An analysis of the strategic challenges

LOCATION MAP

Disney Resorts:
1. California
2. Florida
3. Tokyo
4. Hong Kong
5. Paris
Some historical clues…

 Founded by Walt Disney

 Established in 1923
 Headquartered in California, USA
 Currently world’s largest conglomerate in terms of
revenue.
 Hot facts
• By the 2008 Academy Awards, Walt - Walt Disney
Disney’s company had been once won the
most ‘Oscars in
nominated for more than 200 one year, with 4
Oscars with more than 50 wins
under the Disney logo. - Walt Disney
resort is the
• Of those films, there are 51 largest single-
nominations for animated feature site employer in
the US
with 14 wins!
- Walt Disney
World has a
cast of 62,000
Walt Disney Vision

“To make people happy ”

 Walt Disney Mission

“The Walt Disney Company's objective is to be one of the

world's leading producers and providers of entertainment and
information, using its portfolio of brands to differentiate its
content, services and consumer products. The company's
primary financial goals are to maximize earnings and cash flow,
and to allocate capital toward growth initiatives that will drive
long-term shareholder value.”
 Walt Disney
Mission Statement’s
Evaluation
 Product oriented Lack of 5 essential
statement components:
 Focus on what
products to sell 1. Customers
and what services 2. Technology
to offer rather 3. Philosophy
than on how to 4. Concern for
satisfy customer public image
needs 5. Employees
 Walt Disney
Recommended Vision

“To make entertainment the wheel of life”

 STATEMENT OF OBJECTIVE:
Walt Disney
“As the world’s leader in entertainment and
information we seek to create an engaged
and collaborative culture for our employees
in order to turn our customers‘ moments
into a unique experience, by providing
special services and innovative products
through movies, parks and the e-world. By
taking advantage of our diversified
portfolio to differentiate our content in all
segments, we aim to develop the most
profitable entertainment company
worldwide, which would yield increasing
profits to our shareholders.”
 Walt Disney
Overview
Segment Revenues ‘12 Revenues ‘13 Growth

Media Networks 19,436 mil. $ 20,356 mil. $ 5%

Parks & Resorts 12,920 mil. $ 14,087 mil. $ 9%

Walt Disney Studios 5,825 mil. $ 5,979 mil. $ 3%

Disney Consumer
3,252 mil. $ 3,555 mil. $ 9%
Products

Disney Interactive 845 mil. $ 1,064 mil. $ 26%

Disney - contribution of segments to
revenues

Media Networks 45%

Parks & Resorts 31%
Studio Entertainment 13%
Consumer Products 8%
Interactive 3%
 Walt Disney Organizational
Structure
CEO
CEO
Chairman, Walt Disney
International
Executive Chairman, ESPN,
Inc.
Senior Executive Vice President,
General Counsel and Secretary,
The Walt Disney Company

Business Unit
President, Disney Consumer
Products
Senior Vice President, Global
Security, The Walt Disney
Company
Corporate

Chairman, The Walt Disney

Executive Vice President, Corporate Strategy Studios
and Business Development, Executive Vice
President, Corporate Strategy and Business
Development
The Walt Disney Company

Executive Vice President, Corporate President, Disney Interactive

Real Estate, Alliances, and
Treasurer, The Walt Disney
Company
Co-Chairman, Disney Media
Networks Group and
Executive Vice President and Chief President, ESPN
Communications Officer, The Walt
Disney Company
Chairman, Walt Disney Parks
Executive Vice President and Chief and Resorts
Human Resources Officer, The Walt
Disney Company
Co-Chairman, Disney Media
Networks and President,
Senior Executive Vice President
and Chief Financial Officer, The
Disney•ABC Television Group
Walt Disney Company

Senior Vice President, Planning and

Control, The Walt Disney Company
Walt Disney Objectives

• FINANCIAL • MARKETING

20% annual Family

growth in orientation :
earnings per appeal to kids
share and bring the
family together

