The Future Direction of Dream Works Drawing on Comparisons with Pixar - Example

Report title: Recommendations for the future direction of Dream Works drawing on comparisons with Pixar Prepared for: Prepared by: Submission date: Table of Contents Executive summary 4 Introduction 5 Structural Contingency Theory 7 Dynamic Capabilities Theory 9 Comparative Analysis of DreamWorks and Pixar 11 Recommendations 12 Conclusion 15 Reference list 19 List of Illustrations Executive summary DreamWorks Studios is planning on making the switch to a great player in the entertainment sector. It has identified one company, Pixar Animation Studios, on whose business model it will base its future strategy. This report seeks to draw insights from this great company which concentrates on animations. It also draws from three theories; Structural Contingency Theory, Dynamic Capabilities Theory, and Design Thinking Theory. It also makes comparisons between the two companies along these lines in charting the way forward. The purpose of this report is to provide insights on how DreamWorks can integrate the lessons derived from Pixar. The report has mainly relied upon secondary research over the internet in acquiring information. It consults various third party websites with detailed information pertaining to the two companies. In the discussions, the report finds that DreamWorks has been operating as a highly diversified company. It has its hands full from years of constant expansions. Some of the projects have been successful while others have not. As a result, it has been experiencing fluctuating fortunes due to divided attention on various projects. In fact, it has experienced challenges in sourcing financing as lenders fear extending credit to an unpredictable entity. There is need to alter this. Going forward there needs to be emphasis on transforming the company into a consistent top performer like Pixar. The recommendations towards this end include specializations, undertaking fewer projects, going public, frequent marketing research, and implementing a horizontal organizational structure. A successful implementation of these recommendations should put DreamWorks on the right path towards a consistent and prosperous future. The only factor to look out for is how the competitors react to these new strategies. Introduction DreamWorks Studios has been operational in the last twenty years. In the course of this duration it has seen both successful and harsh times. It has had several releases some of which went ahead to record high returns not to mention the prestigious awards. However, others have not been so successful and resulted in heavy losses. Many partners have come and left but the company still remained in pursuit of its ambitions. On two occasions, it has been on the brink of bankruptcy but still managed to stay afloat. However, time has come to make the switch from an average to great company. The experience it has acquired over the years will act as the point of reference onwards. One company DreamWorks holds in high esteem is Pixar Animation Studios which has been in the business much longer. It is the hope of its top management that it follows in the footsteps of this animation giant, which after thirty six years in the business has not had any of its productions flop. Apart from consistency in the success of its films, it also wants to increase the level of profitability. In aiming to attain these goals, the company welcomes suggestions on the direction it should take in the future. DreamWorks is a US entertainment company dealing mainly in film production. Founded in 1994 and based in California, it is the brainchild of Steven Spielberg among other leading entertainment icons. From its inception, it has grown to be among the largest film producers in the world. It has made successful attempts at diversification in the past and has had divisions dealing in the production of television content, music, video games (Fleming, 8, 2013). However, the company boasts various accomplishments. It has over ten films under its belt all of which have earnings in excess of a hundred million dollars. Founded in 1979, Pixar is a US film company dealing mainly in animation. The company has received worldwide acclamation for its high quality productions. All of its 14 films have individually raked in over $600 million with countless awards to show for it. Furthermore, the films have been highly rated and constitute the list of highest selling productions in history (Catmull 2014). Pixar initially dealt in hardware computers. However, the low sales levels meant it had to look for ways to increase revenues. Animation was one of these options and grew to a profitability level that it sold the hardware business to concentrate on it. The company has also had its share of restructuring since its founding. Fig. 1: DreamWorks annual performance http://www.sec.gov/Archives/edgar/data/1297401/000119312511045757/d10k.htm Structural contingency theory states that there can never be a perfect structure for every organization. It takes into account the fact that organizations are unique and posses varying resources among other factors. As a result, organizations should make sure their choice of structure takes into consideration