When the name “Walt Disney” is mentioned or read, no matter who you are, it is likely that your mind immediately envisions “Mickey Mouse” or another popular Disney character in one of Disney’s iconic theme parks. Beyond those initial images, most are aware that Disney is an international conglomerate with businesses in tv, travel services, hospitality, publishing, and more. Historically, the company has enjoyed one of the most consistent, value-driven performances on the S&P 500. However, in recent months, the company has also been affected by the tough economic climate. Disney has relied on fees growth in all businesses to address rising costs, particularly in the network cable division. Stock prices recently jumped 6 percent with stronger-than-expected earnings, but how sustainable are dramatic fee increases in a consumer-driven market?
It seems that Disney must re-evaluate its strategy in order to stimulate capability-driven growth. Although operating costs continue to rise, so does the substitutability of Disney products among consumers. Disney must revisit the “magic” that it has always given to fans and consumers alike. Much of that “magic” does not stem from theme parks or stores, but in the dynamic cable network arena. Currently, cable networking fees account for 22 percent of Disney’s revenue and nearly a third of its operating profit. Competitors such as Hulu and Netflix threaten expensive programming packages such as ESPN.
In this week’s reading, Capitalizing on Capabilities (Ulrich and Smallwood), the authors stressed that good strategy starts with assessing organizational capabilities, or the collective skills, abilities, and expertise of the organization. There are many dimensions that should be considered in the “capability audit,” however, I believe that of innovation is most important to Walt Disney. Innovation does not simply refer to creating a new product offering, but to performing optimally in products, administrative processes, sourcing strategies, brand management, customer service, and more. It is analyzing all aspects of the business to glean improvements in both content and process. Applying a total-innovation approach to the cable network division alone has enormous potential for top-line revenue growth by de-emphasizing cost restructuring as the primary growth-driver. This focuses on creativity rather than “business-as-usual.”
It’s clear that Walt Disney must innovate to remain viable in this weak economic environment. What do you believe are their strongest capabilities and how would you capitalize on them to secure tangible economic gains?