An analysis of the strategic challenges

Some historical clues…

Founded by Walt Disney Established in 1923 Headquartered in California, USA Currently world’s largest conglomerate in terms of

revenue.

Walt Disney Vision

“To make people happy ”

Walt Disney Mission Statement 2013

“The Walt Disney Company's objective is to be one of the world's leading producers and providers of entertainment and

information, using its portfolio of brands to differentiate its content, services and consumer products. The company's

primary financial goals are to maximize earnings and cash flow, and to allocate capital toward growth initiatives that will drive

long-term shareholder value.”

Walt DisneyMission Statement’s Evaluation

Product oriented statement

Focus on what products to sell

and what services to offer rather

than on how to satisfy customer

needs

Lack of 5 essential components:

1. Customers2. Technology3. Philosophy4. Concern for

public image5. Employees

Walt Disney Recommended Vision

“To make entertainment the wheel of life”

Walt Disney Recommended Mission Statement

“As the world’s leader in entertainment and information we seek to create an

engaged and collaborative culture for our employees in order to turn our customers‘

moments into a unique experience, by providing special services and innovative

products through movies, parks and the e-world. By taking advantage of our

diversified portfolio to differentiate our content in all segments, we aim to develop

the most profitable entertainment company worldwide, which would yield increasing

profits to our shareholders.”

Walt Disney Overview

Segment Revenues ‘12 Revenues ‘13 Growth

Media Networks 19,436 mil. $ 20,356 mil. $ 5%

Parks & Resorts 12,920 mil. $ 14,087 mil. $ 9%

Walt Disney Studios 5,825 mil. $ 5,979 mil. $ 3%

Disney Consumer Products 3,252 mil. $ 3,555 mil. $ 9%

Disney Interactive 845 mil. $ 1,064 mil. $ 26%

Disney - contribution of segments to revenues

Media Networks 45%Parks & Resorts 31%Studio Entertainment 13%Consumer Products 8%Interactive 3%

Corporate

CEO

Chairman, Walt Disney International

Senior Executive Vice President, General Counsel and Secretary,

The Walt Disney Company

Senior Vice President, Global Security, The Walt Disney

Company

Executive Vice President, Corporate Strategy and Business Development, Executive Vice President, Corporate Strategy and Business

DevelopmentThe Walt Disney Company

Executive Vice President, Corporate Real Estate, Alliances, and Treasurer, The Walt Disney

Company

Executive Vice President and Chief Communications Officer, The Walt

Disney Company

Executive Vice President and Chief Human Resources Officer, The Walt

Disney Company

Senior Executive Vice President and Chief Financial Officer, The

Walt Disney Company

Senior Vice President, Planning and Control, The Walt Disney Company

Business Unit

CEO

Executive Chairman, ESPN, Inc.

President, Disney Consumer Products

Chairman, The Walt Disney Studios

President, Disney Interactive

Co-Chairman, Disney Media Networks Group and

President, ESPN

Chairman, Walt Disney Parks and Resorts

Co-Chairman, Disney Media Networks and President,

Disney•ABC Television Group

Walt Disney Organizational Structure

• HUMAN RESOURCES

• RESEARCH & DEVELOPMENT

• MARKETING • FINANCIAL

20% annual growth in

earnings per share Family

orientation : appeal to kids and bring the

family together

Foster an engaged and collaborative

company cultureExpand the portfolio of

characters and drive the

company into the e-world

Walt Disney Objectives

Market penetration

• Targeted market segmentation through acquisitions

New products

• Related Diversification• Diversification in branding• Vertical & Horizontal integration

Market development

• Foreign Outsourcing• Direct Investment• Licensing

Conglomerate diversification

-

Existing

New

Existing New

PRODUCTS

MARKETS

Walt Disney Corporate Strategies

RAPID MARKET GROWTH

SLOW MARKET GROWTH

Walt Disney Grand Strategy

STRONG COMPETITIVE POSITIONWEAK COMPETITIVE POSITION

Market development Related Diversification Vertical Integration Horizontal Integration Market penetration

Walt Disney PEST Analysis

POLITICAL

The animation industry enjoys tax benefits.

Political differences are an obstacle to International Trade.

Tighter regulations regarding products safety.

ECONOMIC Global financial crisis slows down growth.

Emerging markets such as India offer a cost advantage in terms of salaries and the overall cost of production.

Economic growth, per capita income and stage of economic development among different countries needs to be considered.

SOCIAL

Recent social trend in smartphones, tablets and apps.

Different local cultures, as well as stories and history of the host place.

Changes in customers preferences for entertainment.

Significant role of kid’s and family’s entertainment.

TECHNOLOGICAL

Technological advancements are having a profound effect on the world’s media.

Changes in technology affect demand for entertainment products as well as the cost of production.

Walt Disney PEST Analysis

THREAT OF NEW ENTRANTS - (MEDIUM)Even though there are major players, still smaller players with lower structures can enter the market.

