Disney Strategic Initiative
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Strategic planning or long range planning determines where Disney is going in the next few years or more and what initiatives they will use to arrive there. Strategic analysis is just one of the three major steps to be performed in achieving a solid plan. As Disney encounters major issues such as the current state of the economy or positive opportunities, the planners must come to careful conclusions. To reach such conclusions we will have to examine a strategic direction; which will include strategic goals the organization should achieve and the overall strategies use to achieve them. The current financial state of the company should be included in the planning process. A few key steps with the financial aspect of strategic planning are developing financial goals, alternative courses of action, evaluating risk, implementing a financial action plan, and reevaluating your plan. At some point in this process senior planners will need to identify or update the strategic philosophy. This is accomplished by simply updating the mission, vision, and values statement to be aligned with the strategic plan. We will begin reviewing Disney’s strategic and financial planning initiatives by first examining the annual report.
“Some deft observer of the laws of physics as well as economics once said that the two most powerful forces in the world are gravity and the time value of money, (http://www.finance.cch.com/text/c10s10d020.asp).” Time Value of Money is an initial building block for financial planning, and Disney must have a complete understanding of this concept in order to achieve financial security throughout this strategic initiative. The TMV concept allows Disney to quantify their goals in dollar amounts by using five “variables” that interrelate in any given situation. Present and future value, number of compounding periods, interest rate, and periodic payment amount are the variables that can measure the impact of cost for Disney’s initiative.
By analyzing the basic elements of time value of money Disney can compute the net value of a major project or shift in strategy. To help determine the opportunity cost for such projects or strategies the company can look to measure its future value and adjust for inflation. After reviewing the past 3 year’s statements, operating cost has risen 2% from 2006 to 2007, and risen 6% from 2007 to 2008*, it is important to note that all of the 2008 Q4 data is not complete since the quarter is still ongoing (http://corporate.
disney.go.com/media/investors/form_10k_fy2008.pdf). The shift in initiatives from 2006 to 2007 has shown that financial costs have increased; but this increase can be contributed to a number of supporting factors. The weak American economy; the war in Iraq and Afghanistan, the stream of American foreclosures all relate back to the consumers ability to spend money on theme parks, movies and vacations. All of which Disney company are intimately involved.
Disney is a leading diversified international family entertainment and media enterprise with four business segments: media networks, parks and resorts, studio entertainment and consumer products. Disney is a Dow 30 company with annual revenues of over $37.8 billion in its last fiscal year.
Disney believe that the success in creating shareholder value depends on their continued efforts to produce outstanding entertainment content, experiences, and other products that consumers enjoy and how well they broaden and benefit from the company’s exclusive set of resources and aggressive strengths. Disney and ESPN portfolio of brands include Pirates of the Caribbean, High School Musical, Winnie the Pooh, Mickey Mouse, Hannah Montana, Disney Princesses, Cars and Toy Story. These franchises provide returning base of business that extend into new platforms and technology in new markets around the globe. Disney strives to accomplish upcoming earnings growth to improve the company’s long-term competitive position. Strategic initiative can sometimes persuade upcoming returns; Disney assesses trends in financial metrics over time instead of looking only at short-term results.
The initiatives impact investments in Disney and ESPN Television, Video Games, Mobile content, and the Internet, reach of distribution in international market, including Russia, China, and India and around the world. The strong point of the Disney’s’ brand and its increasing portfolio of franchises support the achievement of Sales Product. The Sales Product profits greatly from the franchise building process, mainly in licensing, where revenues from earned royalties achieved double-digit growth rates in fiscal 2007. There’s an advantage potential in the licensing business to promote increase market share in key categories through Disney’s direct-to-retail licensing strategy over the next several years. The Company believes the video gaming is the way for expansion opportunity over the several years as it allows them to expand their current characters and brands and deliver stronger returns from key franchises. Disney has ramped up product development capabilities and expects to continue increasing the investment in video games over time.
Disney’s products includes:
• Book Sales
• Consumer Product (Toys, DVD’s, souvenirs, clothing)
• World Resort Sales (Theme Museum Parks)
• Radio Sales
• El Capitan Theater
Governor Arnold Schwarzenegger proposes a new sales tax rate of 9.25% on all taxable goods and services. Effective March 1, 2009 Disney’s amusement park will be effected by the sales and use tax rate will be applied to amusement parks and sporting events.
