EXPLOITING SYNERGY BETWEEN BUSINESSES: SUCCESS WALT DISNEY COMPANY CASE STUDY PART I Why is Disney so successful The success of Disney is a combination of creativity and innovations, and the managerial ability to identify and take advantage of every possible synergy. Walter Disney was the entrepreneur who had the creative skills. Knowing his limitations, he let other people do what he couldn’t do good enough himself. This is an important skill, as it leads to quality products being made.
The step from making short cartoons to doing full length cartoons and later live-action movie production is quite natural. What is not that natural and straight forward, and at the same time significant to the success of Disney, is the way in which Disney started to integrate vertically when they created the Buena Vista Distribution. The vertical integration along with the horizontal diversification has allowed for the exceptional building and exploitation of the huge synergies that exists in Disney, and which has to be regarded as the main reason for the success of Disney. One of the key factors of the successful diversification is the very strong branding of the name Disney. That the name was famous after the success in the early years made it among other things possible to go into the theme park industry. Evaluated isolated, the was a success.
But when also accounting for the synergies created, the decision to go into this industry was a huge success. It has created a spiral of synergies, where the characters in the movies get more popular due to the parks, as well as the fact that when people are visiting the parks they get stimulated to buy the merchandise. This is just one example of the synergies that exist in Disney. When Michael Eisner took over control in Disney, he kept focusing on same corporate values as earlier, which are quality, creativity, entrepreneurialism and teamwork. These values have been preserved despite of the size of Disney, and are an important factor in sustaining and building the Disney brand. PART II & III What interrelationships exist between the business & Create a map of the interrelationships In exhibit 3 we can see a presentation of the different business lines of Disney, and we believe that this can be used to describe the interrelationships between the businesses.
All the different businesses are put together under one roof to promote the brand “Disney” and their entertainment products, which is their core competence. We believe that some of the businesses can be seen as having horizontal interrelationships, and some as vertically integrated. In our opinion you can to some extent see the Media Networks, Theme Parks & Resorts, Consumer Products and Internet & Direct Marketing as distribution channels for Disney’s Studio Entertainment products. Some business lines, like Media Networks with tv stations and cable networks, obviously also serve other purposes than just to promoting the Disney brand, and therefore the classification into horizontal and vertical is not clearcut. The Theme Parks & Resorts and Consumer Products main purpose is to work as a “promoting and distribution” channel for the entertainment products. Within the business lines there are also differences regarding the purpose and independence of divisions.
Within the media network we believe that ABC, ESPN and the TV channels are quite independent in comparison to Disney Channel and Toon Disney. The same conclusion can be drawn when looking at the divisions within Internet & Marketing. Here Disney Online is serving a totally different purpose than the ESPN and ABC internet group. PART IV Management of the interrelationships To answer this we will chose to focus only on the relationships between the different branches of Disney to focus on the corporate level and not on inter company relations. Because of the fact that Disney is a large conglomerate, which consist of many different parts which all rely on the same product and brand, communication between these become increasingly important. Disney states it in this way “The film does come first.” This means that the merchandise and licensing has to support the movie and this means a synchronization of effort and strategy which makes the interrelationships increasingly important.
An illustration of how this is done in Disney is how they handle movie releases. A presentation is made so that the other departments can be brought into the process for them to be able to form their strategy for their own products. The function of these meetings is to make sure that all the departments are working in the same direction with the same idea. To insure this Disney introduced a corporate marketing function in 1987 to coordinate joint marketing activities.
According to Michael Eisner synergy is achieved through inter department relations which is one of the reasons Disney Dimensions was initiated. This can only be accomplished if the department executives learn to communicate directly with each other and have frequent contact. This is also seen in the synergy group with deals directly with the communication and collaboration between departments. In contrast to this stands the fact that although Michael Eisner encourages relations across departments he is described as the sole leader of the company. “Can a ($25) billion enterprise, with its efforts flung throughout the world, be creatively run by a single person? PART V Where are the limits for the corporate scope of Disney In order to set the limits of the scope of Disney it is important to classify the existing scope of Disney. Disney is clearly a well diversified company spanning from movie making, to theme parks and cruise ships.
The common factor is however that the entire company has it focus in the entertainment industry. If you would try to solve this problem from a resource based view the answer would be that Disney should apply their expertise and core competences in the areas where it is relevant and can result in a comparative advantage. Disney’s core competences lie within entertainment and we therefore feel that Disney should stay in that area which they have done so far. Disney has always targeted kids as their main segment but usually the whole family participates and this is where the Disney brand stands strong.
Because of the strong brand they could explore this further in relations to kids. An example of this is that they could open theaters that only show the Disney family movies this also means that they should not show the action movies produced by Touchstone or the independent movies made by Miramax. Through the acquisition of ABC studios they have already vertically integrated in that direction but as far as we know they still do not own or operate any theaters. Since Disney already operates in the traveling business and hotel management in relations to the theme parks they would be able to apply this outside the theme park and open up hotels in other tourist sites. The same principle applies to restaurants and the cruise ships. Through out the history of Disney they have used the stepping stone approach introduced by Wernerfeldt in his 1984 article “A resource-based view of the firm” whenever entering new business and therefore the concept is well know to Disney.
If they do decide to explore these options they should only do so in the extent that it does not hurt the Disney brand because that would cause them substantial losses in the long run. This is because even though substantial profit is being made in the theme parks the success rely on Disney Studios to produce movies which are the foundation for the parks. Therefore quality pictures are the basis for their existence. Because Disney has no specific advantage in production they should keep the licensing agreement that they have at present time and not try to make these products themselves.
From a legal perspective we see no problem in growth from Disney in relations to antitrust because although Disney is present in many businesses and is a market leader in several, the markets in which they are present are characterized by a larger number of competitors. PART VI Would it make sense to split up Disney If it would be profitable to split up Disney means that the NPV of the company is higher split up than the company in going concern in its present state. Doing this calculation is a complicated issue, which is outside the scope of this study question. But based on the above answers it does not make sense to split up Disney. Doing this would be very value destructing because it would not be possible to take advantage of the synergies, as well as the fact that one of the worlds best branded names would be thrown away. If Disney at some point of time gets into financial problems the solution therefore will not be to split up the core of Disney.
There are though businesses that can be sold away. Examples of this are the Disney Magic Cruise and the Anaheim sports teams, which are not in the core of Disney and could be sold without destroying brand value and synergy. Especially selling the cruise would release quit a lot of money, so we expect that this will be the first thing to be sold. It would also be possible to outsource the hotels and restaurants in the theme parks. But splitting up the core of Disney would not make any sense.