Business Strategy of the Walt Disney Company - Essay Example

Introduction The entertainment industry is one characterised by dynamism in terms of product and service range. Companies in this industry mostly pump huge capital in order for them to survive the competitive arena. It is however important to note that some companies in the industry seem to have mastered the art of their trade by being market leaders for decades. One such company is The Walt Disney which has been a competitive force to reckon with since its establishment more than 80 years ago. Strategic management policies put across by this company are notably the ones that have propelled it to its glory. It is mastery of the business environment and working on internal weaknesses and strengths that has ensured Disney’s competitive superiority in film, animation and merchandise sectors in the entertainment industry. This paper will look into this company and consider its history, business environment and the sustainable strategies that it has implemented over the years. History of Walt Disney Company Walt Disney Company has a long history spanning from 1923 when it was established by two brothers; Walter and Roy. It has come from humble beginnings back then to be the giant company it is today in the entertainment industry. By 1926 the company had produced 2 movies and had earned the owners enough revenue to buy a studio in California (Gabler 2007). It is shortly after this that the company experienced huge crisis in respect to distribution rights whereby Mickey Mouse creation came to save the desperate situation. It is in 1932 that the company won an Academy Award for Silly Symphony. In 1934 Disney produced its first full length film which became one of the greatest films at the time. The movie was Snow White and the Seven Dwarfs which Disney released in 1937. During the 1st World War Disney was not able to produce as much due to the company’s involvement in providing skills required in the war. This war proved detrimental as Disney found it hard to embark on animation films production. Treasure Island film which was an action film was produced in 1950 and it brought back the production glory once held by Disney (Walt Disney Company 2010). The management also found it prudent to diversify their operations to include television programs. It is after this that in 1955 it produced the Mickey Mouse Club. It is in the same year that Disneyland was opened and from this time onwards nothing has stopped on its way. Of importance to note is that the company still moved ahead to succeed even after the founder died in 1966 while Roy took over the leadership. Disney continued to grow and increased productions of both live actions and animated films together with theme parks until it spread its wings to open Disneyland in Tokyo Japan. Disney has a strong diversification trend which has seen it attain a market leadership position in the entertainment industry. This diversification strategy saw it start cable channels and extended to Touchstone Pictures so as to produce less family-oriented films. From the 1970s to the 1980s the company was again shaken by takeover bids that saw its operations drop as a result of this estabilisation (Walt Disney Company 2010). However, 1984 Michael Eisner took over as CEO and steered the company to glory again. From this time onwards Disney has not looked back and it now boasts of being worth more than $60 billion as at the end of 2009 financial year under Robert Iger as the 6th CEO (Walt Disney Company 2010). Disney company strengths and weaknesses Disney PESTEL analysis Political factors These are the factors that outline how the government affects a business and its operations. The government intervention is mostly in regards to taxation, laws governing labour relations, environmental laws, trade barriers and tariffs. The government of the day is also a significant determinant of political stability which in turn affects the success of a business. Disney in this case having gone global has come to be affected by the different laws governing the various countries of operation (Ungson and Wong 2008). A good example lies in the fact that Hong Kong and Japanese laws are quite different from United States laws. Japan is stricter when it comes to environmental conservation than the United States is. The other aspect lies in the type of products that it deals with whereby each government offers regulations (Johnson, Scholes and Whittington 2009). In respect to films governments mostly from the East are quite strict on explicit content and prefer more of all-family films. Due to the role governments have regarding education and infrastructure, Disney has to abide by the educational content that these governments would wish to see relayed. Disney when constructing its theme parks needs to consider the country’s standards and recommended designs. Taxation also varies from one country to the other and this forms one of the biggest interventions that the governments have on Disney operations. Economic factors Economic factors also have significant impact on a business’ growth or otherwise. Economic growth for example affects how a business grows. Taking an example of the recent 2008 global economic crisis, it was clear to see that the entertainment industry suffered a huge blow (Peng 2009; Taylor 1987). Consumer spending dropped significantly whereby people leaned more on purchases of necessities rather than going for adventure e.g. to Disneyland. Inflation is the other factor that raises eyebrows and affects a business. Exchange rates and interest rates are the others which have affected Disney’s performance. The weakening of the dollar against major world currencies e.g. the Yen has made the actual revenues from Tokyo Disneyland to shrink and the same case applies to Disneyland Paris among others. The cost of capital is relatively high when interest rates go up thereby affecting growth strategies. Disney is in this regard required to come up with strategies that aim at offering some stability in its global operations through hedging of risks (Mead 1999). Social factors These comprise of issues to do with demographics and culture of the people being served. Social factors and trends make the company’s management to be oriented in a certain way. Disney in this case is supposed to have products that conform to people’s lifestyles. Due to its current global presence, it has to develop its products and services and merchandise to fit the varying cultures and