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Examples of “Good” Strategic Management Essay Sample

Examples of “Good” Strategic Management Pages
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In 1984, Disney’s stock price had been flat for a decade. Earnings per share were only $0.06. Disney had profits that year of $242 million. By this point in time Disney had become primarily a theme park company. Seventy seven percent of its profits came from theme park operations that year. Twenty two percent of profits came from consumer products (licensing Mickey Mouse, Donald Duck, etc.). Only one percent of profits came from filmed entertainment in 1984. Indeed, Disney had become a different company from what Walt Disney and his brother Roy O. Disney left behind. In 1971 when Roy O. Disney died (he became CEO when Walt died in 1966), 50% of the company’s profits came from filmed entertainment.

The Disney board was dissatisfied with the firm’s direction and its financial performance. Michael Eisner was hired as the CEO of Disney in 1984. He had extensive experience in the entertainment industry including a stint as the president of Paramount Pictures.

Eisner recognized the value of both the filmed entertainment legacy of the firm and the theme park operations that had been developed by that time. Eisner soon focused on the animation and movie studios. He also opened the Disney vault to exploit the relatively untapped value of Disney’s animated classics. Profits from filmed entertainment went from about $2.4 million in 1984 to $845 million in 1994.

Eisner spent considerable time during the early days of his tenure touring the theme parks to see what the company really had. He decided to upgrade the theme parks and increase admission prices. Profits from the theme parks went from $186 million in 1984 to $688 million in 1994. Consumer products went from profits of $53 million in 1984 to $433 million in 1994, a natural result of the success of the company’s filmed entertainment and theme park operations.

The impressive part of these changes and results is that Eisner, to quite an extent, used resources that Disney already possessed such as animation and live studios. Animators were challenged to create new and exciting content—something that had not happened in a long time. Some of the Disney classics pulled from the vault were converted to the VHS format and distributed to the home market. It’s true that the timing of the advent of the VHS format and the proliferation of home video was fortunate for Disney. But, it’s also true that Eisner deployed the resources of Disney in a different way from how they had been used in the years leading up to 1984.

Disney animator’s created The Little Mermaid in 1989. It had box office receipts of $83.5 million. It won an Oscar. Beauty and the Beast was released in 1991, setting new box office records for an animated film ($145.8 million). The Lion King came out in 1994 and has had box office sales of over $328.5 million and has sold over 30 million copies in the home video market. All three of these animated films did extremely well at the box office, the video store, and the toy store.

In time, Eisner also diversified the firm’s portfolio extensively. Disney bought ABC television, which included ESPN, hotels, professional sports teams (Anaheim Angels and the Mighty Ducks), a cruise ship, and developed a chain of retail stores. Licensing of Disney characters, old and new, was aggressively expanded. In the early 1990s Disney characters were a common, and highly prized, toy included in kids’ meals at fast food restaurants and as prizes in breakfast cereals boxes. From 1984 to 1994, Disney’s market capitalization increased from $2 billion to $28 billion.

Softsoap

Softsoap was the brainchild of Minnetonka’s CEO, Robert Taylor. The idea of putting liquid hand soap in a pump container for home use was novel at the time. Taylor knew that the most likely competitors would be large companies like Procter & Gamble who were good at developing and marketing new products for the home and personal care markets. Had Taylor forged ahead without any form of internal analysis he would have rightly developed a great product. He knew the liquid soap would be easy to manufacture and that he could buy the pumps from one or both of the two existing pump manufacturers. Procter & Gamble, and probably others, would have quickly imitated his product and most likely driven him out of business. These other manufacturers were many times larger than Minnetonka.

However, Taylor engaged in a form of internal analysis by recognizing that even though these larger companies had a resource advantage when it came to manufacturing and marketing the liquid soap, they had no advantage when it came to the pump bottles. He recognized that if he bought all the pump bottle production of the two manufacturers he would have an advantage over firms much larger than Minnetonka. Taylor bought all the pumps the two manufacturers could produce in a year. He paid more for these orders of pumps than Minnetonka was worth at the time. The strategy worked. He had a 12-18 month lead over his much larger competitors in which he was able to establish the Softsoap brand and capture market share. (Brandenburger & Nalebuff, 1995, The Right Game: Use Game Theory to Shape Strategy, Harvard Business Review.)

Amazon and the Publishing Industry
The book publishing industry traditionally was characterized by a long value chain. The publisher contracted with authors to write books and entered into agreements with commercial printers (such as R.R. Donnelley and Quebecor) to print the books. Books were distributed to bookstores through wholesalers such as Ingram and Baker & Taylor. The major problem with this value chain was the amount of unsold books returned by booksellers. Publishers faced return rates as high as 30 percent, which added significantly to their costs. Seeing this inefficiency as an opening, Amazon changed the value chain. By going directly to publishers, Amazon was able to lower costs by cutting out wholesalers. More importantly, they placed orders with publishers after customers ordered from their website. This allowed Amazon to reduce drastically the returns to publishers (from 30% to 3%) and use this to bargain for better prices from them. Amazon backward integrated by bypassing the wholesaler and going directly to the publisher. (Laseter, Houston, Wright and Park. ―Amazon your industry: Extracting Value from the Value Chain,‖ Strategy+ Business, First Quarter 2000)

Blue-ray Disc – Strategic Alliance and Improvement of Competitive Environment Recently, there was a standards war for the next generation storage medium for video and data. One format was HD-DVD, led by Toshiba and NEC Corporation. The competing format was Blu-ray disc, led by a strategic alliance consisting of Sony, Sharp, Apple, TDK and a host of others. As compared to the HD-DVD format, Blu-ray has more information capacity but a higher initial cost. To avoid the example of Betamax, Sony, the leader of the Blu-ray format, formed the Blu-ray Disc Association (BDA). BDA was a strategic alliance of hardware producers such as Sony and Sharp, computer companies such as Apple and Dell, and content providers such as Disney and 20th Century Fox. The race between the two competing formats was to sign up as many content providers as they could to get the critical mass necessary to become the dominant standard. Paramount, Universal, and Warner had signed non-exclusive agreements to support HD-DVD, while Disney and Columbia supported the Blu-ray format. Each format was trying to woo content providers who were either undecided or had signed non-exclusive contracts with the other format. The Blu-Ray format won the standards war.

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