Since its establishment in 1923, The Walt Disney Company has undergone a remarkable transformation and transition. The organization’s ability to excel in various business areas is commendable and deserves respect. Michael Eisner’s significant contribution to the company’s turnaround since joining in 1984 is highly regarded. However, in recent years, his management of the organization has been marked by several missteps.
Despite Eisner’s frequent expression of desiring Disney to effectively “manage creativity,” his implemented strategy as CEO did not align with this desire. Over time, this strategy dismantled Disney’s creative core and depleted the synergy that Eisner had initially created when leading the organization. Evaluating Eisner’s actions reveals that his goal of achieving a sustained 20% increase in earnings per share annually led him to acquire and attempt further diversification without fully understanding the impact of each additional business unit.
When Eisner became the CEO of Disney, the company had a related-linked diversification strategy, operating in multiple geographic areas such as film, television, and theme parks. The main connection between these different business units was the cross-merchandising of goods. This means that every new animated film created by Disney became a separate industry with its own marketing efforts. Although this cross-merchandising strategy was highly successful initially, the company needed to continue expanding rapidly in order to sustain growth and diversification.
The company’s rapid growth resulted in the erosion of the tight-knit creative culture that Disney had cultivated and maintained for many years. This expansion, although initially valuable, destroyed the synergies within the organization and damaged the unique culture that was considered its most crucial asset. In 1984, Disney had 28,000 employees, which grew to 110,000 employees by 2000. The expansion shifted Disney from an organization with a related linked diversification strategy to an unrelated diversification company. Although this rapid expansion generated short-term profits, it ultimately altered Disney’s direction and focus.
During his tenure as chairman and CEO starting in 1984, Michael Eisner led a shift that resulted in the erosion of Disney’s unique creativity-based culture, which he had once considered the company’s most valuable asset. At the time Eisner took over, Disney was facing a bleak state, having previously utilized a related-linked diversification strategy under the control of Walt Disney. However, little had been done to fully capitalize on this opportunity to build organizational synergy. Recognizing this potential, Eisner wasted no time during his first four years in power and set out to leverage the established linked diversification and synergy opportunities.
He made efforts to enhance the growth of each business unit in the company. For example, the “movie market share business unit saw a rise from 4% to 19% between 1984 and 1988”. Additionally, they started producing more movies, releasing 15 to 18 films and often considering scripts from emerging writers. Furthermore, Eisner focused on expanding their existing theme parks, making them larger and implementing strategies like special events, retail collaborations, and media broadcasts to attract more visitors.
Initially, the increased investment and production efforts led to significant profits. However, the expansion happened too quickly. Eisner not only urged the expansion of established business units, but also emphasized the need for coordination between them. This resulted in the creation of a corporate marketing function within the organization, which successfully implemented cross-promotional and cross-merchandising efforts.
Eisner’s main objective was to establish unity and synergy within the products and services offered by the organization. This effort began with the successful release of the film Who Framed Roger Rabbit. Disney went on to license computer games, jewelry, and other merchandise related to the movie, while also promoting it heavily in their theme parks and television productions.
Disney’s focus on cross merchandising was established as a way to create “miniature industries” for each major movie release. This approach linked different business units together, resulting in synergy and a stronger sense of identification within the Disney organization. In his first four years, this strategy proved highly successful for Eisner, resulting in a doubling of revenues and assets, as well as a fivefold increase in net income for Walt Disney Co. However, the quick expansion of the company eventually hindered its growth in later years. By the late 1980s, Eisner began to shift the company’s focus towards unrelated businesses. Although this expansion made sense financially, allowing Disney to market in a wider range of industries, it also led to product and geographic diversification that was unrelated to their core businesses.
During a 15-year period, Disney made several acquisitions, which included opening retail stores, acquiring the Anaheim Mighty Ducks, producing Disney Broadway musicals, creating a cruise line business, and acquiring the television giant ABC. However, the speed at which all these additions took place proved to be overwhelming. By incorporating numerous new businesses, Disney struggled to properly integrate the large influx of new members into its creative culture. As a result, over time, this erosion of culture disrupted the relationships between different business units and left many areas lacking a clear sense of identity regarding Disney’s established beliefs and focused goals.
Unfortunately, the change in diversification efforts was ineffective and could not be reversed. Michael Eisner decided to primarily focus on geographic diversification, specifically on expanding the brand through theme parks and movies overseas. This shift in strategy resulted in the decline of the Disney culture and the organization’s ability to generate creative and innovative products that previously led to their success.
The lack of synergy caused a rift among upper management, resulting in divergence. From the late 1990s, Eisner lost numerous key executives, approximately 75 from 1994 to 2000, who had played a significant role in nurturing Disney’s creative culture. The company struggled to find suitable replacements, leading to disarray and negative consequences for all employees and business units. The once united organization now existed as separate entities. The demise of Disney was evident. Eisner’s ambitious expansion efforts undermined the cherished creativity-based culture he claimed to prioritize.
The company initially succeeded in leveraging its existing linked diversification base by effectively integrating new members into the Disney culture during new ventures. This success was possible due to the moderate pace at which new employees were hired. However, as time went on, Disney’s focus shifted to unrelated diversification efforts. Unfortunately, these attempts to incorporate unrelated businesses eroded the company’s creative core because they were unable to establish synergy between these new units and the existing business lines.
In order for Eisner and Disney to restore this intangible asset, a significant amount of time will be required. Disney would benefit the most if they were to sell off several of their current unrelated business units and concentrate on their core areas (movies, television, and theme parks), where they can effectively promote products and characters across different platforms. By returning to a linked diversification strategy, Disney can enhance unity and synergy between these businesses.
