Kevin Yee Worried about affect of Six Flags troubles on Disney

[peter11435]

I disagree. Disney has and is still producing better quality shows and attractions than it's competition. That will not go away. Mission Space is an excellent example of that strategy and that was not an "outsourced" project.

Who exactly did you disagree with?

 

[GrimGhost]

No, I meant "fopa".

Bleep the french.

...Politics aside, that was REALLY funny!!

 

[YoHo]

You seem to think everything Disney has done in the last 20 years is "a bad way to stay in business." And yet the company is still doing fine. The fact is that yes the Kirks costs will go because that is what competition will cause. However rather that Disney keeping almost 2000 people (try multiplying that by salary, benefits, and pension plans) on staff at Imagineering. They can keep a core group and then contract out to the Kirks for the actual design process. It will be cheaper in the long run as the cost to Disney will only be a contract price per project rather than the yearly costs (that are very high) to operate the entire WDI. As for saying that "Contracting out your engineering is generally a bad way to stay in business" well then why do so few companies do there own engineering. Becuase regardless of what you think it is far cheaper to hire someone to do a job for you than it is to keep them on the payroll year round, unless they would be working year round which is simply not the case with WDI.

On the contrary opening up the Video library was brilliant, reinvigorationg Animation superb. Too bad neither of those ideas were the result of upper managment, but were pushed up from line managers willing to stick their neck out. Line managers no longer with the company.

Companies that engineer typically fail when they contract out engineering functions (in my experience as an Engineer). Like it or not, Disney has traditionally been a content creation company, an Imagineer company. They are not a reseller and never have been and THAT is my beef, that is what they are becoming. They are becoming ABC writ Large and I don't feel that is an appropriate direction for a company that exists to create entertainment. In fact I think it's downright stupid.

 

[AlanH]

First, thank you Peter11435 for your thought provoking posts.

A very good case can be made for companies to outsource "non-core" functions. As a human resources professional, I fully understand why companies outsource, for example, payroll and employee benefits adminstration. Unless the company is ADP or Hewitt Associates, the company is not in the business of payroll and employee benefits adminstration, therefore these are non-core functions that are candidates for outsourcing. Also note that these are transactional functions that benefit from the economies of scale and large pool of talent that companies like ADP and Hewitt can bring to the task.

Other functions, however, are considered "core" functions because they are an integral part of the production of the product or service they sell. Outsourcing these functions is not good business. First, the company has far less control over these functions when outsourced. Second, intellectual capital is lost. (While not a tangable asset, don't underestimate its value.) Third, it becomes harder to have differentiation and uniqueness in the market place. Also creative functions are not transactional functions that benefit from economies of scale.

I argue that, for Disney, Imagineering is a core function. While I understand the need to be flexible as the number of projects ebb and flow, firing your best creative talent and leaving Imagineering populated by MBAs is not the best way to go. This creative talent is the life blood of the company. It's what makes Disney Disney. In addition, it now allows this talent to be available to competitors when before Disney had exclusive use of this talent.

Over the long term I believe that outsourcing this talent will make it much harder for Disney Parks and Resorts to differentiate itself in the marketplace resulting in loss of market share and revenue. No, its not going to happen overnight, but I believe its effects will emerge 5 to 10 years down the road. It's just another example of improving the bottom line over the short-term at the expense of the long-term success of the company.

I could point out other things Disney has done to improve short-term results at the expense of the long-term success of the company, some of which I've commented on in other threads, and are better topics of other or new threads.

YoHo: good quote from Ray Bradbury.

 

[peter11435]

First, thank you Peter11435 for your thought provoking posts.

A very good case can be made for companies to outsource "non-core" functions. As a human resources professional, I fully understand why companies outsource, for example, payroll and employee benefits adminstration. Unless the company is ADP or Hewitt Associates, the company is not in the business of payroll and employee benefits adminstration, therefore these are non-core functions that are candidates for outsourcing. Also note that these are transactional functions that benefit from the economies of scale and large pool of talent that companies like ADP and Hewitt can bring to the task.

Other functions, however, are considered "core" functions because they are an integral part of the production of the product or service they sell. Outsourcing these functions is not good business. First, the company has far less control over these functions when outsourced. Second, intellectual capital is lost. (While not a tangable asset, don't underestimate its value.) Third, it becomes harder to have differentiation and uniqueness in the market place. Also creative functions are not transactional functions that benefit from economies of scale.

