Case Assignment for Module 3 The Walt Disney Company: Its Diversification Strategy, management homework help

User Generated

jbfuvyvnauhnkvnamv

Business Finance

Description

Instructions

  • a. Title page
  • b. A table of content
  • c. Footnotes-you must link your analysis to the materials/concepts in the book. Footnotes must include page numbers.
  • d. The main body of the assignment should be 3 to 5 pages in length double-spaced. Use headings, sub-headings, bullets, etc. liberally for cleaner organization and a friendlier reading.

Read the Case "The Walt Disney Company: Its Diversification Strategy in 2012?" and perform the following analysis:

(This case is not in your textbook. You can access the case attached (it is also in the course materials tab for Module 3)).

  1. What is the Walt Disney Company's corporate strategy? (20 pts)
  2. What is your assessment of the long-term attractiveness of the industries represented in Walt Disney Company's business portfolio?(20 pts)
  3. What is your assessment of the competitive strengths of Walt Disney Company's different business units? (20 pts)
  4. What does a Nine-cell Industry Attractiveness/Business Strength Matrix for Walt Disney Company look like? (20 pts)
  5. Evaluate the financial and operating performance of the Walt Disney Company. (20 pts)

Chapters 8 in your textbook provide detailed discussion of the topic/tool (Portfolio analysis) that you would need to know in order to complete this assignment.

