after just 18 months of operation as the project received an injection of much needed capital from a Saudi Arabian investor.
* Difficulties in managing people and operations Disney found itself under fire for its dress code, training practices, and plans to ban alcohol from the park * Differences in management, business practices, accounting, legal, etc. Disney did successfully control costs throughout this ordeal and sustained positive performance of its theme parks, media network, studio entertainment and consumer products businesses. Financial risks were minimized by sharing initial investment costs with a maximum number of outside participants.