Expand the
portfolio of Foster an
characters and engaged and
drive the collaborative
company into company culture
the e-world
• RESEARCH & • HUMAN
DEVELOPMENT RESOURCES
 Walt Disney
Corporate Strategies
PRODUCTS
Existing New
Market penetration New products

Existing • Targeted market segmentation • Related Diversification

through acquisitions • Diversification in branding
• Vertical & Horizontal integration
MARKETS
Market development Conglomerate diversification
New
• Foreign Outsourcing
• Direct Investment n/a
• Licensing
 Walt Disney
Grand Strategy
RAPID MARKET GROWTH

 Market development
 Related Diversification
 Vertical Integration
 Horizontal Integration
 Market penetration
WEAK COMPETITIVE POSITION STRONG COMPETITIVE POSITION

SLOW MARKET GROWTH

 Walt Disney
PEST Analysis
POLITICAL
 The animation industry enjoys tax benefits.
 Political differences are an obstacle to International Trade.
 Tighter regulations regarding products safety.

ECONOMIC
 Global financial crisis slows down growth.
 Emerging markets such as India offer a cost advantage in terms of salaries
and the overall cost of production.
 Economic growth, per capita income and stage of economic development
among different countries needs to be considered.
 Walt Disney
PEST Analysis
SOCIAL
 Recent social trend in smartphones, tablets and apps.
 Different local cultures, as well as stories and history of the host place.
 Changes in customers preferences for entertainment.
 Significant role of kid’s and family’s entertainment.

TECHNOLOGICAL
 Technological advancements are having a profound effect on the
world’s media.
 Changes in technology affect demand for entertainment products as
well as the cost of production.
 Walt Disney
Porter’s 5 Forces Analysis
THREAT OF NEW ENTRANTS - (MEDIUM)
Even though there are major players, still smaller players with lower
structures can enter the market.

THREAT OF SUBSTITUTES - (HIGH)

Technological innovations & high competition in each segment,
generate many alternative choices for consumers.

BARGAIN POWER OF SUPPLIERS - (LOW)

Disney’s vertical integration reduces significantly their power.
BARGAIN POWER OF BUYERS - (HIGH)
Disney’s offerings are desires, rather than necessities. Therefore,
financial restricted consumers will not buy.

RIVALRY AMONG FIRMS - (HIGH)

Huge competition between companies within specific sectors.
( broadcast rights/local parks/viewing figures/box office/other brands)
 Brand Value

Listed 27th in the world’s 500 most valuable

brands*
• $ 20,548 millions brand value in 2013
• $ 23,580 millions brand value in 2014

*http://brandirectory.com/league_tables/table/global-500-2014
 Walt Disney
Financial State

Performance Indicators
Current Stock Price $ 80.07

Consolidated Revenues $ 45,041 millions

Net Income $ 6,136 millions

Return on Equity 14.41

Return on Invested Capital 11.24

Gross Profit Margin 21.29

Annual Dividend per Share $ 0.60 (2012)

 Market Share on
Studio Entertainment Industry

Globally Globally Globally

$ 5,03 billion $ 4,68 billion $ 3,68 billion
Overseas Overseas Overseas
$ 3,14 billion $ 3 billion $ 2,26 billion
U.S. U.S. U.S.
$ 1,89 billion $ 1,68 billion $ 1,42 billion
 Competitive Profile Matrix
WALT DISNEY WARNER BROS UNIVERSAL
CRITICAL RATING RATING RATING
SUCCESS WEIGHT SCORE SCORE SCORE
FACTORS 1-4 1-4 1-4