the prevailing factors in their environment. And by environment it refers to both the internal and external (Donaldson 2001). Dynamic capabilities theory focuses on the internal environment of an organization. It emphasizes the importance of acquiring competitive advantages over rivals. The only way this is possible is through making sure the resources are well developed and constantly upgraded (Eisenhardt & Martin 2000). Design thinking theory, on the other hand, places customers as the center of its attention. It understands that ultimately everything boils down to the consumers. Therefore, it encourages organization to direct their innovations attempts towards solving consumer problems (Daft, Murphy, & Willmott 2014). Structural Contingency Theory This theory requires organizations to pick the structure that it best for their situation. The effectiveness of a structure is only as good as the environment of an organization (Donaldson 2001). While at this, it needs to ensure that all the variables have been well attended to. It would be an imprudent decision to overlook one variable or even focus on one at the expense of another. Such would imply that inefficiencies would always emerge during the implementation of the structure. Therefore, organizations need to focus on their situation instead of imitating moves by competitors. The first aspect of the structure at DreamWorks is the ownership mix. The company is a private entity which relies heavily on injection from owners and debt financing from partners. As a result, it has always been very difficult to acquire capital for viable projects. Citing the quest to create its own studio, it had to pass on this opportunity due to financial constraints. The situation could have been different had it been a public company. All it could have done was either to issue new shares to the existing shareholders or float shares in the market. This private company status does not seem to augur well for its future ambitions. Keeping in mind it relies on debt financing, the high gearing costs could curtail further growth in future as retained earnings go towards paying accrued interests (Chandler 1962). Pixar, on the other hand, has a public company since 1995. It conforms to the principles set for such an entity as opposed to the former. On the first instance, this ownership structure has made it easy to acquire capital to capitalize on the emerging opportunities (Tyler 2011). It has positioned Pixar to take its business to the next level. On the second instance, it has indirectly made it a must for Pixar to come up with great and creative content. The company understands well that it relies on the shareholders for financing. And this is subject to high performance in the film industry. Therefore, it has no otherwise but to keep churning great animated features for the market. Failure to which the shareholders, both current and prospective, will not extend financing to the company. Fig. 2: DreamWorks revenues http://www.advfn.com/p.php?pid=vfcharts&symbol=DWA DreamWorks has a matrix structure which bears characteristics of the tall and wide structures. There is an established chain of command with a clear reporting order from the top management down to the employees (Burns & Stalker 1961). This is the characteristic a tall structure. On the other hand, it has organized it subsidiaries into divisions which report to the headquarters in California. The employees in each divisions are independent operate without interference from sister companies. On the other hand, Pixar has a hierarchal structure with a clear reporting order. Because it does not have subsidiaries, it does not need breadth in its structure. That is why it has a thin one to accommodate only the animation business. Furthermore, the structure is also relatively short in relation to organizations in other sectors. The reason is because entertainment companies thrive on talent which in turn operates efficiently in a non-bureaucratic setting. The employees need space to experiment and come up with new creative ideas. Dynamic Capabilities Theory This theory requires organizations to develop competitive edges over their rivals. But this should not be the end. Organizations have to keep acquiring and improving these resources. Having the most sophisticated resources should not warrant a company growing complacent. Competitors are always acquiring newer and better resources. In a short while, their initial competitive advantages will no longer stand when competitors have matched or surpassed their resources’ capacities. Furthermore, a company might have the best resources but still fail to develop competitive advantages over the rivals in the end (Teece 2007). In such a situation, the secret could lie in the manner in which a company utilizes its resources. Perhaps the procedures are not efficient and lead to uneconomical or ineffective utilization of resources. DreamWorks seems to be an ardent subscriber of this theory. It is engages in the upgrading of its resources mix. Towards this end, it is always modifying its operations like the theory demands. The perfect example is when it had to let go of some of its not so profitable subsidiaries to concentrate on its stable businesses (Peter 