Organization Theory and the Walt Disney Company

Adam Stone

For permission to reproduce, write to Adam Stone astone@socrates.berkeley.edu
For further readings of interest, consult Adam Stone on Synergy at Viacom
Abstract:        The Walt Disney Company is evaluted as an intriguing example         
                 of organizational learning and culture as represented  
                 by four distinct stages in its history    

Information      By: Adam Stone, New College, Spring 1993         
                 (c) 1996 All rights reserved  
                 Cite as Stone, Adam 'Organization Theory and the Walt Disney Company'    
                 (Internet Draft: http://socrates.berkeley.edu:4050/research.html)    

Organization Theory and the Walt Disney Company

In the early 1980's the Walt Disney Company was in a state of mismanaged disarray. Profits were low and steadily dropping as the decade progressed. This year, the Walt Disney Company posted earnings of 7.5 billion dollars, up from 98 million in 1984 (Eisner, 1992). What turned around Disney has been the subject of several books and has been discussed in popular literature. Here, I want to examine this turnaround in terms of Disney as an organization. Organization theory offers an interesting framework by which to analyze the changes that occurred in the company.

In order to understand what made the turnaround possible, it is important to see what brought the Disney Company to such a state of shambles in the first place. The history of the organization can be divided into four overlapping stages: Walt, Deity, Vacuum, and Eisner.

The Walt stage is first. Between 1946 and 1964, Walt Disney rode the baby boom generation to create a hugely successful entertainment corporation. From the beginning the company was built on the success of its own products. Walt's early Silly Symphonies paid for the early Mickey Cartoons which paid for the first full length animated feature which paid for the first live action -adventures and so on (Flower, p.16). This building process was certainly not unique to Disney; however, the process that followed it was.

In the early 1950's, Walt began to campaign vigorously to create Disneyland. Roy Disney, Walt's older brother and financial manager of the business, was strongly opposed to the idea because of its risky return. Walt was forced to find the money to open the park himself, eventually turning to a deal with ABC which would form the beginning of the Disney synergy. In exchange for a 34 percent interest in the business and loan guarantees, Disney agreed to produce a weekly program called "Disneyland" for the struggling network. No other studio had ventured into television previously so this was new in itself; however, the results were extraordinary. After the park opened in 1955, the television program became an advertisement for the parks and the new films. The films encouraged people to visit the parks and tune in to the program while the parks built up good will for the company and encouraged people to relive the experience through the television programs and films (Flower, p.16). These cross connections formed the basis of an entertainment conglomerate which, in another first for the entertainment industry, was based on a company name. Even in the heyday of the major studios, no production company had the name recognition Disney had from the beginning. The synergy of the television programs and parks fed this name-recognition even more.

From a business standpoint the structure was sheer genius. However, from an organizational standpoint, it had the potential to be a nightmare. The different divisions, competing for resources and in interests, had to work together to create the synergy which made the Disney company work. In its early days, one thing allowed this synergy to function: Walt.

It is surprising to find a creative genius like Walt, succeeding in a business environment. In part, his success was built on Roy Disney's conservative financial planning which prevented Walt from running with each new project he considered. However, Walt was also a surprisingly good organizer on his own. Joe Flower, in Prince of the Magic Kingdom, notes:

Genius often renders the artist nearly or completely incapable of working through an organization. Walt Disney's peculiar madness took just the opposite turn: he demonstrated four abilities any great leader possesses- creativity, energy, communication, and inspiration (Flower, p.24).