Advertising .12 4 .48 4 .48 3 .36

Market Share .10 3 .30 4 .40 2 .20

Financial
Position
.10 4 .40 3 .30 2 .20

Management .08 3 .24 3 .24 3 .24

Global
Expansion
.10 4 .40 4 .40 4 .40

Technology .15 3 .45 4 .60 3 .45

Customer’s
Loyalty
.10 3 .30 3 .30 2 .20

Brand
Awareness
.15 4 .60 4 .60 3 .45

Creativity .10 4 .40 4 .40 4 .40

TOTAL 1.00 3.57 3.72 2.90

 Walt Disney
SWOT Analysis

S Brand Reputation
W
•Highly Diversified Portfolio
•Strategic & Tactical
•High Cost of Operations
Acquisitions
•Concentration of Revenues In
•Global Expansion & Alliances
North America
•Economies of Scope
•Approaches Antitrust Law
•Top Management
Limits
•Loyal Customers
•Strong Financial Position

O •Benefits From IT Advances &

•Financial Récession
•Increasing Piracy
T
Mobile Gaming •Strong Competition
•Build A More Eco-Friendly Image •Continous Need For
• Further expansion in new Technological Update
emerging economies •Change in Consumers
•Release of New Successful Preferences & Tastes
Stories & Characters •Negative Publicity Due to
Unexpected Event
 SWOT
Analysis
 Strengths
• One of the most recognizable entertainment company in the world
• Strong advertising
• Wide and unique portfolio
• Innovative entertainment business
• Strong customer service
• Strong Media Networks and Broadcasting division
• Disney owns a variety of companies, which allows them to generate more
profits from different industry such as Media Networks and Broadcasting,
Park and Resorts, Studio Entertainment and Disney Consumer Products
• Disney is the largest worldwide licensor of character-based merchandise and
producer of children’s film-related products based on retail sales
 Weaknesses
• Disney sends a corrupted influence to children

• Jasmine was in a forbidden relationship with Aladdin

• Snow White lived alone with 7 men

• Pinocchio was a liar

• Robin Hood was a thief

• Tarzan walked without clothes on

• A stranger kissed sleeping beauty and she married him

• Cinderella lied and sneaked out at night to attend a party

• Coyote runs off cliffs and blows himself up

 Weaknesses
• Studio Entertainment and Disney Consumer Products divisions have been
experiencing declining revenue for the last 3 years

• Disney as a narrow target market

• Disney as such a diversify product range that it can reduce efficiency and lead
to a lack of strategic focus

• High cost of entertainment production

• High employee turnover

• Poor working conditions in factories

• Walt Disney’s Park and Resorts are not easily accessible which leads people to
associate Disney World with a costly trip
 Opportunities
• Opportunity to renovate attractions in Park and Resorts Division due to
increase in profit

• Growth from cable and satellite operators creating even more potential for
Disney to make money with their network

• Prospect to build more theme park and resorts worldwide

• Openings in other areas of the travel business

• Opportunity to invest in building theme parks to satisfy the increase in guest

spending, theme park attendance, and hotel occupancy

• Target new costumers group

 Threats
• Lasting economic recession leading to slow growth rate
• High unemployment rate
• Park and Resorts Divisions’ success is unpredictable because of exchange
rate fluctuations; travel industry trends; amount of available leisure time; oil
and transportation prices; and weather patterns and seasonality.
• Changes in technology leads customers to stream online instead of buying
DVD.
• Online streaming makes Disney vulnerable to piracy and violation of its
intellectual property.
• Retail distribution business are influenced by seasonal consumer purchasing
behavior and by the timing and performance of animated theatrical release
• Increase in labor cost which will have a noticed impact in Walt-Disney
expenses due to their large amount of employee.
Implementation
“Disneyland will never be completed. It will
continue to grow as long as there is imagination
left in the world.”
Walt Disney

“Pixar is the most technically advanced creative

company; Apple is the most creatively advanced
technical company. “
Steve Jobs 2005-02-21
External Audit
 External Factor Evaluation Matrix (EFE)
WEIGHTED
WEIGHT RATING
SCORE

OPPORTUNITIES
Benefits from it advances & mobile games .20 3 .60
Build a more eco-friendly image .05 3 .15
Further expansion in new
.15 2 .30
emerging economies (Russia, India)

