Walt Disney: Swot, Pestel and Porter Analysis

SUBJECT:Walt Disney: SWOT, PESTEL and Porter analysis Introduction2 Pestel analysis2 Political factors2 Economic factors3 Social factors3 Technological factors4 Environmental factors4 Porter’s Five forces model5 New entrants5 Buyers5 Substitutes6 Suppliers6 Competitors6 Swot analysis7 Strengths7 Weaknesses8 Opportunities9 Improvement of customer relations strategy9 Advertising Growth9 Differentiation9 The further introduction of ICT technologies9 Superior market segmentation10 Threats10 Economic conditions10 Winnie the Pooh trial10 Stakeholder analysis11 Conclusion12 references13 Appendix i – Portfolio vs core competence perspectives14 Introduction Walt Disney is a developer, producer and worldwide distributor of feature films and television programs, cable network programming and character-based merchandise. Besides, its theme parks are the most popular in the world. The current forces in the market create certain challenges for future success of the company’s development. The presents analysis starts with the discussion of current environmental and industry factors. This analysis produces the holistic view of the macro factors that affect the industry players and the company. The second step comes to the analysis of the business environment competitive environment and the way the company develops and maintains its competitive advantage. This analysis creates a picture of internal capabilities of the companies. Basing on the evaluation of external and internal factors the analysis of strengths and weaknesses is delivered. It creates a framework for devising possible strategic intent of the company and identifies possible vulnerable points that can affect the feasibility of the strategy. Basing on the analysis of the environmental factors and company’s capabilities the paper reviews current opportunities and threats. Pestel analysis According to Grant (1998), in order to identify the key success factors and the company’s opportunities and threats it is important to study environmental factors that effect the firm’s strategy on the industrial level. To do this, PESTEL analytical tool is applied. Political factors Political and legal factors influence the development of the industry. These factors shape the rules of competition, operational costs (minimum wage, safety requirements and consumer law) and the presence of various lobby groups. The important political factor is local legislations regarding foreign ownership, cross-ownership and concentration. For example, Chinese government limits foreign ownership to 49%, when the right to control directly a subsidiary requires 51% of ownership. It means that a company shall look for potential partners to form joint ventures or strategic alliances. Hill (2002) points out these market entry options translate into the reduced control of the subsidiary’s activities. Economic factors The economic factor has a crucial importance for the industry development. According to Mintel report (2003) the theme parks and consumer goods are the most dependant on the economic factors. For instance, US and European markets were recently strongly affected with recent economical downturns. The reason for such the influence is the relationship between the economic cycle and the growth of PDI. As Hill shows (2002) the PDI positively affects consumer confidence in economic health and their capability to buy entertainment products. Thus, the healthier the state of a country the higher will be the growth of a consumer market and its corresponding value. The company's theme parks and resorts are vulnerable to exchange rate fluctuations, travel industry trends, changes in available leisure time, oil and transportation prices and weather patterns. Social factors The demand trends are shaped by the following major factors: demographic shifts, attitudes and beliefs and fashion cycles. Demographic shifts create different niche markets; whereas fashion cycles together with attitudes formation create necessary growth for the market. For instance, changing lifestyles as a result of influences from other countries and cultures, various media, create new expectations and requirements for the content of media sources. Various products of the company as character-based merchandise and producer/distributors of children's audio and film-related products strongly depend on social factors as seasonal purchasing behaviour and the popularity of animated releases which determine the life cycle of particular products and their return of investment potential. Technological factors Technological factors affect the way industry players compete. The introduction of improved technological solutions allows the companies to reduce cost of operations, increase the manufacturing capacity and quality. Besides, the further R&D development allows the introduction of new products that can potentially break the markets of existing products (Bradley, 1995). The developments of new IT technologies introduce new media delivery solutions and change the architecture certain companies’ value chain (Chaffey, 2002). Environmental factors The environmental factors directly impact the travel industry trends. The weather conditions in France and Japan determine the profitability of theme parks. The better the weather conditions the higher is the number of visitors. Environmental factors play an important part in the success of the business as it affect input manufacturing