EXAMPLES OF “GOOD” STRATEGIC MANAGEMENT

August 15, 2015

Disney 


In 1984, Disney’s stock price had been flat for a decade. Earnings per share were only $0.06. Disney had profits that year of $242 million. By this point in time Disney had become primarily a theme park company. Seventy seven percent of its profits came from theme park operations that year. Twenty two percent of profits came from consumer products (licensing Mickey Mouse, Donald Duck, etc.). Only one percent of profits came from filmed entertainment in 1984. Indeed, Disney had become a different company from what Walt Disney and his brother Roy O. Disney left behind. In 1971 when Roy O. Disney died (he became CEO when Walt died in 1966), 50% of the company’s profits came from filmed entertainment. 


The Disney board was dissatisfied with the firm’s direction and its financial performance. Michael Eisner was hired as the CEO of Disney in 1984. He had extensive experience in the entertainment industry including a stint as the president of Paramount Pictures.


Eisner recognized the value of both the filmed entertainment legacy of the firm and the theme park operations that had been developed by that time. Eisner soon focused on the animation and movie studios. He also opened the Disney vault to exploit the relatively untapped value of Disney’s animated classics. Profits from filmed entertainment went from about $2.4 million in 1984 to $845 million in 1994. 


Eisner spent considerable time during the early days of his tenure touring the theme parks to see what the company really had. He decided to upgrade the theme parks and increase admission prices. Profits from the theme parks went from $186 million in 1984 to $688 million in 1994. Consumer products went from profits of $53 million in 1984 to $433 million in 1994, a natural result of the success of the company’s filmed entertainment and theme park operations.


The impressive part of these changes and results is that Eisner, to quite an extent, used resources that Disney already possessed such as animation and live studios. Animators were challenged to create new and exciting content—something that had not happened in a long time. Some of the Disney classics pulled from the vault were converted to the VHS format and distributed to the home market. It’s true that the timing of the advent of the VHS format and the proliferation of home video was fortunate for Disney. But, it’s also true that Eisner deployed the resources of Disney in a different way from how they had been used in the years leading up to 1984. 



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