The Walt Disney Company : The Entertainment King

The company should go for acquisition in which SBU? and why?

The Walt Disney Company  has its roots lying deep within the Disney Brothers Studio started by Walter Elias Disney along with his brother Roy Disney in the year 1923.Disney is known to be the creator of evergreen characters like Mickey Mouse,Snow White ,etc.

The company went public in the year 1940 and further expanding into televisions and Theme Parks in the year 1955.The years 1971 and 1976 mark two major expansions of Disney with the opening up Florida and Tokyo Disney worlds. Besides this, it also went on to start Touchstone to target the adult movie-goers.

By the 1980s Disney as a company diversified into many businesses, incurring a heavy cost but was not able to generate significant financial returns from these areas. As a result, the overall financial condition of the company deteriorated and the performance of different divisions fell.

When Michael Eisner joined the company as the CEO in the year 1984 Disney invested heavily in animation technology and focused on the growth and development of its theme-parks. The investments paid-off and some Disney movies like “The Lion King” broke box-office records. However, Disney again incurred heavy investment and acquired ABC ltd, the second biggest acquisition in the history of US.

By 2000, Disney stepped into a number of streams including:

ü  Media-Networks

ü  Studios and Entertainment

ü  Theme-Parks

ü  Internet and

ü  Consumer Products

The diversification strategy followed by the company was high on both corporate and operational relatedness.

The theme-parks generated more cash flows for the company; however this generation is approaching a stage of excess than what is required for the company to run efficiently.

However, the company has had a high market share with tremendous growth opportunities in its flagship unit i.e.Media Networks and Entertainment which is the reason why 50^th anniversary of Snow-White and the 60^th Anniversary of Mickey-Mouse were big hits.

The company should therefore, continue its focus on media and entertainment,its flagship units,as these areas have high market share and tremendous growth opportunities.It can even go for further acquisitions in this sphere, like its decision to aquire Buena-Vista distribution networks, and maintain its dominant position in this sphere.

Contributed by:-

Divya Shukla

Section A

Strategic Management

The Walt Disney Company : The Entertainment King

Formulate & explain the BCG matrix for Walt Disney SBU's

The Walt Disney Company founded by Walt and Roy Disney in 1923 is today a highly diversified company with many Strategic Business Units (SBU’s) , namely: theme parks and resorts, studio entertainment, consumer products, media network and internet and media marketing.

BCG matrix for Disney’s SBU’s:

Cash cow ·         Theme parks	Dogs ·         Consumer products
Stars ·         Studio ·         Media	Question mark ·         Internet

Low

Growth    

High

High                                               Market share                                               Low

Ø  Theme parks: Disney’s theme parks are considered to be cash cows with a large market share but low market growth rate. The maximum revenue of the company comes from the park. The company earned 6803 million in 200, but its market growth is low.

Ø  Studio: Disney’s studio can be placed both in cash cow and stars, however shall be more in the stars. With a high market share and high growth, Studio still generates good revenue, despite being Disney’s first company due to its feature animation and motion picture, home video, television and cable production, and stage plays. But market growth is slowly moving towards the lower end.

Ø  Media: media network will also be a star for the company as its growth in income increased with the acquisition of ABC television, TV and radio stations and in cable network such as ESPN, Disney channels. It had a high market share with a growth of 21% from 7970 million in 1999 to 9651 million in revenue in the year 2000.

Ø  Consumer products: these mainly come under the category of dogs as the business growth and the market share are low.

Ø  Internet: Internet can be described as question mark for the company. Internet has a high market growth. Disney has just entered in the market in 1996 and does not cover a large market share. Thus, adding up to this division in the grid. Also, Disney can any time exit the market as there are almost nil capital expenditures.

Contributed by:-

Surbhi Sondhi 

Section A

Strategic Management

The BCG Growth-Share Matrix

The Boston Consulting Group, a leading consulting firm, developed and popularized a product portfolio analysis framework in 1970 that helps managers develop organizational strategy based on the relative market share of businesses and the growth of respective markets. BCG Matrix helps firm to decide how much money to invest in its strategic business units (SBU).There are 2 axis and 4 quadrants in BCG Matrix. X-axis and Y-axis indicate relative market share and market growth rate respectively. Market growth rate is the projected rate of sales growth for the market being served by a particular business division. Relative market share is defined as the ratio of a division's own market share in a particular industry to the market share held by the largest rival firm in that industry.