I argue that, for Disney, Imagineering is a core function. While I understand the need to be flexible as the number of projects ebb and flow, firing your best creative talent and leaving Imagineering populated by MBAs is not the best way to go. This creative talent is the life blood of the company. It's what makes Disney Disney. In addition, it now allows this talent to be available to competitors when before Disney had exclusive use of this talent.

Over the long term I believe that outsourcing this talent will make it much harder for Disney Parks and Resorts to differentiate itself in the marketplace resulting in loss of market share and revenue. No, its not going to happen overnight, but I believe its effects will emerge 5 to 10 years down the road. It's just another example of improving the bottom line over the short-term at the expense of the long-term success of the company.

I could point out other things Disney has done to improve short-term results at the expense of the long-term success of the company, some of which I've commented on in other threads, and are better topics of other or new threads.

YoHo: good quote from Ray Bradbury.

Great post, and to be honest I agree with most of your comments. And while I still stand by my opinion that great projects could come from this. I do think you are correct about it being a core function of the company, and is what makes Disney Disney.

 

[tjkraz]

I'm coming to this thread late, but I just don't get Kevin's logic. The assumption seems to be that Six Flags is failing because it's a lesser option to the Disney theme parks, yet the speculation is that Disney would choose to go that same route.

I realize his true argument is that less competition means that Disney doesn't have to try as hard. I don't buy that.

Seems to me you could argue that Six Flags is failing because the public now prefers the Disney business model. Bare-bones theme parks have been scattered across the country for decades. What's changed in recent years is the growth of more elaborate theme park options--more Disney parks, Universal parks, more elaborate attractions at places like Cedar Point, Paramount parks, etc. IMO, THAT is what is really hurting SF.

As for the outsourcing at Imagineering, I'm inclined to not take the Chicken Little approach. When I first heard of the rumored outsourcing, what immediately popped to mind was an advertising agency parallel. Instead of 200 Imagineers sitting in a room doing the "blue sky" brainstorming on Disney's payroll, Disney can request proposals from a dozen outside agencies.

For example, if Disney wanted to place a dark ride in the old 20K lagoon area, they send out the land specs, approximate project budget, character/film tie-in and any other information relevant to the project. Then you've got a dozen or more firms bidding on they project. Each of those firms will invest thousands of hours in design work, concept art and project budgets on their own concepts to be presented to Disney. The Imagineering execs can then review each presentation and award the contract to the best of the bunch.

Does that mean that Disney will lose control of the project? Not necessarily. The extent of the outsourcing could easily be limited to attraction design, with additional consultation during the construction and testing phases.

 

[AlanH]

Originally posted by tjkraz
For example, if Disney wanted to place a dark ride in the old 20K lagoon area, they send out the land specs, approximate project budget, character/film tie-in and any other information relevant to the project. Then you've got a dozen or more firms bidding on they project. Each of those firms will invest thousands of hours in design work, concept art and project budgets on their own concepts to be presented to Disney. The Imagineering execs can then review each presentation and award the contract to the best of the bunch.

You've stated the ONE advantage to outsourcing. Admittedly a big one. To be fair, Peter11435 also alluded to this.

The big question is: who are the "Imagineering execs"? Are they people who have an appreciation and eye for the truely creative? Who have a true feel for what is Disney? In fact are they going to be creative in writing the specs? Are they creative in the long range planning for new and upgraded attractions?
OR
Are they going to apply some business formula, think inside the box, and wring their hands about cost?

Lets face it; the last five years or so Disney management has not had a good track record on managing creative talent. Just look at animation (or what's left of it, talk about core function.) (No, I don't want to get into a debate on what Disney did to animation in this thread. It might be a good topic, though, for another thread.)

 

[GrimGhost]

....The big question is: who are the "Imagineering execs"? Are they people who have an appreciation and eye for the truely creative? Who have a true feel for what is Disney? In fact are they going to be creative in writing the specs? Are they creative in the long range planning for new and upgraded attractions?
OR
Are they going to apply some business formula, think inside the box, and wring their hands about cost?....

Alan, I think this nailed it. To further your point, is merely a few top execs, likely to contain enough creative talent to foster the Disney magic within such a small group??? We circle back to content vs delivery. For what its worth, I believe Disney still professes to be "The dream makers at Disney". They want to atleast create the appearance of content and therefore creativity.