2008). It opted to outsource the distribution of its films to Walt Disney which has a better developed network and contacts in the industry. When faced with financing challenges, it has been forced to switch among partners to guarantee optimum funding for its upcoming projects. In all these attempts, it aims at preserving and increasing its edges. Similarly, Pixar has not been left behind. The company has made efforts to create competitive edges. The company started out as a hardware computer manufacturer but slowly turned to the animation segment in which it has competitive advantages (Teece 2009). This move is in line with the theory which encourages companies to concentrate on areas where their competitive edges are strongest. It also modifies and acquires new resources with better capacities to ensure it protect the high quality of its productions which is its main competitive edge in the market The theory also demands the constant development (Clegg, Kornberger, & Pitsis 2011). DreamWorks is always in the process of acquiring new resources and businesses to inject competitive advantages in its operations. Apart from films, it has initiated subsidiaries in television programs, animations, and video games in the past two decades. It is always developing new edges on several fronts. DreamWorks is well cushioned against market fluctuations in any of these fields. In such a scenario, the other segments would step in to cover for the losses incurred in the ailing sector. However, this is not the case with Pixar. The company interprets this in a conservative manner and is not very keen on this front. The reason is because it has been initiating projects to increase advantages on this segment only. It makes no attempts at all to develop competitive edges in other areas. It seems satisfied with its presence in the animation segment. However, there is one flaw in this strategy. It risks huge losses or even shutting down should this market segment experience a major downturn. Fig. 3: DreamWorks annual income http://www.advfn.com/p.php?pid=vfcharts&symbol=DWA Comparative Analysis of DreamWorks and Pixar The two companies bear similarities in their structures. The matrix structure at DreamWorks borrows the ideals of tall structure with its levels of hierarchies. This establishes a chain command which is also present in the hierarchal structure at Pixar. This similarity implies that there is a clear reporting order in both organizations to guard against employees overstepping their mandates. In terms of Dynamic Capabilities Theory, the two are similar in that they are keen on developing competitive advantages. Their histories clearly indicate how they acquire resources to create and preserve their competitive edges. The two are always on lookout for better resources that can increase operational capacities. DreamWorks and Pixar also display some differences. In terms of Structural Contingency Theory, the two are different in the sense that DreamWorks is a private entity whereas Pixar is a public company. The former relies on debt financing sourced from the partners. In return, it pays interest accrued on the debt. Pixar on the other hand relies on shareholders equity for financing. At the end of a financial year, it declares dividends to the stakeholders. DreamWorks also runs on a matrix structure due to its many subsidiaries. This structure implies that there the concentration of power at the top. Pixar, on the other hand, only has a hierarchal structure since it has no subsidiaries. While the top tiers might posses power, there is delegation and lower levels too have a say in the decision making process. In Dynamic Capabilities Theory, the two have different approaches in increasing their competitive advantages. The former develops competitive edges on various fronts. It creates new segments and tries to improve them all (Fritz 2012). On the other hand, Pixar only concentrate on constantly upgrading the animation segment. The company only develops competitive edges in its specialized field. DreamWorks engages in numerous businesses whereas Pixar only concentrates on animation. Recommendations The following recommendations will revolve around the Design Thinking Theory. This theory places customers at the center of its attention. It understands that ultimately everything boils down to the consumers. Therefore, it is important that every innovation attempts to solve prevailing consumer problems (Daft, Murphy, & Willmott 2014). In so doing, the first step is to discover an existing need in the market. The next step is to come up with several practical solutions. Analysis of the advantages and disadvantages of each follows before settling on the one best suited for the situation. Specializations In the wider market, diversification is a preferred strategy. It helps a company spread its risk to hedge against fluctuations in the market (Luhman & Cunliffe 2012). However, the entertainment market is a little different. Spreading risk also implies dividing attention among various projects which is a recipe for a possible flop in the market. However, quality is guaranteed with focusing on only fewer projects. DreamWorks should head in this direction. It has already done so in the past by selling non