In business, SBU is a profit center which focuses on product offering and market segment. SBU varies from company to company. In bigger organizations, a SBU could be a company division, a single product or a complete Product Line. In smaller organizations, it might be the entire company. After identifying the SBUs, the task is to categorize each SBU within one of the 4 matrix quadrants:

1.      Stars (High growth, high market share)- Star SBUs have a high market share in a high growth market and typically need substantial investment to maintain and support their rapid and significant growth. Stars also generate large amounts of cash for the organization. Business strategies for these SBUs could be market development, product development, and backward, forward and horizontal integration.

2.      Cash Cows (Low growth, high market share) - Cash cow SBUs have a large share of market in low-growth markets or industries. Because of their strong competitive positions and their minimal reinvestment requirements, these businesses often generate cash in excess of their needs. Cash cows are yesterday’s stars and the current foundation of corporate portfolios. Business strategies for these SBUs could be diversification, retrenchment, product development and ‘milk’ to fund other business.

3.      Dogs (Low growth, low market share) - Dog SBUs have a relatively small share in a low-growth market. They may barely support themselves. In some cases, they actually drain off cash resources generated by other SBUs. Best strategies for these SBUs could be liquidation, retrenchment or divest it as soon as they get the best price.

4.      Question Marks (High growth, low market share)-These SBUs have a low share in high-growth market. Question marks are cash guzzlers because their rapid growth results in high cash needs, while their small market share results in low cash generation. These are ‘Question marks’ because it is uncertain whether management should invest more cash in them to gain a larger share of the market or eliminate them. Business strategies for these SBUs could be market penetration, product development, and divestiture, keep it going and improve or sell it. 

Furthermore, we can understand the BCG position of a SBU with help of a product life cycle curve given below:

Contributed by:-

Padmanabh Upadhyay

Section B

Strategic Management

Samsung Electronics

Is SMIC a threat to Samsung Electronics?

Samsung is the largest conglomerate in South Korea and according to Gartner report it maintains a lead in the smart-phone market. It has stood against many brands like Philips, Kodak and Panasonic.Samsung is the market leader in memory chip technology and constantly remained ahead of its competitors. Samsung was able to create new market and was developing new applications of memory and latest better technology. Since their operations & their Net Income have always been increasing except when there was an economic downturn. However, even during a downturn they have always been able to maintain their profits and never ran into losses. They have always invested heavily in R&D and hired and tried to retain right talent and trained them so that they could effectively help Samsung Electronics to move ahead.

By 2010, China was expected to become the world’s second largest purchaser of semiconductors after US (Source: HBS Case, Samsung Electronics). And SMIC revenues have increased from $50.3 million in 2002 to $365.8 million in 2003 and have dual listing on the NYSE and Hong Kong Stock Exchange.  In spite of all these facts, it is not a threat to Samsung Electronics. If we see their Operating Margin it is (-) 9.3% compared to 24.1% of Samsung. Moreover, Samsung seems to be a market leader in this industry as it has the highest profit compared to its competitors like Micron, Infineon, and Hynix. SMIC’s profit is less than Hynix and Infineon. So before competing with Samsung, SMIC has to first compete with Hynix and Infineon, thus it is definitely not a threat to Samsung.

Contributed by:-

Ravi Kant

Section A

Strategic Management

Samsung Electronics

What advantage does Samsung get from undertaking differentiation strategy/ Cost Strategy? Explain.

“A leader of innovation with affordable price – Samsung.”

Samsung with its varied product range has covered all the categories in the consumer electronics which was one of the reasons for its success. Its Innovative products, adhering to the Quality and reliability of the product makes it stand apart from its competitors.

Innovation and R&D are the building blocks of Samsung. Samsung has invested heavily in Research & Development that helps the company to innovate and create new products that helped the company to grow into a Global powerhouse.Heavy investment in the semiconductors in 1983-85 initially cost much but later paid off to the company where it had a cost advantage compared to its competitors.

South Korea was the largest exporter of semiconductors exporting 25.1bn in 2004 of which Samsung alone exported for 22% of the total Korea’s exports.

The company set up competing product development teams throughout its operations to increase its efficiency and to get the better technology from its global R&D sites.

Cost effective value chain helped the company to sustain as a market leader for 1 years since 1992.

In the later generations the company started moving from legacy products to high value niche products and frontier products which gave great profit margins to the company making it still a market leader.

In 1994 Lee realized that Samsung had lost track on product quality and burned the shoddy Samsung products. In late 1990’s it could gain back its reliability and performance appreciation from its major customers.

Investment in HRM also added a great return for Samsung. Its strategy in adopting and managing people made it to be renowned across the globe.  

 In later years, Samsung started facing threat from the giants like China manufacturers. Cost leadership can have an advantage for a company, but to sustain for the future, it needs to adopt differential strategies based on the environment prevailing.

Contributed by:-

Kedareshwari Nanduri

Section C

Strategic Management