There are ten risks that are associated with the strategic initiative. They are: (1) Regulation and Compliance Risk; (2) Global Finance Shocks; (3) Aging Consumers and Workforce; (4) Emerging Markets; (5) Industry Consolidation/Transition; (6) Energy Shocks; (7) Execution of Strategic Transactions; (8) Cost Inflation; (9) Radical Greening; and (10) Consumer Demand Shifts.
The Regulatory and compliance risk poses many challenges and/or threats for companies that have expanded their growth in other countries. The Global financial shocks risk would cause some companies to have trouble with gaining any kind of capital. The Aging consumers and workforce risk implies exactly that, that everyone is getting older. The Emerging markets risk is when one company that is doing well buys another company that isn’t doing so well. This move could actually backfire on a company. The Industry consolidation/transition risk is that the current trend of one organization buying another organization has a strong possibility of slowing down in the years ahead.
The Energy shock risk is the fluctuation of the prices, such as the case of going up or coming down. The Execution of strategic transactions is the result of the possible attempts for taking advantage of any kind of opportunities. The Cost inflation risk is the return of a high inflation after having been in the low inflation for some time within the global economy. The Radical greening risk is applied to the environment. This mostly has to do with the change in the climate. The last and final risk is the Consumer demand shifts risk. This is caused by the failure to anticipate any kind of shifts associated with the demands for the products and services.
The financial impact for Regulation and compliance risk is the greatest strategic
challenge facing global businesses in 2008. This is being driven by an escalating regulatory burden in many markets, as well as numerous compliance challenges as companies expand outside of North America and Europe. Regulatory intervention in pharmaceuticals, biotech, insurance, telecoms, and utilities is further elevating this risk.
With the Global Financial Shocks the analysts acknowledged that few sectors can escape the impact of major financial shocks. The sub-prime mortgage crisis and resulting credit crunch is a recent example of a financial shock affecting sectors across the economy. With Aging Consumers and Workforce, as consumers’ age, they demand different products than in years past. The financial impact is causing companies to adapt quickly to changing customer preferences. The aging baby-boomer workforce is creating significant human resource challenges in many sectors. In the Emerging Markets companies are increasingly being driven to emerging markets by the saturation of existing markets. Meanwhile, this global expansion carries the risks of currency, operational, regulatory, language, and cultural clashes.
Industry consolidation/transition was identified as a continuing major strategic
challenge moving into 2008. With companies like Disney, the media and entertainment
sector, mergers and acquisitions is a central feature of many companies’ attempts to
respond to the internet’s impact. Energy Shocks fluctuates in energy prices and access to
supplies pose a clear challenge to the energy sector, including utilities and oil & gas,
which is a financial impact. Beyond the energy sector, a large swing in energy prices
could cause economic shocks impacting sectors across the economy. Execution of
Strategic Transitions have recent mergers & acquisitions boom that has caused
stakeholders to expect these mergers to have an immediate impact on the bottom line.
There is significant risk that strategic transitions may not meet stakeholder expectations,
especially in the short-run.
With cost inflation the global economy has been running in a low inflation
environment for some time, which is a financial impact. Analysts believe that the return
of high inflation is a major risk to all sectors. In many cases, these pressures are caused
by changes in the fundamental structure of an industry. For example, the US auto
industry has been greatly affected by demographic changes and health care costs. Radical
Greening increases environmental concerns, it is a strategic risk driven by both consumer
demands and weather events caused by climate change. The pace and extent of
this new ‘green revolution’ is difficult to predict. Consumer Demand Shifts
is the task of business to identify and respond to changes in demand. Such challenges are
a strategic risk when changes are fast or unexpected. Consumers are rapidly becoming
more empowered, challenging companies to quickly meet their demands.
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Strategic Business Risk: The Top 10 Risks for Business, by Ernst & Young, 2008.
Retrieve December 5, 2008, from World Wide Web
Retrieve December 5, 2008, from World Wide Web
Retrieve December 5, 2008, from World Wide Web