ways of life of people in the different countries (Stonehouse 2000). The Disneyland in USA reflects the typical American lifestyle while that in Tokyo tends to borrow its themes from the Japanese culture e.g. writings. Disney Company also looks into the population and people’s interests in countries so as to know where to open a Disneyland. People’s wealth concentration is another factor that is important while developing location strategies (Watson 2007). Another aspect to look into is people’s culture and management style that they are familiar with in the respective places that Disney has operations. The way a company and its human resources are managed varies whereby the American clear hierarchy of command is less evident in companies from the East (Young 2008). Technological factors Disney operations are technology intensive and since its establishment, it has maintained the growth trend by simply keeping up with the new trends in technology. For a company to remain competitive it has to invest a great deal in research and development in realms of technology. Technology changes quite rapidly and coping with the pace proves to be resource intensive (Prahalad and Hamel 1995). Technology has also made it possible for companies to outsource many of their less core activities to enable them do that which profits the company most (Wilemon and Millson 2007). Disney has in the last few years been changing its operations to use Linux which the management claims is saving on cost and will in the long run encourage creativity and innovation. Such developments although expensive go a long way in ensuring the company is a leading entertainment hub. Environmental factors Here companies are required to be environmentally conscious when doing business. This includes responsible operations that do not facilitate global climate change. Disney in this light has improved in its packaging of its merchandise making the packets more recyclable and environmentally friendly. For Disney the weather patterns also affect its productions. In case of a film that needs to be shot in winter or summer, the production team will be required to wait for the suitable season to film it. Environmental awareness has also forced firms to engage themselves in socially responsible activities by going green (McGee,Thomas and Wilson 2007). Legal factors Companies operate within set legal frameworks and in environments that are served by law. These laws include employment, consumer and discrimination laws among many others. Disney has to abide by them for it to operate within the areas of jurisdiction. When in the US it abides by its legal framework and likewise with Disneyland Paris in France and those in other countries. These laws definitely affect the policy and strategies the company sets across regarding products and services and their quality and content. Other laws govern competitive practices so as to lower unfair competition and Disney being a multinational in most cases finds these laws not favouring it as they mostly protect local industries and smaller emerging firms. This increases on the cost of operation more so in regards to advertisements and other promotional activities (Finkelstein, Whitehead & Campbell 2009). Disney’s Porter’s five forces Threat of new entrants Entertainment industry generally is one that has experienced sprouting of many companies. However, the Disney’s products and services are quite unique and this has made threats of new entrants significantly low. Disney has a niche type of market and the entry barriers are numerous thereby facing limited direct competition. Disney has expressed a formidable force after mastering its business through research and excellent marketing strategies (Hitt et al. 2009). The company has through research come to know the customers’ tastes over the years and understood the dynamic nature of their business. Disney is notably well positioned in family film production and for another company to effectively venture into this line and succeed it will need a great deal of resources in terms of time, skilled manpower and above all, finances (Wilemon and Millson 2007). Disney also enjoys Economies of Scale by having hugely diversified in its products and services. This has made it be able to do mass production at minimum cost and within a short time. These aspects make Disney a force to reckon with and new entrants may find the market quite unwelcoming as a result of its dominance. Bargaining power of buyers Customers in respect to entertainment industry have a high bargaining power than in many other industries. Pricing is where the customers have the most power. In case the films are expensive customers are always reluctant to purchase them. The other price issue relates to the company’s theme parks entrance fees. The company needs to make them conform to the customers’ ability and willingness to pay. Considering the nature of Disney’s business, customers end up spending more therefore removing the cost-saving aspect in their services (Nerur 2008). This in turn offers customers intangible returns for their money and in case some do not realise this, it ends up increasing their bargaining power. Bargaining power of suppliers Disney operates in a highly unique line and therefore requires unique supplies. To switch products it would incur heavy costs and the supplying industry is quite concentrated with few suppliers dominating production of necessary goods and services. It is however important to note that Disney is a huge company and therefore offers good business to the few suppliers. This makes suppliers to also depend on Disney for their growth. These aspects end up creating a mutual dependency that makes the supplier threat moderate. Threat of substitutes Disney does not hold an absolute pillar as regards cartoon or family film productions. However, other firms may enter the market with their cartoons and movies but these products may almost certainly not capture the market as Disney’s. Disney has however appreciated that many products are out there competing with its cartoons, films and theme parks by always upgrading its product and service line. It has also positioned its prices to make them act as ceilings which give it a competitive edge. Rivalry Disney does not have direct competitors or competitors who operate exactly in the same way. Due to Disney’s diversification it runs many sectors i.e. theme parks, films, animations etc. its competitors on the other hand seem to specialise in one or just a