The story of Disney is that of a company founded in 1923 by the Disney brothers, Walt and Roy. Initially, the business was referred to as the Disney Brothers Animation Studio room and later integrated as Walt Disney Productions in 1929. Walt Disney Productions made its symbol for quite some time in the animation industry before venturing into tv set and live-action film creation. Something else also occurred before Walt got the breakthrough with Mickey Mouse button. Before Mickey, there was Oswald, the Blessed Rabbit. But because he didn't own the copyright, Walt lost the rights to Oswald, a bitter lesson that was to shape his company favorably in the foreseeable future. That experience thought him very early the value of intellectual property and Disney has used that knowledge to tighten adjustments over its properties as well as build defence against entrants and fighting incumbents. The people at Disney are well secured and the brand created out of these are so strong that they deter competitors from ever endeavoring to imitate (4)
Disney World, a family books lodging weeks in advance at a hotel inside the playground. It does so since it has learned that the hotel gets the best location, is highly demanded, and will provide good hospitality. Being lodged inside the playground, the family eats at Disney-owned restaurants and perhaps buys Disney products. Even while the family ready will pay prices that are greater than would be recharged by comparable hotels, restaurants, and theme parks. It does so happily since it considers the knowledge a value.
But hold out, there's more. Consider what makes Disney World the world's number 1 destination resort to begin with. It is fueled by the positive experience produced by other Disney productions - probably the lovable characters of the Disney family. Within the recreation area, children clamor to meet the Disney characters dispersed throughout the area. This memorable and mental experience further fuels demand for home videos, books, television
broadcasts, or retail acquisitions. And the youngsters (and often parents) can't wait for the next visit to Disney World, concluding the cycle. This organic but carefully orchestrated web of complementary businesses is the 'Magic of Disney'. It's what drives major promoters such as Delta Airlines and Coca-Cola to cover the right to feature Disney World in their own
Disney's diversification didn't start today. In 1928, its first toon was released. Twelve months later, it accredited a pencil tablet, then your Mickey Mous Golf club (MMC) was developed as a vehicle for advertising Disney's products under one roof. Within a short while, the membership of the club grew to 1million users. In 1949, the company diversified into music was was even said to have produced training and educational motion pictures during the warfare. Diversification produces synergy. Diversification strenghtens the prevailing business and the complete home based business created. Regarding to Strickland et al (2010), Diversification can be related or unrelated. It really is related if the actions of the businesses complement those of the firm's present business in a way that increases or adds to the competitive advantage. To be able words, related diversification brings about proper fit which itself creates opportunities. Opportunities to
a) Transfer technological know-how (that are competitively valuable) in one business to some other.
b) Lower cost by incorporating the performance of common value string activities
c) Leverage or exploit use of a favorite brand
d) Get valuable reference strength and capacities across business
But if the businesses being varied into haven't any competitive and valuable value chain that meets with the the value chain of today's business(es), then the diversification is reported to be unrelated as there is absolutely no proper fit.
Walt Disney understood the interrelation of new market sectors to each other right from the start, something that is still the foundation of competitive gain to the business till today. Encapsulated in the 'Magic of Disney', the storyline runs thus.
Family vacation to disney, reserve into a hotel (possessed by disney) inside the area.
While in the playground, the family eats at disney-owned restaurants, buy disney goods. It doesn't matter that they are paying higher for accomodation and meals compared to other hotels.
Children meet the disney characters all around the area which leaves an extended lasting psychological experience. The children and their parents end up buying videos, literature, TV broadcast which they take home with them. Many of these make them anticipate another stop by at the disney and the group proceeds. The integration of these complementary businesses is the 'Magic of Disney'.
Ever since, Disney has expanded its operations to cover theatre, radio, publishing, online mass media etc. Before early 1980's Disney focused on the family creating entertainment for the house and the family. Because of this, they were evidently differentiated on the market from their opponents. All of that was to change around 1984 when Michael Eisner needed over as CEO. Like Walt Disney, Eisner was an ground breaking and intuitive head and his time marked a making point for the business that was haemorraging for cash and this soon became the prospective of takeover by several companies.