THREAT OF SUBSTITUTES - (HIGH)Technological innovations & high competition in each segment, generate many alternative choices for consumers.

BARGAIN POWER OF SUPPLIERS - (LOW)Disney’s vertical integration reduces significantly their power.

BARGAIN POWER OF BUYERS - (HIGH)Disney’s offerings are desires, rather than necessities. Therefore, financial restricted consumers will not buy.

RIVALRY AMONG FIRMS - (HIGH)Huge competition between companies within specific sectors. ( broadcast rights/local parks/viewing figures/box office/other brands)

Walt Disney Porter’s 5 Forces Analysis

Brand Value

Listed 27th in the world’s 500 most valuable brands*

• $ 20,548 millions brand value in 2013• $ 23,580 millions brand value in 2014

*http://brandirectory.com/league_tables/table/global-500-2014

Walt Disney Financial State

Performance IndicatorsCurrent Stock Price $ 80.07

Consolidated Revenues $ 45,041 millions

Net Income $ 6,136 millions

Return on Equity 14.41

Return on Invested Capital 11.24

Gross Profit Margin 21.29

Annual Dividend per Share $ 0.60 (2012)

Market Share onStudio Entertainment Industry

Globally$ 5,03 billion

Overseas$ 3,14 billion

U.S.$ 1,89 billion

Globally$ 4,68 billion

Overseas$ 3 billion

U.S.$ 1,68 billion

Globally$ 3,68 billion

Overseas$ 2,26 billion

U.S.$ 1,42 billion

Competitive Profile MatrixWALT DISNEY WARNER BROS UNIVERSAL

CRITICAL SUCCESS FACTORS

WEIGHTRATING

1 - 4SCORE

RATING1 - 4

SCORERATING

1 - 4SCORE

Advertising .12 4 .48 4 .48 3 .36

Market Share .10 3 .30 4 .40 2 .20

Financial Position .10 4 .40 3 .30 2 .20

Management .08 3 .24 3 .24 3 .24

Global Expansion .10 4 .40 4 .40 4 .40

Technology .15 3 .45 4 .60 3 .45

Customer’s Loyalty .10 3 .30 3 .30 2 .20

Brand Awareness .15 4 .60 4 .60 3 .45

Creativity .10 4 .40 4 .40 4 .40

TOTAL 1.00 3.57 3.72 2.90

Brand Reputation• Highly Diversified Portfolio

• Strategic & Tactical Acquisitions

• Global Expansion & Alliances• Economies of Scope• Top Management• Loyal Customers

• Strong Financial Position

• High Cost of Operations•Concentration of Revenues In

North America• Approaches Antitrust Law

Limits

• Benefits From IT Advances & Mobile Gaming

•Build A More Eco-Friendly Image• Further expansion in new

emerging economies

• Release of New Successful Stories & Characters

• Financial Récession• Increasing Piracy• Strong Competition• Continous Need For

Technological Update• Change in Consumers

Preferences & Tastes• Negative Publicity Due to

Unexpected Event

S W

TO

Walt Disney SWOT Analysis

External Factor Evaluation Matrix (EFE)

WEIGHT RATINGWEIGHTED

SCORE

OPPORTUNITIES

Benefits from it advances & mobile games .20 3 .60

Build a more eco-friendly image .05 3 .15

Further expansion in newemerging economies (Russia, India)

.15 2 .30

Release of new successful stories and characters .05 4 .20

THREATS

Financial Recession .15 3 .45

Increasing Piracy .10 2 .20

Strong Competition .10 3 .30

Continuous need for technological update .10 3 .30

Change in consumer preferences and tastes .05 2 .10

Negative publicity due to unexpected event .05 3 .15

TOTAL 1.00 2.75

Internal Factor Evaluation Matrix (IFE)

WEIGHT RATING WEIGHTED SCORE

STRENGTHS

Brand Reputation .15 4 .60

Highly Diversified Portfolio .15 4 .60

Strategic & Tactical Acquisitions .08 3 .24

Global Expansion & Alliances .05 3 .15

Economies of Scope .08 3 .24

Top Management .07 3 .21

Loyal Customers .10 4 .40

Strong Financial Position .05 3 .15

Internal Factor Evaluation Matrix (IFE)

WEIGHT RATING WEIGHTED SCORE

WEAKNESSES

High Cost of Operations .15 2 .30

Concentration of Revenues in Us & Canada .08 2 .16

Approaches Antitrust Law Limits .04 1 .04

TOTAL 1.00 3.09

Strengths Weaknesses

Walt Disney SWOTCombined Strategies

1. Brand Reputation2. Highly Diversified Portfolio3. Strategic & Tactical Acquisitions4. Global Expansion & Alliances5. Economies of Scope6. Top Management7. Loyal Customers8. Strong Financial Position

