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Focusing on Core Strengths: Disney April 21, 2010

Posted by David Dirks in business strategy, Decison making.
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The ebbs and flows of business strategy can vary how any enterprise, large or small, approaches the challenge of continual growth.  Very often the variances in strategy focus can either help or hinder growth.  Business owners are often faced with the challenge of ‘do we expand our product and/or service focus to other markets?’ in order to find additional opportunities for revenue growth.  The implications of expanding or contracting a business strategy are tremendous.  The world is littered with the carcasses of businesses that either died  because they wouldn’t expand their strategy beyond their current core or collapsed because they reached too far and drove themselves into the ground.

When you’re looking for additional revenues, what is the right strategy?  Expansion outside of core or staying within your core?

Disney and their movie business is a good example of deciding to go outside and then dealing with the consequences.  For more than a decade, the Disney studio cranked out one-off movies that had no connection to any core Disney brand like Cinderella.  To be sure, Disney did have some great success with movies series like “Pirates of the Carribean” and their Pixar division has done well.  According to the Wallstreet Journal (WSJ.com), everything else Disney was releasing was suppressing their overall studio results.

Predictably, Disney is now re-focusing it’s studio efforts around expansion of existing movie franchises (i.e. Muppets).  Their strategey: invest and expand studio movie offerings built around strong movie franchises that can also help their other revenue generating divisions.  For example, their popular ‘Hanna Montana’ franchise has not only spawned successful movies but has allowed Disney to roll Hanna Montana products across several of it’s distribution channels.  That kind of cross-pollination rings the cash register every time.

With its recent acquisition of Marvel Entertainment, Disney now has access to thousands of branded characters that they can develop deeper franchises with.  It also comes with an already established and faithful base of fans across the world…much like its own base of characters that Disney developed more than 80 years ago (Mickey Mouse for example).

The question for the rest of us is this:  Is there a litmus test that we can apply to determine whether or not it makes sense to stay within our core product and/or services or whether we need to expand outside of it?  Disney did both.  Focusing on what it already owns that has strong brand recognition and acquiring a new set of characters via Marvel that also have strong brand recognition.

If there is a litmus test, I’d put my money on the following:

1.  What do the numbers really tell you? Tricky, because numbers can lie.  However, there is always something to be said for doing the math first taking great care to insure that the math is not ‘funny math’ that is created just to make our case either way.  How does revenue growth and profitability of a non-core business strategy compare to our current core?

2.  Why leave your core business strategy in the first place? Have we done all that we can to improve results and expand our growth opportunities within our current core strengths?  Can we do a “Disney” and focus our resources on our current core business strategy while looking for outside opportunities (new products, services, acquisitions) that meld well our core strengths?

3.  Do we really have the expertise and depth it takes to run a non-core business ? There are plenty of times when a business will take on a non-core business strategy in the name of profits over expertise.  In most cases, since they don’t have much expertise to a business outside their core, they happily bleed the cash cow down until they end up selling the carcass to someone else.  You’ll hear senior management say, “We’ve decided to divest ourselves of assets that are not within our core business”.  CEO’s under pressure from shareholders and their board for accelerated growth and profits will often scramble to find a business that can bring cash into the fold.  Almost too predictably, a few years later they end up selling a non-core business often for much less than they paid for it.

Pursuing a non-core business strategy always has varying degrees of risk.  In the long run, I favor sticking to whatever core expertise and business strategy you have.  Expanding your core business with products and services that are directly or indirectly related to your core business is usually the best bet.  Disney’s example of extending their core movie business franchise by acquiring other strong character-based brands (i.e. Pixar, Marvel) makes sense and money.