Eisner's goal was to progress a company that could grow by 20% per year. To do this, Eisner followed these three rules which include keeping its cost low so that it doesn't erode its earnings, operate the key business in a profitable manner and find new businesses that could integrate with Disney and promise an annual expansion rate of 20% for the company (1). To acheive a 20% growth rate, the business enterprise were required to diversify, exploring synergies in new establishments, and overseas expansion. Overseas growth is inevitable when the neighborhood domestic market has reached a in close proximity to saturation point.
Some of the first businesses Einser was to increase Disney's portfolio include the Disney Store, Euro Disneyland and the purchase of KHJ-TV, Disney's first broadcasting shop. Also, the company established a significant television presence and increased the number of motion pictures released from 2 in 1984 to 15-18 annual (1)
Disney's extension and diversification attempts was driven purely by the necessity to attain an economy of opportunity that gives it the required market dominance as well as the economies of level to lower its cost of business. It pursued this strategy throughout the 90' using a blend of diversification into areas that were a natural extension of their current business as well consequently other areas where that they had less synergy but clearly acquired found potential opportunities. Both these led to the delivery of Disney Cruises, Pleasure Island and the incorporation of theme recreation area management into its business model.
Despite the huge successes recorded, it was doubtful whether the diversification into some market or aquisition strategies pursued with some companies such as ABC actually enhanced the shareholders' value. The presumption is that whenever two companies who are leaders in just a bit different areas combine, both would be better off by the synergy created between two of them. But Disney and ABC are both market leaders in providing entertainment and both with extensive networks in creativeness and creation (2). When companies cannot leverage on their strenghts following an alliance, they stand the chance of diluting their brand to a spot where they'll not be able to make the profits necessary to gain good value with their shareholders (2)
Today Disney is continuing to grow beyond the traditional amusement parks, videos, television shows, clubs, or literature business. Its stable of businesses include Disney Cruise trip Line, Holiday resort Properties, Radio Broadcasting, Music Recordings and sales of animation skill, Anaheim Mighty Ducks NHL franchise, Interactive software and internet site, etc. Whether these businesses are related or unrelate to Disney's key business is no problem so long as it produces synergy that strengthens Disney's position in the market and creates value for its shareholders. Throughout its record, Disney has, with trivial exceptions, shown the true value to shareholders created by synergies frrom thoughtful diversification (3). The business's corporate strategy recognizes the actual fact that while Disney may have some 'enchanting' products (its central products), its strenght is not in the merchandise themselves, but instead in the way in which they interrelate and supplement each other. (3)
Disney's diversification initiatives further increased the 'magic' of Disney. Tv advertised the films, which promoted the hard-goods and which publicized the television set shows. So rather than paying to market Disney's products, people were charged to be exposed to advertisement.
When you take into account its portolio of businesses, it will be right to say that Disney has pursued a combination of related and unrelated diversification. Take for illustration Hotel properties. Thats real house. But Disney has used this to to make its customer live out the disney experience directly on disney's properties as opposed to going to a third party environment to view Disney Movies or lodged in another type of hotel and visiting disney area.
Is the diversification strategy working for Disney? The easy answer is that the numbers are there as proof. Since the arriving of Eisner, profits grew from $1. 6 billion in 1984 to $2. 9billion in 1987 largely as the consequence of the pursuit of diversification as a strategy for growth. One of Eisner's greatest accomplishment was how he located creativeness as Disney's most valuable asset and reinforced this as a head to get the best out of his center innovation team
Walt Disney Company strategy of diversification has helped develop its business in abroad market. Between 1988 and 1996 profits grew from $3. 4 billion
to over $12 billion with the most growth coming from videos amd its consumer products. Not all overseas extension were successful. For instance, the Euro Disney acquired a lot of challenges and may not live up to expectations consequently of several ethnical issues experienced by the company.
Disney is now mixed up in hotel and resort businesses, the Vacation Team business (an all natural expansion of the hotel business), the cruise business and activities etc.
For a firm that relies heavily on its strong culture, Disney must maintain its expansion and acquisitions carefully without loosing sight of the "single most important factor that has brought the company where it is - the strong synergies and symbiotic romantic relationship between its various businesses" (3)