Unformatted Attachment Preview

Lecture Note Chapter 8 Corporate Strategy: Diversification and the Multibusiness Company Chapter Summary Chapter Eight moves up one level in the strategy-making hierarchy, from strategy making in a single business enterprise to strategy making in a diversified enterprise. The chapter begins with a description of the various paths through which a company can become diversified and provides an explanation of how a company can use diversification to create or compound competitive advantage for its business units. The chapter also examines the techniques and procedures for assessing the strategic attractiveness of a diversified company’s business portfolio and surveys the strategic options open to already-diversified companies. Lecture Outline I. Introduction 1. In most diversified companies, corporate level executives delegate considerable strategy-making authority to the heads of each business, usually giving them the latitude to craft a business strategy suited to their particular industry and competitive circumstances and holding them accountable for producing good results. However, the task of crafting a diversified company’s overall or corporate strategy falls squarely on the shoulders of top-level corporate executives. 2. Devising a corporate strategy has four distinct facets: a. Picking new industries to enter and deciding on the means of entry b. Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage c. Establishing investment priorities and steering corporate resources into the most attractive business units. d. Initiating actions to boost the combined performances of the corporation’s collection of businesses. II. When Business Diversification Becomes a Consideration 1. Diversification into new industries always merits strong consideration whenever a single-business company encounters diminishing market opportunities and stagnating sales in its principle business. III. Building Shareholder Value: The Ultimate Justification for Diversification 1. Diversification must do more for a company than simply spread its risk across various industries. – 171 – 172 Section 5 Instructor’s Manual for Essentials of Strategic Management 2. For there to be reasonable expectations that a diversification move can produce added value for shareholders, the move must pass three tests: a. The industry attractiveness test – the industry chosen for diversification must be attractive enough to yield consistently good returns on investment. b. The cost of entry test – The cost to enter the target industry must not be so high as to erode the potential for profitability. c. The better-off test – Diversifying into a new business must offer potential for the company’s existing businesses and the new business to perform better together under a single corporate umbrella than they would perform operating as independent stand-alone businesses. 3. Diversification moves that satisfy all three tests have the greatest potential to grow shareholder values over the long term. Diversification moves that can pass only one or two tests are suspect. 4. Creating added value for shareholders via diversification requires building a multibusiness company where the whole is greater than the sum of its parts. IV. Approaches to Diversifying the Business Lineup A. Diversification by Acquisition of an Existing Business 1. Acquisition is the most popular means of diversifying into another industry. It is quicker and offers an effective way to hurdle such entry barriers as acquiring technological know-how, establishing supplier relationships, achieving scale economies, building brand awareness and securing adequate distribution. 2. The big dilemma is whether to pay a premium price for a successful company or to buy a struggling company at a bargain price. B. Entering a New Line of Business through Internal Development 1. Achieving diversification through internal start-up involves building a new business subsidiary from scratch. 2. Generally, forming a start-up subsidiary to enter a new business has appeal only when: a. The parent company already has in-house most or all of the skills and resources it needs to piece together a new business and compete effectively b. There is ample time to launch the business c. Internal entry has lower entry costs than entry via acquisition d. The targeted industry is populated with many relatively small firms such that the new start-up does not have to compete head-to-head against larger, more powerful rivals e. Adding new production capacity will not adversely impact the supply-demand balance in the industry f. Incumbent firms are likely to be slow or ineffective in responding to a new entrant’s efforts to crack the market C. Using Joint Ventures to Achieve Diversification 1. A joint venture can be useful in at least two types of situations: a. To pursue an opportunity that is too complex, uneconomical, or risky for a single organization to pursue alone Section 5 Lectures Notes for Chapter 8 173 b. When the opportunities in a new industry require a broader range of competencies and knowhow than any one organization can marshal 2. However, partnering with another company has significant drawbacks due to the potential for conflicting objectives, disagreements over how to best operate the venture, culture clashes, and so on. 3. Joint ventures are generally the least durable of the entry options, usually lasting only until the partners decide to go their own ways. CORE CONCEPT Related businesses possess competitively valuable cross-business value chain and resource matchups; unrelated businesses have dissimilar value chains and resource requirements, with no competitively important cross-business chain relationships. V. Choosing the Diversification Path: Related vs. Unrelated Diversification 1. Once the decision is made to pursue diversification, the firm must choose whether to diversify into related businesses, unrelated businesses, or some mix of both. 2. Figure 8.1, Strategic Themes of Multibusiness Corporations illustrates these choices. VI. Diversifying into Related Diversification 1. Businesses are said to be related when their value chains possess competitively valuable cross-business relationships. 2. A related diversification strategy involves building the company around businesses whose value chains possess competitively valuable strategic fits as shown in Figure 8.2, Related Diversification. 3. Strategic fit exists whenever one or more activities comprising the value chains of different businesses are sufficiently similar as to present opportunities for: a. Transferring competitively valuable resources, expertise, technological know-how, or other capabilities from one business to another. b. Cost sharing between separate businesses where value chain activities can be combined. c. Brand sharing between business units that have common customers or that draw upon common core competencies. A. Strategic Fit and Economies of Scope 1. Strategic fit in the value chain activities of a diversified corporation’s different businesses opens up opportunities for economies of scope – a concept distinct from economies of scale. 