Related diversification and unrelated diversification

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Reference no: EM132970


One plus one can equal more than two when firms leverage core competencies and share activities. Disney is a prime example. Chairman and CEO Michael Eisner credited Disney's success to several factors. Among these, diversity leads the list. Eisner attributed the company's creativity to the diversity of ideas generated by its employees. Although diversity of opinion can cause friction, this "creative friction" is the foundation of Disney's idea generation success

The company harnesses this creative friction through synergies among business units. For example, Disney recently reorganised its structure from a hierarchical to a hybrid form. With the hierarchical structure, an employee writing a movie in Italy would report directly to the movie division. But this keeps the knowledge gained from the Italian movie production within the movie production division. So now the Italian movie producer reports to someone outside the movie division in addition to the producer's own work unit. This gives others access to information that would otherwise remain isolated, creating the chance that knowledge gained in one division can be used elsewhere. In other words, Disney arranges "chance accidents" in which synergies can develop and duplication of efforts can decrease

Disney also has expertise in sharing activities. Consider the box office hit The Lion King. Disney was not satisfied to sit back and collect the box office revenues. After the movie's success, it developed more than 150 different Lion King products. Disney based the soundtrack, Rhythm of the Pride Lands, on the music from The Lion King. Simba's Pride is a video spawned from The Lion King. By leveraging The Lion King's success and sharing activities among different business divisions. Disney turned a $600 million movie success into a $3 billion revenue stream. Other examples abound at Disney. Disney World works with a cruise line to sell joint vacations. The little Mermaid became a popular television production. Toy Story was leveraged with a video game based on the movie's animated characters. A successful Broadway play was the result of Beauty and the Beast. EuroDisney managers share their knowledge and expertise with Disney's other resort managers

The result? Three movie studios; theme parks in the United States, France, and Japan and a future development in Hong Kong; two Disney cruise ships in addition to joint efforts with other cruise lines; 725 Disney stores; and ownership of major media outlets including ABC, ESPN, Lifetime, and E! Entertainment Television. With $25 billion in annual revenues, Disney is an exemplar of benefits of leveraging core competencies and sharing activities


(a) Discuss how managers of Disney have created value for the firm through diversification efforts

(b) Using appropriate examples explain how other companies can benefit from: (i) related diversification and (ii) Unrelated diversification?

(c) (i) It is critical for a firm to attain congruence between its strategy and organisational structure'. Discuss the benefits which Disney has achieved by reorganising its structure from a hierarchical to a hybrid one

(ii) Identify the different departmentalisation approaches to organisation structure, and discuss their relative advantages and disadvantages

Reference no: EM132970

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