Walt Disney

Disney Studios and the Online Streaming Wars
1
Disney was at its best when it was not just Eisner but rather the triumvirate of Eisner, Wells and Katzenberg. The three complemented one another well, but individually and on their own they could not recreate the same magic. Thus, strategy formulation and implementation has to start with the question of who is calling the shots and making the decisions at Disney? Who is bringing the vision? What is the vision? This has to be clearly defined and it has to be directional. Once the direction is defined, the parenting strategy has to be defined: this is the “manner in which management coordinates activities, transfers resources, and cultivates capabilities among product lines and business units” (Wheelan, Hunger, Hoffman & Bamford, 2010, p. 5). The strategy has to focus on what the company is doing with its human capital. Intangible assets are human capital—i.e., knowledge, know how, motivation, and ability to deliver products and services at a high quality level.
Intangible assets are incomparably valuable to an organization for they cannot be replaced easily but require time, training, investment, searching for the right talent, developing talent, and attracting talent—none of which can be accomplished with the flick of a switch. Thus, intangible assets are often more valuable than tangible assets if the company’s leaders are worth their salt. An organization that fails to adequately value its intangible assets is an organization that is asking for trouble down the road. This is the risk that Disney is currently running by not restoring the triumvirate at least in spirit that allowed Disney to flourish in the late 1980s and early 1990s.
Intangible assets relate to training and development in the sense that training and development are required for human capital to reach its fullest potential while at the same time, human capital is required in order for training and development to be most effective. Therefore, to some extent the issue is like the question of the chicken and the egg—which came first? Does an organization first need substantial human, intellectual and social capital (i.e., intangible assets) before it can have the right kind of training and development team? On the one hand, yes; on the other hand, no—because the training and development is what allows for the intangible assets to reach their fullest potential. What matters is having great leaders who can project the vision and ideals needed for the organization to achieve its objectives.
Human capital influences the changing role of training from skill and knowledge acquisition to creating and sharing knowledge by enabling workers to instruct one another and benefit from the knowledge that each person brings in a diverse workplace environment. Instead of relying on training room courses, workers can interact with mentors in the workplace who bring their experience and insight to the workplace environment and thus serve as encyclopedias of knowledge for younger workers and who can offer social and emotional support along the way as well. This helps to boost other workers’ confidence and get them going in the right direction towards becoming self-actualized and performing at a high quality, motivated level. The more that an organization can invest in human capital and enable workers to interact in ways where experienced and inexperienced workers come together, the less reliant the organization has to be on skills and knowledge training in a formal setting. In order for Disney to have a successful strategy and a successful implementation of that strategy it first needs to invest in the right human capital, which means replacing Wells and Katzenberg with two heads of similar traits.
2
Expanding into international markets requires understanding what those markets are about. It requires cultural understanding of the people there and what they want. In France, for instance, the people wanted wine at their Disney Park and the firm compromised to satisfy. That is the kind of approach that is needed, but there is also the fact that not every Disney product is going to appeal to every culture. This was shown by Mattel when it tried to sell Barbie in China—it was a cultural mismatch. If Disney wants to expand into international markets it has to be in a way that makes sense for the culture and for the company.
The expansion should be an organic one—i.e., one that conforms with the company’s activities. Thus, it would not make sense for Disney to expand in an area outside of its activities. Yet, with the dissolution of the triumvirate, Disney has expanded in a way that was inorganic with the purchase of ABC and that has led to challenges and culture conflicts throughout the company.
Disney should manage a strategy for expansion by looking at its own value chain. Value chain analysis is a systematic way of looking at the company’s functional activities and seeing how well they lead to the creation of customer value. For years, Disney succeeded at doing just that. It revitalized its film industry by developing great scripts into films people wanted to see and creating customer value in terms of entertainment. However, the company moved to expand too hard and too fast in a direction that was better taken in moderation. At the international level the company needs to look to see how it can create customer value for consumers around the world. Since each culture is going to be different, the company cannot make generalizations in this regard. At the same time it cannot make big investments in expansion projects unless it is certain that the investment will see a suitable return. Eisner is looking for a 20% ROI for investors, so the investment into expansion in different cultures should be consistent with measures that will allow it to achieve that ROI. The company thus needs to conduct internal analysis to see how well its resources are being inbounded, how well operations are performing in processing resources into goods or services, how well those processes can be accomplished internationally, how effective distribution is, how well products are marketed, how well customer service is conducted, and so on.