profitable business. Same as when it outsourced distribution to Walt Disney. Now is the time to go full throttle. It should handle this specialization like Pixar has done by settling on strictly film. Similarly, DreamWorks needs to find its niche. There are many segments within the film industry. It should settle on one in which it has done most successes and make sure to duplicate its past successes in the future. Fewer projects Perhaps DreamWorks should borrow a leaf from Pixar. It cannot become a great company with a history of fluctuating fortunes. At one time, its productions are topping charts in the market, the other they are recording flops and losses. This fluctuation of returns means that the losses cancel out the high returns from past successful productions. The best strategy would be to have fewer productions and take time to guarantee quality. In the case of Pixar, it takes an average of two years to come up with a high quality production. DreamWorks, on the other hand, has so many releases that can bring this average down to less than a year. It should do away with this strategy for a better one with fewer releases. Going public Furthermore, the public company status will enable it acquire cheap financing. It will have the capacity to undertake any viable projects without having to worry much about the availability of finances. In the past, it experienced financial difficulties immediately after opting out of the deal with Paramount Pictures. Every prospective financier was not willing to extend resources to the company for several reasons. However, it could have experienced different results had it been a public company. It could always have options to approach existing shareholders or seek out new others from the stock market (Luhman & Cunliffe 2012). Frequent marketing research DreamWorks also needs to undertake frequent marketing research. The frequent flops it has had are a clear demonstration that it sometimes fails to read the prevailing market conditions. Perhaps it undertakes research but takes long before conducts the next. With such a strategy, the market fluctuations could interfere with the implementations of current projects. Furthermore, it seems not fully aware of its target market segment if it has any at all. If this is the case then it first needs to settle on a target market segment. Afterwards it might have to consider undertaking marketing research on this group. While at it, it must analyze the group’s characteristics to discover what thrills them the most. It needs also to find information concerning their financial abilities and what time during the year would be appropriate for a movie release. Armed with this information, DreamWorks must set out to create content suitable to this group. It must state outright its goals which the employees should strive to achieve while in the course of production (Miles 2012). The reason why this is important is so that the final product conforms to the tastes and likes of the consumers. Furthermore, settling on a target market ensures that the marketing efforts have the maximum possible impact. Sometimes, a movie might flop not because it lack great content but because it targets the wrong audience. Horizontal structure DreamWorks currently has to reconsider its structure in the backdrop of a different future. The best structure would be the horizontal one with few hierarchies (Luhman & Cunliffe 2012). This structure is best suited for an organization dealing in the creative industry such as DreamWorks. The reason is because it allows the employees enough time and space to interact. In the course of these interactions, ideas form and could form the basis of the subsequent project. The current structure does not allow for free employees interactions. It is only suitable for a bureaucratic organization where creative talent is not requisite for profitability. Conclusion The above recommendations complement one another in several ways. The following is an analysis of their points of convergence. The specialization concept complements the undertaking of fewer projects. The concept requires DreamWorks to settle upon one segment in the entertainment industry. Likewise, it needs to critically analyze the film to identify its stronghold. In this regard, it needs to look at the trend in success level of its films. The decision on which film segment to settle upon should depend on the one with most successful productions. It could choose to settle upon television programs, documentaries, animations, or action movies. This will put it on the same path as Pixar which chose to dwell on animation. However, this also triggers a debate as to whether the decision to undertake fewer projects is well informed. One could argue that a specialization move would center its attention on one field. Therefore, it is a contradiction to have fewer projects as an organization will have too many employees and resources working on a few projects. The rational in this thought is that it should undertake more projects in this one field. While this might be true to some extent, it fails to acknowledge the fact that this is the entertainment industry. The market segment requires high quality releases which take time to develop. Therefore, it