Online Discussion on Corporate Strategy and The Walt Disney case PDF

Preview

Summary

The corporate strategy of the Walt Disney company...

Description

1. Is it better to ally or to acquire?

Since investing in foreign markets usually includes some amount of risk, if management decides to expand, they must study the ally, subsidiary, or potential merging company with which their company plans to partner, acquire, or merge. Allyship and acquisition also include potential economic and political risks with which management must contend. For a company to ally itself with another, trust must be built through constant interaction and negotiation. If trust is broken, perhaps by the theft of intellectual property, or other general incompatibilities and conflict, the allyship can be disbanded and the parties can go their separate ways. However, if one company acquires another, such a heavy investment is a commitment that takes much more time and resources to break up through a sale or divestment process. Acquisition requires a heavier investment up front, but if trust cannot be formed to successfully pursue a partnership, it may be necessary to achieve the company’s goals. Such acquisitions (or mergers), especially internationally, allows more oversight into the subsidiary’s (or merged partner’s), operations, activities, and books. The purchasing company also has the option to restructure much more of its subsidiary to comply with desired practices or to introduce different management. Additionally, while allying with a partner company may divulge insight into its home market through traded R&D, negotiation, and strategizing, the acquisition of foreign companies allows for a more swift integration into new markets, with the acquired company immediately handing over included intellectual property, R&D, and their knowledge of their market for the purchasing company’s strategic development. Ultimately, neither allyship or acquisition is always better than the other. Each is a tool a company can use to expand its sphere of influence in the global market and increase its ability to

create value. For companies willing to invest heavily into the future of another company, to withstand the potential risks that come with it, and have the necessary funds, acquisition may be best. But for companies which instead wish to test the foreign market or to lessen their investment and risk, allying with a foreign company may be best.

2. When does unrelated diversification make sense?

Unrelated diversification, or the investment/development of resources into relatively unrelated areas of business are only useful if the acting company can create synergy between departments and direct its core competencies into the new business. If a company’s core competency does not fit with the new type of business, or if its corporate strategy does not integrate it well enough into the rest of its department to create more value than the sum of its parts, the diversification attempt would be futile or damaging. To better create synergy, a company can share resources and activities between departments, lessening waste and increasing the efficiency of the flow of the materials or products between its individual businesses. Such movement of material is affected by the company’s ability to eliminate stoppages in its supply chains. Risks when attempting to expand across multiple unrelated businesses include the following. It is possible to increase managerial and operation complexity to a harmful degree, stretching a company’s ability to manage so many businesses to profit loss. In some way, the more diversified a company may be, the more necessary that one of its core competencies is managing that diversity well enough to extract profitability. A few prime examples companies

with mostly unrelated diversification are multi-handed conglomerates like Berkshire Hathaway, Textron, Yamaha, and Samsung. Each is involved in widely varied and mostly unrelated businesses, yet has remained (mostly) profitable for decades. Risk from over-investing in a single industry can be averted, so if an industry declines, the portfolio of a diversified corporation is not as badly impacted as if they were fully invested in a single volatile business. Ultimately, research shows that companies may be more likely to be successful and profitable in the long run if they adopt the related constrained model of diversification, where their diversified businesses all share some variety of operational or managerial core competency. This strategy allows a business to take advantage of some of its existing capabilities in diverse industries, reducing their overall risk and building an economy of scope to reduce costs.

3. When should a corporation pursue international expansion?

Since the core purpose of a company is to create the maximum amount of value, accessing and extracting value from international markets can increase its ability to sell to additional customers. Some advantages to expanding internationally may include increased risk diversification across markets, the creation of value in previously uncontested areas, access to cheap labor, materials, and resources, and locational strategic advantage. However, international expansion may result in additional risks and negative consequences if a company is not prepared. Such outcomes include high investment costs, difficulty regulating management teams across different areas, lacking preparation or understanding of other cultures, laws, and markets, and increased complexity and operational overhead. There are many examples of companies expanding into international markets whose value they misinterpreted or were unprepared to

capture, resulting in major losses of invested capital and damaged brand image. However, with a proper understanding of the foreign market’s nuances, methods of expansion, and international business strategy, a company can capture previously uncaptured or emerging segments of the global market. There are multiple ways to expand internationally; these include exporting goods to foreign distributors or retailers, licensing intellectual property or products to foreign manufacturers or companies, allying or creating strategic partnerships, acquiring foreign firms, and developing subsidiaries in other countries. Each method of international expansion has its own challenges, risks, and benefits. For example, while licensing may be relatively inexpensive compared to the other methods, it has low returns and is difficult to oversee; similarly, exporting goods limits control, but has higher returns (and higher costs). Each method of international expansion has its benefits, but can also fail if executed poorly. Bad timing, misunderstanding a market, lack of oversight, and miscalculation during cost/benefit analyses can all damage a company’s potential for success.

4. Has Disney diversified too far in recent years?

Disney was founded as an animation studio in the early 1900s, creating shorts and small films; throughout the early to mid-1900s, they expanded operations to include the production of colored-film, live-action, television shows, and even a theme park. The company based its central duties squarely in the entertainment industry. However, over the next few decades, it expanded further into many other types of entertainment, such as cruises, movie franchises, intellectual property licensing for retail products, live shows, a streaming service, and more. It

originally targeted adults, but shifted its focus to the entire family. During brand revitalization efforts, the new CEO, Eisner, promoted corporate values, and support of Disney’s characters and culture. Creativity and long-term project viability were reprioritized as the most important aspects of their business. Even if a business venture or project pursued under Disney is different from its previous ones, if it follows these rules and their core competency of family entertainment, it may be Disney material. However, when a subsidiary does not match Disney’s core values, it can negatively impact the company overall. For example, Disney’s acquisition of ABC did not fit their core competencies in family entertainment, and this move gave them constant trouble. Disney’s business mix widely expanded during the late 1990s and early 2000s, signalling an attempt to break into wider forms of entertainment, such as sports and news. To create synergy between divisions, Disney created yet another division, but so many divisions, relationships, management teams, and employees created additional challenges for them to deal with. So far, Disney’s rapid expansion has caused many executives to leave, citing too much conflict, anxiety, and overmanagement. However, Since Disney has not yet strayed too far outside of their core competencies within the entertainment industry, they may be able to handle the amount of diversification they have already built....