capacity. Without proper yield a company will be unable to meet the existing market demand, creating a strong opportunity for its competitors. Porter’s Five forces model The following model shows the macro analysis of the business conditions under which Walt Disney operates. Adopted from Porter (1990) New entrants The deregulated state of the market provides certain opportunities for new entrants to start the business. The company operates in a mature market, divided between existing large companies. The continuous change of life style preferences create various opportunities for the media content. The advertising, film-making, character-based merchandise and theme parks areas have serious entry barriers, especially for small players, as the existing brands have strong reputation, develop economies of scale and continuously invest in new technologies. Buyers The global operations, especially on the U. S. and Asian-Pacific markets shows that consumers have a very strong bargaining power. Strong competition between global and regional niche players and constant change of preferences for various content significantly reduce life cycles of various products. Substitutes Internet, other types of media create serious substitute threats to current media distribution channels. According to Mintel report (2003) the further increase of Internet proliferation with vast electronic media opportunities create is likely to reduce drastically the use of hard copy products. Suppliers The scale of operations, the size of the company and highly recognised strong brand identity provide the company with bargaining power against local and global suppliers. Competitors The company competes with such powerful competitors as AOL Time Warner Inc. , Viacom Inc. , The News Inc, Comcast Corp. , Canal + etc. The presence of powerful competitors with established brands create a threat of intense price wars and poses s strong requirement for product differentiation. The other important feature of the media industry is a continuous shift of competitors’ market power. This notion takes place as the result of various strategic alliances and industry consolidation. For instance, the merge of Time Warner with America Online Inc. created powerful internal capabilities. If they were met with market demand, it would have boosted the company’s profit margin. The other threat goes from the continuous development of The News Inc. which uses very aggressive expansion strategy. It plays a â€Å"gatekeeper† role in the development of digital broadcasting and has already been developing long-term technical capabilities to build its internet presence. At the same time, the global media industry is very fragmented due to various cultural differences. Thus, the permanent change of consumer trends and the market fragmentation create a lot of niche markets. Today, the major theatre for fierce competition is US and EU markets. The company has to compete with other entertainment companies, broadcasters and content providers, who pursue very aggressive customer-switching strategies. Swot analysis According to Wit & Meyer (1998) the analysis of capabilities shall focus on the analysis of â€Å"core competence† or â€Å"portfolio† assessment (see Appendix I). Applying this table to the case of Walt Disney it must be admitted, that the global nature of operations and high intensity of competitive environment create importance for using both types of analysis. Strengths From the core competence perspective, one of the main strengths of Walt Disney’s strategy is a capability of fast and intensive transfer of operational capabilities across the markets, which allow the company to benefit from learning curve, operational and other cost reduction benefits. The other important capability is the ability to develop new innovative solutions to meet changing demand. The development of Mission: SPACE is the good example of the application of latest digital technologies to enhance the entertainment experience of theme park visitors (Datamonitor, 2004). From the portfolio perspective, the company’s strength is in its experience of international operations. According to Bennet (1999) the development of local knowledge along with learning curve might create potential synergies over different strategic business units. The other strength is a diversified portfolio. Walt Disney is involved in various areas of the media distribution, including television and cable, book publishing and filmed entertainment, character merchandise and internet content delivery. The company's wide-ranging interests protect it somewhat from the effects of adverse market conditions in any one of the sectors within which it operates. Its presence in a large number of markets gives the company a more balanced and stable portfolio of assets, and therefore a more secure business. The diversity of the media portfolio creates a strong advertising potential. The company operates with six domestic sports channels, reaching 85 million viewers, and has several brand extensions including ESPN Radio, which is the largest radio sports network in the US. Its A Television Networks, featuring cultural and entertainment programming such as The History Channel, reach 77 million homes. Lifetime Television is devoted to women's lifestyle programming and reaches 83 million cable subscribers. Its Toon Disney channel, targeted at 2-11 year olds, is available in 26 million homes and began carrying advertising in 2000. Disney's SoapNet