Release of new successful stories and characters .05 4 .20

THREATS
Financial Recession .15 3 .45
Increasing Piracy .10 2 .20
Strong Competition .10 3 .30

Continuous need for technological update .10 3 .30

Change in consumer preferences and tastes .05 2 .10

Negative publicity due to unexpected event .05 3 .15

TOTAL
Internal Audit

Disneyland will never be completed. It

will continue to grow as long as there is
imagination left in the world.
- Walt Disney
 Internal Factor Evaluation Matrix (IFE)
WEIGHT RATING WEIGHTED SCORE

STRENGTHS

Brand Reputation .15 4 .60

Highly Diversified Portfolio .15 4 .60

Strategic & Tactical

Acquisitions
.08 3 .24

Global Expansion & Alliances .05 3 .15

Economies of Scope .08 3 .24

Top Management .07 3 .21

Loyal Customers .10 4 .40

Strong Financial Position .05 3 .15

 Internal Factor Evaluation Matrix (IFE)
WEIGHT RATING WEIGHTED SCORE

WEAKNESSES

High Cost of Operations .15 2 .30

Concentration of Revenues in
Us & Canada
.08 2 .16

Approaches Antitrust Law

Limits
.04 1 .04

TOTAL
 Strengths Weaknesses
1. Brand Reputation
2. Highly Diversified Portfolio
3. Strategic & Tactical Acquisitions
1. High Cost of Operations
Walt Disney SWOT 4.
5.
Global Expansion & Alliances
Economies of Scope
2. Concetration of Revenues In North America
3. Approaches Antitrust Law Limits
Combined Strategies 6. Top Management
7. Loyal Customers
8. Strong Financial Position

Opportunities SO - Strategies WO - Strategies

1. Benefits From IT Advances & Mobile 2-1: Develop mobile game applications with
Gaming Disney characters
2. Build A More Eco-Friendly Image 1-2: Collaborating with WWF so as to
promote environmental issues 1-1: Digitalization of our operations in order to
3. Further expansion in new emerging
6-3: Build a multinational management low costs & utilize technology
economies (India, Russia)
team 2-3: Target India as possible expansion through
4. Release of New Successful Stories & consumer products
8-4: Consumer research on their
Characters
preferences nowadays

Threats ST - Strategies WT - Strategies

1. Financial Récession
7-1: Offer discounts to all members of
2. Increasing Piracy
Disney fun club
3. Strong Competition 1-1: Re-edit and release in cinemas old classic
3,4-3: Expansion in Brazil market through
4. Continous Need For Technological Disney films
alliances and synergies
Update 2-3,4: Take advantage of operations that take
8-4: Invest on R&D for one high tech
5. Change in Consumers Preferences & place in N. America by investing in Technology
department
Tastes and R&D for that area
6-5: Monthly consumer research via online
6. Negative Publicity Due to
polls
Unexpected Event
 Expansion in Brazil Develop mobile game
QUANTITATIVE STRATEGIC PLANNING MATRIX market through applications with Disney
alliances and synergies characters
Key Factors Weight AS TAS AS TAS
Opportunities
1. Mobile game sectors could grow at a compound annual growth rate of 23,6 % by 2017 0.20 1 0.20 4 0.80
2. Decrease in environmental impact by 50% 0.05 - - - -
3. Emerging markets offer a cost advantage in terms of salaries and cost of operations. 0.15 4 0.60 3 0.45
4. Extension of R&D efforts in order to release new successful stories and characters. 0.05 2 0.10 3 0.15
Threats
1. 12% decline in average total expenditures in entertainment in USA from 2008 to 2010. 0.15 2 0.30 3 0.45
2. Piracy costs in the US economy every year $ 250 billion. 0.10 - - - -
3. Walt Disney’s market share in Studio Entertainment segment is 16,62% 0.10 2 0.20 1 0.10
4. Continuous need for technological update 0.10 1 0.10 4 0.40
5. Change in consumer preferences and tastes 0.05 - - - -
6. Negative publicity due to unexpected event 0.05 - - - -
Subtotal 1.00
Strengths
1. 27th position in the rank of the Best Global Brands. 0.15 4 0.60 2 0.30
2. Highly diversified portfolio 0.15 4 0.60 3 0.45
3. Acquisition of Marvel, ABC, Pixar, Lucas Film, ESPN etc 0.08 3 0.24 2 0.16
4. Almost 30% of revenues from operations in Europe, Asia Pacific, Latin America and other 0.05 4 0.20 3 0.15
5. Economies of Scope 0.08 3 0.24 2 0.16
6. Top Management follows four core concepts (3Ds+B) from 1922 0.07 4 0.28 2 0.14
7. Customers’ loyalty 0.10 2 0.20 4 0.40
8. Strong financial position: $7,370m intangible assets and $27,324m goodwill for FY 2013 0.05 3 0.15 1 0.05
Weaknesses
1. High cost of operations: $35,591m FY 2013 when total revenues are $ 45,041m 0.15 1 0.15 4 0.60
2. Almost 70% of operations is concentrated in US and Canada. 0.08 2 0.16 1 0.08
3. United States Antitrust Law restricts the mergers and acquisitions of organizations 0.04 - - - -
Subtotal 1.00
SUM TOTAL ATTRACTIVENESS SCORE 4.32 4.84
 Implementing Strategy
Preparation of the appropriate budget.