1. High Cost of Operations2. Concetration of Revenues In North America3. Approaches Antitrust Law Limits

Opportunities SO - Strategies WO - Strategies

1. Benefits From IT Advances & Mobile Gaming

2. Build A More Eco-Friendly Image3. Further expansion in new emerging

economies (India, Russia) 4. Release of New Successful Stories &

Characters

2-1: Develop mobile game applications with Disney characters1-2: Collaborating with WWF so as to promote environmental issues6-3: Build a multinational management team8-4: Consumer research on their preferences nowadays

1-1: Digitalization of our operations in order to low costs & utilize technology2-3: Target India as possible expansion through consumer products

Threats ST - Strategies WT - Strategies

1. Financial Récession2. Increasing Piracy3. Strong Competition4. Continous Need For Technological

Update5. Change in Consumers Preferences &

Tastes6. Negative Publicity Due to

Unexpected Event

7-1: Offer discounts to all members of Disney fun club3,4-3: Expansion in Brazil market through alliances and synergies8-4: Invest on R&D for one high tech department6-5: Monthly consumer research via online polls

1-1: Re-edit and release in cinemas old classic Disney films2-3,4: Take advantage of operations that take place in N. America by investing in Technology and R&D for that area

QUANTITATIVE STRATEGIC PLANNING MATRIX Expansion in Brazil

market through alliances and synergies

Develop mobile game applications with Disney

characters

Key Factors Weight AS TAS AS TASOpportunities

1. Mobile game sectors could grow at a compound annual growth rate of 23,6 % by 2017 0.20 1 0.20 4 0.80

2. Decrease in environmental impact by 50% 0.05 - - - -

3. Emerging markets offer a cost advantage in terms of salaries and cost of operations. 0.15 4 0.60 3 0.45

4. Extension of R&D efforts in order to release new successful stories and characters. 0.05 2 0.10 3 0.15

Threats1. 12% decline in average total expenditures in entertainment in USA from 2008 to 2010. 0.15 2 0.30 3 0.45

2. Piracy costs in the US economy every year $ 250 billion. 0.10 - - - -

3. Walt Disney’s market share in Studio Entertainment segment is 16,62% 0.10 2 0.20 1 0.10

4. Continuous need for technological update 0.10 1 0.10 4 0.40

5. Change in consumer preferences and tastes 0.05 - - - -

6. Negative publicity due to unexpected event 0.05 - - - -Subtotal 1.00

Strengths1. 27th position in the rank of the Best Global Brands. 0.15 4 0.60 2 0.30

2. Highly diversified portfolio 0.15 4 0.60 3 0.45

3. Acquisition of Marvel, ABC, Pixar, Lucas Film, ESPN etc 0.08 3 0.24 2 0.164. Almost 30% of revenues from operations in Europe, Asia Pacific, Latin America and other 0.05 4 0.20 3 0.15

5. Economies of Scope 0.08 3 0.24 2 0.16

6. Top Management follows four core concepts (3Ds+B) from 1922 0.07 4 0.28 2 0.14

7. Customers’ loyalty 0.10 2 0.20 4 0.40

8. Strong financial position: $7,370m intangible assets and $27,324m goodwill for FY 2013 0.05 3 0.15 1 0.05

Weaknesses1. High cost of operations: $35,591m FY 2013 when total revenues are $ 45,041m 0.15 1 0.15 4 0.60

2. Almost 70% of operations is concentrated in US and Canada. 0.08 2 0.16 1 0.08

3. United States Antitrust Law restricts the mergers and acquisitions of organizations 0.04 - - - -

Subtotal 1.00 SUM TOTAL ATTRACTIVENESS SCORE 4.32 4.84

Preparation of the appropriate budget.

Allocation of personnel.

Communication of the strategic vision, the strategic themes and their role to the employees.

Use of presentations, workshops, meetings, frequent updates.

Implementing Strategy

Evaluation of Strategy

• Mobile/online games could grow to ~$60B revenue (23.6% CAGR 11-17F)

• Mobile/online games could take 60% games software market share by 2017

• Total global games software revenue could grow to ~$100B revenue by 2017

Mobile could drive total games software industry revenue to $100B by 2017 .

• Games took 32% of 2013 mobile app usage (blended iOS/Android tablet/smartphone) - 67% of tablet usage

• Games took 72% of 2013 mobile app revenue and ~40% of mobile app downloads

Games dominate mobile app usage and revenue.

source: www.digi-capital.com

source: www.digi-capital.com

Mobile Games IndustryDescriptive Statistics

source: www.digi-capital.com

Evaluation of StrategyRumelt’s Criteria

The recommended strategy is: consistent

It will be developed by the existing Interactive Department so that interdepartmental disorder is avoided.

consonantIt will be an adaptive response to the recent social trend for mobile games applications.

feasibleDisney’s financial state can support the recommended strategy which will result in the company’s growth in the short-term.

maintaining the competitive advantageThe company’s position in the market will be strengthened.