channel was also launched in 2000, and now reaches more than 18 million homes (Datamonitor, 2004). Weaknesses One of the strong weaknesses of the company is the dependence of theme park distribution on seasonal component. All of Disney's theme parks and associated operations are open all year round. However, there are extreme fluctuations in park attendance and resort occupancy, caused by the nature and patterns of vacations. Peak attendance and occupancy occur during the school holidays in summer, early-winter and spring. These fluctuations cause natural operational difficulties, but also make the business more vulnerable as it relies heavily on a few key months. If economic downturns, poor weather or other outside influences occur during the crucial periods, the effect on annual results is magnified. The analysis of financial data for the last 10 years (www. hoovers. com) show that despite overall healthy growth f its sales and successful penetration into new markets, the company had very high operation costs and unbalanced cash flows along different SBUs. The financial figures show that only cable broadcasting and television create sound profit. The situation with filmed entertainment requires consideration regarding the future strategy of running this business area as the company’s certain failures seriously affected the profitability of this area. Opportunities Improvement of customer relation s strategy According to D’Agostino (2003) Walt Disney has a unique opportunity of developing strong customer relations strategy based on database marketing capabilities. It predicts that the introduction of these technologies will enable the company to target and tailor the media delivery to active and prospective customers. However various analysts strongly advise to find the balance between â€Å"being digital and human† (D’Agostino, 2003). Advertising Growth The analysis of social factors influence shows the strong impact of various social events on the content requirements. Various social events as summer holidays or adventure trips might create significant a potential for advertising growth what can bring great financial benefit. Differentiation The continuous change of global lifestyles and attitudes create niche markets for specific quality products. The ongoing diffusion of new technological solutions creates new possibilities to capture these markets. Thus the combination of these factors provides a feasible opportunity to expand. However, the success will strongly depend on the ability to react quickly to keep abreast of fast-changing market requirements. The further introduction of ICT technologies As Datamonitor (2003) recommends, the ICT technologies shall be further implemented in the business process. The further proliferation of broadband technologies on the EU market might create various opportunities for Walt Disney providing its extensive development of online applications. Besides, it will enable the company to exploit various internet media channels that will enable the company to use various e-marketing tools to create stronger relations with its customers.. Superior market segmentation The company has the opportunity to develop stronger demographic segmentation in order to anticipate the further market trends. The Mintel report (2003) shows that there are significant differences in preferences across different demographic and psychographic groups. Given the importance of content as a strong â€Å"pull† and differentiating factor, the further success might depend on the ability to spot the requirements of niche markets and meet them. Threats Economic conditions The Walt Disney’s media production and distribution indirectly dependent on advertising for their revenue. Changes in US, global or regional economic conditions may affect the advertising market for broadcast and cable television programming, which in turn may affect the volume of, and price for, the advertising on Walt Disney’s cable networks and shows and the volume of, and price for, the programming that the company is able to sell. Winnie the Pooh trial According to Datamonitor (2004) a one-billion-dollar lawsuit against Walt Disney over the cash generated by the Winnie the Pooh character is likely to finally go to trial in 2005. The case centres on the US marketing rights to he character, created by British author A. A. Milne and popularized by the Disney entertainment empire. Among the issues at stake, are revenues from computer software, DVDs and videotapes, merchandise that mostly comes in formats that came into being after the agreement was signed. Pooh revenues, said to be the most of any character that Disney markets, are estimated to be in the region of three billion to six billion dollars a year, and the lawsuit represents a considerable threat to the company's performance in the future. Stakeholder analysis Stakeholders are persons, groups or institutions with interests in a project or programme. According to McLarney (2002) there are two types of stakeholders: primary or key stakeholders, and secondary ones. Primary stakeholders are those ultimately affected, either positively (beneficiaries) or negatively (for example, those involuntarily resettled). Secondary stakeholders are the intermediaries in the aid delivery process. McLarney (2002) suggest that the group of primary stakeholders consist of shareholders, employees and customers. Shareholders Shareholders can be considered as one of the most influential