You might think that Mickey Mouse is Walt Disney’s greatest creation, but that little mouse with the big ears isn’t what has kept the company so profitable all these years.
It was something else that Disney created: his corporate theory.
That doesn’t sound near as cute or engaging as Mickey, but it proved to be the invention that would put the company on the path to continually creating value. More important, it saved the Disney company when it became the target of a hostile takeover in 1984.
In a nutshell, Disney’s corporate theory written many decades ago was this: Children and adults will be enduringly captivated by creating engaging characters set in visual fantasy worlds – mostly through animation – and growth can be sustained by placing these characters in film and further developing them through other entertainment assets.
Disney used this theory – with great success – throughout his years at the helm, but the company started to decline after his death in 1966. The company floundered and seemed to shift away from animation until the takeover threat. That’s when Michael Eisner took over, and promptly rediscovered Disney’s original theory of how to create value in entertainment, says Todd Zenger in his book, “Beyond Competitive Advantage: How to Solve the Puzzle of Sustaining Growth While Creating Value.”
With Disney’s corporate theory in hand, Eisner invested heavily in animated production, leading to such hits as “The Little Mermaid” and “The Lion King.”
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Zenger says that Disney’s strategy is a great example of a powerful corporate theory. It not only provided direction and vision for senior managers, but it also helped leaders to make decisions regarding acquisitions, resources and activities. In other words, with Disney’s corporate theory, the company was able to make the right strategic decisions without costly wrong turns, he says.
Zenger, a global expert on corporate strategy, says that if more companies followed Disney’s lead and designed a corporate theory, they would be able to sustain a strong position in even the most competitive markets.
Just like a scientific theory, a corporate theory is aimed at improving a company’s chances of selecting the most valuable paths while minimizing costly mistakes. It’s a logic that managers can repeatedly use to make decisions when confronted with a dizzying array of assets, resources and activities, Zenger says.
“The challenge that many companies face today is that once they achieve a targeted position in their industry, then investors want to know, ‘What’s next?’” Zenger says. “The better you are, the greater the expectation becomes, and it gets more difficult because of the faster-paced competitors that compound your problem.”
What effective companies do, he says, is “compose a path to value creation and have a unique perspective on how to do that,” which is even more critical in a volatile market, he says.
He cautions, however, against companies making rushed judgments because they feel such pressure from investors or from competitors.
“You have to do what makes sense. Just flitting about and trying to be quicker can be a detriment,” he says. “One should never advance an experiment at the cost of deep thinking.”
Zenger says a corporate theory can help companies keep a balanced approach that will work best for them. He says the keys to crafting a powerful corporate theory like Disney’s include:
- Foresight. This includes expectations about how an industry will evolve, such as predicting future customer tastes, consumer demand or the development of relevant technologies. This foresight offers guidance as to what assets, resources and activities will prove most valuable. However, it should not be so generic that it doesn’t identify valuable options and assets.
- Insight. Look at your company’s unique assets, activities and resources – those things that are rare, distinctive and valuable. Disney identified early on the importance of his animation and ability to create timeless characters. Keep in mind that if other companies own assets identical to yours, they can replicate your strategy and actions – perhaps even better than you.
- Cross-sight. It’s important to identify complementary assets and capabilities – those things that will enhance a company’s unique assets. For example, Disney’s theory led leaders to always search for investments and assets that leveraged Disney’s unique characters, such as theme parks, books, music and cruise ships.
Despite Disney’s success in branching out into other ventures, Zenger says it was part of the company’s theory – and not just a knee-jerk reaction to a growing market. He says that unfortunately today, too many companies try to acquire other organizations as a growth strategy, and overspend to do it. If they stay focused on their own corporate theory, they are much more likely to spot “bargains” that will have greater payoffs, he says.
In addition, he says companies need to consider whether it may be better to simply partner with another business rather than acquire it. For example, companies may need to buy another company “because what you need to acquire is so unique and you need the knowledge and the legal rights to that knowledge,” he says.
However, if that knowledge resides with current employees, organizations must be prepared for what happens if those workers decide to leave as a result of the acquisition, “which can leave you empty-handed.”
Partnering with another company can be advantageous because “you can motivate them enough with the deal that they fall all over themselves to create value and partner with you,” he says. Still, he cautions that if company leadership decides to partner with another business, it must be aware that there will be “shadow partners” – the other companies that already partner with that business and will become part of the deal in a less-than-clear way. In addition, you need to be certain that the partner is willing “to make the kind of investments you need to get you where you’re going,” Zenger says.
Finally, Zenger says that’s it’s critical that strategic leaders not just have a theory about where to take an organization, but also inspire and motivate others “to think strategically about how to realize that big idea.”