Question

Choose an organization (The Walt Disney Company) that uses diversification and explain what kind of diversification they are using/implementing; levels of diversification, related/not related. List/Explain how diversification is creating value for The Walt Disney Company and point-out potential incentives and resources that encourage that diversification.

Answer 1

The Walt Disney Company uses diversification as a strategy to leverage its strengths in the entertainment and retail industry. The core business for Walt Disney is animation business. The company then diversified into entertainment parks, cruise lines, resorts, TV broadcasting, retailing, etc. Disney encouraged cross-promotional relationships with retailing giants like McDonalds. This experience gave Walt Disney an exposure to enter into the retailing industry. The company had close association with the government of Florida which contributed to its exposure in handling theme parks. Thus, Walt Disney has many diversifications to expand its business.

The Walt Disney Company has used moderate diversification level wherein about 70% of the revenue is used from its dominant business animation and theme parks and all the businesses (including the retailing) share the technologies gained from the main company, its products and distribution linkages with its other subsidiaries as well. Thus, there is a linkage between all of its diversified companies.

The diversification strategy used by Walt Disney Company is related diversification because a majority of its diversification is from the entertainment industry. Initially, Walt Disney Company produced animated motion pictures. Then, it diversified into producing family-oriented pictures. Then, the company diversified into operating multiple theme parks. Another diversification was selling the company’s products through the Disney retail outlets/stores. Hence, the Walt Disney Company has related diversification strategy though a small segment is unrelated such as cruise lines.

The diversification strategy that is adopted by Disney creates value for the company as it offers products and entertainment to a broad level of people and not confined to just one segment. The potential incentives and resources that encourage diversification are-

- Technological advancements

- Globalization to enter into foreign markets

- Increased revenue and profit due to diversification

- Increased preference of people for entertainment