Globalization is a factor that Disney will also want to consider, especially now with the COVID-19 virus wreaking havoc across nations. With so much reliance upon global supply chains, the company could find itself over-extended and so building out supply chains locally wherever it seeks to do business may be the best approach for now. Globalization will continue to impact the world’s economy and indeed even with Disney it will continue to affect everything: from the supply chain to markets to recruiting workers, to hiring, to creating marketing campaigns. The three critical factors for succeeding in the globalized environment, however, are 1) the ability to embrace change and to adapt, 2) the ability to be creative an innovative, and 3) the ability to be world-class, which means having egalitarian principles and a strong consumer focus. By focusing on these factors, Disney could guide its international expansion in a way that maximizes its strengths and limits the impact of its own internal weaknesses and constraints.
3
Disney has to differentiate itself in order to compete in the market place. Simply buying up other companies and attempting to leverage them as another channel of pushing the Disney brand is not a solid strategy from competitive advantage point of view. What for example does ABC add to Disney and at what cost? Is there not perhaps something better Disney can do with that money, like spend it on a new animation studio that can produce digital films for the 21st century? This is what Pixar did and Disney was once again in a position of trying to play catch-up after virtually pioneering the animation industry decades earlier. By seeking to consolidate power through mergers and acquisitions instead of seeking to create new customer value by leveraging and strengthening its competitive advantage over other firms, Disney has fallen back a step in the market place.
The key to getting back to being the dominant player in the market place is to identify the key leaders in the firm who can utilize skills that can drive success. Wells was a numbers guy and could balance out Eisner’s wild envisioning with practical numbers and stats. Katzenberg was a creative talent leader and could recognize great scripts that could be produced at a reasonable budget. This recipe of leadership created an environment for success in the company. This recipe is what is missing at Disney today and it needs to conduct an internal assessment to better understand what human capital it has to develop and leverage.
An internal audit evaluates the company’s resources and capabilities from the perspective of functions and organizational elements. It aims to assess whether the needed resources are being made available to workers so that they can do their jobs efficiently and effectively. It looks at production-operations, marketing, research and development, financial-accounting, management including human relations, and information systems. It would be a way for Disney to recognize its capabilities so that it can use them to increase its competitive advantage over all companies. The capabilities should be ones it can use to differentiate itself from others.
Capabilities are strategically important if they provide the company with competitive advantage in the main-product market segments. Thus, if the capabilities provide tangible customer benefits, or make it difficult for competitors to imitate, or give the company wide access to other markets, they can be considered as strategically important. Disney should look at what it can offer in terms of capabilities that no other company can offer. ABC is not one of those capabilities as it is simply one studio among many. Rather, it is or was Disney’s creative leadership triumvirate that allowed it to succeed. It was and always has been leadership that has given Disney competitive advantage over other firms. First, it was Walt Disney himself who provided that leadership. Then it was the triumvirate of Eisner, Wells and Katzenberg.
Today, Disney needs to identify the leaders in the company who can conduct the necessary evaluation to see where Disney should leverage its strengths going into the future. Criteria for judging its organizational resources and capabilities as strengths or weaknesses should consist of: 1) whether the company actually possesses them, 2) whether those resources lead to competitive advantage, 3) whether they are scarce, 4) whether they are controlled, 5) whether they create customer value, 6) whether they can provide customer benefit, and 7) whether competitors can imitate or obtain them. Leadership checks all those boxes.