is in order for the DreamWorks to undertake fewer projects. The recommendation for DreamWorks to go public relates to specialization and undertaking fewer projects. As a public company, it will always be concerned about its share prices at the stock market. Every project will have to be well thought and executed to the expectations of the consumers. Otherwise, its share prices at the stock market will plummet. With such a strategy, it will be assured of success like Pixar. The horizontal structure will facilitate the success of the specialization and fewer projects. Such a structure often has fewer hierarchies to increase the level of employee interactions. Should it specialize and chose to undertake fewer projects, it will necessitate employee interactions. The employees in such a scenario will be working on similar projects and will require insights from their counterparts. The increased level of interactions, brought about by the horizontal structure, will have addressed this need. However, it requires the employees in an organization to be highly skillful. Furthermore, the employees should be able to work independently without constant supervision. Implementing such a structure will therefore require DreamWorks to hire highly qualified employees. This is also in line with the two concepts in that it will avail the professionals to carry out complex tasks. They will not have to balance their time and skills between projects which demand variation of competencies. Undertaking frequent marketing research will go a long way to complement the specialization and small number of projects. Since the company will have a defined market segment, it needs to track the changes in their tastes, preferences, and attitude among other factors. Failure to this, it stands to lose touch with the consumers which could lead to poor performance of its releases. In the past, it could undertake projects even with little knowledge of the prevailing trends. This is because the general audience is diversified and they were assured of appealing to any of its sections. The results from the marketing research will be critical in influencing the themes of upcoming projects. The few number of projects means it cannot afford to underperform. The implications will be greater than in the past situation. Therefore, it needs to have up-to-date information pertaining to the prevailing trends. Otherwise, it could incur heavy losses when it fails to satisfy the needs of its target market segment. Implementation timeline The report has passed a number of recommendations for the organization. However, DreamWorks needs not to implement them all in a hurry. It should do this systematically. The adoption of a horizontal structure should receive first priority. During its implementation, it will customize the organization to support the implementation specialization. This it will do by providing the required resources while offloading the ones made redundant. Specialization will precede the undertaking of fewer projects as the organization will require time to figure out the most suitable segment within the film industry. Going public would then be an option after specializing and successful undertaking of a few notable projects. At this time, it should have enough reasons to convince the shareholders to invest in the company. Finally, there is never an appropriate time to undertake the marketing research. This should be a continuous process. Therefore, it will always be an ongoing activity in the organization. Limitations in the report This report focuses on DreamWorks with Pixar as the point of reference. It does not incorporate the other major competitors. In the real world, an organization must be cautious of the rivals. They always anticipate one another’s actions and do not hesitate to counter such moves. Therefore, DreamWorks could go ahead and implement these recommendations only for competitors to come up with counter strategies. In the end, these recommendations could prove to be ineffective when the rivals’ actions exhaust the resulting competitive edges. Only DreamWorks knows how it has dealt with the competitors over the years. It knows best how to handle each and every competitor. Therefore, it is up to the top executive officers to anticipate such moves and make arrangements to protect their competitive advantages when the implementation gets underway. Reference list Clegg, S., Kornberger, M. & Pitsis, T., 2011, Managing and Organizations; An Introduction to Theory and Practice. Sage, London. Daft, R., Murphy, J. & Willmott, H., 2014, Organization Theory and Design: International Perspectives. Hampshire: Cengage Learning. Donaldson, L., 2001, The contingency theory of organisations. Thousand Oaks, CA: Sage. Eisenhardt, K.M., & Martin, J.A., 2000, Dynamic capabilities: What are they? Strategic management journal, 21, 1105-1121 Fleming, M, 2013, "DreamWorks Makes Multi-Year Offshore Deal With eOne". Deadline.com. Fritz, Ben, 2012, "DreamWorks Studios stays alive with new $200-million infusion". Los Angeles Times. Luhman, J. & Cunliffe, A., 2012, Key Concepts in Organizational Theory. London: Sage. Miles, 2012, Management & Organization Theory. London: Wiley. 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