2. Economies of scale are cost savings that accrue directly from cost-saving strategic fits along the value chains of related businesses. B. The Ability of Related Diversification to Deliver Competitive Advantage and Gains in Shareholder Value. CORE CONCEPT Strategic fit exists when the value chains of different businesses present opportunities for cross-business skills transfer, cost sharing or brand sharing. CORE CONCEPT Economies of scope are cost reductions stemming from strategic fit along the value chains of related businesses (thereby, a larger scope of operations), whereas economies of scale accrue from a larger operation. 1. Economies of scope and the other strategic-fit benefits provide a dependable basis for earning higher profits and returns than what a diversified company’s businesses could earn as stand-alone enterprises. 174 Section 5 Instructor’s Manual for Essentials of Strategic Management 2. There are three things to bear in mind here: a. Capturing cross-business strategic fit via related diversification builds shareholder value in ways that shareholders cannot replicate by simply owning a diversified portfolio of stocks. b. The capture of cross-business strategic-fit benefits is possible only through related diversification. c. The benefits of cross-business strategic fit are not automatically realized. VII. Diversifying into Unrelated Businesses 1. Companies that pursue a strategy of unrelated diversification generally exhibit a willingness to diversify into any industry where there is potential for a company to realize consistently good financial results. 2. The basic premise of unrelated diversification is that any company that can be acquired on good financial terms and that has satisfactory earnings potential represents a good acquisition and a good business opportunity. 3. Three types of acquisition candidates are usually of particular interest: a. Businesses that have bright growth prospects but are short on investment capital. b. Undervalued companies that can be acquired at a bargain price. c. Struggling companies whose operations can be turned around with the aid of the parent company’s financial resources and managerial know-how. A. Building Shareholder Value Through Unrelated Diversification 1. To succeed with a corporate strategy keyed to unrelated diversification, corporate executives must: a. Do a superior job of identifying and acquiring new businesses that can produce consistently good earnings and returns on investment. b. Do an excellent job of negotiating favorable acquisition prices. c. Do such a good job overseeing and parenting the firm’s businesses that they perform at a higher level than they would otherwise be able to do through their own efforts alone. B. The Pitfalls of Unrelated Diversification 1. Unrelated diversification strategies have two important negatives that undercut the positives. 2. Demanding Managerial Requirements – Successfully managing a set of fundamentally different businesses operating in fundamentally different industry and competitive environments is a very challenging and exceptionally difficult proposition for corporate level managers. 3. The greater the number of businesses a company is in and the more diverse those businesses are, the harder it is for corporate managers to: a. Stay abreast of what is happening in each industry and each subsidiary. b. Pick business-unit heads having the requisite combination of managerial skills and know-how to drive gains in performance. c. Be able to tell the difference between those strategic proposals of business-unit managers that are prudent and those that are risky or unlikely to succeed. d. Know what to do if a business unit stumbles and its results suddenly head downhill. Section 5 Lectures Notes for Chapter 8 4. As a rule, the more unrelated businesses that a company has diversified into, the more corporate executives are reduced to “managing by the numbers.” 5. Limited Competitive Advantage Potential – Unrelated diversification offers no potential for competitive advantage beyond that of what each individual business can generate on its own. C. Misguided Reasons for Pursuing Unrelated Diversification 1. Competently overseeing a set of widely diverse businesses can turn out to be much harder than it sounds. Wrong reasons can include: a. Risk reduction – reducing perceived risk by spreading the company’s investments over a set of truly diverse industries whose technologies and markets are largely disconnected. b. Growth – pursuing growth for the sake of growth. c. Earnings Stabilization – offsetting market downtrends in some businesses by upswings in others. d. Managerial Motives – unrelated diversification that results only in benefits to managers such as higher compensation and reduced employment risk. VIII. Diversifying into Both Related-Unrelated Diversification Strategies 1. There is nothing to preclude a company from diversifying into both related and unrelated Businesses. 2. Indeed, the business makeup of diversified companies varies considerably a. Dominant-business enterprises – one major core business accounts for 50 to 80 percent of total revenues and a collection of small related or unrelated businesses accounts for the remainder b. Narrowly diversified – 2 to 5 related or unrelated businesses c. Broadly diversified – wide ranging collection of related businesses, unrelated businesses, or a mixture of both IX. Evaluating the Strategy of a Diversified Company 1. The procedure for evaluating a diversified company’s strategy and deciding how to improve the company’s performance involves six steps: a. Assessing the attractiveness of the industries the company has diversified into. b. Assessing the competitive strength of the company’s business-units. c. Evaluating the extent of cross-business strategic fits along the value chains of the company’s various business units. d. Checking whether the firm’s resources fit the requirements of its present business lineup. e. Ranking the performance prospects of the businesses from best to worst and determining a priority for resource allocation. f. Crafting new strategic moves to improve overall corporate performance. 175 176 Section 5 Instructor’s Manual for Essentials of Strategic Management A. Step 1: Evaluating Industry Attractiveness 1. A principal consideration in evaluating a diversified company’s strategy is the attractiveness of the industries in which it has business operations. 