Lecture 7: Disney Flashcards
What are the dimensions of corporate scope?
- Vertical (Disney going into movie distribution)
a) Upstream (backwards integration)
b) Downstream
(forward integration) - Horizontal (Disney diversifying into theme parks)
- Geographic expansion (Creating disneyland tokyo)
Why is Corporate Strategy important?
Considerable volume of research showing a ‘diversification discount’
Multi-business corporations on average appear to destroy shareholder value
However, there is considerable heterogeneity of performance (i.e. a wide difference in performance across different multi-business corporations)
– Some seem to add value to their constituent businesses
– Others seem to destroy value
hence the need to distinguish good and bad corporate strategies
What is synergy?
when you put two businesses together and they create and/or
capture more value than the business did separately
Managers also talk of ‘revenue synergies’ – and generally mean:
- Enhanced CV by bundling (e.g. “value in providing a full range”)
- Enhanced CV via common brand (see next page)
Disney highlights that there can be other ways to create/capture value:
- Coordination of strategies across businesses (e.g.cross-promo)
- Transferring of ‘Resources’ across businesses
What are the five main types of resources?
- Financial assets (e.g. cash, investments)
- Physical assets (plant & equipment etc.)
- Human assets (e.g. people who work at the Firm)
- Intangible assets (e.g. technology /knowhow, brand, organizational culture, relationships)
- Capabilities (i.e. capability to carry out an activity e.g. capability to be innovative, capability to deliver very high service level)
What makes a resource ‘valuable’?
- Significant impact on Customer Value or Supplier Cost
- Competitively superior
- Appropriable (i.e. can capture associated value)
- Durable (i.e. its value lasts)
- Not easily imitated
- Not easily substituted
How do valuable resources play an important role in both business and corporate strategies?
BUSINESS STRATEGY
- Valuable resources both help to create a competitive advantage
- And to make it more sustainable (hard to copy)
CORPORATE STRATEGY
1. Valuable resources can provide a basis for successful diversification
What are the different kinds of resources?
A. PURCHASED RESOURCES Resources you can go and buy fairly easily 1. Physical 2. Human 3. Financial
B. MANUFACTURED RESOURCES
Resources you need to invest in and develop over time (can’t easily buy)
1. Intangible assets – Brand name
– Relationships
– Corporate culture
– Intellectual property
2. Organisational capabilities e.g. Design
Speed of product development Creativity
The Core Competence of the Corporation
- Success will hinge on acquiring ‘distinctive competences’…
- Managers should think of their corporations as a ‘portfolio of competences’
Corporate Scope Expansion – The 3 Tests
- The “Better-off” test
- The “Ownership” test
- The “Organizational” test
What’s the better off test?
Can parent add value to the business through an exclusive relationship (i.e. through some form of “synergy”) ?
What’s the ownership test?
Does the parent need to own the business – as opposed to some other form of relationship (e.g. contracting)?
What’s the organisational test?
Can the parent actually realize the synergies from the new business?
What’s the traditional Disney model?
- Traditional Disney model = resource sharing + coordinate business strategies
– Diversify into businesses where core resources (animated cartoon characters, Disney brand) creates value
MULTI PLATFORM FRANCHISE MANAGEMENT - Pro-active management of synergies
– Embedded in the culture
HOW CAN THE CORPORATE LEVEL CREATE VALUE?
- By Portfolio Management
a) (Buy low, sell high)
b) allocation of resources - By Restructuring
– Make a portfolio business better - By Transferring Skills
- By Sharing Activities
Draw a Boston Portfolio Matrix
Y axis: Market growth
X axis: Market share relative to largest competitor
Clock wise from upper left box
Stars, ?, Dogs, Cash cows
Why is it hard to rely solely on portfolio management as a source of competitive advantage?
– Hard to spot undervalued targets .. and acquire them before the price goes up
– Hard to argue that corporations can allocate resources between businesses better than the market
Most corporations probably misallocate resources (e.g. keep trying with a failing business)
What should ideally portfolio management be about?
Managing the portfolio to ‘fit’ with the corporate approach towards (1) synergy and (2) individual business improvement
Buying businesses which fit, divesting those which no longer fit
Minimizing resource allocation errors!
How can you improve the performance of individual businesses?
- Restructuring
2. Achieving superior performance
What does synergy management depend on?
- Portfolio management: to tee up the synergy opportunities
- Valuable resource management
a) Identifying and nurturing truly valuable resources - Organization to identify and realize opportunities a) Cross-business linkages
b) Incentives
What are four valid reasons for vertical integration?
- Clear value to an exclusive, LT relationship AND contracting doesn’t work
- Needed to mitigate adverse market power
- Value to direct ‘control’
- Need to create a new value chain activity (i.e. major innovation)
What are four bogus reasons for vertical integration?
- Integrate into adjacent parts of value chain to ‘escape’ a declining business
- Integrate into adjacent parts of value chain to ‘capture the margin’
- Flawed synergy logic
- Managers building empires!