type of primary stakeholders as they might exert direct or indirect control over the strategic action of the company. That is why one of the Disney's overriding objectives â€Å"is to create shareholder value by continuing to be the world's premier entertainment company from a creative, strategic, and financial standpoint†. Shareholders’ evaluation of the company’s current and future performance has a direct effect on the company’s stakes’ value. The recent bidding of Comcast Corporation for The Walt Disney Company (Business Week, 2004) exemplified the way market evaluation might determine the bidding process during the possible merging. This group expect the company to deliver consistent sound financial performance what will be a proof that the company can fulfil its mission’s objectives. Employees Employees have a direct influence over the quality of the business concept delivery. According to Drucker (1998) employee possess important tacit and explicit knowledge, which can significantly contribute to the learning capability of the company, especially during business process reengineering and continuous improvement activities. They expect to work for the socially responsible company, which is adherent to its mission and brand promise. They also expect certain degree of involvement in decision making, personal development and adequate performance appraisal. Customers Customers have a direct influence over company’s profitability. According to Kotler et al. (1999) the direction of customers’ attitude formation may determine the success and failure of particular goods or brand. Customers expect the company to deliver the quality promised by the brand, and communicated to them through various promotion mix activities. The issue of company’s social responsibility, especially in the case of Walt Disney is crucial, as the company is involved in character–based merchandise which is heavily dependant on the proliferation of specific image of particular characters. Conclusion The analysis of the current PESTEL factors identified the particular importance of socio-cultural, political and legal, economic, technological and environmental factors on the environment. All of these factors determine the success of operations. If socio-cultural and economic factors affect the demand patterns and vulnerability of strategic development, other factors create the conditions for value chain architecture. The review of environmental factors identified the opportunities to improve financial health, capitalize on the growth of advertising market and develop further ifferentiation using technological solutions. At the same time economic conditions and copyright issue create serious threats to the company. The analysis of five forces identified the strong power of buyers and the analysis of strategic capability defined the following strengths: diversified portfolio, fast and intensive transfer of operational capabilities and the experience of running the international oper ations. At the same time the current portfolio management and the dependence of certain business units on various external factors were defined as major weaknesses. The paper identified various feasible opportunities. The analysis of current capabilities along with the further development of technological solutions create strong case for the development of customer relations management based on database marketing techniques. Besides the company might pursue the development of new ICT technologies. The current success of Mission: SPACE attractions show vast market opportunities with regards to the introduction of new entertainment experience. The company may develop superior market segmentation. The high influence of social factor and the influence of fashion trends on market demand and product life cycles create the space for niche market strategies. The stakeholder analysis defined three types of key stakeholders, as shareholders, employees and customers, who might exert sufficient influence on the strategic development of the company. references Bennett, R. (1999) Corporate strategy – 2nd ed. – London: Financial Times Bradley F. 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(1998) Strategy: process, content, context: an international perspective – 2nd edn. – London : International Thomson Business Hoovers Online Official site – www. hoovers. com Appendix i – Portfolio vs core competence perspectives | |Portfolio |Core Competences | |Emphasis on |Responsiveness over synergy |Synergy over responsiveness |View of competition |Firms compete within a business |Corporations compete across business | |Competitive strategy at |Business level |Corporate level | |Key success factors |Responsiveness to business demands |Competence leverage | |Corporate composition |Potentially unrelated (diverse) |Shared competence base (focused) | |Mulitibusiness synergy |Cash flow optimization |Rapid competence building | |Primary task corporate centre |Capital allocation to SBU’s |Competence development & application | |Position of Business un its |Highly autonomous (independent) |Highly integrated (interdependent) | |Co-ordination between SBU’s |Low, incidental |High, structural | |Corporate control style |Setting financial objectives |Joint strategy development | |Diversification acquisitions |Simple to accommodate |Difficult to integrate | Adopted from Witt and Meyer (1998) ———————– Competitors High New entrants Low Buyers (bargaining power) High Substitutes High Suppliers