2. A reliable analytical tool for gauging industry attractiveness scores based on the following measures: a. Market size and projected growth rate b. The intensity of competition c. Emerging opportunities and threats d. The presence of cross-industry strategic fits e. Resource requirements f. Seasonal and cyclical factors g. Social, political, regulatory, and environmental factors h. Industry profitability i. Industry uncertainty and business risk 3. Calculating Industry Attractiveness Scores a. There are two necessary conditions for producing valid industry attractiveness scores 1) one is deciding on appropriate weights for the industry attractiveness measure, and 2) the second requirement is to have sufficient knowledge to rate the industry on each attractiveness measure b. Each industry is rated on each of the chosen industry attractiveness measures, using a rating scale of 1 to 10 (where 10 signifies high attractiveness and 1 signifies low attractiveness). c. Weighted attractiveness scores are then calculated by multiplying the industry’s rating on each measure by the corresponding weight. d. Despite the hurdles, calculating industry attractiveness scores is a systematic and reasonably reliable method for ranking a diversified company’s industries from most to least attractive. 4. Interpreting the Industry Attractiveness Scores – Industries with a score much below 5.0 probably do not pass the attractiveness test. 5. For a diversified company to be a strong performer, a substantial portion of its revenues and profits must come from business units with relatively high attractiveness scores. Table 8.1 shows the results of an industry attractiveness analysis. B. Step 2: Evaluating Business-Unit Competitive Strength 1. The second step in evaluating a diversified company is to determine how strongly positioned each of its business units are in their respective industry. 2. The following factors may be used in quantifying the competitive strengths of a diversified company’s business subsidiaries: a. Relative market share b. Costs relative to competitors’ costs c. Products or services that satisfy buyer expectations Section 5 Lectures Notes for Chapter 8 d. Ability to benefit from strategic fits with sibling businesses e. Number and caliber of strategic alliances and collaborative partnerships f. Brand image and reputation g. Competitively valuable capabilities h. Profitability relative to competitors 3. After settling on a set of competitive strength measures that are well matched to circumstances of the various business units, weights indicating each measure’s importance need to be assigned. 4. Each business unit is then rated on each of the chosen strength measures, using a rating scale of 1 to 10. Weighted strength ratings are calculated by multiplying the business unit’s rating on each strength by the assigned weights. 5. The sum of weighted ratings across all the strength measures provides a quantitative measure of a business unit’s overall market strength and competitive standing. Table 8.2 shows the results of Calculating Weighted Competitive Strength Scores for a Diversified Company’s Business Units. 6. Interpreting the Competitive Strength Scores: Business units with competitive strength ratings above 6.7 on a rating scale of 1 to 10 are strong market contenders in their industries. 7. Using a Nine-Cell Matrix to Evaluate the Strength of a Diversified Company’s Business Lineup a. The industry attractiveness and business strength scores can be used to portray the strategic positions of each business in a diversified company. Industry attractiveness is plotted on the vertical axis and competitive strength on the horizontal axis. b. A nine-cell grid emerges from dividing the vertical axis into three regions and the horizontal axis into three regions. c. Figure 8.3, A Nine-Cell Industry Attractiveness-Competitive Strength Matrix, depicts this tool. d. Each business unit is plotted on the nine-cell matrix according to its overall attractiveness score and strength score and then shown as a “bubble.” The size of each is scaled to what percentage of revenues the business generates relative to total corporate revenue. e. The location of the business units on the attractiveness-strength matrix provides valuable guidance in deploying corporate resources to the various business units. In general, a diversified company’s prospects for good overall performance are enhanced by concentrating corporate resources and strategic attention on those business units having the greatest competitive strength and industry attractiveness. f. The nine-cell attractiveness-strength matrix provides clear, strong logic for why a diversified company needs to consider both the industry attractiveness and business strength in allocating resources and investment capital to its different businesses. C. Step 3: Determining the Competitive Value of Strategic Fits in Multibusiness Companies 1. Checking the competitive advantage potential of cross-business strategic fits involves searching and evaluating how much benefit a diversified company can gain from four types of value chain matchups: a. Opportunities to combine the performance of certain activities thereby reducing costs and capturing economies of scale. 177 178 Section 5 Instructor’s Manual for Essentials of Strategic Management b. Opportunities to transfer skills, technology, or intellectual capital from one business to another. c. Opportunities to share the use of a well-respected brand name across multiple product and/or service categories. D. Step 4: Evaluating Resource Fit 1. The businesses in a diversified company’s lineup need to exhibit good resource fit. 2. Resource fit exists when: a. Businesses, individually, add to a company’s collective resource strengths b. The parent company has sufficient resources to support its entire group of businesses without spreading itself too thin 3. Financial Resource Fits – Cash Cows versus Cash Hogs: Different businesses have different cash flow and investment characteristics. CORE CONCEPT A diversified company exhibits resource fit when its businesses add to a company’s overall mix of resources and capabilities and when the parent company has sufficient resources to support its entire group of businesses without spreading itself too thin. CORE CONCEPT A strong internal capital market allows a diversified company to add value by shifting capital from business units generating free cash flow to those needing additional capital to expand and realize their growth potential. a. Business units in rapidly growing industries are often cash hogs – so labeled because the cash flows they are able to generate from internal operations are not big enough to fund their expansion. b. Business units with leading market positions in mature industries may be cash cows – businesses that generate substantial cash surpluses over what is needed to fund their operations. 