1.Why had The Walt Disney Company been so successful? What specific key success factors did it address for the focal industries in which it operated?
The average lifespan of an S&P 500 company is approximately 15 years. At the time of this article, Disney was approaching 78 years of operations. Although it was not always a smooth ride, The Walt Disney Company has been highly successful at diversifying while maintaining, and capitalizing on, the Disney brand and culture that Walt Disney started when he moved to Hollywood in 1923. While it was not always the primary income stream, the heart and soul of The Walt Disney Company was the studio entertainment business line. Starting as a feature animation studio, Disney evolved and grew into a live-action motion picture, home video, television production, music production, and distribution business. The key success factors in this business line were primarily intangible resources. The brand equity associated with the Disney label became a household name overnight. This, along with a healthy culture, attracted the knowledge and human capital necessary to diversify into further studio entertainment ventures and reinforce their core competency of providing both family and contemporary entertainment at a relatively low cost.
In addition to studio entertainment, Walt Disney envisioned destinations that would provide enjoyment for the entire family. This vision materialized into theme parks all around the world. The key success factors to the theme parks and resorts started with entertainment focused around the Disney brand. It also involved tangible resources such as geographic location and land in destinations in Europe, Asia, and both coasts of the United States. By accumulating large plots of land, Disney was able to create an environment that promoted the brand and created additional value to their other business lines creating a competitive advantage over its competitors at other amusement parks. Once Disney became a household name, it seemed only natural to add consumer products to further promote the brand.
The key success factor to this venture involved not only the intangible resources of brand equity and reputation, but additionally the tangible resource of direct retail distribution through The Disney Stores. Disney’s invaluable resources were not the only key success factors that led to their success. Their capabilities allowed them to capitalize on these resources and strategically deploy them to other ventures. This was accomplished through synergy and cross-promotion among businesses. As a diversified company, Disney’s various businesses were able to benefit in their specific industry by the success of complementary business lines within The Walt Disney Company.
2.What did Michael Eisner do to rejuvenate Disney? Specifically, how did he increase net income in his first four years?
When Michael Eisner took over as CEO in 1984, Disney was in the midst of what appeared to be a decade of turmoil. While spending a great deal of money on building theme parks in California, Florida, and Tokyo, Disney neglected its film division which had made the company so successful in years past. After narrowly evading corporate raiders hoping to liquidate the company, Eisner emerged and set forth a plan to build on the already established Disney brand while still “preserving the corporate values of quality, creativity, entrepreneurship, and teamwork”. Eisner leveraged the reputation and brand equity associated with Disney and expanded the company without abandoning the rich history and culture that consumers had come to love. In 1984, Disney’s share of the box office was 4% and they were coming off of a year with negative operating income from their film studio. Eisner recruited two executives from other film studios, created the Touchstone label, and became the market leader (19% share box office) in just a few years by adapting to consumer preferences and targeting an older contemporary audience.
Disney was not just releasing a greater number of films; they were releasing profitable films in an industry that was prone to losing money on a majority of films released. While an average of 40% of all films in the industry turned a profit, Disney made money off 82% of the first 33 films released after Eisner’s arrival. This was accomplished in part by his strategy to produce moderately budgeted films with high quality scripts. Additionally, by targeting an older audience, Disney was able to open doors for further expansion. In 1988, Disney’s film studio brought in over $1 billion compared to just $165 million four years earlier. Despite the concentration on studio growth, Disney never lost focus on developing both the tangible and intangible resources they already had in place.
For the theme parks, Eisner instituted attendance-building strategies such as television ads and media broadcast events. Even after hiking up ticket prices, consumers still felt they were receiving value for their money at Disney theme parks. This shows that Disney’s differentiation strategy was effective in producing greater value than other amusement parks around the country. Those initiatives allowed Disney to recognize 1988 theme park revenues at twice the amount from 1984. While all the previous examples consisted of tangible resources, there was an overarching intangible resource that Eisner capitalized on to ensure success and increase net income. With the large growth throughout the various business units, Eisner felt that coordination was necessary among the divisions. He strengthened the culture by holding company-wide meetings that generated new ideas and “built commitment and excitement for the year’s theme”. With the expansions and management strategies instituted by Michael Eisner, The Walt Disney Company recorded a net income of $522 million in 1988; a sum that dwarfed their 1984 net income by over 500%.