However, the organization he created was indicative of some lack of traditional organizational skills. Virtually no hierarchy or division of labor existed in the early Disney organization. The rational systems approach would find that the company should not have been able to function at all. Almost everyone involved with running the company besides Walt was a "staff writer" with no defined responsibilities. However, a natural systems perspective reveals that the informal relationships between these men created a tight and effective management structure where slack was quickly picked up. This management structure was almost completely the result of its leader. Walt micro managed every detail of the operations of the company. He would read and edit individual scripts, supervise films, manage the parks, and run the television production company. A Los Angeles Times reporter once asked Walt what was the most rewarding of his experiences. He replied, "The whole damn thing. The fact that I was able to build and organization and hold it (Flower, p.21)." Everyone in the organization answered to Walt and Walt ran the organization and imbued it with a culture of quality that grew naturally from his own notion of the company. The management structure was a flat-hierarchy with Walt leading and controlling everyone below, and with everyone below on an almost flat plane.

Thr trouble with this sort of organization seems to be in its potential for perpetuity. Walt died on December 14, 1966 leaving much of the world in tears, and leaving an organization he had created and controlled form day one. The question became: could anyone run the organization like Walt?

The second phase of the Disney organization was the religious one. Without Walt, the plan for organization was simple and obvious: make believe he wasn't dead. Needless to say, it didn't work. Immediately after Walt's death, the company emabarked on a management strategy grounded in the question: what would Walt have done? All the individuals in the company seemed to have different ideas about the answers, so the separate interests within the company began to battle. This strategy was crystalized by later imagineer then teacher Randy Bright's boss, a leader at the Disney University, who pioneered, "the Walt Disney Tradition," a training program based on keeping Walt's traditions alive (Flower, p.50).

This system was unable to fill the space left by Walt's death. Walt was an autocratic visionary and ran the organization in that way. The "shop-floor" interactions between Walt and his subordinates led people with Walt's qualities to leave the organization: they could not compete. This created even greater problems of leadership after his death. Flower writes:

Although Walt Disney Productions was a large organization...its personality was an extension of Walt himself. Without him the company was leaderless, and in some ways, brain dead. There was no one who could take his place. He had shaped the organization to meet his own needs (p.50).

It was in this environment that Roy Disney was forced to try to keep WDC working and growing. Not being a dynamic leader and shirking from decision-making, Roy tried to institute a rational-hierarchical structure into the organization. He formed a committee system which was supposed to oversee and coordinate the various aspects of the company. However, the committees had no leadership and in a creativity-based enterprise, decisions were difficult to agree on. In organization structure, the system resembled, "the Roman Catholic Church, but without a Pope (Flwoer, p.51)."

The committee structure proved ineffective. The committee of the imagineers was unable to agree upon new designs. Further, the competing interests of the various subdivisions were battling constantly with no one to mediate and guide. For instance, the ride operators were concerned with speed, turn-over, and ease of maintenance. Conversely, the imagineers were concerned with the overall quality of the experience. The competitions between them were simply not addressed properly by a committee system without a creative leader to make decisions. Ward Kimball, a Disney Animator, indicated, "any organization that was built by one man, one man's tastes and choices, will have a tough time adjusting to the rule of the committee where decisions are split among a group of people (Flower, p.51)."

In some ways, it was organizational inertiathat prevented the system from working. It was not impossible for a committee system to effectively run a creative enterprise like Disney; however, the organization was simply not poised for such a transition. It still craved the single-leader model and the power vacuum that followed led to serious problems.

In the years that followed, the organization began to decline further. These power vacuum years are particularly interesting from an organizational standpoint. Early in the paper, the synergy of the company was discussed. In the years since Walt died this synergy had grown in necessity and breadth, but declined in quality. The Disney company now had interests in consumer products, real estate development, licensing, television animation, and television production as well as its interests in film production, the theme parks, and the original television program. The hierarchical structure created in the next 20 years was completely unable to use this synergy to the company's benefit.

A series of CEO's and CFO's were reasonably good financial managers, but all lacked the creative direction the company had had under Walt. In addition, they lacked the dynamic ability Walt had to keep the parts of the organization connected. While Walt was dealing with a significantly smaller organization, there was no question that the connections between Disney's parts must be reestablished if the company was to thrive.