Allocation of personnel.

Communication of the strategic vision, the

strategic themes and their role to the employees.

Use of presentations, workshops, meetings,

frequent updates.
 Evaluation of Strategy
Mobile could drive total games software industry revenue
to $100B by 2017 .
• Mobile/online games could grow to ~$60B revenue (23.6% CAGR
11-17F)
• Mobile/online games could take 60% games software market
share by 2017
• Total global games software revenue could grow to ~$100B
revenue by 2017

Games dominate mobile app usage and revenue.

• Games took 32% of 2013 mobile app usage (blended iOS/Android
tablet/smartphone) - 67% of tablet usage
• Games took 72% of 2013 mobile app revenue and ~40% of mobile
app downloads

source: www.digi-capital.com
source: www.digi-capital.com
Mobile Games Industry
Descriptive Statistics

source: www.digi-capital.com
 Evaluation of Strategy
Rumelt’s Criteria
The recommended strategy is:
 consistent
It will be developed by the existing Interactive Department so that
interdepartmental disorder is avoided.
 consonant
It will be an adaptive response to the recent social trend for mobile
games applications.
 feasible
Disney’s financial state can support the recommended strategy
which will result in the company’s growth in the short-term.
 maintaining the competitive advantage
The company’s position in the market will be strengthened.
Target Market:
Disney mainly targets a younger more
child based market, but aims to be
enjoyed by all ages.

In some recent shows and films as well as New Technologies:

the easy to follow child storyline, they Disney is up to date with the new
have an echoing adult humour coming media and technologies such as
through. the many Disney apps you can
get such as the new ‘The
Muppets TAPTAP’ , also the many
video and computer game they
have released.

They do this to keep up with the

target market.
 Balance Score Card
Objective Measure Initiative
Diverse into related industries,
Process Customer Financials

Increase in revenue 20% growth in ROE

focus on medium budget films.
Open merchandise shops in
Increase in % of revenue from
Europe and other locations,
International Sales international sales
more theme parks

Customer acquisition & Sticking to family image and

Customer Lifetime Value
satisfaction sentiments

Increase synergies, Integration

Operations – Low cost Operations cost, RONA, ROMI
strategies.

Large bonuses to employees

Cross divisional Revenues through cross
who have higher focus on
synergies promotion
Learning &

synergies
Growth

Retain flat organizational

hierarchy. Regional Heads with
Employee Empowerment Employee Turn Over ratio more accountable
responsibilities, Less
micromanagement