Wednesday, September 14, 2016

How Companies Can Avoid Costly Wrong Turns

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 whileminimizing 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 target (read more here)

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