The late 1970's brought a new series of managers and wiring diagrams; however, they seemed to be ineffective. The hierarchical system that was imposed, in combination with a still existing corporate culture which relied on one individual to handle the synergy, were ineffective in revitalizing the company.

Thus, in the early 1980's the company was still coasting on its early successes but declining quickly. In 1984, the situation drastically changed and two organizational problems presented themselves. Saul Steinberg (the Jew who almost killed Disney) began to buy significant amounts of Disney stock. The assumption of the press, the public, and the Disney management, was that Steinberg was going to attempt a hostile takeover and sell of the individual parts of the company to the highest bidders. While this may or may not have been the case, Disney management made moves which actually forced Steinberg into a position where he had almost no choice but to do so.

From an organization theory perspective, this interchange was interesting because its showed the ineptitude of Disney executives in dealing with real-world financial matters. The corporate culture of Disney, which was concerned utmost with buffering the core technology of Disney entertainment, also buffered the executives from the outside business world. Disney executives often felt that they were above such petty business dealings; however, the risk of the end of the Disney Company was clearly real (p.102-105).

On another level, the takeover possibility seemed to tell something more about the nature of the Disney company that I think has been unadressed in the literature. In a hindrance-free market, bargaining theory would indicate that the individual parts of a corporation, if unrelated, would always be salable to someone who valued them more highly. In the case of Disney, its parts were worth more then its whole. This would not have been possible if the Disney synergy had still existed. Had the parts been working together towards unified goals, they would have been more valuable as a whole then in their parts. Thus, the fact that Disney was ripe for takeover was not merely a result of bad management of its finances, but more directly a result of bad management of the interactions of the various aspects of the company.

Disney employed a variety of buffering strategies in its interactions with a series of corporate takeover-artists. Disney swallowed a poison pill in the form of a greeting card company to artificially value the stock. Disney also tried to dilute the stock with the purchase of Arvida, a land development company. In the end however, it was an outside White Knight in the form of the Bass Brother Investment Company that saved Disney. They saw the potential for the company under the right management and decided to reorganize it and keep it together.

Mike Eisner and Frank Wells became the CEO and CFO of the Disney Company in late 1984. Immediately they began implementing changes which may well have saved the company. First, at Roy Disney's suggestion, they began to rebuild the animation department. While this strategy would take 6 years to pay-off, its end results were staggering. Animation also helped increase attendance at the theme parks by creating the materials for new attractions. Disney also ventured back into television animation, a connection which also helped fuel attendance at Disney films and theme parks as well as leading to increased merchandising.

One problem Eisner faced was the need to produce non-Disney films in order to show a profit. He proposed an organizational solution. The company created Touchstone pictures, a division of WDC which had no name affiliation with Disney. Through this company, the studios were able to release a series of staggeringly successful films without tarnishing the Disney image. Later, this would be followed by the creation of Hollywood Pictures, another hidden-Mickey studio.

Eisner also brought back the Sunday night television program, an indication of his understanding of the need to coordinate the activities of the various companies. It is telling that this was one of his first tasks as CEO. Eisner began a series of policies designed to recreate the synergy between the divisions. These included hierarchical changes; however, they were primarily connected to Eisner himself. In other words, Eisner became the first leader able to replace Walt. He shared Walt's dynamism and ability to see the company globally.

A rational systems perspective would not indicate significant changes in the company when it began its rise in the second half of the 80's. However, a natural systems perspective would reveal that Eisner had been the first leader of the company since Walt to merge organizational skills, a talent for entertainment, and an understanding of the function of the company.