 

[doombuggy]

Am I the only person who would be upset if these parks go away? Another poster made a comment about Great Adventure, which I agree with. I have not been there in at least 10 years, mostly b/c of that, and that is a shame. They have some great rides there. I have gone there for many years (yes, I went thru the Haunted House that burnt down, and Lighting Loops where someone fell out & died). I have also been to Astroworld. The Texas Cyclone was one of my favorite wodden coasters. Granted, these parks are different from Disney, but I hope they don't go away - just get better. More places for me to visit!

 

[AlanH]

Am I the only person who would be upset if these parks go away? Another poster made a comment about Great Adventure, which I agree with. I have not been there in at least 10 years, mostly b/c of that, and that is a shame. They have some great rides there. I have gone there for many years (yes, I went thru the Haunted House that burnt down, and Lighting Loops where someone fell out & died). I have also been to Astroworld. The Texas Cyclone was one of my favorite wodden coasters. Granted, these parks are different from Disney, but I hope they don't go away - just get better. More places for me to visit!

The only Six Flags park that I have ever attended was Great Adventure in New Jersey and that was many years ago. My experience pretty much matched that described by DoxaRich.
When we lived in Southern New Jersey, my wife and I much prefered Hershey Park. It seemed much more family oriented.
Personal preferences vary. I'm not a big fan of thrill rides, but I can see how many of the Six Flags rides would appeal to others.
So I appreciate your pain.

 

[raidermatt]

I agree with Greg. Kevin's knowledge and insight with regard to park operations and history is excellent, but his strategic business analysis is often suspect.

That said, there is some validity to his hypothesis. If most of the Six Flag's parks go under, its certainly not going to encourage Disney to up its own bar. At best it'll be a non-factor, and at worst, Disney could actually alter some strategies based on it.

But I wouldn't get TOO worried about this particular issue, simply because as has already been stated, Six Flag's isn't really much of a competitor for Disney. Their audience is primarily thrill-seeking day trippers. Disney's bread and butter, particularly at WDW, is resort-vacationers.

Which is why I also continue to disagree with the notion that WDW's primary competition is Universal. Sure, Universal is more of a direct competitor than Six Flag's. But WDW's primary competition comes form other resort vacation destinations, of which Universal is just one minor player.

On outsourcing, the core vs. non-core is a key concept. Creativity WAS a primary cog in Disney's machine. However, like it or not, they have been moving towards outsourcing their creativity for years.

Eisner and Iger come from movie studios and TV networks, who are now essentially distributors, not creators. That's what they have essentially turned Disney into. A distribution company doesn't need Imagineers.

Is it a viable business model? Sure. But so is keeping creativity as your soul, and that's the model that created the Disney we love, and made Disney more than Paramount or Warner Bros. That's why we are here on a Disney board and not a Paramount board.

I'm not saying Disney is doomed to financial failure because of their metamorphosis. But other than their creations of the past, there's not much reason to look at them any differently than any other distributor.

 

[AlanH]

On outsourcing, the core vs. non-core is a key concept. Creativity WAS a primary cog in Disney's machine. However, like it or not, they have been moving towards outsourcing their creativity for years.

Eisner and Iger come from movie studios and TV networks, who are now essentially distributors, not creators. That's what they have essentially turned Disney into. A distribution company doesn't need Imagineers.

Is it a viable business model? Sure. But so is keeping creativity as your soul, and that's the model that created the Disney we love, and made Disney more than Paramount or Warner Bros. That's why we are here on a Disney board and not a Paramount board.

I'm not saying Disney is doomed to financial failure because of their metamorphosis. But other than their creations of the past, there's not much reason to look at them any differently than any other distributor.

Raidermatt, you hit the nail on the head. What we hate about Eisner & Co (at least over the last ten years) is that they have (among other things) abandoned "the model that created the Disney we love".

I agree that both business models are viable. However, I would argue being a creator of content, properly managed, holds out the possibility of greater return over the long-term than being a distributor of content. Being a creator of content has more risk, so short-term results are more variable.

Its interesting how the short-term vs long-term theme seems to come up again and again on so many issues about Disney management.

 

[manning]

Many on Wall Street have asked the same question many times!

What is this expression called long-term??

 

[AlanH]

Many on Wall Street have asked the same question many times!

What is this expression called long-term??

I don't know. But I get the impression that Disney management is more concerned in making the next quarterly profit projection than where the company will be in the next 5 to 10 years. So they sacrifice significant potential profits and growth to get income now and hell if the company goes in the toilet later. (Forgive my hyperbole. Sometimes I'm just "Mad as hell and can not take this anymore".)

Of course this may be because many shareholders would rather a modest sum now rather than a bonanza later.

Maybe Disney needs to be taken private.