4. A diversified company has a good financial resource fit when the excess cash generated by its cash cow businesses is sufficient to fund the investment CORE CONCEPT requirements of promising cash hog businesses. A cash hog generates operating cash flows 5. Star businesses are often the cash cows of the that are too small to fully fund its operations future. and growth; a cash hog must receive cash infusions from outside sources to cover its 6. Aside from cash flow considerations, there are two working capital and investment requirements. other factors to consider in assessing the financial resource fir for businesses in a diversified firm’s portfolio: a. Do individual businesses adequately contribute to achieving companywide performance targets? b. Does the corporation have adequate financial strength to fund its different businesses and maintain a healthy credit rating? CORE CONCEPT A cash cow generates cash flows over and above its internal requirements, thereby providing financial resources that may be used to invest in cash hogs, finance new acquisitions, fund share buyback programs or pay dividends. 7. Examining a Diversified Company’s Nonfinancial Resource Fits – Diversified companies must also ensure that the nonfinancial resource needs of its portfolio of businesses are met by its corporate capabilities. a. Companies should avoid adding to the business lineup in ways that overly stretch such nonfinancial resources as managerial talent, technology and information systems, and marketing support. Section 5 Lectures Notes for Chapter 8 b. Two guiding questions can help; 1) Does the company have or can it develop the specific resource strengths and competitive capabilities needed to be successful in each of its businesses? 2) Are the company’s resources being stretched too thinly by the resource requirements of one or more of its businesses? E. Step 5: Ranking Business Units and Setting a Priority for Resource Allocation 1. Once a diversified company’s strategy has been evaluated from the perspectives of industry attractiveness, competitive strength, strategic fit, and resource fit, the next step is to rank the performance prospects of the businesses from best to worst and determine which businesses merit top priority for new capital investments by the corporate parent. 2. The locations of the different businesses in the nine-cell industry attractiveness/competitive strength matrix provide a solid basis for identifying high-opportunity businesses and low-opportunity businesses. 3. Allocating Financial Resources – Figure 8.4 shows the chief strategic and financial options for allocating a diversified company’s financial resources. 4. Business units with the brightest profit and growth prospects and solid strategic and resource fits generally should head the list for corporate resource support. G. Step 6: Crafting New Strategic Moves to Improve Overall Corporate Performance 1. The conclusions flowing from the five preceding analytical steps set the agenda for crafting strategic moves to improve a diversified company’s overall performance. The strategic options boil down to four broad categories of actions: a. Sticking closely with the existing business lineup and pursuing the opportunities it presents. b. Broadening the company’s business scope by making new acquisitions in new industries. c. Divesting some businesses and retrenching to a narrower base of business operations. d. Restructuring the company’s business lineup and putting a whole new face on the company’s business makeup. 2. Sticking Closely with the Existing Business Lineup makes sense when the company’s present businesses offer attractive growth opportunities and can be counted on to generate good earnings and cash flow. 3. In the event that corporate executives are not entirely satisfied with the opportunities they see in the company’s present set of businesses, they can opt for any of the three strategic alternatives listed below. 4. Broadening a Diversified Company’s Business Base – Motivating factors to build positions in new industries a. Sluggish growth in revenues and profits b. Vulnerability to seasonal or recessionary influences or to threats from emerging new technologies c. The potential for transferring resources and capabilities to other related or complementary businesses d. Rapidly changing conditions in one or more of a company’s core businesses brought on by technological, legislative or new product innovations e. To complement and strengthen the market position and competitive capabilities of one or more of its present businesses. 5. Concepts & Connections 8.1 discusses how Microsoft broadened its diversification base to expand its revenue sources and the market for its existing software and gaming products. 179 180 Section 5 Instructor’s Manual for Essentials of Strategic Management & Concepts Connections 8.1 Microsoft’s Acquisition of Skype: Pursuing the Benefits of Cross-Business Strategic Fit Discussion Question: In what way did the acquisition of Skype improve competitive advantage for Microsoft and provide economies of scope? Answer: In the development of improved internet based communications, Skype offered Microsoft broader device support, mobile video calling, and access to over 170 million Skype users, potential new clients for Microsoft’s existing products. Skype’s communication expertise combined with Microsoft’s market reach offered an opportunity to generate new competitively valuable resources and capabilities. Microsoft could expand Skype’s scope and reach by prepackaging future Windows OS releases with Skype software. 6. Divesting Some Businesses and Retrenching to a Narrower Diversification Base: a. Retrenching to a narrower diversification base is usually undertaken when top management concludes that its diversification strategy has ranged too far afield and that the company can improve long term performance by concentrating on building stronger positions in a smaller number of core businesses and industries. b. Market conditions in a once-attractive business have badly deteriorated c. A business lacks adequate strategic or resource fit, either because it’s a cash cow or it is weakly positioned in the industry. d. A diversification move that seems sensible from a strategic-fit stand-point turns out to be a poor cultural fit. 7. Broadly Restructuring the Business Lineup through a Mix of Divestitures and New Acquisition. a. Restructuring strategies involve divesting some businesses and acquiring others to put a whole new face on the company’s business lineup. CORE CONCEPT Corporate restructuring involves radically altering the business lineup by divesting businesses that lack strategic fit or are poor performers and acquiring new businesses that offer better promise for enhancing shareholder value. b. Performing radical surgery on a company’s group of businesses is an appealing strategy alternative when a diversified company’s financial performance is being squeezed or eroded by: 1) Too many businesses in slow-growth, declining, low-margin, or otherwise unattractive industries. 2) Too many competitively weak businesses. 3) An excessive debt burden with interest costs that eat deeply into profitability 4) Ill-chosen acquisitions that have not lived up to expectations 7. Over the past decade, corporate restructuring has become a popular strategy at many diversified companies, especially those that had diversified broadly into many different industries and lines of business.
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Attached.