few of its product and service lines. Disney Company has for a long time enjoyed lowly rivalled environment and it seems it will have the same environment in future. Three generic strategies Organisations the world over strive to be competitive and ensure that they are able to sustain it (Campbell et. al.1999). In so doing they need to develop strategies that will see them through the harsh competitive business environment. Disney has survived for more than 80 years in the entertainment business and this has been as a result of mastering these generic strategies so as to be able to handle competition effectively. The bottom line with these strategies is that a firm is able to adjust its business, products and services with the changing times. Cost leadership As mentioned above Disney has set price ceilings for most of its products and this has acted to deter entrants and offer a competitive edge over rivals. Pricing strategies offer a good platform for a firm to dominate in cost leadership. Due to the size of the company Disney is able to operate with economies of scale in supplies, production and operations thereby reducing its costs drastically. When costs are low it is possible for a firm to offer competitive prices as its margins will also be high. Low cost also enables firms to concentrate on quality production. Disney has been keen to do market research and know what customers really want in terms of product quality. Disney’s business offers it a good chance to interact with customer first hand. This personalised service enables them to know what to provide thereby leading the company to save on cost of producing that which the market is not receptive to. Disney’s cost leadership strategy will in the long term ensure less and less competitors or duplication of the full product and service line. Differentiation strategy This is one of the key strategies of The Walt Disney Company as mentioned right from the start. Research and development have formed the company’s way of encouraging creativity and innovation among its highly skilled workforce. Differentiation in respect to Disney is both in regards to price and products. It has a wide range of products to offer from theme parks, films, animated videos to merchandise. Their prices also vary depending on the target market and the type of product. Disney in turn has been able to capture a majority of the population not only in United States, Europe and the Far East but in the whole world (Young 2008). Customers to remain glued to a company’s product require to be surprised with desirable changes in the product or coming up with a totally new product that serves their interest (Coulter 2004). Disney has been seen to improve on product design and improvements in its theme parks. The overall differentiation strategy for Disney is to maintain quality and improve on value. This makes every customer’s experience new making them want to go for more and more. Focus strategy Focus strategy involves a company identifying its target market and develop segmentation strategies that serve the target market. This helps them to meet customer needs through its services and products. Entertainment industry is one that tries to capture as many people as possible in order to make desirable returns. Disney is not an exception but it makes its products and services fit families more and this has been at the centre of its success. Its products serve children of all ages to fathers and mothers making Disney a household name in America, Europe and the world over. Disney has maintained its target market for more than 80 years and this has helped it to identify with the market for generations. Since it is not to change this strategy even in the near future, its success is well mapped for many years to come. Disney’s company global strategy and related issues Disney’s global presence has exposed it to numerous challenges that are hurting its business in many ways. The aspect of culture and lifestyle are first in the list. As mentioned earlier conformity with people’s culture is a huge requirement that should not be overlooked at whichever cost when doing business internationally. Many organisations have tried to go global but lack of cultural consciousness has made them collapse (Yip 1999). Disney on the other hand needs to look keener into people’s culture to attract customers. When looking at the European market for example, trying to spread the American culture did not help in Disneyland Paris and this caused other countries like the UK to have their own theme parks that relate better with the citizens e.g. the Alton Towers. These market segments are being snatched away from Disney and in the long run if the trend continues Disney’s global operations will be surpassed in terms of relevance by the single American market. Disney should also concentrate more on the changing lifestyles and psychographics. These contemporary marketing approaches are benefiting other firms even in other sectors to gain popularity. Consumer’s lifestyles change rapidly just as technology as highlighted before (Crotty 2009). Disney as much as it is trying to keep the fast pace of technological change, it needs to account for lifestyle changes as well in its products and services. This involves the increased awareness of the need to be healthy e.g. by eating healthy and exercising more. Disney in this regard may need to include such themes in films and animated videos and show consciousness of this in its theme parks through the majority of foodstuffs provided. Conclusion and recommendations Looking into Disney’s case it is clear to see that the management has tried to remain at the top of the entertainment industry through application of stated strategies. There is however fault lines that need to be taken care of. Disney should concentrate on people’s lifestyles and psychographics. The company should expand on its product lines and services that cater for all people across cultural divide, age and class. This should however be through extensive research based on Activities, Interests and Opinions (AIO) of intended customer base. The company has one of the best theme parks and resorts in the world but it is important to increase their efficiency. These segments yield low returns as compared to their capital outlay. Overall the Walt Disney Company management has worked hard to maintain a competitive advantage through expansion, diversification and research and development. 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