Eisner's changes in the hierarchical structure of Disney are difficult to examine. It seems clear that some new executive positions were created with the development of the new studios. However, for the most part, the structure had not changed significantly. On a natural level though, Eisner hired superb executives to fill the important posts (Katzenberg). At the same time, some executives who had been unable to work effectively under the old regime, found Eisner to be more receptive to their ideas (Nunis). This was mostly a function of Eisner himself. Variously described as a risk-taker, high strung, and a lunatic, his hyperactive management style seemed to fit the company perfectly. More importantly, Eisner began to reinstate the synergy of the elements of Disney into the corporate culture. And, while sometimes a micro manager like Walt, has instilled a sense of hierarchical organization into the company. There is a clear sense that Disney is a business now and its executives treat it as such.

Two last interesting questions exist for Disney from the perspective of organization theory. The first is a buffering problem. Disney has always relied on extensive buffering of its core technology so as not to dilute the magic. The company hates to explain its technological achievements and makes sure the mouse is not used in any un-licensed venues. Further, there is a sense that people think of Disney, not as a business making a profit, but as a benevolent charity existing for their happiness. This image is important to the goodwill Disney has as a company and has always been protected by the organization.

Until recently, part of this buffering involved limiting the venues in which Disney entertainments could be consumed. From the seven year re-release program with no television release for films, to a limited consumer products line and relatively low visibility, Disney had sometimes seemed to function on the idea that scarcity of the mouse protected his value.

When Eisner took power, this strategy seemed to reverse. Disney consumer products are now prevalent and the release of the films to video (while an ingenious marketing decision) may hay have long-range implications for the re-release of the classic films. Disney can now be enjoyed, more then ever, in a variety of entertainment venues. Further, as they become more prevalent, there is risk of lowering quality. Already, Disney licenses its characters to thousands of products, now readily available at every discounter and grocery store. However, it is possible that these sorts of products may actually increase people's appetite for the more economically important Disney entertainments (movies and parks). In terms of the theme parks, Disney's haste in opening the Disney-MGM studios resulted in a quality-loss. In racing to open before Universal, Disney opened what many believed was a marginal attraction However, people have overfilled its capacity from day one.

Still, the problem is a reasonable one and can be looked at in terms of buffering strategies. Eisner made the judgment that too much buffering of the core technology was economically inefficient. However, there probably exists some point at which the increasing number of Disney entertainments actually represent a marginal decrease in total revenue for the company. However, Eisner cannot simply stop making Disney entertainment and tell the board of directors that they have reached the limit. The American business organization is not designed to function in that way. While Disney can expand into other non-Disney labeled business ventures, the power of the Disney name still poses a problem for the company.

The other interesting organization perspective on the company is the extent to which Disney had tried to account for uncertainty in its task environment in recent months. In a new buffering and boundary spanning strategy, Walt Disney World will no longer offer tickets which allow guests to "hop" between the parks on one day. Only guests who stay at Disney hotels can purchase these park-hopping passports. Disney hopes to encourage guests to stay in their own hotels through this strategy. By controlling the "entire" Disney experience the company hopes guests will enjoy their stay more, and spend all of their money within the confines of WDW. Disney seems to be forcing its guests to view it as a vertical organization, controlling every aspect of the vacation experience.

In conclusion, the organizational question Disney must now address is: what will the company be like after Eisner. In my opinion it will be stable. The most important reason for this is that Disney is now a traditional hierarchical organization and its corporate culture reflects that. While Eisner provided the impetus to reconnect and restart the company, the organization had already developed. However, this organization had not found its way into the corporate culture of Disney because of the lack of success of the company in those years. While Eisner makes many of the decision revolving the company, many others are made by other competent people in other executive posts. Further, the links between the companies are firmly reestablished and seem to be a significant part of the company's long-term strategy. When Walt died, it was almost as if no one else in the company understood the linkages between its operations. Now, those links are firmly established and understood. No new movie is considered without an understanding of its marketing potential in consumer products and its possible relation to theme park development. Thus, I think the company will survive if Uncle Eisner ever decides to leave.

Flower, Joe. Prince of the Magic Kingdom. NY:John Wiley Co. 1991

Eisner, Michael. The Walt Disney Company 1992 Annual Report. No publication data. 1992