The Walt Disney Company: Its Diversification Strategy
Name
Instructor
Institutional Affiliation
Date

1. What is the Walt Disney Company's corporate strategy? (20 pts)
Walt Disney is a market leader in the mass media entertainment industry. The company’s corporate
strategy is to develop content that is more focused on family. In order to gain competitive edge in
its industry, Walt Disney emphasizes in technological development. Moreover, the company is
strategizing in achieving global expansion of operations.
This multinational company not only operates in the entertainment industry, but also operates in
diversified fields. In this case therefore, the company is focused in integrating other fields such as
media network, interactive media, theme parks and resorts and other consumer products. The
company diversify its brands so as to provide custom-made products that suits both children and
adults. Currently the consumers are more aware of the company’s brands thanks to the acquisition
of ESPN, a cable and satellite sports television channel. Disney, through ESPN, is able to provide
tailor-made products that meet the needs and preferences of consumers. The company expansion
strategy covered television channels, theme parks and resorts, children books, hotels, cruise lines,
music publishing, and consumer products1.
Furthermore, promotion of the core animation operation with new characters and experience
utilizes the company’s strategy. Walt Disney uses ESPN to broaden its target markets and thus
maximize one of its objectives. In a nutshell, the company’s strategies has exhibited positive
outcomes in terms of entering new markets and consumer satisfaction.

1

Thompson, A. "Essentials of Strategic Management: The Quest for Competitive Advantage."
(2012).

2. What is your assessment of the long-term attractiveness of the industries represented
in Walt Disney Company's business portfolio?(20 pts)
The long-term attractiveness of the industries represented in Walt Disney Company’s business
portfolio is satisfyingly high. The attractiveness of the industries come from the company’s ability
to diversify its products in several industrial segments. Walt Disney diverse products and brands
include media networks, theme parks and resorts, studio entertainments, and consumer products
among others. Each of the company’s industry generates high revenue and profits. The company’s
brand Disney land is known for its far-fetched theme parks and resorts. These theme parks are one
of the most prestigious parks in the world and remains a key attractive site for people all over the
world. In addition, Walt Disney owns various television and entertainment channels such as...


Anonymous
Just what I needed. Studypool is a lifesaver!

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Related Tags