Vertically integrated strategic companies expand either backward or forward in the value chain to operate and make profit from all possible strategic units. Disney adopted this strategy and established its own operations to build the value chain.
Disney’s different strategic business units were Entertainment and Recreation, Motion pictures and Home Videos and Consumer Products. All these individual business units were vertically integrated but related diversified in nature. They either acquired or formed new company to reduce the loss in revenue that was flowing to some other companies in the value chain. For example in Motion pictures, they started with movies. Soon they realized the profit was being shared by distributors, so they got into distributions via their Buena Vista Distributions company. Michael Eisner’s vision was to maximize their profit by identifying the source of revenue loss and filling the gap. Once successful with distribution, they didn’t stop there. Their next step was to capture televisions and videocassette market and later TV channels to host Disney movies and other Disney character’s show. By doing this, they were able to diversify their product. Below is an example of vertical integration in Disney.
- Movies àDistribution ChannelsàVideo CassetteesàTelevisionsàTV Channels
- Theme parksàHotelsàShopping ComplexesàNight ClubsàFast Food.
What Disney achieved was not easy for any corporation. There were existing big companies in each value chain that Disney entered, which means they will have big competitors to compete with at every stage. Generally companies concentrate on their core business and leave the remaining on existing companies. For example theme park business were their core business, they could have easily let the hotel business to be operated by existing big players. But they saw this as an opportunity for them. They were not only able to survive, but also thrive because of this strategy, which allowed them to share management competencies between different strategic units, better manage their rivalries by using their own company in value chain, so that the revenue is not shared by others and transfer competencies between businesses. The success of a TV cartoon could be used to develop toys or vice-versa. They could also be used in theme parks once they are popular in TV channels and as a product.
Disney did not enter into different business because they wanted to diversify. They did because they were all related to entertainment industry. One business unit helped other to generate revenue. By hosting television shows within their own TV channels, they were doing advertisement for their theme parks and consumer products. They have good co-ordination between different units and they worked as a company rather than separate profitable units. That helped increase the revenue from theme parks and Disney products. Instead of concentrating on individual business units, their management was mature enough to look at the overall revenue of the company. Their management was competent enough to determine the source of loss in revenue and enter into such business. By entering into related business, they created a world by itself in entertainment industry. They had such a strong bonding between their lines of products that no competitors could compete with them as a combined industry. Though they have individual competitors in every field like distribution channels, televisions channels and theme parks etc, but together, Disney has become a behemoth.
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