4
At Disney the best way for the firm to create a competitive advantage is for it develop leaders based on the model of leadership put forward by Walt Disney and put forward by the excellent triumvirate of Eisner, Wells and Katzenberg. Together, these approaches to leadership revealed a few specific qualities and characteristics that the company needs in order to differentiate itself from its competitors going forward. Otherwise, Disney is just one more production company attempting to create entertaining products and services for consumers that are not in any way different from the entertaining products and services that competitors are putting out. What made Disney great during the era of Walt Disney was that it produced great works that no other company was producing. This is essentially what made it great during the triumvirate years of Eisner, Wells and Katzenberg as well.
To create competitive advantage in the marketplace, Disney has to get back to creating customer value in terms of entertaining products and services. For a while in the 80s and 90s it was creating great hits via Touchstone, but when Katzenberg left the company lacked the ability to pick winners and it just started producing everything that came in its way in an attempt to saturate the market. This was not a winning strategy because it was simply producing films that were in no way different from the run of the mill films being put into the marketplace already in terms of quality. The quality of the films, the mix of talent and vision, it all combined to allow Disney to do what few other studios could do—make profitable, award-winning films year in and year out. From Beauty and the Beast to Good Morning, Vietnam, Disney was producing critically acclaimed hits and could seemingly do no wrong.
Then Wells died and Katzenberg left after feuding with Eisner. Suddenly the latter was the only one helming the ship and that leadership that made Disney special was gone or at least severely depleted. Now Eisner was on his own and there was no Wells to keep him balanced and no Katzenberg to help the company focus on producing the right sort of crowd-pleasing films that could enhance the company’s brand. With Eisner alone at the helm, the company was simply trying to expand through mergers and acquisitions that did not address the basic issue of competitive advantage.
Disney now needs to develop a functional strategy to address these issues. Functional strategies are goal directed plans and actions for the organization’s functional areas and in this case would help to ensure that Disney’s resources and capabilities are used effectively in operations. Effective use supports the creation of competitive advantage because if a company is just burning through resources without profiting it will not be sustainable, and that is problem Disney is now facing. Disney needs to conduct a SWOT analysis so that it can see where its major strengths, weaknesses, obstacles and threats are. After the SWOT analysis, decision makers now see the positive and negative aspects of the external and internal environments. They can see what strengths they have to exploit for competitive advantage and what threats or weaknesses need to be addressed. A new strategy must be developed based on the SWOT.
Finally, Disney needs to assess the functional concerns of the firm. The three functional concerns are: 1) product strategies, 2) people strategies, and 3) support process strategies. Product strategies include design, production operations and marketing. People strategies include HR. Support process strategies include Information Systems and financial accounting systems.
5
Disney is at a point where it needs to reassess its functional strategies. Product design strategies are important to product strategies as are production operations and marketing. People strategies are important to people concerns and include the implementation of high performance work practices. Information systems are important to functional concerns. Disney is not effectively using its resources and capabilities in the areas of monetary and human capital. There are plenty of talented leaders who could help to head up Disney’s creative processes. The rise of Pixar and the team at that studio is a perfect illustration of how these creative teams could exist right under Disney’s nose without its leaders even realizing it. Disney acquired Pixar to shore up its internal resources. It is also making good use of its huge library of content with Disney , which will help it to rival its competitors in the external environment. Where content is king, Disney is now sitting in a great position with its enormous library after acquiring 20th Century Fox, Marvel and LucasFilms. Netflix is left to spend billions to produce original content while Disney has tons of content now at its fingertips that it can use to lure subscribers to Disney .
The acquisition of Pixar by Disney in 2006 was a good example of how to manage its functional strategies more effectively as well, because this was basically an example of vertical merger, which is a merger that occurs between two firms that work at separate and distinct stages of the production process. By merging operations, the two companies became one but Disney went a step further and made sure that the creative team behind Pixar would continue to be led by the best. This was a great way to ensure that functional strategies were in place to keep the success going with the film studio that it already enjoyed. Prior to the merger, Pixar made the films and Disney released them, marketed them, and did all the business side of getting people into the seats in theaters. After the merger, the entire process is now overseen by Disney with Pixar leaders still playing a fundamental role in the creative development phases of production. This merger was good for Disney too in the sense that its own animation studio had essentially been shuttered and that which made the studio famous—animations—was now something it could turn back to.
The company’s marketing function was revised in the 1980s and this has been done well but an update is needed as the digital age has arrived and today’s audiences are digital natives. Disney needs to reassess how it can develop marketing strategies for digital natives and whether the use of Social Media Influencers might be an option worth pursuing in the future.
Another function that Disney still needs to address is the function of its supply chain and the use of vendors. Resources and supplies, such as bags at check-out, are things that can contribute to high overhead costs and procurement should be a major focus area for the company going forward. Disney should be able to procure the supplies it needs at low cost so that it can further reduce overhead.
Finally, with Disney the company is on the right foot going forward in terms of providing streaming content to digital natives and future generations who will have cut the cable cord altogether. This puts Disney in a great position to compete with Amazon and Netflix. Thus, Disney’s primary functional strategy of providing great content to audiences is now firmly in place and the acquisition of Marvel just needs to proceed with the same arrangement used for keeping Pixar’s creative team in place.
6
I would advise Disney’s executive management team on a strategy formulation for the company going forward so that it focuses on building up Disney , making as much old content available as possible so that it feeds the desire for nostalgia among older viewers and gets younger viewers interested in the older content as well. The aim of Disney should be to dominate the streaming market the way Disney studios did in the 80s and 90s under the triumvirate of Wells, Eisner and Katzenberg.
Online streaming is where the market has shifted and this is where it is going to stay now that COVID-19 has scared people into wanting to socially distance themselves. Theater chains are likely to not recover now that a new normal has been put into place and people are scared of getting germs. Disney needs to leverage its library of content completely and give audiences as much access to its vaults as possible. Disney will be able to lock up subscriptions for years to come based just on its existing catalogue of content already available. Whereas Netflix has to keep producing original content to stay relevant, Disney can rely upon its library of content.
However, Disney will also need to return to form with great films and shows that people will want to watch at home. This is where leadership is needed at Disney to provide the vision and sense of what people want. There has already been terrible backlash at the way Disney handled the rollout of the new Star Wars films after acquiring the brand. Disney needs to do a better job of monitoring performance in this regard and one way to measure its performance is to assess the fallout on social media, where fans are voicing their opinions of Disney’s take on Star Wars in no uncertain terms. Disney has attempted to rectify the situation by bringing a well-liked Marvel director on board to helm its Disney original series The Mandalorian. Fans have responded favorably to this move, and it shows that Disney is paying attention to the performance of Marvel’s track record. Yet, there is also the problem of how Disney is promoting a secular politically correct “agenda” in the new Marvel films and fans are already stating that they will not be following the next way of Marvel films produced under the Disney banner because of the perception that Disney is not going to stay true to the formula and keep the politically correct dogmas out of the scripts.
Disney should be reassessing its approach to producing new content and should stick with formulas that work. The Mandalorian has worked so far because Disney allowed the Marvel creative team to helm the project, just as it let the Pixar team do with its films. Disney’s executives should recognize the talent and vision that others bring and not attempt to control their environment. Netflix is very hands off in this way and it should be the same with Disney.
The more latitude Disney gives to its creative teams who have a proven track record, the better it will be for Disney. Fans pay to see the products of these beloved creative teams. They do not pay for the kind of social indoctrination that Disney executives think the company should be promoting through its films. Going that way is a recipe for disaster and the company will see it if it just monitors the reaction from fans on social media. That is where customer satisfaction is best read and understood. Output controls, behavior controls and input controls all need to be adjusted in reaction to the customer feedback posted on social media. This is the area the Disney executive team needs to focus on going forward.
References
Wheelen, T. L., Hunger, J. D., Hoffman, A. N., & Bamford, C. E. (2010). Strategic management and business policy. Upper Saddle River, NJ: Prentice Hall.